The President and Congress have both promised us a balanced budget in the year 2002. The debt, at that time, will be somewhere between six and seven trillion dollars, which, assuming a seven percent interest rate, will cost close to $450 billion a year in interest. Each year, every year, forever. Is it plausible to think the new generation will pick up that perpetual burden? How can the country equitably deal the debt burden?

Debt can only be disposed of in five ways: one, by paying it off; two, by repudiating it; three, by inflation—which is a veiled repudiation; four, by conquering the creditor to cancel the debt or conquering a third party to seize sufficient wealth to pay off the debt; or, five, by large real growth which makes the debt service a smaller share of a growing pie. If large real growth is unlikely, and conquest unpalatable, only the first three methods are available. The classic approach is inflation. The United States, since the Vietnam War, has used consistent inflation, usually around three percent, to reduce our debt. Inflation can be a successful method if no new debt is incurred, but continuing large deficits, and the new borrowing to cover them, have overwhelmed the tactic.

The Founders, other than Hamilton, believed that a perpetual debt was incompatible with self-rule, since the current generation cannot be asked to pay for decisions they did not make. Thomas Jefferson, during his term, reduced the national debt by one-third despite paying cash to Napoleon for Louisiana. “If we go to war now,” Jefferson wrote to James Monroe in 1805, “I fear we may renounce forever the hope of seeing an end of our national debt. If we can keep at peace eight years longer, our income, liberated from debt, will be adequate to any war, without new taxes or loans, and our position and increasing strength put us hors d’insulte from any nation.” Jefferson, in 1804, listed cutting taxes, cutting expenses, and reducing the national debt as the highest accomplishment of his first term: “To do without a land tax, excise, stamp tax, and the other internal taxes, to supply their places by economies so as still to support the government properly and to apply $7,300,000 a year steadily to the payment of the public debt.” Jefferson foresaw that a debt policy, such as Hamilton fostered, would be complicated and promote the centralization of power. Jefferson wrote James Madison in 1796 that “the accounts of the United States ought to be, and may be, made as simple as those of a common farmer, and capable of being understood by common farmers.” Things did not turn out as Jefferson hoped.

Our economists, unlike Jefferson, fail to distinguish between private borrowing and public borrowing: they think the issue is whether the annual income stream (tax revenues) is able to support the annual interest cost. But the real issue is whether a $450 billion annual charge—with no return—is socially and politically sustainable. Does anyone think a 20- year-old earning $10 an hour, or $20,000 a year, can afford to pay $4,234 in federal and state income tax and Social Security tax? That amount, invested each year for 45 years at seven percent interest, would give a nest egg of $1,268,000. The present value of all the Social Security benefits he will receive, starting in 2041, assuming the system still exists, is an unimpressive $12,400. The present value of health benefits he will receive is $25,800, and of welfare benefits, $20,500. The difference between $59,700—the present value of all the benefits he will ever receive—and $1,268,000 is a very expensive government for someone making $ 10 an hour.

Can a government survive when so many resources are allocated to pay for inherited liabilities? Can a moral, orderly society survive if it does? The debt, because of doubts on both scores, destroys the value of the currency. The fear is that history will probably repeat itself, and the country will stoke up inflation to reduce the effective burden of an unsupportable debt. Inflation may stay within bounds, as it has, barely, for the past 20 years. Or it may run out of control and destroy the currency as it did in Weimar Germany in 1923. The Weimar inflation destroyed the middle class, the basis of any democracy, and made way for Hitler. Either way, when the currency’s value is unpredictable, individuals can’t plan for a child’s education, business cannot look very far ahead, and the country is disoriented.

Jefferson, in a September 6, 1789, letter to James Madison, said he thought it self-evident “that the earth belongs in usufruct [trust] to the living, that the dead have neither powers nor rights over it.” In 1823, Jefferson wrote to Thomas Earle, “That our Creator made the earth for the use of the living and not of the dead; that those who exist not can have no use nor right in it, no authority or power over it; that one generation of men cannot foreclose or burden its use to another, which comes to it in its own right and by the same divine beneficence; that a preceding generation cannot bind a succeeding one by its laws or contracts.” The current generation, in other words, holds the land as a life tenant does; he is entitled to cultivate the land and enjoy the fruits of it, but he can’t hurt the interest of those who are to come after. He should turn the land over in the same condition he received it. Each generation is the steward for the earth during its lifetime.

Assume, Jefferson wrote, that Louis XV borrowed so much from the bankers of Genoa that the interest on the debt came to equal the whole annual net profit of France: “Should the present generation of Frenchmen deed their property to the Genoese creditors and leave their homeland? No. They have the same rights over the soil on which they were produced, as the preceding generation had. They derive these rights not from their predecessors, but from nature.” No generation, by natural right, can oblige the next generation to pay its debts. If it could, it might, during its own time, “eat up the usufruct of the lands for several generations to come, and then the land would belong to the dead, and not to the living.”

Jefferson concluded that it would be “wise and just” for the Constitution to declare that “neither the legislature, nor the nation itself, can validly contract more debt than they may pay within their own age, or within the term of 19 years.” Not all borrowing, of course, leads to wasteful spending debt. Debt may be invested in beneficial infrastructure. The 1846 New York Constitutional Convention, applying Jeffersonian principles, provided that the state could contract no debt except by a law approved by a referendum. The debt, however, had to be for a single “work or object” and be accompanied by a new tax sufficient to pay interest and retire the debt within 18 years. Or the debt may be invested to acquire intangible assets—which the society considers beneficial—such as Pitt’s Napoleonic Wars and our World War II and Cold War. But, because of the absence of checks, spending is far more likely to be wasteful when borrowing is permitted. If a country runs on a pay-as-you-go basis, whatever mistakes it makes will be paid for by those who made the mistakes.

Moreover, the requirement of immediate payment for government programs acts as an efficient brake on governmental enthusiasm. Debt, since it requires no immediate taxes, removes the fundamental limitation that to fund a program for the benefit of one group, the money has to be taken from a different group. Under pay-as-you-go, the payers must currently pay what the payees will currently receive. The payers are apt to resist—the issue must be discussed—and some compromise reached.

With a borrowing policy, as Jefferson saw, the rules are entirely different. The consent of the governed is not necessary. The executive proposes a program but now he meets no effective opposition, since the legislature is equally happy to spend money today that will have to be repaid by future taxpayers. The viciousness of the borrowing policy is that the taxpayer of tomorrow is not represented by any of the parties at the table. The burden is easily cast upon the unrepresented future. Programs can go forward that the current taxpayers are unwilling to pay for. Unpopular programs—such as the Vietnam War, the Great Society, and the Savings and Loan bailout—can move ahead. Of course, when programs go ahead without the consent of the governed, they are likely to tear the country apart.

Jefferson believed that the debt-making power was too dangerous for the federal government. Since it could not be safely limited, it had to be prohibited. Jefferson wrote to John Taylor, on November 26, 1798: “I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government of the genuine principles of its Constitution: I mean an additional article, taking from the federal government the power of borrowing.” (Emphasis added.)

Jefferson said in 1816 that the people, “not the rich, are our dependence for continued freedom. And to preserve their independence, we must not let our leaders load us with perpetual debt.” If the leaders load us with such debt, we will then be taxed “in our meat and in our drink” till we must, like the English, live on “oatmeal and potatoes; have no time to think, no means of calling the mismanagers to account; but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow- sufferers.” We will, at that point, “have no sensibilities left but for sinning and suffering. Then begins, indeed, the war of all against all.”