The peculiarities of the United States’ recurrent debt ceiling disputes stem from the Great War, when Congress resolved to allow the Department of the Treasury to issue bonds up to a certain limit. To that point, Congress was itself charged with clearing each new issue of government debt, a circumstance regarded as unacceptable given the exigencies of war. With last month’s conclusion to the most recent episode of the debt ceiling drama, ending a ‘shutdown’ of the federal government, talking heads have busied themselves propagating their favoured panaceas for how to prevent this from happening again.
Alexander Hamilton, the United States’ first Secretary of the Treasury, wrote infamously that ‘[a] national debt, if it be not excessive, will be to us a national blessing’, adding that it would ‘create a necessity for keeping up taxation to a degree which . . . will be a spur to industry.’ Hamilton’s words represent the ideas of those victorious in the early struggle for the soul of America, one that contrasted more decentralist, agrarian instincts with the towering mechanisms of remote and concentrated power. Hamilton and the powerful mercantile interests he stood for understood what confounds today’s supposed experts and public intellectuals - that a tumefied national government with a gluttonous appetite for ‘public’ debt is a serviceable tool for a connected elite in business and government. The days of the early United States knew not the absurd and ubiquitous myth that the state is a taming or subduing force forever pulling on the reins of commercial interests. Instead, Hamilton and his ilk favored a commanding and indeed majestic state precisely because they favoured certain influential special interests.
In Human Action, Ludwig von Mises explained the attitude of the economic establishment towards government debt, noting that, ‘lazy and fully conscious of [their] own inefficiency’, they ‘preferred investment in bonds of the public debt because they wanted to be free from the law of the market.’ Large banks are among those uniquely positioned to turn such proliferation of government debt to good use, producing an unwholesome symbiosis that belongs to no single political party. That default is now unavoidable in practice is a direct result of the Hamiltonian system embraced by both major American political parties.
We may contemplate default in at least a pair of different senses, the strict, technical one, which is a simple matter of the terms of the debtor-creditor relationship, and default as a practical phenomenon, as a matter of fact. Default in this latter sense is actually occurring all the time in the US; it occurs with some regularity through what economist James E. Alvey recently phrased ‘concealed default through inflation’. Inflation, of course, is a species of taxation, though a less conspicuous one than most other forms, disguising itself in the esoterica of monetary policy. Inflation silently robs bondholders and taxpayers alike, all while politicians insist that the elimination of this or that dear programme will spell disaster for ordinary Americans.
Ironically, the poverty and want that, for example, the United States’ social welfare programmes address and purport to alleviate are a consequence of the state’s sustained and multifarious interventions at every level of economic activity. Such attempts to tweak and adjust ‘the economy’, which is not a distinct, addressable entity at all, generate the same disastrous disconnects as endeavours at full central planning. State spending sweeps society’s consensual alternatives to the margins, siphoning resources from enterprises that consumers would choose and saddling future generations with debts they would never freely acquire.
It is a fundamental principle of the common law of contracts that those made for a criminal purpose are void ab initio, unenforceable due to their very nature. Questions about the morality of a government default ought to be considered in the light of this principle. Because while it may be quite wrong to break promises made within the confines of a legitimate free market, the ethnical parameters we are faced with in the present case are rather less definite, muddled by a reality of an imperious government that has betrayed Americans. National debt is not and never has been a ‘national blessing’, and taxation by definition cannot be a ‘spur to industry’.
Hamilton’s words reverberate in the disinformation both Republicans and Democrats employ to saddle the American people with still more poisonous debt. The latest détente between the two ostensibly opposed sides does not mean a real solution; only a radically different attitude toward both fiscal and monetary policy - a genuine adherence to legitimate free market principles - could begin to rectify the crisis scenario now facing the United States.