Editor's note: Every Sunday, Fortune publishes a favorite story from our magazine archives. This week, as congressional leaders and the Obama Administration continue with fiscal cliff negotiations, we turn to a feature from December 1934 on the ballooning federal budget during the New Deal era.
FORTUNE -- The prophets of doom are busy, and some of them have gone so far as to set the date for the end of the world. The end of the world will come some time during the opening weeks of January. That will be when the President of the U.S. goes before the Congress to deliver his budget message for the year known as Fiscal 1936. In the figures that his message will contain, whatever they are, the prophets of doom will see fresh evidence that the federal government is engaged in a "spending orgy" that is leading us remorselessly on to complete financial ruin.
What the President will say, no man can at the moment tell. Some months ago it became common knowledge that he could not possibly realize his original hope for a budget balance in Fiscal 1936, and that there would, in consequence, be at least one more year--the sixth consecutive--in which Treasury expenditures would outrun Treasury receipts. Whether the President will be able to give any assurance that Fiscal 1937 will show the budget in balance is a matter on which he himself is probably at present in doubt. It is only possible to say that if Fiscal 1937 shows receipts and expenditures that come anywhere near meeting, it will be at a great cost to someone, whether that someone be the taxpayer, the petit bourgeois, or the Forgotten Man.
It is not the function of this article to gaze into any such murky crystals as a fiscal year that will not end until June 30, 1937--or even to take sides with the simple soul who says: "You can't spend money you haven't got" in opposition to the mystical fellow who believes that something he calls "social credit" is capable of almost infinite expansion. Instead, let us see what we actually know about Fiscal 1935 (three months gone by as this is written), and begin by setting it in the matrix of its immediate predecessors. Have we a "spending orgy"?
The last time that the Treasury of the U.S. had a surplus was in 1930. Since then, consider the record of its deficits (including debt retirement).
The 1935 revised estimate is arrived at by the simple process of taking the known receipts of $954,000,000 and the known ordinary and extraordinary expenditures of $1,496,000,000 for the first three months of 1935, and multiplying them by four. The figures may not turn out so neatly, but they provide us with a rough assumption. On this basis, the country will have a two-year deficit (Fiscals 1934 and 1935) of $6,157,000,000. President Roosevelt, in his budget message to the Congress last January, predicted a two-year deficit of $9,295,000,000. That does not mean, however, that we are some $3,138,000,000 to the good merely because we are running behind his figure. Instead, the federal government is in the curious position of not being physically able to pump money into the country as fast as it is trying to--and in consequence the $3,000,000,000 "deficiency in the deficit" constitutes one reason why Fiscal 1936 cannot possibly be brought into balance. These billions are a financial hangover. If they are not spent in Fiscal 1935, then Fiscal 1936 will have to bear the weight of them.
Now if these were the operating figures on the annual statement of a gigantic corporation engaged in manufacturing for profit, they would certainly be cause for a good deal of pain among the stockholders. And there are plenty of people who take this stockholder point of view about government finance, as the unsettled condition of the market for U.S. Government securities at present patently attests. It may be that this purely factual and hardboiled philosophy will turn out to be justified--but it may also be that the social point of view it represents is so narrow that it will be its very narrowness that will cause the U.S. to falter in its financial path.
Certainly, anyone who thinks that the U.S. is not capable of carrying its present public-debt burden must refresh his memory of fifteen to twenty years ago. In 1917 the public debt was, roughly, only one-tenth of its present size--a little less than $3,000,000,000 which came to a per capita figure of $28.57. Almost overnight the huge issuances of Liberty Bonds multiplied this four-fold. By 1918 the debt was over $12,000,000,000, and in 1919 it reached a peak of $26,600,000,000 with a per capita figure of $251.60. Today it is only $600,000,000 more than that: the figure on October 15, 1934, stood at $27,200,000,000, but with a corresponding per capita figure of $215.15--somewhat smaller than the nation bore during the War. By June 30, 1935, so the President has stated, the debt will stand at $32,000,000,000, which will mean a per capita figure of $253, without war prosperity to make the burden easier.
These are figures for the national government only--and certainly a per capita jump from $28.57 to $253 is a big jump. But compare the per capita debt imposed by national, state, and local governments in the U.S. with the debt similarly imposed in France and the United Kingdom. In 1933 (the last year for which figures are available) the total per capita debt burden in the U.S. was $337. In France it was $479--and in the United Kingdom it was $974. (Exchange figured at old parities.) It is that sort of comparison that makes the more radical type of fiscal authority believe that the total U.S. debt can reach forty or fifty or sixty billions before the nation's credit is strained beyond its elastic limit. More
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