Repudiating thenNational Debtnby Murray N. RothbardnIn the spring of 1981, conservative Republicansnin the House of Representativesncried. They cried because, in thenfirst flush of the Reagan Revolution thatnwas supposed to bring drastic cuts in taxesnand government spending, as well asna balanced budget, they were being askednby the White House and their own leadershipnto vote for an increase in the statutorynlimit on the federal public debt,nwhich was then scraping the legal ceilingnof one trillion dollars. They cried becausenall of their lives they had voted against annincrease in public debt, and now they werenbeing asked, by their own party and theirnown movement, to violate their lifelongnprinciples. The White House and its leadershipnassured them that this breach innprinciple would be their last: that it wasnnecessary for one last increase in the debtnlimit to give President Reagan a chancento bring about a balanced budget and tonbegin to reduce the debt. Many of thesenRepublicans tearfully announced thatnthey were taking this fateful step becausenthey deeply trusted their President, whonwould not let them down.nFamous last words. In a sense, the Reagannhandlers were right: there were nonmore tears, no more complaints, becausenVITAL SIGNSnthe principles themselves were quickly forgotten,nswept into the dustbin of history.nDeficits and the public debt havenpiled up mountainously since then, andnfew people care, least of all conservativenRepublicans. Every few years, the legalnlimit is raised automatically. By thenend of the Reagan reign the federal debtnwas $2.6 trillion; now it is $3.5 trillion andnrising rapidly. And this is the rosy sidenof the picture, because if you addnin “off-budget” loan guarantees andncontingencies, the grand total federal debtnis $20 trillion.nBefore the Reagan era, conservativesnwere clear about how they felt aboutndeficits and the public debt; a balancednbudget was good, and deficits and thenpublic debt were bad, piled up by freespendingnKeynesians and socialists, whonabsurdly proclaimed that there wasnnothing wrong or onerous about thenpublic debt. In the famous words of thenleft-Keynesian apostle of “functional finance,”nProfessor Abba Lerner, there isnnothing wrong with the public debt becausen”we owe it to ourselves.” In thosendays, at least, conservatives were astutenenough to realize that it made an enormousnamount of difference whether—slicingnthrough the obfuscatory collectivennouns—one is a member of the “we” (thenburdened taxpayer) or of the “ourselves”n(those living off the proceeds of taxation).nSince Reagan, however, intellectualpoliticalnlife has gone topsy-turvy. Conservativesnand allegedly “free-market”neconomists have turned handsprings tryingnto find new reasons why “deficits don’tnmatter,” why we should all relax and enjoynthe process. Perhaps the most absurdnargument of Reaganomists was that wenshould not worry about growing publicndebt because it is being matched on thenfederal balance sheet by an expansion ofnpublic “assets.” Here was a new twist onnfree-market macroeconomics: things arengoing well because the value of governmentnassets is rising! In that case, why notnhave the government nationalize all assetsnoutright? Reaganomists, indeed, camenup with every conceivable argument fornthe public debt except the phrase ofnAbba Lerner, and I am convinced thatnthey did not recycle that phrase becausenit would be difficult to sustain with anstraight face at a time when foreign ownershipnof the national debt is skyrocket­nnning. Even apart from foreign ownership,nit is far more difficult to sustain thenLerner thesis than before; in the latenI930’s, when Lerner enunciated his thesis,ntotal federal interest payments onnthe public debt were one billion dollars;nnow they have zoomed to $200 billion,nthe third largest item in the federal budget,nafter the military and Social Security:nthe “we” are looking ever shabbier comparednto the “ourselves.”nTo think sensibly about the public debt,nwe first have to go back to first principlesnand consider debt in general. Put simply,na credit transaction occurs when C, thencreditor, transfers a sum of money (sayn$1,000) to D, the debtor, in exchange forna promise that D will repay C in a year’sntime the principal plus interest. If thenagreed interest rate on the transaction isn10 percent, then the debtor obligates himselfnto pay in a year’s time $1,100 to thencreditor. This repayment completes thentransaction, which in contrast to a regularnsale, takes place over time.nSo far, it is clear that there is nothingn”wrong” with private debt. As with anynprivate trade or exchange on the market,nboth parties to the exchange benefit, andnno one loses. But suppose that the debtornis foolish, gets himself in over his head,nand then finds that he can’t repay thensum he had agreed on? This, of coursenis a risk incurred by debt, and the debtornhad better keep his debts down to whatnhe can surely repay. But this is not a problemnof debt alone. Any consumer maynspend foolishly; a man may blow his entirenpaycheck on an expensive trinket andnthen find that he can’t feed his family.nSo consumer foolishness is hardly a problemnconfined to debt alone. But there isnone crucial difference: if a man gets innover his head and he can’t pay, the creditornsuffers too, because the debtor hasnfailed to return the creditor’s property.nIn a profound sense, the debtor who failsnto repay the $1,100 owed to the creditornhas stolen property that belongs to thencreditor; we have here not simply a civilndebt, but a tort, an aggression againstnanother’s property.nIn earlier centuries, the insolventndebtor’s offense was considered grave, andnunless the creditor was willing to “forgive”nthe debt out of charity, the debtor continuednto owe the money plus accumulatingninterest, plus penalty for continu-nJUNE 1992/49n