Chapter Twelve THE BUREAU OF THE PUBLIC DEBT, 1940-1960 Introduction Traditionally, Americans have had mixed feelings about the size and scope of their national government. Few politicians have run successful campaigns on a platform of more government activity, as no one wishes the government to grow larger. But we all would like the government to do more for us-supply more money for roads, for better education, and improved national defense. Despite our reservations, we have allowed the Federal government to take on ever greater responsibilities. As a result of this tendency, during the course of this century we have seen an increased expansion in the size and scope of activities of the Federal government. Measuring this increased activity in a financial manner, we find that in 1900 the Federal government's finances were less than 5 percent of the gross national product, while in 1987 that figure had risen to more than 20 percent. The Federal budget has gone, in absolute terms, from around $500 million in 1900 to a trillion dollars in 1989. Even if these figures were adjusted for inflation, this represents an extremely large increase. Total debt owed by the Federal government had risen slowly at first, but at an increasing rate over the last several decades, until it has reached its current level of $2.8 trillion (as of Fall 1989). This is a two-thousandfold increase over its $1 billion level of 1900. The point at which that growth accelerated is 1940, when the government began preparing for World War II. As noted in prior sections, the large increases in the public debt had previously taken place when the country went to war. The expansion of government finance to pay for World War II was so extensive as to be one where a quantitative change became qualitative as well. In February 1946, the total government debt was 1.6 times the annual gross national product at the peak of the war debt. This represented a rate of spending never before reached, nor attained again since the gross national product began increasing after the war. 1 The high debt of 1987, for example, is about half of the gross national product for the year. The national debt increased, on a per capita basis, from $400 in 1941 to $1,907 in 1945. 2 The Treasury Department was faced with the challenge of managing this debt. There are two measures required in a program of debt management. First, the sale of the debt must be handled in a way that minimizes its impact on the economy. In financing a large debt at a reasonable rate of interest, and without greatly disrupting routine economic activities, the government must plan carefully how, to whom, and in what form it sells the debt. Second, the job of administering the debt must be done with sufficient effectiveness to retain public confidence in the government's handling of the debt. The tasks of scheduling sales, issuing securities, keeping records, paying interest, etc., have to be handled efficiently if a large debt is to be managed well. Although the functions of the Bureau of the Public Debt relate principally to this second aspect of debt management, it is concerned with both aspects of managing the Federal debt. The rapid growth of that debt during the war constantly challenged the Bureau's capacity to meet its primary function. One example of the administrative problems facing the Bureau was the Savings Bond program. United States Savings Bonds were available at more than 50 thousand outlets during World War II, and were redeemable at 17 thousand locations. An estimated 85 million people had purchased savings bonds by the end of the war. This vast number of people and sites to be supervised made the Bureau the largest financial services entity in the country, far larger than any bank or insurance company in terms of accounts serviced or dollar volume of transactions. The agency today remains relatively small in terms of its operating budget and the number of people it employs, despite the volume of its services. How the Bureau accomplished this expansion in activities without a permanent increase in its size is the story of the next several chapters. But before that story can begin, a review of the background of the Bureau is in order. 1 Committee of Public Debt Policy, Our National Debt, (New York: Harcourt, Brace and Co., 1949), 13. 2 Committee, Debt, 9. Chapter Thirteen ORIGINS OF THE BUREAU Background The Bureau of the Public Debt can trace its lineage back to the Revolutionary War era. Its direct antecedent is the Public Debt Service formed during the aftermath of World War I. Secretary of Treasury Carter Glass approved a plan set forth on November 11, 1919, designating a Commissioner of the Public Debt to take general charge of public debt transactions conducted by the Division of Loans and Currency, the Office of the Register and a new division to be created and designated as the Division of Sinking Fund and Investment. 1 Included in the plan was the nomination of William S. Broughton, head of the Division of Loans and Currency, to be appointed as the first Commissioner of the Public Debt at a salary of $6,000. The purpose of this plan was to reorganize the public debt activities which had expanded in a disorderly fashion during the war, when the number of employees was increased from under a hundred to nearly three thousand, and operations were housed in nine separate buildings. Secretary Glass further elaborated on the plan on January 6, 1920, by adding a Division of Accounts, and detailed the duties and procedures to be followed by each division, as well as the relationships that would exist among the separate divisions, the Treasury and the Federal Reserve System. 2 Finally, in accordance with a memo from Commissioner Broughton dated August 20, 1921, Secretary of the Treasury Andrew Mellon agreed that the Public Debt Service be designated by that name and that its operations include 1 R.C. Leffingwell, Memo to Carter Glass, (Public Debt Files Important Data File D-120.94, November 11, 1919), Vol 1. 2 Secretary Carter Glass, Memo, (Bureau of the Public Debt, January 6, 1920). the following divisions: the Office of the Commissioner, the Division of Loans and Currency, the Division of Paper Custody, the Office of the Register of the Treasury, the Division of Public Debt Accounts and Audit, the Distribution Unit, the Savings Unit and the Destruction Committee. As these divisions indicate, the Public Debt Service encompassed a diverse set of operations, ranging from the registration of securities to the procurement of distinctive paper for the printing of currency and securities. (See organization chart) Functions The consolidation of these functions enabled the Public Debt Service to eliminate many duplications of work that had existed when the divisions operated independently. The main functions of the Service were more readily separated under the new system, with the Division of Loans and Currency issuing new securities, the Register handling retired securities, and the Division of Public Debt Accounts and Audit controlling the accounts of the other two divisions. The Division of Public Debt Accounts and Audit was also given the responsibility of overseeing the public debt transactions performed by the Federal Reserve System, acting as fiscal agent for the Treasury. It is also of interest to note that both operating Divisions maintained a system of efficiency ratings for employees. Facilities The activities of the Public Debt Service were housed in five buildings by April 1921. The Commissioner's Office, and portions of the Division of Loans and Currency and the Division of Public Debt Accounts and Audit operated from the main Treasury Building. Additional units of the Division of Loans and Currency were located in the Liberty Loan Annex (14th and D Street, SW.), and the Auditor's Building (14th and B Street, SW.), while the Tracing Unit of the Division of Public Debt Accounts and Audit worked in the Bond Building (14th and New York Avenue, NW.). The entire staff of the Register of the Treasury was situated in the Register's Annex (119 D Street, NE.), and the Custodian of Paper was attached to the 3 U.S. Government Pamphlet, The Public Debt Service, (Washington, D.C.: April 1921). |