In earlier centuries, the insolventrndebtor’s offense was considered grave,rnand unless the creditor was willing torn”forgive” the debt out of charity, therndebtor continued to owe the money plusrnaccumulating interest, plus penalty forrncontinuing nonpayment.rnAs early as the 17th century, however,rngovernments began sobbing about thernplight of the unfortunate debtors, ignoringrnthe fact that the insolvent debtors hadrngotten themselves into their own fix, andrnthey began to subvert their own proclaimedrnfunction of enforcing contracts.rnBankruptcy laws were passed which increasingly,rnlet the debtors off the hookrnand prevented the creditors from obtainingrntheir own property. Theft was increasinglyrncondoned, improvidence wasrnsubsidized, and thrift was hobbled. Modernrnutilitarian neoclassical economistsrnsee nothing wrong with any of this;rnthe market, after all, “adjusts” to thesernchanges in the law. It is true that the marketrncan adjust to almost anything, but sornwhat? Hobbling creditors means that interestrnrates rise permanently, to the soberrnand honest as well as the improvident;rnbut why should the former be taxed tornsubsidize the latter? But there are deeperrnproblems with this utilitarian attitude. Itrnis the same amoral claim, from the samerneconomists, that there is nothing wrongrnwith rising crime against residents orrnstorekeepers of the inner cities. The market,rnthey assert, will adjust and discountrnfor such high crime rates, and thereforernrents and housing values will be lower inrnthe inner-city areas. So everything willrnbe taken care of But what sort of consolationrnis that? And what sort of justificationrnfor aggression and crime?rnIn a just society, then, only voluntaryrnforgiveness by creditors would let debtorsrnoff the hook; otherwise, bankruptcy lawsrnare an unjust invasion of the propertyrnrights of creditors. .. .rnIn a free-market economy that respectsrnproperty rights, the volume of privaterndebt is self-policed by the necessity to repayrnthe creditor, since no Papa Governmentrnis letting you ofi^the hook.rnMost people, unfortunately, apply thernsame analysis to public debt as they do tornprivate. Ifsanctityofcontracts should rulernin the world of private debt, shouldn’t itrnbe equally as sacrosanct in public debt?rnShouldn’t public debt be governed byrnthe same principles as private? The answerrnis no, even though such an answerrnmay shock the sensibilities of most people.rnThe reason is that the two forms ofrndebt-transaction are totally difl^erent. If Irnborrow money from a mortgage bank, Irnhave made a contract to transfer my moneyrnto a creditor at a future date; in a deeprnsense, he is the true owner of the moneyrnat that point, and if I don’t pay I am robbingrnhim of his just property. But whenrngovernment borrows money, it does notrnpledge its own money; its own resourcesrnare not liable. Government commits notrnits own life, fortune, and sacred honor tornrepay the debt, but ours. This is a horse,rnand a transaction, of a very different color.rnFor unlike the rest of us, governmentrnsells no productive good or service andrntherefore earns nothing. It can only getrnmoney by looting our resources throughrntaxes, or through the hidden tax of legalizedrncounterfeiting known as “inflation.”rnThere are some exceptions, of course,rnsuch as when the government sellsrnstamps to collectors or carries our mailrnwith gross inefficiency, but the overwhelmingrnbulk of government revenuesrnis acquired through taxation or its monetaryrnequivalent. .. .rnThe public debt transaction, then, isrnvery different from private debt. . . . Therngovernment gets the money by tax-coercion;rnand the public creditors, far fromrnbeing innocents, know full well that theirrnproceeds will come out of that selfsamerncoercion. In short, public creditors arernwilling to hand over money to the governmentrnnow in order to receive a sharernof tax loot in the future. This is the oppositernof a free market, or a genuinely voluntaryrntransaction…. Both parties… arernmaking agreements about other people’srnproperty, and both deserve the back ofrnour hand. The public credit transactionrnis not a genuine contract that need bernconsidered sacrosanct, any more thanrnrobbers parceling out their shares of lootrnin advance should be treated as some sortrnof sanctified contract.rnAny melding of public debt into a privaterntransaction must rest on the commonrnbut absurd notion that taxation is reallyrn”voluntary,” and that whenever therngovernment does anything, “we” are willinglyrndoing it.rnMorality and economic utility generallyrngo hand in hand. Gontiar}’ to AlexanderrnHamilton, who spoke for a small butrnpowerful clique of New York andrnPhiladelphia public creditors, the nationalrndebt is not a “national blessing.” Thernannual government deficit, plus the annualrninterest payment that keeps rising asrnthe total debt accumulates, increasinglyrnchannels scarce and precious private savingsrninto wasteful government boondoggles,rnwhich “crowd out” productive investments.rnEstablishment economists,rnincluding Reaganomists, cleverly fudgernthe issue by arbitrarily labeling virtuallyrnall government spending as “investments,”rnmaking it sound as if everythingrnis fine and dandy because savings are beingrnproductively “invested.” In reality,rnhowever, government spending onlyrnqualifies as “investment” in an Orwellianrnsense; government actually spends on behalfrnof the “consumer goods” and desiresrnof bureaucrats, politicians, and their dependentrnclient groups. Governmentrnspending, therefore, rather than beingrn”investment,” is consumer spending of arnpeculiarly wasteful and improductivernsort, since it is indulged not by producersrnbut by a parasitic class that is living off,rnand increasingly weakening, the productivernprivate sector.. ..rnDeficits and a mounting d e b t . . . arc arngrowing and intolerable burden on thernsociety and economy, both because theyrnraise the tax burden and increasinglyrndrain resources from the productive tornthe parasitic, counterproductive, “public”rnsector.. ..rnIt is for all these reasons that tiie Jeffersoniansrnand Jacksonians . . . hated andrnreviled the public debt. Indeed, the nationalrndebt was paid off twice in Americanrnhistory, the first time by ThomasrnJefferson and the second, and undoubtedlyrnthe last time, by Andrew Jackson.rnUnfortunately, paying off a nationalrndebt that will soon reach four trillion dollarsrnwould quickly bankrupt the entirerncountr)’. . . . Another way, and almost asrndevastating, a way to pay off the publicrndebt would be to print four trillion dollarsrnof new money—either in paper dollars orrnby creating new bank credit. Thisrnmethod would be extraordinarily inflationary,rnand prices would quickly skyrocket,rnruining all groups whose earningsrndid not increase to the same extent, andrndestroying the value of the dollar. . . . Inflation,rnthen, is an underhanded and terriblyrndestructive way of indirectly repudiatingrnthe public debt; destiuctive becausernit ruins the currency unit, which individualsrnand businesses depend upon for calculatingrnall their economic decisions.rnI propose, then, a seemingly drasticrnbut actually far less destructive way ofrnpaying off the public debt at a singlernblow: outright debt repudiation. Gonsiderrnthis question: Why should the poor,rnbattered citizens of Russia or Poland orrn44/CHRONICLESrnrnrn