The U.S. Constitution says, in Article 1, Section 8, that Congress “shall have Power To borrow Money on the credit of the United States…”
That’s enumerated power #2.
Historically speaking, imbuing the federal rather than the state governments with this power was critical because otherwise every state would be left with borrowing money on credit individually, leaving the financial situation of the country in a very messy and dangerous condition.
However, notice that there is no express limitation on this borrowing clause. In other words, Congress has rather unlimited borrowing power–within the scope of its overall power.
The founders knew that when dire circumstances arose, war or some other crisis, the federal government may be put into a position of financial need which would require the ability to borrow money to pay for whatever crisis was being faced. Of course, the assumption was that in peacetime Congress would conduct the federal government’s budget in such as way as to bring in more revenue than it was spending–thereby allowing any previous war-time debt to be paid off. George Washington said of the borrowing power:
"As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible: avoiding occasions of expense by cultivating peace, but remembering also that timely disbursements to prepare for danger frequently prevent much greater disbursements to repel it; avoiding likewise the accumulation of debt, not only by shunning occasions of expense, but by vigorous exertions in time of peace to discharge the debts which unavoidable wars may have occasioned, not ungenerously throwing upon posterity the burden which we ourselves ought to bear."
As in the previous post I recently published about the spending clause, much of the tension surrounding the borrowing power arose quickly after the nations founding, with Hamilton on one side of the debate and Madison on the other.
Hamilton argued that the “borrowing” clause empowered Congress to create a national bank that could provide money for, or hold the debt of, corporations and businesses in America. Hamilton’s vision of a vibrant and growing economy that could compete on the world stage motivated this perspective. In many ways, Hamilton can be held responsible for the vibrant and thriving American economy that has since materialized.
However, Jefferson, who was in favor of a much smaller federal government and stronger state governments greatly reduced the power of the Department of the Treasury and undid much of what Hamilton had established. Eventually the national bank expired, only to be replaced by another national bank during the War of 1812, which shortly after also ended.
However, Jefferson, who was in favor of a much smaller federal government and stronger state governments greatly reduced the power of the Department of the Treasury and undid much of what Hamilton had established. Eventually the national bank expired, only to be replaced by another national bank during the War of 1812, which shortly after also ended.
Over a hundred years later (meaning the government functioned without a national bank for almost 100 years), Congress established the Federal Reserve and the nature of “borrowing” money on credit dramatically shifted.
"The policy dealing with incurring and repaying debt, however, remained relatively consistent from 1789 until 1917. Congress borrowed money to pay for wars and to sustain the economy during a recession, but it began paying it down upon the return to peace and financial stability. In 1917 Congress granted the Department of the Treasury standing borrowing authority, but for many years Congress continued to manage the incurrence and repayment of debt in substantially the same manner as before." (heritage.org)
Now, the U.S. federal government operates under sustained peacetime deficits and rapidly increasing debt levels, no matter the presence of war or crisis.
Would the founders look fondly upon Congress’s use of their borrowing power?
Likely not. Everything they wrote in the enumerated powers section of the Constitution was colored by their own understanding and expectation of a smaller and restrained federal government operated with a very limited realm of enumerated powers. Thus, such a need for borrowing would have seemed foreign to them. However, they also foresaw the potential of abusive and power hungry politicians distorting the federal government. This is why they broke the power apart into different branches and different levels of government. While this borrowing power has grown immensely–as all powers have–and resulted in painful levels of national debt, one could only imagine what such a power would like now had the founders not chosen to break the power apart.
The Liberty Belle
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