The recent fight over raising the debt ceiling -- the limit on how much debt the federal government can carry at a given time -- has brought added scrutiny to the history of the United States’ reliance on debt to finance its operations. During a recent Fox News interview, legal commentator Andrew Napolitano offered an arresting factoid.
"The government today will borrow money to pay debt on money it has already borrowed and spent," he said. "I’ll give you one statistic. Woodrow Wilson borrowed $30 billion to fund World War I in 1917. That money has not been paid back. And we are still paying interest on it. That’s 95 years ago."
Really? We’re still paying off the cost of World War I? We checked with experts to see if Napolitano is correct.
The United States government borrowed a fair amount during the World War I era. Hostilities related to World War I began in 1914, but the United States officially entered the war against Germany in April 1917 and against Austria-Hungary in December 1917.
According to Treasury Department statistics on annual debt loads for the United States, the nation’s total debt rose by $23.8 billion between July 1, 1916 (the last available figure before war was declared on Germany) and July 1, 1919 (the first available date after the armistice that ended the war).
That’s less than Napolitano said, but a different Treasury data source -- the department’s annual report from June 1920 -- said the U.S. had borrowed a total of $37 billion to finance the war. These two figures average out to about $30 billion, so we’ll accept Napolitano’s figure as a plausible estimate.
To finance the war, the government sold Liberty Bonds and Victory Loans. Our first thought upon hearing Napolitano’s claim was that there were still Americans with fraying security certificates in their safe deposit boxes who receive periodic interest payments from the Treasury.
But this is not the case. When we contacted the Treasury Department for this story, officials did some digging and found that there are actually still eight Liberty Bonds and two Victory Notes that haven’t yet been redeemed. However, these financial instruments have been mature since 1947, so they haven’t earned any interest for almost 70 years. (Their total value, however, isn’t shabby -- almost $4.2 million.)
Napolitano told PolitiFact that he wasn’t referring to ongoing interest payments. Instead, he was referring to the fact that the World War I-era debt was "rolled over."
For further explanation, we turned to Linda M. Hooks, an economist at Washington & Lee University.
"The initial debt issued to pay for the war no longer exists," Hooks said. "However, Treasury debt gets ‘rolled over.’ That is, the Treasury sells new bonds to pay off the old bonds that are maturing. So those bonds did mature and get paid off, but the Treasury sold new bonds to pay them off, and then sold new bonds when the second batch matured, and so on."
So, Hooks said, "in that sense, you could say the debt is still out there. However, it would be very hard to assign any specific current bond to that specific historical incident."
Other experts are even more skeptical of Napolitano’s characterization of rolled-over debt as being "not paid back."
Since the public debt has not been zeroed out since 1835, by Napolitano’s argument, "we are still paying off Civil War debt or even the cost of the 1848 Mexican War," said Franklin Noll, a historian of United States government financial and monetary history. And that, he added, doesn’t make sense.
Neil Buchanan, a George Washington University law professor who specializes in economics, agrees, calling Napolitano’s claim "obviously false."
All rolling over debt means, he said, is that federal elected officials have decided that it makes more sense to borrow money to finance other priorities than to increase taxes.
"Every well-run business does this," Buchanan said. "A company might borrow money to build a new office headquarters, and years later its total debt might be higher than it was when the headquarters was financed. That doesn't mean the company is still paying interest on the loans to build the headquarters. It means that the company found that it had better things to do with its money than reduce its debt. Any growing enterprise will do that, and the U.S. economy has been growing for over 200 years, with occasional setbacks."
Napolitano said that "Woodrow Wilson borrowed $30 billion to fund World War I in 1917. That money has not been paid back. And we are still paying interest on it."
The original Liberty Bonds and Victory Notes stopped paying interest decades ago. But Napolitano argues that, because the United States has never subsequently zeroed out its debt, the original World War I debt has been rolled over countless times, leaving subsequent bondholders to pay off a small, ancestral fraction of that old debt. That’s one way of looking at it, but not a view that carries much weight with experts, who call the rollover method straightforward and uncontroversial. We rate the claim Mostly False.
Andrew Napolitano, comments on Fox and Friends, Oct. 17, 2013
PBS, World War I timeline, accessed Oct. 22, 2013
Treasury Department, "Monthly Statement of the Public Debt of the United States," Sept. 30, 2013
Treasury Department, "Historical Debt Outstanding--Annual 1900-1949," accessed Oct. 22, 2013
Email interview with Linda M. Hooks, economist at Washington & Lee University, Oct. 21, 2013
Email interview with John H. Cochrane, finance professor at the University of Chicago Booth School of Business, Oct. 21, 2013
Email interview with Neil H. Buchanan, law professor at George Washington University and author of The Debt Ceiling Disasters, Oct. 21, 2013
Email interview with Tara Sinclair, George Washington University economist, Oct. 22, 2013
Email interview with Julia Ott, historian of capitalism at the New School, Oct. 22, 2013
Email interview with Franklin Noll, president of Noll Historical Consulting, Oct. 22, 2013
Email interview with Lee Burke, spokeswoman for the Treasury Department's Bureau of the Public Debt, Oct. 22, 2013
Email interview with Andrew Napolitano, Fox News commentator, Oct. 21, 2013
Read About Our Process
In a world of wild talk and fake news, help us stand up for the facts.