Repudiating the National Debt
March 13, 2009
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The climate appears right to approach this subject once again. Take the opportunity, if you have time, to disect this argument for repudiating the national debt. Don't take it at face value but give it some thought. Ask yourself, why should I, and my children, be economically enslaved to fund the waste and war of previous politicians? Of course, there is a possiblilty that debt repudiation could lead to war, but then again, debt expansion has financed every war in American history. And of course there is the possibility that the government could never raise funds again through debt expansion, to which I respond: "thank God."
Here are some highlights from the essay linked above:
Deficits and a mounting debt, therefore, are a growing and intolerable burden on the society and economy, both because they raise the tax burden and increasingly drain resources from the productive to the parasitic, counterproductive, "public" sector. Moreover, whenever deficits are financed by expanding bank credit—in other words, by creating new money—matters become still worse, since credit inflation creates permanent and rising price inflation as well as waves of boombust "business cycles."
It is for all these reasons that the Jeffersonians and Jacksonians (who, contrary to the myths of historians, were extraordinarily knowledgeable in economic and monetary theory) hated and reviled the public debt. Indeed, the national debt was paid off twice in American history, the first time by Thomas Jefferson and the second, and undoubtedly the last time, by Andrew Jackson.
Although largely forgotten by historians and by the public, repudiation of public debt is a solid part of the American tradition. The first wave of repudiation of state debt came during the 1840's, after the panics of 1837 and 1839. Those panics were the consequence of a massive inflationary boom fueled by the Whig-run Second Bank of the United States. Riding the wave of inflationary credit, numerous state governments, largely those run by the Whigs, floated an enormous amount of debt, most of which went into wasteful public works (euphemistically called "internal improvements"), and into the creation of inflationary banks. Outstanding public debt by state governments rose from $26 million to $170 million during the decade of the 1830's. Most of these securities were financed by British and Dutch investors.
The government gets the money by tax-coercion; and the public creditors, far from being innocents, know full well that their proceeds will come out of that selfsame coercion. In short, public creditors are willing to hand over money to the government now in order to receive a share of tax loot in the future. This is the opposite of a free market, or a genuinely voluntary transaction. Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties, therefore, are making agreements about other people's property, and both deserve the back of our hand.
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