Friday, August 22, 2008

US Treasury 'Manages' Its Debts?

Gerald P. O’Driscoll, Jnr. posts ‘Washington Is Quietly Repudiating Its Debts’ in the Wall Street Journal (22 August) HERE:

Will the U.S. Treasury repudiate its obligations to its creditors, be they citizens or investors around the world? Most observers would answer "no" without hesitation. But Congress, with the complicity of the White House and the Fed, has arguably embarked on a stealth repudiation.

In his famous treatise, "The Wealth of Nations," Adam Smith noted there had never been a "single instance" of sovereign debts having been repaid once "accumulated to a certain degree." We may have reached Smith's threshold.”

Possibly a rare good use of a quotation from Wealth Of Nations (WN V.iii.59: p 929).

The only problem that I can see is I am not sure if the US has reached that stage just yet, but it is appropriate that a financial journal raises the possibility of the issue arising.

Maybe Gerald P. O’Driscoll is slightly exaggerating Smith’s views in this instance. Here is the actual wording of the paragraph, which is slightly less definitive in that ‘never’ replaces Smith’s more cautious words, ‘I believe’:

When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and compleately paid. The liberation of the public revenue, if it has ever been brought about at all, has always been brought about by bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.’ (WN V.iii.59: p 929)

Those interested in handling public debts might care to read the whole of chapter III of Book V (‘Of Public Debts’) for Smith’s excellent historical account of the sorry behaviour of kings, emperors, and governments regarding the debts they or they predecessors contracted, and which given the historical precedents, were almost certain not to be repaid in full, though they were good for their interest payments while they lasted (allowing for the ravages of inflation, adulterated coinages, and assorted financial crises on even the value of the nominal interest payments).



Blogger Unknown said...

Thought you might find this WSJ article interesting, particularly since Adam Smith is used to make a larger point about work. Your thoughts on Woodlief's column would be interesting:
Hi-Ho, Hi-Ho: How Can I Teach

My Kids to Enjoy Work?

1:49 am  
Blogger Gavin Kennedy said...

Hi AAdolpho

Thanks for the tip. I have responded with my comments on the following post.

9:10 am  

Post a Comment

<< Home