Why Biden and Yellen should follow the 'example' of the Civil War Congress’ debt deal: op-ed

24 May 2023

As President Joe Biden, House Speaker Kevin McCarthy (R-California), and House lawmakers debate over a debt ceiling deal, Americans are wondering whether the borrowing cap will ultimately be raised.

Author Roger Lowenstein, in an op-ed for The New York Times, argues the 37th Congress, under former President Abraham Lincoln, "recognized, the United States has a paramount interest in preserving its long-term ability to borrow," adding, "President Biden and Secretary [Janet] Yellen should be guided by their example."

Lowenstein writes:

There is a historical precedent: The Civil War Congress faced a similar choice. President Abraham Lincoln and Republicans in Congress recognized that preserving America's credit was the key to financing the Civil War and therefore to the government’s continued health and existence. President Biden and Secretary Yellen should heed their example.

The author of Ways and Means: Lincoln and His Cabinet and the Financing of the Civil War notes "in December of that year, when America's banks ran out of gold to lend to the Treasury," House members "proposed to do just that: print paper," also known as "legal tender."

Additionally, Lowenstein writes, "The notion of a paper money standard was shocking, including to many Republicans in Congress," and would have "risked a ruinous inflation, as would indeed occur in the Confederacy."

With the question 'How to print legal tender and preserve the nation's fragile credit?' looming, Maine Congressman William Pitt Fessenden "proposed" a "radical" amendment that allowed "government debts" only to "be payable in gold."

According to Lowenstein, "The legal tender bill passed and was signed by Lincoln — with the amendment — and the government’s financial crisis, at least for the moment, subsided. Troops were happy to get the new greenbacks, as they were called, and so were merchants and others."

Furthermore, the author adds, "The public debt climbed to $2.68 billion by the end of the war — 41 times its level at the onset of Southern secession. Yet the United States emerged with its credit improved at home and abroad, able to borrow more and at lower interest rates."

Lowenstein writes — referring to the current Congress — "the notion that if the House fails to come to agreement the United States faces a default on its debt has been accepted far too casually, partly because" Yellen "has been vague about whether interest payments would be maintained."

He emphasizes, "the Treasury should manage the shortfall by prioritizing interest payments and reducing funding on ordinary budget items such as national parks, the military and education," arguing, "Responsible nations honor their debts."

The New York Times' full report is available at this link (subscription required).

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