Title:Public Debt in a Democratic Society
- 66 Hardcover pages
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Rereleased AEI Classic
In Public Debt in a Democratic Society, Professors Buchanan and Wagner have presented some of the public issues involved in the growth of public debt. While they have summarized the growth, composition, and ownership of national debt, the authors are mainly concerned with the clarification of ideas. Thus, early in the study they discuss the relation between public debt and money--a subject of widespread confusion. As the authors state:
Debt creation and money creation are often used synonymously in discussions of public policy, with much analytical confusion. Many inferences, based on the equivalence of debt and money, often break down when their fundamental distinctiveness is recognized.
The authors note confusion between money and the debt and the means of their creation is found throughout the post-Keynesian literature on countercyclical economic policy.
. . . Public debt creation involves an exchange of purchasing power between the borrower (the government) and the lender (any individual or firm that buys government securities). By contrast, money creation involves no such exchange, it is simply a creation of new purchasing power.
Professors Buchanan and Wagner discuss the management of the national debt, important because the levels of prices, income, and employment can be affected by changes in debt management policy. They analyze the controversial question about the burden of the public debt and ask: "Who sacrifices the goods and services necessary to provide the public services that are financed through the issue of public debt?" Is there a burden to the public debt and, if so, when does the burden occur? The elementary principles are straightforward enough, they state, but it is also necessary to examine and refute the more complex and sometimes fallacious counter-arguments.
The study deals with important issues concerning the creation and retirement of public debt, including questions of when governments should borrow and when public debt should be repaid.
The authors conclude that a deliberate policy of systematic repayment of national debt from tax-financed budgetary surpluses seems beyond the realm of current political plausibility. They predict that at the national level the U.S. will probably continue to experience budget deficits more or less continuously as it has over the postwar years. This means a gradual increase in both the nominal size of the national debt and in the real obligation that the debt represents.