“The idea of a “limit” or “ceiling” on the public debt sounds like an important constraint on borrowing, the kind of thing the Constitution demands to keep a runaway White House in check. In reality, it’s a 20th century innovation, originally intended to give more, not less, authority to the president. A measure born of necessity during World War I and World War II to allow the Wilson and Roosevelt administrations greater leeway in financing government operations has evolved into a partisan noose.
Understanding the origins of the debt limit places into sharp focus how radical its current weaponization really is.
The U.S. government has always borrowed money to finance its operations. The total amount of outstanding debt hovered below $100 million in the years prior to 1860 but rose to over $2.7 billion during the Civil War. By the end of the 19th century, it stood at roughly $2 billion, a figure that more or less remained steady until World War I, when military mobilization necessitated a wave of borrowing, causing the national debt to balloon to $27 billion.
Less important than how much the government owed was the mechanism by which it raised debt. Prior to World War I, Congress authorized specific debt issuances. During the Civil War the legislative branch passed several bills permitting the Treasury Department to sell bonds at specific maturities and coupons. One popular issuance were 5-and-20s, which paid 6 percent annual interest over a 20-year maturity date, with an option allowing the government to redeem the face value after five years. Hundreds of thousands of Northern citizens purchased the government paper in a show of patriotic fervor. Generally speaking, new debt authorizations were earmarked for specific purposes — for instance, Panama Canal bonds, which could be used only to finance construction of the historic commercial passageway between the Atlantic and Pacific Oceans.
Until World War I, the Treasury Department enjoyed little leeway in rolling over or consolidating existing issuances, devising the terms of new debt offerings or moving funds between one committed stream and another. Congress largely dictated the terms; the Treasury Department’s principal role was to market and administer public debt instruments. This disparate system worked well enough when government borrowing remained at modest levels, but during World War I, the sharp spike in borrowing and spending made the old system impractical. The Wilson administration needed flexibility to raise and commit money for war production. In response to this reality, Congress for the first time set aggregate levels of debt financing and granted the Treasury Department more freedom to move money where it was needed. It was the origin of what we know today as the debt ceiling, though specific issuances — for instance, Liberty Loans — still retained their own statutory limits.
Beginning in 1941 the system evolved further, when Congress passed the first of a series of Public Debt Acts that both raised (on several occasions) the overall debt ceiling and consolidated all borrowing authority under the Treasury Department. Going forward, different departments and agencies borrowed what they needed from Treasury, which in turn issued, managed and marketed debt within the statutory limit. It’s effectively how things work today. ”