1January 1994 2 3 4 5 Public Debt -- 'an unnatural species of property' and 6 cause of unequal distribution of property 7 8 .......edited by Marijan Salopek 9 10 ============================= 11 12 Extract from Daniel Raymond, . Vol II. (Baltimore: F. Lucas, Jun. and E. J. 14 Coale, 1823), pp. 310-355. 15 16 Chapter XII 17 18 The Influence of a Public Debt on National Wealth 19 20 21 Perhaps no subject relating to political economy is involved 22 in greater obscurity, as it respects its influence on national 23 wealth, than that of a national debt. 24 As the United States, happily, are not, nor ever likely to 25 be, oppressed with a public debt, of any inconvenient magnitude, 26 it may perhaps be thought unnecessary for an American politician 27 to trouble himself with an investigation of its nature and 28 influence on public wealth. The different branches of political 29 economy, however, reflect light on each other: and a thorough 30 knowledge of the nature and influence of public debt will enable 31 us to understand other branches more clearly. 32 The United States have no colonies, but it is not for that 33 reason unnecessary for an American statesman to have a thorough 34 knowledge of the advantage of colonial monopoly. So an American 35 statesman should have a thorough knowledge of a national debt, 36 although he may never have one of any considerable magnitude to 37 manage. He will find other subjects greatly illuminated by his 38 knowledge upon this. 39 Although the whole science of political economy is involved 40 in great obscurity, yet some branches are covered with more 41 impenetrable veil than others. As no subject relating to the 42 science is more imperfectly understood than that of a public 43 debt, so there is none upon which there is a greater diversity of 44 opinion, as to its influence on national wealth. 45 That public opinion should be divided upon this subject, is 46 not to be wondered at, for it cannot be expected, that the great 47 body of the people, should be acquainted with the science of 48 political economy, any more than with the sciences of medicine 49 and law. They may know something of the general principles of 50 these, for there is not an old woman int he country, that does 51 not known something of the healing art, nor a peasant, that does 52 not know something of law, although unacquainted with those 53 principles, and definitions, which constitute them sciences. They 54 know not the meaning of the technical terms, or terms of art, and 55 a knowledge of political economy is no more instinctive, or 56 innate, than a knowledge of medicine or law. 57 Public affairs, it is true, may be administered with 58 tolerable ability and success, without a scientific knowledge of 59 political economy, although there can be no certainty, what 60 effect particular measures may have upon public wealth, without 61 this scientific knowledge. 62 Before the days of Harvey, the circulation of the blood was 63 not known, although there were many skilful and successful 64 physicians before his day. There were no doubt many mistakes 65 made, in consequence of ignorance of the fact of circulation, for 66 which the physician was not censurable; but at the present day, a 67 physician who should make a mistake from ignorance of this fact, 68 would be inexcusable; indeed he would be unworthy the name of a 69 physician. So a legislator may conduct public affairs with skill 70 generally, while ignorant of some undiscovered or unknown 71 principle in the science of political economy, although liable to 72 make mistakes, for which he is not censurable; but when these 73 principles are known and settled, he will be alike inexcusable, 74 for making any such political blunders. 75 There can be no doubt, but that politicians are as liable to 76 make mistakes in consequence of ignorance of the true economy of 77 the body politic, as physicians are in consequence of ignorance 78 of the true economy of the natural body; and it must also be 79 admitted, that the mistakes of the legislator, are vastly more 80 deplorable in their effects upon human happiness, than the 81 mistakes of the physician can possibly be. The mistakes of the 82 legislator may affect, for ages, the happiness, and even prevent 83 the existence of millions of human beings. The mistakes of the 84 physician touch the life and happiness of only a few individuals 85 at most. 86 What causes the difference between the numbers and happiness 87 of the people in different countries, but the wilful or ignorant 88 mistakes of politicians? Man is the same in all countries and 89 climates, and liable to be operated upon by the same causes. The 90 bounties of heaven are distributed with an equal hand throughout 91 all inhabitable parts of the globe. The difference, therefore, 92 between the sum of human happiness enjoyed in different 93 countries, must be caused, mainly by the ignorant or wilful 94 mistakes of the rulers of mankind. This ignorance is dispelled by 95 a knowledge of the science of political economy, and so far as 96 human happiness is concerned, it is vastly more important than 97 any, or even all other sciences. 98 How then does it happen, that while such proficiency has 99 been made in other sciences, the foundations of this are scarcely 100 yet laid -- that while the science of medicine has its 101 established principles, definitions, technical phrases and terms 102 of art, which always convey the same ideas to its professors, 103 there is not to be found in the whole science of political 104 economy, a single uncontroverted principle, or an acknowledged 105 definition.-- That philosophers are not yet agreed in their 106 definitions of national wealth, nor in its sources or causes? 107 That so much less progress has been made in political 108 economy, than in other sciences, arises in part from the 109 different nature of the sciences, and in part from the careless 110 manner, in which political economy has been treated, by using 111 words without affixing to them a precise technical meaning. 112 The science of medicine, including anatomy and physiology, 113 is a physical science. Political economy is a moral science. The 114 one is a science of sense, the other a science of reason. A moral 115 science is not susceptible of such minute accurate investigation, 116 as a physical science. In the one case we see and feel the 117 subject about which we reason.-- In the other the subject is not 118 tangible -- it can only be grasped by the mind. 119 Metaphysics and moral philosophy are moral sciences, and 120 have been subjected to the laws of science, and political economy 121 may be subjected to the same laws. But in order to do this, 122 writers must use no ambiguous words.-- They must use words 123 relating to different branches of the science in their precise 124 technical meaning, which must be understood, and always kept in 125 mind. 126 This rule has never yet been observed by any writer on 127 political economy; which frequently proceeds from carelessness in 128 the use of words, rather than ignorance of their meaning. Adam 129 Smith no doubt knew the precise meaning of the word, nation, but 130 in reading his "Wealth of Nations," one would be led to suppose 131 that by the word, nation; he meant some constituent part of the 132 nation, as its merchants or farmers. A great deal of obscurity 133 has also been caused by his ambiguous use of the word capital. 134 It can hardly be supposed that any writer on political 135 economy should not know the precise meaning of the word , 136 and the difference between a debt of an individual and a debt of 137 a nation, when the creditors are citizens or constituent parts of 138 that nation; and yet in treating of a national debt, almost every 139 writer is in the constant habit of not discriminating between 140 these different meanings of the word, and of using it in its 141 wrong sense, when speaking of a national debt. The words, 142 and , are not more distinct than these 143 different meanings of the word, debt. 144 It is true a nation may be in debt, in that sense of the 145 word in which one merchant is in debt to another, but this is 146 always when one nation is in debt to another nation, and not to 147 its own citizens, or to itself. 148 If a man was to fancy, that one of his pockets owed the 149 other a thousand dollars, and thence conclude that he was in debt 150 a thousand dollars, it would not be more absurd than to conclude, 151 that because a nation owed its own citizens, therefore, it was in 152 debt, in the ordinary acceptation of the term. Or, it may with 153 just as much propriety be said, that because A is in debt to B a 154 thousand dollars, therefore, the nation is in debt a thousand 155 dollars, as to say that because a nation owes its citizens a 156 hundred million, therefore, it is in debt a hundred million, in 157 the ordinary acceptation of the term. 158 It is unfortunate for the science of political economy, that 159 the word, debt, was ever used to express the idea of a nation, 160 owing to its citizens a sum of money. Men are so prone to attach 161 to words their ordinary meaning, that they are constantly 162 embarrassed and perplexed by the ambiguity of the word. Hence the 163 advantage to science of never adopting a popular word as a 164 technical term -- hence the advantage of taking terms of art from 165 the dead languages. It prevents ambiguity and uncertainty. People 166 who do not understand the term do not use them. They never have 167 a popular and a technical meaning, and their use can cause no 168 ambiguity. 169 People often look with astonishment at the enormous 170 magnitude of the debt of England, and had not the experiment been 171 made, it would have been thought impossible for a nation to 172 sustain the burden of a debt of a thousand millions, and 173 regularly pay the interest on that debt, without exhausting, or 174 even impairing the resources of the nation. But the whole 175 difficulty of the problem proceeds from attaching the popular 176 meaning to the terms, . If the nation is a debtor, 177 it is likewise a creditor to an equal amount, and so long as the 178 debit and credit sides of the account balance, what difference 179 does it make whether the account be large or small? There may be 180 some inconvenience in keeping so large an account, and receiving 181 and paying so much money, but the means of payment can never 182 fail, so long as the nation receives all that it pays. 183 A nation may be in debt in the popular sense of the word, as 184 where one nation owes another nation money, and in that case a 185 national debt becomes a drain upon the national resources. But in 186 modern times this is not the case to any great extent, and not 187 what is ordinarily meant when we speak of a national debt. By a 188 national debt, is meant the amount of money which a nation owes 189 to itself, or, what is the same thing, to its own citizens. To 190 ascertain the influence of such a debt on national wealth, is the 191 object of the present inquiry. 192 That a national debt of a very great magnitude, has an 193 inauspicious influence on national wealth, there can be no doubt. 194 I say, a debt of very great magnitude, because a national debt 195 does not necessarily diminish public wealth.-- It is only when it 196 becomes unwieldy and inconvenient from its magnitude, that it 197 becomes oppressive to the nation. It is, however, a prevailing 198 idea with those who talk of a public debt, and with many eminent 199 writers too, that the resources of the country -- the energies of 200 the nation, are physically impaired by a national debt. Thus says 201 Adam Smith, "had they" (the public creditors) "not advanced this 202 capital to the government, there would have been in the country 203 two capitals, two portions of the annual produce instead of one, 204 employed in maintaining productive labour." And again, "when the 205 public expense is defrayed by funding, it is defrayed by the 206 annual destruction of some capital, which had before existed in 207 the country -- by the perversion of some portion of the annual 208 produce, which had before been destined for the maintenance of 209 productive labour."+1+ 210 But this is a total mistake -- the aggregate of a nation's 211 property or capital is just as great after as before a public 212 debt is contracted.-- The expenditure of the money by the 213 government is not a destruction of it. The capacity of a nation 214 for acquiring the necessaries and comforts of life, may be just 215 as great with a debt, as large as that of England, as it would be 216 with no debt at all. -- A public debt does not necessarily impair 217 either the source or cause of wealth. -- The industry of the 218 nation may be just as great -- its lands just as productive -- 219 its manufactures and commerce just as lucrative, and therefore, 220 the annual product of labour just as great, notwithstanding the 221 debt, because it does not affect either the climate or soil of 222 the country, or the physical energies of man in cultivating it, 223 and so long as the public creditors are all citizens, it cannot 224 diminish the quantity of circulating medium, for it sends no 225 money out of the country. Its only necessary effect is, to alter 226 the channels of circulation, and change the mode of distributing 227 the annual product of labour to the consumer. 228 The money which represents the annual product of labour, 229 will not circulate through precisely the same channels with a 230 heavy national debt, that it would do without it. So a storm of 231 wind may cause the waters of the ocean to circulate through the 232 different channels, and to occupy a different relative position 233 from what they would have done, but for the storm, although the 234 storm neither augments the whole quantity of water, nor the 235 quantity which one part of the ocean exchanges with the other 236 parts. 237 So if a national debt lessens the quantity of money in one 238 man's pocket, it augments the quantity to an equal amount in the 239 pocket of another, and so far as national wealth is concerned, it 240 matters not, whether the money is in the pocket of A or in that 241 of B.-- The proportion that is in the pocket of each, may be a 242 matter of some importance to the nation, and if a national debt 243 has a tendency to cause a more unequal division of property, and 244 consequently a more unequal division of the product of labour, it 245 will for that reason, have an unfavourable influence on public 246 wealth. But it is a matter of total indifference to the nation, 247 whether A is rich, and B poor, or B rich, and A poor, provided 248 the proportion is the same in both cases. All these circumstances 249 are important to the individuals, and with those who suppose, 250 that a privileged few, constitute the nation, they will be 251 considered important to the nation, but with those who consider a 252 nation as composed of every individual in it, these things, so 253 far as national wealth is concerned, will be considered wholly 254 unimportant. 255 It has been stated in a preceding chapter, and attempted to 256 be proved, that a national debt may be augmented until the 257 ordinary expenditure of the government, and the interest on the 258 public debt, which has been called its extraordinary expenditure, 259 equals the value of the annual product of the nation's labour -- 260 that the effect of funding a public debt, is merely to separate 261 the use of property from the possession and the legal title, and 262 that so long as the government preserves its faith with the 263 public creditors, its irregular or extraordinary sources of 264 revenue from loans, cannot fail (unless some revolution or 265 convulsion takes place), when the ordinary revenue of the 266 government, will equal the revenue of the nation. In theory, 267 these principles are susceptible of demonstration, although no 268 nation will probably ever submit to have them adopted to their 269 fullest extent in practice. 270 Experience, so far as it goes, corroborates this theory. The 271 revenue of the English government is at present equal to one- 272 quarter, if not one-third of the annual revenue of the nation, 273 and yet this enormous revenue is paid with the utmost facility by 274 the nation, perhaps with as little inconvenience as the United 275 States pay their comparatively small revenue to the state and the 276 general governments, and the English government finds as little 277 and perhaps less difficulty in borrowing money now, than it did a 278 hundred years ago, when its debt was comparatively nothing; and, 279 although it is plain, that the debt of a nation cannot be augment 280 , yet there are no assignable limits to its 281 augmentation, short of those pointed out. 282 In our reasoning upon this subject, we must be careful to 283 keep in mind the different parties concerned in creating a public 284 debt. The individuals of whom the money is borrowed, are the 285 creditors -- they area also a portion of the nation. -- The 286 nation in its corporate capacity is the debtor, and all its 287 property is bound for the payment of the debt.-- The government 288 makes the contract for the nation, and binds it to the 289 performance by pledging its property in point of fact, though not 290 in form, for the payment of the debt, or the interest when the 291 debt is funded. The government acts in the capacity of an agent 292 or broker between the parties, -- it acts with more dignity and 293 authority than ordinary agents and brokers, it is true, but 294 nevertheless it acts in this particular, correspond with the acts 295 of an agent or broker in making a contract for their principals. 296 The government, however, makes the contract in its own name, but 297 for the parties as above described. 298 Nominally all the people, or the nation in its corporate 299 character, is debtor to the government, but in reality those only 300 are debtors who have more to pay than to receive. Most of the 301 people no doubt who possess property, own more or less of the 302 public stock, and it depends on the proportion between their 303 stock and their other property, whether they are in reality 304 debtors to the government. If their proportion of stock is too 305 small, they are debtors -- if too large, they are creditors. When 306 they are debtors, they pay more taxes than they receive dividends 307 on the public stock -- when creditors, they receive more 308 dividends than they pay taxes, but the sum total of the receipts 309 is exactly equal to the sum total of the payments by the people. 310 If a man owns a hundred acres of land and pays ten pounds taxes, 311 or interest on the public debt, and owns stock which draws him 312 ten pounds interest, his accounts with the government balance, 313 and he in reality is not burdened with the public debt. A man who 314 rents a farm and pays the taxes, of course rents it so much the 315 cheaper for the taxes --If he buys one, it costs him so much the 316 less --If he inherits it, he will have in quantity what will make 317 up for the deficiency in value. 318 Suppose a farm without the charge of the national debt would 319 rent for two hundred pounds, but with that charge, only rents for 320 a hundred and fifty pounds, what difference does it make to the 321 tenant, whether he pays a hundred and fifty pounds to his 322 landlord, and fifty to the government, or the whole two hundred 323 to the landlord? And what difference does it make to the 324 landlord, whether in consequence of the national debt, he has two 325 hundred acres of land which will rent for only a hundred and 326 fifty pounds, or without the national debt, to have a hundred and 327 fifty acres of land which would rent for the same money. The same 328 observations apply to every other species of taxable property. 329 Should it be asked, what reason there is for supposing, that 330 in consequence of the public debt, the property-holders in 331 England have a greater quantity of property, than they would have 332 had, without a national debt; I answer, because it must be 333 presumed that the population of England would have been just as 334 great without, as with the public debt. It will hardly be 335 contended that it would have been less, for if the population is 336 greater with, than it would have been without the national debt, 337 its utility to the nation, is established beyond all controversy. 338 If the public creditors had not vested their funds in the 339 national debt, they would have vested them in the real and 340 personal property of the country -- they would have shared the 341 land and other property in the kingdom, with the present 342 proprietors, whose shares would of course have been lessened. 343 If then in consequence of the national debt, the public 344 debtors, or in other words, the property-holders of the country 345 have more to pay, than they would have had, had the debt never 346 existed, they have also more means to pay with -- they have more 347 land, more goods, more ships, and more money. An individual 348 property-holder, may have more money to pay, inconsequence of the 349 public debt, but the whole number of property-holders, have not. 350 Or if an individual has more to pay, he has also more to pay 351 with, so that it is as broad as it is long. There is just the 352 same quantity of money to be paid, and the same quantity to be 353 received. The tenant has the less to pay to his landlord, by as 354 much as he pays to the government, and so of every other hirer or 355 purchaser of property, personal as well as real. The channels of 356 circulation may be changed, although the quantity circulated is 357 not altered. 358 In short, the public debtors and public creditors stand in 359 relation to each other, upon precisely the same ground, that 360 private debtors and creditors stand. The circumstance of 361 interposing the government as a broker or agent, between the 362 parties, does not alter the real nature of the case; and there 363 would be just as much propriety in supposing, that a nation must 364 necessarily sink under the private debts of the people, as under 365 a public debt, within the limits pointed out. 366 If all the money that private creditors receive from their 367 debts in a year, was collected into one mass, it would make an 368 enormous heap. It might, perhaps, be as great as the annual sum 369 paid by the English nation, on their public debt; but a single 370 dollar in the course of a year may, perhaps, pay a hundred or a 371 thousand debts, equal to its value. The act of paying does not 372 diminish its capacity for paying, and if it was possible to 373 circulate it so rapidly, it might pay a debt equal to its value, 374 every minute the year round. 375 The only difference between a debt which an individual owes 376 the government, and one which he owes his neighbour, is, that in 377 the one case, he has to pay the government the expense of 378 collecting it, while in the other, there is probably no expense 379 attending the collection, or if there is, the creditor pays it. A 380 national debt does not affect the quantity of money in a nation, 381 nor has the nation any more, or less money to pay in consequence 382 of it. 383 A national debt does not necessarily diminish the quantity 384 of national industry. The people of England have just as much 385 physical power, or if they have not, they might have, with their 386 enormous debt, as without it. They may be just as skilful in the 387 arts, and just as industrious in their habits; and if we were to 388 reason from analogy, we should be led to suppose, that a national 389 debt, had a tendency to promote, rather than discourage national 390 industry. Such would seem to be the inference from the history of 391 the English debt. 392 If national debt was the mill-stone about a nation's neck, 393 which it popularly supposed to be, England would long since have 394 been sunk in the bottom of the political ocean. But although her 395 debt has increased to an amount which the imagination can 396 scarcely conceive -- to an amount vastly greater than all the 397 gold and silver in the world; still it has not produced the least 398 visible effect upon her wealth or power. Upon her prosperity it 399 may have, for it is one great cause of the pauperism in that 400 country. 401 The only way of ascertaining whether the sum of national 402 industry, has been diminished, by the national debt, is by 403 comparing England with those nations that have not been 404 encumbered by such an enormous debt. The result of such inquiry 405 would seem to make in favour of, instead of against a national 406 debt. There is certainly no nation in Europe, if in the world, 407 whose national industry is as great as that of England. The 408 annual product of her labour, in proportion to the number of her 409 people, is greater than that of any other people on earth, and 410 that the people of England do not enjoy the necessaries and 411 comforts of life, in as great abundance, as nay other people on 412 earth, is not because they are not produced by their labour in as 413 great abundance, but because, in consequence of some defect in 414 their system, they are not as equally distributed as they should 415 be. That defect consists in those unequal laws which have caused 416 the great inequality in the division of property which exists in 417 that country. 418 The superior industry of the English over other nations, 419 may, no doubt, be accounted for from other causes, than their 420 national debt, although there is no doubt, but that a national 421 debt, to a certain extent, may be useful in promoting national 422 wealth. Should the United States create a debt annually, of a 423 million of dollars, and expend it in building bridges, canals, 424 and roads, it would, no doubt, be the means of promoting public 425 wealth; and any expenditure whatever by a government which 426 augments the quantity of national industry, will also augment 427 national wealth. 428 It is a popular notion, that one generation can load another 429 generation with debt. Thus Mr. Hume says in his Essay on Public 430 Credit, "our modern expedient for defraying the expense of war, 431 is to mortgage the public revenues, and to trust, that posterity 432 will pay off the incumbrance contracted by their ancestors." But 433 this is a mistaken notion. The present generation of men inherit 434 the earth as free of incumbrance, as any preceding generation; 435 and as one generation cannot accumulate the fruits of the earth 436 for posterity, neither can it load a succeeding generation with 437 debt. This is manifestly true in regard to nations, except where 438 one nation becomes indebted to another, and binds posterity to 439 discharge that debt. This however never was and never will be the 440 case, to any considerable extent. 441 It may, therefore, be laid down as a general rule, in regard 442 to nations, that one generation can neither accumulate wealth for 443 a succeeding generation, nor load it with debt. It may, however, 444 make such a division of property, and leave its affairs in such a 445 state of entanglement and perplexity, as to cause great national 446 distress. An individual may accumulate property to such an 447 amount, as to leave his posterity rich, but a nation can do no 448 such thing. The annual product of labour must be consumed -- 449 there is no saving it for posterity. Every generation must labour 450 for its own subsistence, but it cannot be compelled by any 451 political manoeuvre whatever, to supply a preceding generation 452 with either the necessaries or comforts of life. The fruits of 453 the earth must be produced before they can be consumed. 454 An individual may accumulate such an amount of property as 455 that others will supply him and his posterity with the 456 necessaries and comforts of life for the use of that property, 457 but it is manifest a nation can do no such thing. All a nation 458 can do, is to augment its capacity for acquiring the necessaries 459 and comforts of life by labour. It may improve the cultivation of 460 its lands, and acquire skill in the various arts -- this is all 461 that can be done for posterity. 462 Adam Smith says, "it is not contrary to justice that both 463 Ireland and American should contribute towards the discharge of 464 the public debt of Great Britain." 465 Had he understood the nature of a national debt, he never 466 would have made such an assertion. Nothing could be more unjust. 467 Such a law would be precisely analogous to one which should 468 compel A to pay a part of B's debt. To show the injustice of such 469 a measure, let us suppose, a landholder in England has five 470 hundred acres of land, upon which he pays ninety pounds a year of 471 the interest on the public debt. This is the ratio throughout the 472 kingdom. This landholder we will also suppose owns public stock 473 upon which he receives annually ninety pounds interest. Suppose 474 then a tax levied on the colonies to an amount sufficient to pay 475 one-third of the interest on the debt. What effect has that on 476 the English landholder? It puts thirty pounds a year into his 477 pockets, and the measure would be in principle precisely 478 equivalent to one, which should require A in Ireland to pay 479 thirty pounds of B's debt in England. It would increase B's 480 fortune that amount. The case would be different, if the debt was 481 due to a foreign nation. In that case the whole nation is in 482 debt, and each individual should bear his just proportion, but in 483 the other case, it is in reality a debt from portion of citizens 484 to another portion, and to require a third persons to pay a part 485 of the debt, is as unjust as it would be to say, they should 486 receive a part of the individual's.-- What then are the evils of 487 national debt? 488 They are of an entirely different character from what is 489 generally supposed. When a national debt becomes very large, like 490 that of England, the mere transfer of so much money, annually, 491 from one class of citizens to another, causes not only a great 492 deal of trouble and inconvenience to the people, but a great deal 493 of actual distress and suffering. It may cause a man such trouble 494 to pay a large sum of money every day in the year, although he 495 may receive an equally large sum. The money of the country 496 circulates through an unnatural channel, and it requires a 497 forcing pump, to keep it in motion. All the money in the country 498 is obliged to pass through the treasury three or four times a 499 year, in order to be distributed according to the artificial 500 order of things, which the national debt has caused. 501 The national debt, or more properly the national , is 502 an unnatural, artificial species of property, which causes an 503 unnatural, artificial mode of distributing the necessaries and 504 comforts of life, to effect which, a troublesome, vexatious, and 505 expensive machinery is necessary. This machinery consists of a 506 host of collectors, excisemen, and the whole apparatus of the 507 treasury department. These harrass, irritate, and oppress the 508 people, and keep them in a constant state of excitement and 509 disaffection towards the government. The real nature of public 510 debt is never rightly understood by the people.-- It becomes 511 therefore a powerful instrument in the hands of demagogues, who 512 make it a hobby of popularity, and a theme of abuse. In short, a 513 national debt of such an enormous magnitude as that of England, 514 is a fruitful source of oppression, in the hands of government, 515 in the collection of it -- a subject of eternal controversy among 516 politicians, and of heart-burning and disaffection among the 517 people. It is also an engine of immense power, in the hands of 518 the government, and power may be abused. These are serious evils, 519 and constitute unanswerable objections to a large national debt. 520 They are not, however, the only, nor indeed the principal evils 521 of such a debt. 522 A public debt has a tendency to cause a much more unequal 523 division of property, than would otherwise take place. It creates 524 a new species property, what lawyers would call an incorporeal 525 hereditament. It is a contrivance by which the stockholder 526 acquires an interest in all the property of the nation, without 527 the formality of deeds, and without having an exclusive right to 528 any part of it. The stockholder is relieved from the trouble and 529 labour of managing any portion of the nation's property, or 530 running any risk about the income that it may yield, while his 531 share of the product is secured to him. This contrivance enables 532 the stockholder always to obtain interest fro his money, (an that 533 too from the landholder, who can only make rent from his land,) 534 without any risk of losing the principal. In short, a national 535 debt, or national stock, is a sort of savings bank to the rich, 536 and greatly facilitates their accumulation of property, and 537 therefore strongly tends to increase the unequal division of 538 property. 539 The treasury of England may be considered the strong box of 540 the monied men of the nation, where they are permitted, not only 541 to deposit their savings for safe keeping, but also for 542 investment. The government is the broker, who takes charge of the 543 fund, and so invests it, that it shall produce a profit to the 544 owner. The poor man has no such strong box -- his weekly earnings 545 will not be received into this great reservoir -- they are of too 546 small account; or in other words, he cannot invest his small 547 earnings in public stock -- the shares are too large to be 548 purchased by him. This increases the disparity between the rich 549 and the poor, already too great. It puts an engine into the 550 hands of the rich, for augmenting their power, of which the poor 551 cannot avail themselves. 552 A man who has invested a thousand dollars in stock, which 553 yields six per cent interest, has acquired a power, in addition 554 to his natural power, of compelling somebody to labour for him, 555 to the amount of sixty dollars a year. In other words, he has 556 acquired an artificial power of compelling somebody in the world 557 to labour for him, until they produce a quantity of the 558 necessaries and comforts of life, equal in value to sixty 559 dollars; for sixty dollars is nothing but the measure or value of 560 a certain quantity of the necessaries and comforts of life. 561 When, therefore, a man has acquired the power of procuring, 562 without his own labour, a quantity of the necessaries and 563 comforts of life, equal to sixty dollars, he has acquired a power 564 of compelling, directly or indirectly, somebody to labour for him 565 a sufficient time, to produce that quantity. Even the possession 566 of a thousand dollars, then, confers a great power. It may be 567 compared to the lever in the hands of the savage. What then must 568 be the power of his lever, when augmented a hundred or a thousand 569 fold?-- Without the facility afforded by stocks of different 570 kinds, there would not be the same facility for increasing this 571 artificial power, as with them. 572 The operation of bank stock, and the funded national debt, 573 that is, national stock, is precisely the same, with the 574 exception of the different modes in which the interest is 575 collected; the different agents by whom the different funds are 576 managed, and the permanency of the interest. It is precisely the 577 same thing to the debtor, whether he pays sixty dollars a year 578 interest on bank stock, or on public stock. In the one case, he 579 pays the interest on a thousand dollars to the holder of the bank 580 stock, through the agency of the bank officers. In the other 581 case, he pays the interest on a thousand dollars to the holder of 582 the public stock, through the agency of the government officers. 583 There may be this further difference: -- in the case of public 584 stock, the debtor pays the expense of collection -- in the case 585 of bank stock, the stockholder pays this expense.-- The law 586 enforces the payment in both instances, though by different 587 processes. In the one case, if the debtor does not pay the money 588 when demanded, his goods will be seized, and sold by summary 589 proceeding. In the other, a suit must be brought, the expense of 590 which the debtor must pay. 591 For the interest which the public debtor pays to the public 592 creditors, he receives or enjoys an equivalent in property in 593 proportion to the amount of taxes he pays, as much as a debtor to 594 a bank receives from the stockholders, an equivalent for his debt 595 and for the amount of interest he pays. The tax-payer or public 596 debtor, often thinks he receives no equivalent for the tax or 597 interest he pays on the public debt. But in this he is mistaken- 598 - this is the source of error on this subject. In reality, the 599 public creditor is a tenant in common with the public debtor or 600 tax-payer, by a legal and equitable title, in all the property 601 taxed for the payment of interest on the public debt, and the 602 interest paid in the shape of taxes, may be considered as rent 603 paid for the use of the public creditor's share. 604 Suppose the public creditors had not loaned their money to 605 government; what would they have done with it? What use would 606 they have put it to? It cannot be presumed they would either have 607 thrown it away, or hoarded it. They must then have vested it in 608 lands, manufactories, ships, goods; or they must have loaned it 609 to others who would have employed it in some of these ways. 610 Suppose the money invested in land, what would have ben the 611 effect upon the present landholders? it must necessarily have 612 lessened their quantity of land, so that a landholder, who now 613 has five hundred acres, would have only four hundred, or such a 614 proportion as the national debt bears to the whole property in 615 the kingdom. And although in that case he would have had no 616 interest to pay on the stock of the public creditors, yet he 617 would have had a hundred acres less land, which it is to be 618 presumed, is equal to the interest he pays on the public debt. 619 The same would have been the case with the merchant and 620 manufacturer; so that, but for the public debt, they could not 621 have purchased and held so much. In other words, the public 622 creditors must have had their share of all the property both real 623 and personal in the kingdom. They are therefore in reality, 624 though not formally, tenants in common by a legal and equitable 625 title with the public debtors in all the property on which they 626 pay taxes; and the debtors do nothing more or less, than purchase 627 out of their interest, by annuity, equal to the amount of 628 interest, paid by the debtor, and to the amount of stock held by 629 the creditor. The government is the broker that transacts the 630 business, in the first place of investing the money, often, it is 631 true, in mad schemes of ambition, or idle ones of extravagance; 632 and afterwards of collecting and paying over this interest, with 633 a view to the interests of both parties. 634 In reality then, the man who pays a portion of the interest 635 on the public debt, receives a consideration for it, as much, and 636 as ample as the man who pays interest to the holder of bank 637 stock. The one receives a loan in money, the other an 638 equivalent in property, according to the nature of the property 639 upon which he pays taxes. The one can rid of paying interest to 640 the bank stockholder by returning the loan to the bank.-- The 641 other by returning the property loaned. 642 Suppose a man owns five hundred acres of land upon which he 643 pays sixty dollars a year towards the interest on the public 644 debt. He wishes to be rid of paying this sixty dollars interest. 645 How is it to be done? Let him sell the amount of the public 646 creditor's interest in it, which is one thousand dollars.-- Let 647 him take this thousand dollars to a public creditor, and purchase 648 a thousand dollars worth of stock with it. He will then be a 649 public creditor to that amount, and if he has sixty dollars a 650 year interest to pay, he will also have sixty dollars to receive, 651 so that his interest account will balance. His debt, it is true, 652 cannot be extinguished nominally, although it may be in reality. 653 The analogy, therefore, between national stock and bank 654 stock, holds substantially throughout, except as to the agents by 655 whom the two are managed, and the processes of collecting the 656 interest; and all the evils that flow from one, may flow from the 657 other, and except the evils arising from the different modes of 658 collection, the evils of the one, in proportion to the magnitude 659 of the different stocks, are probably as great in the case of 660 bank stock, as in the case of public stock. 661 Bank stock has, however, an advantage to the nation over 662 national stock, in its flexibility of interest. The interest on 663 public stock is permanent, and cannot fluctuate with the times. 664 Bank stock is flexible, and accommodates its dividends, or 665 interest, to the changes of the times. Hitherto, however, this 666 has been an advantage rather in name, than in reality, for bank 667 stock has always, (with, perhaps, a few exceptions,) yielded a 668 higher interest than national stock. 669 Bank stocks are attended with many of the evils of a 670 national stock; and if we are to judge from experience, we should 671 be led to conclude, that they were as liable to abuse in their 672 management. The people of this country have suffered vastly more 673 from the mal-administration of bank stocks, in proportion to 674 their magnitude, than the people of England have, from the mal- 675 administration of the national stock of that country. 676 People in this country look with astonishment at the 677 enormous increase of the national debt of England, in the last 678 thirty years. They are deceived by appearances, and misled by 679 names, or they would turn their astonished eyes from the increase 680 of England's debt, and look with still greater astonishment, at 681 the equally enormous increase of bank stock (which is but another 682 name for a national debt,) in this country. The operation of the 683 two kinds of debt upon the public is precisely the same. The 684 interest paid on the two kinds of stock, which is the only thing 685 that affects the people in either case, is derived from the same 686 source, and is produced by the same cause. The labour of the 687 nation produces it in both cases. In the one case the stream runs 688 from the fountain to the reservoir direct, and the eyes of the 689 people can trace it from one to the other. In the 690 other case it takes a more circuitous course, and the people lose 691 sight of it in its meandering. 692 Suppose a man in England lives on his dividends on national 693 stock, and another in this country lives on his dividends on bank 694 stock, will it be pretended that these dividends arise from 695 different sources, or are produced by different causes? Let them 696 be traced to their origin, and see if they do not flow from the 697 same fountain. 698 The national stockholder in England receives his dividends 699 from the treasury -- who put them into the treasury?-- perhaps 700 the landholder-- but how came he by them? If he cultivates his 701 own land, then he dug them out of the earth.-- If he rents his 702 land, then they were paid to him by his tenants, who dug them out 703 of the earth by their own labour. If they were paid into the 704 treasury by the brewers in England, under the name of excise; 705 then the brewer obtained them from the farmer, the merchant, the 706 mechanic, the manufacturer, and from his customers, one and all, 707 to whom he sells his beer. These dividends the farmer digs out of 708 the earth, the blacksmith hammers them out of his anvil, the 709 weaver conjures them out of his loom, the merchant subtracts them 710 from his balance of trade, the sailor mounts to masthead in the 711 midnight storm, and gathers them from the winds and the 712 lightning, and in this way the stockholder's dividends in England 713 are produced, collected, and paid over. The whole is produced by 714 the labourers of the country. 715 The bank stockholder also receives dividends on his stock, 716 even to a greater amount than the national stockholder. Where 717 does he get them? Out of the vaults of the bank. But how came 718 they in the vaults of the bank? They were put there by the money 719 borrowers -- by those who have obtained discounts. Here there is 720 a winding in the rivulet, and people lose sight of it. They take 721 the borrower to be the source from which it flows. But let the 722 question be answered, where does the money borrower get the 723 interest which he pays to the bank? 724 The borrower at bank is probably a merchant, and the loan 725 serves him as a capital, which enables him to carry on the 726 business of exchanging one commodity for another. His first 727 operation, we will suppose, is to purchase a thousand barrels of 728 flour, and a hundred hogsheads of tobacco, which he ships to a 729 foreign market. He sells his flour and tobacco, and invests the 730 proceeds in foreign goods, which he imports and sells to the 731 farmer, the mechanic, the manufacturer, the sailor, in precisely 732 the same manner that the brewer sells his beer to the same 733 classes of people. After this is done, he strikes his balance, 734 and finds that he has made gain enough to pay the interest on the 735 loan, and leave him a profit. Not only the interest, but the 736 profit, is paid to him by the persons to whom he sells his goods, 737 and this interest is derived from precisely the same source, 738 primarily, that the brewer in England derived the excise, which 739 paid the interest on the national stock; and this source is 740 precisely that which has furnished every cent of interest that 741 ever was or ever will be paid on either a national or bank stock; 742 and the cause which produces it is precisely the same. The 743 source is that great fountain, the earth -- the cause is the 744 labour of man. 745 The principal evils of national debt consist in the trouble 746 and vexation, which the collection of such an enormous amount of 747 taxes, cause, and in its tendency to produce an unnatural 748 inequality in the division of property. This tendency proceeds 749 in a great measure from the difference between rent and interest, 750 the government borrowing money at the ordinary rate of interest, 751 and obliging the nation to pay that interest from rent and the 752 ordinary rate of profits, which are much lower than interest, for 753 the reasons heretofore stated. The necessary consequence of such 754 a system is gradually the transfer to the public creditors the 755 use or beneficial interest in all the property of the nation, and 756 must ultimately cause a national bankruptcy. 757 The question has been much discussed among the politicians 758 of England, whether their national stock can be redeemed, or in 759 other words, whether the national debt can be paid off; and what 760 the effect of paying it off, would be upon national wealth and 761 prosperity. For the accomplishment of this object various 762 expedients have been proposed. It is not my intention to examine 763 these various expedients, or compare their respective merits. My 764 knowledge of the subject is not sufficiently minute to justify 765 the undertaking, nor is the subject itself of sufficient 766 importance to an American politician to require it. It may 767 however be well to state some few general principles respecting 768 it. 769 Upon this subject it is always to be recollected that the 770 public creditors are tenants in common, in fact, if not in form, 771 with the public debtors, or property-holders, in all their 772 taxable property. That the title of the one, both in law and 773 equity, is as valid, as the title of the other, and that any law 774 which should operate to extinguish the title of the public 775 creditors, without a fair compensation, would be equally unjust 776 with a law which should extinguish the title of the public 777 debtors to their property, and turn them out of the possession. 778 The nation has a right to redeem the stock according to the terms 779 of the contract with the public creditors, but no right whatever 780 to take the property of the creditors and give it to the debtors, 781 any more than to take the property of the debtors and give it to 782 the creditors. 783 Some politicians have supposed, that if the national debt 784 was , as the phrase is, it would relieve the nation from 785 its present distresses. They reason about as wisely as a surgeon 786 would, who seeing a patient afflicted with , should 787 propose to relieve him by amputating a leg. A principal evil of 788 the national debt of England, arises from the unequal division of 789 property which it causes, and spunging the debt would have the 790 effect of aggravating the evil tenfold. By extinguishing the 791 title of the public creditors in the property of the public 792 debtors, it would in effect transfer to the latter all the 793 property of the former. It would not give a foot of land to the 794 poor, nor put a cent of money in their pockets, nor would it 795 raise the price of labour, but on the contrary lower it; for it 796 would not increase the demand for labour.-- There would be no 797 more work required after the debt was spunged, than before, and 798 indeed, not as much, for the consumption would not be as great.-- 799 The public creditors whose means had been thus violently taken 800 from them, would not have wherewithal to pay for so great a 801 quantity of the comforts, and perhaps, could not even supply 802 themselves with the necessaries of life. That part of the 803 community whose property had been so suddenly increased, in 804 consequence of spunging the debt, would not as suddenly increase 805 their consumption of the necessaries and comforts of life. The 806 consequence would be, that as the consumption of the country 807 would be greatly diminished, the demands for labour would be 808 diminished in the same proportion; and not only this, but the 809 quantity of labour, that is, the number of those who must live by 810 their labour, must also be increased. There would be a , and in the opinion of those who maintain 813 that either of these constitute national wealth, spunging the 814 debt, would, perhaps, promote national wealth. But if national 815 wealth consists in every able bodied man, being able to procure 816 for himself and family, at least the necessaries of life, by his 817 labour, spunging the debt would be an act of desperate madness, 818 and instead of lessening, would aggravate the distress of the 819 nation tenfold. 820 As then a national debt is a public evil, and as the evil 821 cannot be cured, by the violent act of spunging, the next inquiry 822 is, whether it can be redeemed. 823 One who has witnessed the operation and effects of winding 824 up the concerns of a little, contemptible, broken bank, may form 825 some idea of the operation and effects of redeeming the public 826 stock of England, or of paying of the public debt. It usually 827 takes several years to wind up the concerns, and pay off the 828 stockholders of a bank of a few hundred thousand dollars, and it 829 could not be done even so soon, but for the facilities afforded 830 to the debtors of the bank, to transfer their debts to other 831 banks. The effect also of paying off the stockholders, is in a 832 great measure neutralized, by the facility they have of re- 833 investing their money in other bank stock. Still, these small 834 things enable us to form more distinct and accurate ideas of 835 large ones, as an artificial globe enables us to form more 836 accurate ideas of the globe we inhabit. 837 There is, however, this difference in the two case, in 838 favour of national stock. The debtors to a bank, owe usually much 839 greater in amount, in proportion to their means of paying, than 840 the debtors to the nation; and the difficulty of paying, depends 841 not upon the number of debtors, or the amount of the stock, but 842 upon the means of the debtor for paying. On the part of the 843 debtors, therefore, there might be less difficulty in redeeming 844 the national stock, than the debtors of a bank, would find in 845 paying off the stockholders. 846 The difficulty of redeeming a national debt does not, as is 847 generally supposed, lie with the public debtors, or property 848 holders, for it would not, probably, take more than twenty-five 849 or thirty per cent of all the property in England, to pay the 850 public debt; in other words, the interest of the public 851 creditors, in the property of England, does not probably amount 852 to more than a third or fourth of the value of the property. The 853 debtors, therefore, in paying off the public debt, would not have 854 more than a third or a fourth of their property to redeem, and it 855 would seem, that a whole people might do that in fifty years, at 856 most. It would seem, that every property holder in the kingdom, 857 might at least pay one per cent of his debt a year, besides 858 paying the interest on that debt. But if the public debt does not 859 amount to more than a fourth of all the property in the kingdom, 860 the property holders, in order to pay off the debt in fifty 861 years, would only have to pay one half per cent of their debt a 862 year, besides paying the interest on that debt. A general 863 contribution then, of all the property holders of one per cent a 864 year, on all their property, besides paying the interest, would, 865 at farthest, pay off the national debt of England in fifty years. 866 If the property holders then see fit, there seems to be no 867 difficulty in paying off that debt within a moderate period, 868 without much inconvenience to themselves. 869 But the most severe operation of paying off the national 870 debt, would be on the public creditors. To compel them to sell 871 their full amount of property, (for property they have, although 872 they do not hold it by any of the common law titles, assurances, 873 or conveyances,) and to receive their pay in money, at a price 874 fixed half a century ago, which, at the time payment is made, is 875 perhaps but a nominal price, may be upon them a very great 876 hardship. The very effect of paying off the debt, would be, for a 877 time, to lower the value of money, and raise the price of land 878 and other property. Those creditors who had been paid in money, 879 must vest it in something, and they could vest it in nothing but 880 property. The demand for property would therefore be increased, 881 and of course, would rise in value. The creditor would be 882 compelled to sell his property at a fixed price, which cannot 883 vary, and be obliged to re-invest his money in property, which 884 has no fixed price, but which is constantly augmenting in value, 885 in proportion to demand. 886 The legal title of all the property in the country, is in 887 the public debtors-- the public creditors have a sort of 888 incorporeal hereditament, or legal entity in that property, which 889 the very act of paying off the public debt, extinguishes. The 890 very effect then, of paying off any portion of that debt, is to 891 relieve the property of the kingdom from a charge equal to the 892 amount of the debt paid off, and to put the public creditors in 893 possession of such a quantity of money, as there as been, of the 894 debt, paid. This must immediately be invested in some kind of 895 property, in order to procure to the owner a revenue -- he must 896 either loan it, or he must reinvest it in property. If he loans, 897 the borrower must invest it in property. 898 The demand for property is therefore increased, but the 899 quantity in market remains the same. The consequence must be a 900 rise in value. Money being the standard, or weight, by which the 901 value of property is ascertained, it follows, that whenever 902 property rises, the value or weight of money must sink. Property, 903 therefore, which the public debtor has for sale, is raised in 904 value, and money, which the public creditor is put in possession 905 of, by the act of paying off the public debt, is sunk in value, 906 by the very same operation; and this rise of the one, and fall of 907 the other, is greater or less, in proportion to the rapidity with 908 which the public stock is redeemed. 909 If paid off gradually, so as to give time for the money 910 which the creditor is put in possession of, to be prudently 911 invested before another quantity comes into market, something 912 like an equilibrium may be preserved between the present value of 913 money and property. 914 It is therefore, the interest of the property holders, or 915 public debtors, to pay off the debt as fast as possible. It is 916 for their interest to lay an income tax, and every other species 917 of tax, which shall cause the public debt to be paid off, with 918 the greatest possible rapidity. It is for the interest of the 919 stockholders, or public creditors, not to have the debt paid off 920 at all; or if paid off, to have it paid off as gradually as 921 possible. Public stock is the most convenient property they can 922 own, although not so for the nation. 923 The misfortune is, that the public creditors understand 924 their interest much better than the public debtors or property 925 holders, and they have besides, more influence with the 926 government. When the property holders come to understand their 927 interests as well as the public creditors, they will be the 928 advocates for heavier taxes, for the purpose of paying off the 929 public debt.+2+ 930 931 +1+ Wealth of Nations, book v. chap. 3. 932 933 +2+The following observations of Mr. Malthus so nearly 934 coincide with my own views of this subject, that I hope the 935 intelligent reader will excuse me for quoting them. "I am far 936 from being insensible to the evils of a great national debt. 937 Though in many respects, it may be a useful instrument of 938 distribution, it must be allowed to be a very cumbersome and very 939 dangerous instrument. In the first place, the revenue necessary 940 to pay the interest of such a debt, can be raised only by 941 taxation, and as this taxation, if pushed to any considerable 942 extent, can hardly fail of interfering with the powers of 943 production, there is always a danger of impairing one element of 944 wealth, while we are improving another. A second important 945 objection to a large national debt, is the feeling which prevails 946 so very generally among all those not immediately concerned in 947 it, and consequently among the great mass of the population, that 948 they would be immediately and greatly relieved by its extinction, 949 and whether this impression be well founded or not, it cannot 950 exist without rendering such revenue in some measure insecure, 951 and exposing a country to the risk of a great convulsion of 952 property. A third objection to such a debt is, that it greatly 953 aggravates the evils arising from changes in the value of money. 954 When the currency falls in value, the annuitants, as owners of 955 fixed incomes are most unjustly deprived of their proper share of 956 the national produce; when the currency rises in value, the 957 pressure of the taxation necessary to pay the interest of the 958 debt may become suddenly so heavy, as greatly to distress the 959 productive classes, and this kind of sudden pressure must very 960 much enhance the insecurity of property vested in public funds." 961 As to spunging the debt, Mr. Malthus says, "it is generally 962 thought that all would be well, if we could but be relieved from 963 the burden of our debt. And yet I am perfectly convinced, that if 964 a spunge could be applied to it to-morrow, and we could put out 965 of our consideration the poverty and misery of the public 966 creditors, by supposing them to be supported comfortably in some 967 other country, the rest of the society, as a nation, would be 968 impoverished. It is the greatest mistake to suppose that the 969 landlords and capitalists would either at once, or in a short 970 time, be prepared for so great an additional consumption as such 971 a change would require." . p. 374, 375. 972 ============================