ing nonpayment. Often, debtors werenclapped into jail until they could pay—na bit Draconian perhaps, but at least innthe proper spirit of enforcing propertynrights and defending the sanctity of contracts.nThe major practical problem wasnthe difficulty for debtors in prison to earnnthe money to repay the loan; perhaps itnwould have been better to allow thendebtor to be free, provided that his continuingnincome went to paying the creditornhis just due.nAs eariy as the 17th century, however,ngovernments began sobbing about thenplight of the unfortunate debtors, ignoringnthe fact that the insolvent debtors hadngotten themselves into their own fix, andnthey began to subvert their own proclaimednfunction of enforcing contracts.nBankruptcy laws were passed which, increasingly,nlet the debtors off the hook andnprevented the creditors from obtainingntheir own property. Theft was increasinglyncondoned, improvidence was subsidized,nand thrift was hobbled. In fact, with thenmodern device of Chapter 11, institutednby the Bankruptcy Reform Act of 1978,ninefficient and improvident managersnand stockholders are not only let off thenhook, but they often remain in positionsnof power, debt-fiee and still mnning theirnfirms, and plaguing consumers and creditorsnwith their inefficiencies. Modernnutilitarian neoclassical economists seennothing wrong with any of this; the market,nafter all, “adjusts” to these changesnin the law. It is true that the market cannadjust to almost anything, but so what?nHobbling creditors means that interestnrates rise permanently, to the sober andnhonest as well as the improvident; butnwhy should the former be taxed to subsidizenthe latter? But there are deepernproblems with this utilitarian attitude. Itnis the same amoral claim, from the sameneconomists, that there is nothing wrongnwith rising crime against residents ornstorekeepers of the inner cities. The market,nthey assert, will adjust and discountnfor such high crime rates, and thereforenrents and housing values will be lowernin the inner-city areas. So everything willnbe taken care of. But what sort of consolationnis that? And what sort of justificationnfor aggression and crime?nIn a just society, then, only voluntarynforgiveness by creditors would let debtorsnoff the hook; otherwise, bankruptcy lawsnare an unjust invasion of the propertynrights of creditors.nOne myth about “debtors’ relief” is thatndebtors are habitually poor and creditorsn50/CHRONICLESnrich, so that intervening to save debtorsnis merely a requirement of egalitariann”fairness.” But this assumption was neverntrue: in business, the wealthier thenbusinessman the more likely he is to bena large debtor. It is the Donald Trumpsnand Robert Maxwells of this worid whosendebts spectacularly exceed their assets. Interventionnon behalf of debtors has generallynbeen lobbied for by large businessesnwith large debts. In modem corporations,nthe effect of ever-tightening bankruptcynlaws has been to hobble the creditorbondholdersnfor the benefit of the stockholdersnand the existing managers, whonare usually installed by, and allied with,na few dominant large stockholders. Thenvery fact that a corporation is insolventndemonstrates that its managers have beenninefficient, and they should be removednpromptly from the scene. Bankruptcynlaws that keep prolonging the rule of existingnmanagers, then, not only invade thenproperty rights of the creditors; they alsoninjure the consumers and the entireneconomic system by preventing the marketnfrom purging the inefficient and improvidentnmanagers and stockholders andnfrom shifting the ownership of industrialnassets to the more efficient creditors.nNot only that; in a recent law review article,nBradley and Rosenzweig have shownnthat the stockholders, too, as well as thencreditors, have lost a significant amountnof assets due to the installation of Chaptern11 in 1978. As they write, “if bondholdersnand stockholders are both losersnunder Chapter II, then who are the winners?”nThe winners, remarkably but unsurprisingly,nturn out to be the existing,ninefficient corporate managers, as well asnthe assorted lawyers, accountants, and financialnadvisers who earn huge fees fromnbankruptcy reorganizations.nIn a ft-ee-market economy that respectsnproperty rights, the volume of privatendebt is self-policed by the necessity to repaynthe creditor, since no Papa Governmentnis letting you off the hook. In addition,nthe interest rate a debtor must payndepends not only on the general rate ofntime preference but on the degree ofnrisk he as a debtor poses to the creditor.nA good credit risk will be a “primenborrower,” who will pay relatively lowninterest; on the other hand, an improvidentnperson or a transient who has beennbankmpt before, will have to pay a muchnhigher interest rate, commensurate withnthe degree of risk on the loan.nMost people, unfortunately, apply thensame analysis to public debt as they do tonnnprivate. If sanctity of contracts should mlenin the world of private debt, shouldn’tnthey be equally as sacrosanct in publicndebt? Shouldn’t public debt be governednby the same principles as private? The answernis no, even though such an answernmay shock the sensibilities of most people.nThe reason is that the two forms ofndebt-transaction are totally different. IfnI borrow money from a mortgage bank,nI have made a contract to transfer mynmoney to a creditor at a future date; in andeep sense, he is the true owner of thenmoney at that point, and if I don’t paynI am robbing him of his just property.nBut when government borrows money,nit does not pledge its own money; itsnown resources are not liable. Governmentncommits not its own life, fortune,nand sacred honor to repay the debt, butnours. This is a horse, and a transaction,nof a very different color.nFor unlike the rest of us, governmentnsells no productive good or service andntherefore earns nothing. It can only getnmoney by looting our resources throughntaxes, or through the hidden tax of legalizedncounterfeiting known as “inflation.”nThere are some exceptions, ofncourse, such as when the governmentnsells stamps to collectors or carries ournmail with gross inefficiency, but the overwhelmingnbulk of government revenuesnis acquired through taxation or its monetarynequivalent. Actually, in the days ofnmonarchy, and especially in the medievalnperiod before the rise of the modem state,nkings got the bulk of their income fromntheir private estates—such as forests andnagricultural lands. Their debt, in othernwords, was more private than public, andnas a result, their debt amounted to nextnto nothing compared to the public debtnthat began with a flourish in the laten17th century.nThe public debt transaction, then, isnvery different from private debt. Insteadnof a low-time preference creditor exchangingnmoney for an lOU from a hightimenpreference debtor, the governmentnnow receives money from creditors, bothnparties realizing that the money will benpaid back not out of the pockets or thenhides of the politicians and bureaucrats,nbut out of the looted wallets and pursesnof the hapless taxpayers, the subjects ofnthe state. The government gets the moneynby tax-coercion; and the public creditors,nfar from being innocents, know fullnwell that their proceeds will come out ofnthat selfsame coercion. In short, publicncreditors are willing to hand over moneyn