On this day in economic and financial history...

A nation without a debt seems inconceivable today. The United States currently has more than $16 trillion in public debt, and no sensible proposals exist to bring this massive sum down to a more reasonable level. But there was a day when the U.S. proclaimed itself a debt-free nation: Jan. 8, 1835.

The brand-new United States emerged from the Revolution with some $75 million in war debts, and this sum grew to $127 million after the War of 1812. After these wars, the young nation embarked on a 20-year period of positive cash flow and debt reduction, which picked up steam after the election of President Andrew Jackson in 1828.


Jackson was a staunch anti-debt and anti-central-bank crusader -- attitudes learned much earlier from a land deal that went sour. In addition to his destruction of the Second Bank of the United States, which resulted in a decades-long period with no United States central bank authority, Jackson was also active with the veto pen, rejecting proposals to build American infrastructure in his efforts to accelerate the country's debt reduction. Another factor in Jackson's favor was a real-estate bubble on the frontier, which allowed the nation to sell off a great deal of land at inflated prices. Jackson's battle against the country's "moral failing" of debt found victory in early 1835 at a public gathering of Washington's most notable politicians, where it was proclaimed with great pride that "the national debt ... is paid."

It's unlikely that this gathering was the true moment of zeroed-out debts for the nation, and it was not the only day that the United States operated with no debt whatsoever. But the massive public celebration serves as a historical touchstone and has come to represent a singular moment in American history. By the start of 1836, the nation again carried a small amount of debt, and the nation plunged into a deep depression after Jackson's term ended that year, resulting in a dramatic increase in the national debt as deficit spending kicked in. By the 1860s, the Civil War would raise the national debt to $1 billion for the first time in American history. The debt has been growing ever since, reaching $1 trillion at the end of 1982.

Tabulating and computing: The first business machines
Before there was IBM , there was the Computing Tabulating Recording Company, which produced the business machines that later inspired a name change. Before CTR, there was the Tabulating Machine Company, founded by Herman Hollerith, inventor of a punched-card tabulator that helped build the foundations of the information-processing industry.

Hollerith's rise to prominence gained legitimacy on Jan. 8, 1889, when the U.S. Patent and Trademark Office granted him a patent for the underlying mechanisms of that tabulator. The patent, first filed in 1884, described a system that could quickly tally up a large amount of data with a largely automated system. This made it the perfect tool for the U.S. Census Bureau, for which Hollerith had worked a decade earlier. Assembling the identifying data of millions of Americans by hand took so much time that by the time the 1880 census data was tallied, it was nearly time to begin gathering data for the 1890 census. Hollerith's tabulating machine, which was leased by the Census Bureau, cut the time to process 1890's census data down to a single year, and the population total was announced after only six weeks of processing.

IBM remains very much a company inspired by Hollerith's innovations, as many of its present-day endeavors focus on compiling and understanding massive amounts of data. It's also a company built on visionary leadership, which Hollerith lacked despite his technical brilliance. CTR didn't make much of an effort to modernize Hollerith's antiquated machines after its 1911 merger, and Hollerith himself actively resisted upgrading his designs. It took executive Thomas J. Watson's guidance to move Hollerith's tabulators into the "modern" era of the 1910s, establishing the company's early bona fides as a leader in advanced technology.

A five-year Dow double
The Dow Jones Industrial Average first broke 1,000 points in 1972, but it took the index another decade to put that level behind it for good. Less than five years after the Dow left 1,000 in the dust, it reached 2,000 points for the first time on Jan. 8, 1987. The market was then in the in the midst of a spectacular multiyear rally, which would be interrupted only briefly by a record-breaking crash later that year before continuing on one of the greatest bull runs in history.

The Dow was actually lagging other indexes during this rally, as the Nasdaq had nearly tripled from the same point in 1982. But by the end of 1985 the entire market was set to go parabolic: The Dow rose from 1,400 points in November 1985 to 2,000 barely a year later, and the Nasdaq virtually doubled in the same period. This huge surge made traders pause, and the floor of the exchange was subdued. Anthony Woodruff, a co-director of trading at Kidder Peabody, summed up the attitude by saying, "I don't see a lot of hootin' and hollerin'," but he thought the fresh record "ought to bring new confidence into the market."

Two of the Dow's newest additions were major drivers of this megarally. McDonald's and Altria (then Philip Morris) had been added at the end of October in 1985. Between that point and Dow 2,000, McDonald's shares grew 47%, and Philip Morris' grew by 115%.

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The article A Day Without a National Debt originally appeared on Fool.com.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool recommends McDonald's Corp. The Motley Fool owns shares of International Business Machines Corp. and McDonald's Corp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jason Grenville

Jackson's Kitchen Cabinet, led by Van Buren, Burr, and Randolph, wanted to pay off the national debt in order to drop protection to manufacturing and drop the promotion of national infrastructure projects, and spread slavery throughout the South, not for any of the populist slogans Jackson stated about being free from debt. Google "How Andrew Jackson Destroyed the United States" for the real story.

January 09 2013 at 5:04 PM Report abuse rate up rate down Reply