One Nation Under DebtAuthor:
Scott F. Paradis
Copyright (c) 2011 Scott F Paradis
In light of our burgeoning national debt and impending financial catastrophe, Robert E. Wright points out that without 'the debt', what we know as the United States would likely not exist. During and after the revolution the states united as much under a financial obligation as they did under a banner and a constitution. The debt the population of rebels, transplants, and immigrants assumed from the nation\'s founding served as seed corn for economic growth and prosperity.
Wright offers two golden nuggets in his book 'One Nation Under Debt' making the, at times tedious, historical exploration of the establishment of the national debt most telling and fruitful: the debt brought and held the nation together at its most crucial hour; and the 'development diamond' is a viable tool to gage past achievements and to leverage for future success.
One thing everyone agreed on during the struggle for independence was that victory would require resources: men, equipment, arms - money. From the beginning, promises were made, some kept, others dismissed, that ultimately carried the day. Two prominent figures offered prescient views over the means of securing the resources to birth a nation. Thomas Jefferson lamented long-term debt amounted to, 'swindling futurity on a large scale'; while Alexander Hamilton claimed a national debt, of manageable size, was a 'national blessing.' Both views proved correct, but it was Hamilton who secured the first four score years.
Motivated by the desire to be free the founding fathers debated the three major options for raising funds: tax, sell assets, issue debt. Understanding the multiplying effect of debt Hamilton invoked the maxim, 'The more you borrow, the more friends you make.' The rebellious colonies, the confederation, and ultimately the United States were able to secure credit abroad and raise capital through debt issued to citizens. The diversity and liquidity of the government debt bond markets, coupled with a strong political commitment to repay the debt bolstered government credit and bound the nation together.
'The public debt served as the bridge between the nation\'s nonpredatory government and its emerging financial system.' A land of dreamers, risk takers, and entrepreneurs fueled by additional funds made available through debt accelerated economic growth. The system was so prosperous that during Andrew Jackson\'s presidency the people retired the debt. Within months of paying off the debt however, for a host of reasons, not the least of which was government mismanagement, the United States went into hock and has never looked back.
In modern times, 'The people, not as enlightened as they once were...Their leaders, now mere politicians instead of statesmen, began to accumulate massive new debts to ensure their popularity rather than to fend off encroachments upon liberty. As foretold, the blessings of debt became a great curse...' Wright has no illusions about the predicament the United States is in now, as he calls on none other than Adam Smith to define the requisites for state prosperity: peace, easy taxes and a tolerable administration of justice.
While we tend to look for easy solutions and simple direct relationships we erringly believe national wealth is a function of cash aid, Western culture, greater democracy, more education, less imperialism, more natural resources and greater stability - our modern democratic, free-market ideal. But these are not the factors that foster economic prosperity. Wright demonstrates only two things create wealth: trade and increases in efficiency. He introduces the 'development diamond' as a model to measure a country\'s propensity for economic prosperity.
To succeed economically a nation must have: good (nonpredatory) governance; a sound financial system; a creative / industrious bent; and effective managerial acumen. Good governance is the basis for the other three components of the 'development diamond', and at a minimum protects the lives, liberty and property of its citizens. Progressive, prosperous countries do not seek to secure more of the pie - they enlarge the pie. Failings in government lead to circumstances that serve to enrich the few at the expense of the many. A reality increasingly evident in the United States today.
Debt was a necessity uniting disparate interests into one nation. The debt, as a tool of good governance served to foster economic prosperity the likes of which had never been seen before. But, like with most human failings, discipline and moderation gave way to excess. The United States abandoned a viable model of development and sought instead to invoke easy, convenient solutions to complex, persistent challenges. Well, times have changed, and we must now change, more than ever, to keep from being overwhelmed by a blessing turned to curse - debt.
Scott F. Paradis, author of 'Promise and Potential: A Life of Wisdom, Courage, Strength and Will' http://www.promiseandpotential.com publishes 'Insights' available for free at http://www.c-achieve.com