present debts incurred by the politiciansnand bureaucrats in Washington.nAlthough largely forgotten by historiansnand by the public, repudiation ofnpublic debt is a solid part of the Americanntradition. The first wave of repudiationnof state debt came during then1840’s, after the panics of 1837 and 1839.nThose panics were the consequence of anmassive inflationary boom fueled by thenWhig-run Second Bank of the UnitednStates. Riding the wave of inflationaryncredit, numerous state governments, largelynthose run by the Whigs, floated annenormous amount of debt, most of whichnwent into wasteful public works (euphemisticallyncalled “internal improvements”),nand into the creation of inflationarynbanks. Outstanding public debtnby state governments rose from $26 millionnto $170 million during the decade ofnthe 1830’s. Most of these securities werenfinanced by British and Dutch investors.nDuring the deflationary 1840’s succeedingnthe panics, state, governmentsnfaced repayment of their debt in dollarsnthat were now more valuable than thenones they had borrowed. Many states,nnow largely in Democratic hands, met thencrisis by repudiating these debts, eitherntotally or partially by scaling down thenamount in “readjustments.” Specifically,nof the 28 American states in the 1840’s,nnine were in the glorious position of havingnno public debt, and one (Missouri’s)nwas negligible; of the 18 remaining, ninenpaid the interest on their public debtnwithout interruption, while another ninen(Maryland, Pennsylvania, Indiana, Illinois,nMichigan, Arkansas, Louisiana, Mississippi,nand Florida) repudiated part or all ofntheir liabilities. Of these states, four defaultednfor several years in their interestnpayments, whereas the other five (Michigan,nMississippi, Arkansas, Louisiana,nand Florida) totally and permanently repudiatedntheir entire outstanding publicndebt. As in every debt repudiation, thenresult was to lift a great burden fromnthe backs of the taxpayers in the defaultingnand repudiating states.nApart from the moral, or sanctity-ofcontractnargument against repudiationnthat we have already discussed, the standardneconomic argument is that suchnrepudiation is disastrous, because who, innhis right mind, would lend again to a repudiatingngovernment? But the effectivencounterargument has rarely been considered:nwhy should more private capitalnbe poured down government rat holes?nIt is precisely the drying up of futuren52/CHRONICLESnpublic credit that constitutes one of thenmain arguments for repudiation, for itnmeans beneficially drying up a majornchannel for the wasteful destmction of thensavings of the public. What we wantnis abundant savings and investmentnin private enterprises, and a lean, austere,nlow-budget, minimal government.nThe people and the economy can onlynwax fat and prosperous when their governmentnis starved and puny.nThe next great wave of state debt repudiationncame in the South after thenblight of Northern occupation and Reconstmctionnhad been lifted from them.nEight Southern states (Alabama, Arkansas,nFlorida, Louisiana, North Carolina,nSouth Carolina, Tennessee, and Virginia)nproceeded, during the late I870’snand early 1880’s under Democraticnregimes, to repudiate the debt foisted uponntheir taxpayers by the corrupt andnwasteful carpetbag Radical Republicanngovernments under Reconstruction.nSo what can be done now? The currentnfederal debt is $3.5 trillion. Approximatelyn$1.4 trillion, or 40 percent,nis owned by one or another agency of thenfederal government. It is ridiculous forna citizen to be taxed by one arm of thenfederal government (the IRS), to pay interestnand principal on debt owned by anothernagency of the federal government.nIt would save the taxpayer a great deal ofnmoney, and spare savings from furthernwaste, to simply cancel that debt outright.nThe alleged debt is simply an accountingnfiction that provides a mask over realitynand furnishes a convenient means fornmulcting the taxpayer. Thus, most peoplenthink that the Social Security Administrationntakes their premiums andnaccumulates it, perhaps by sound investment,nand then “pays back” the “insured”ncitizen when he turns 65. Nothingncould be further from the truth.nThere is no insurance and there is non”fund,” as there indeed must be in anynsystem of private insurance. The federalngovernment simply takes the Social Securityn”premiums” (taxes) of the youngnperson, spends them in the general expendituresnof the Treasury, and then,nwhen the person turns 65, taxes someonenelse to pay the “insurance benefit.” SocialnSecurity, perhaps the most revered institutionnin the American polity, is also thengreatest single racket. It’s simply a giantnPonzi scheme controlled by the federalngovernment. But this reality is masked bynthe Social Security Administration’s purchasenof government bonds, the Treasurynnnthen spending these funds on whatevernit wishes. But the fact that the SSA hasngovemment bonds in its portfolio, and collectsninterest and payment from the Americanntaxpayer, allows it to masquerade asna legitimate insurance business.nCanceling federal agency-held bonds,nthen, reduces the federal debt by 40 percent.nI would advocate going on to repudiatenthe entire debt outright, and letnthe chips fall where they may. The gloriousnresult would be an immediate dropnof $200 billion in federal expenditures,nwith at least the fighting chance of annequivalent cut in taxes.nBut if this scheme is considered toonDraconian, why not treat the federal governmentnas any private bankrupt is treatedn(forgetting about Chapter II)? Thengovemment is an organization, so why notnliquidate the assets of that organizationnand pay the creditors (the governmentnbondholders) a pro-rata share of those assets?nThis solution would cost the taxpayernnothing, and, once again, relievenhim of $200 billion in annual interest payments.nThe United States governmentnshould be forced to disgorge its assets, sellnthem at auction, and then pay off thencreditors accordingly. What governmentnassets? There are a great deal of assets,nfrom TA to the national lands to variousnstructures such as the Post Office. Thenmassive CIA headquarters at Langley, Virginia,nshould raise a pretty penny fornenough condominium housing for the entirenwork force inside the Beltway. Perhapsnwe could eject the United Nations fromnthe United States, reclaim the land andnbuildings, and sell them for luxury housingnfor the East Side gliterati. Anothernserendipity out of this process would bena massive privatization of the socializednland of the Western United States and ofnthe rest of America as well. This combinationnof repudiation and privatizationnwould go a long way to reducing thentax burden, establishing fiscal soundness,nand desocializing the United States.nIn order to go this route, however, wenfirst have to rid ourselves of the fallaciousnmindset that conflates public and private,nand that treats government debt as ifnit were a productive contract between twonlegitimate property owners.nMurray N. Rothbard is a professornof economics at the Universitynof Nevada, Las Vegas, andnvice-president for academic affairsnat the Ludwig von MisesnInstitute.n