NO ONE EVER TAKES THE PONY AWAY:

Perpetual Debt: From the British Empire to the American Hegemon (H.A. Scott Trask, January 27, 2004, Mises.org)

Bush officials have suggested that their "war on terror" will last many decades. Less than a month after 9-11, Defense Secretary Rumsfeld compared it to the "50-years, plus or minus" of Cold War with the Soviet Union. In March 2002, Secretary of State Powell warned that the war "may never be finished, not in our lifetime." A month later, Homeland Security Director Tom Ridge warned that the threat of terrorism "is a permanent condition to which this country must permanently adapt."

Thus, if the ruling elite has its way, and it shall, as the American people have no opinion on the matter, or can even be bothered to think about it, we are faced with at least half a century of intermittent war and a further augmentation of the national security state that has been draining our
wealth like a voracious vampire since 1950. There is no secret as to how they will finance it--by borrowing and inflating. If the Democrats are the party of "tax and spend," the Republicans are the party of "borrow and spend."

Since Prime Minister Sir Robert Walpole's introduction of the funding system in England during the 1720s, the secret was out that government debt need never be repaid. Just create a regular and dependable source of revenue and use it to pay the annual interest and the principal of maturing bonds. Then for every retired bond, sell a new one. In this way, a national debt could be made perpetual. Walpole's system proved its worth in financing British overseas expansion and imperial wars in the eighteenth and nineteenth centuries. The government could now maintain a huge peacetime naval and military establishment, readily fund new wars, and need not
retrench afterward. The British Empire was built on more than the blood of its soldiers and sailors; it was built on debt. The ever-growing debt had the ancillary benefit of attaching the interests of wealthy creditors to the government. This example was not lost on some leaders of the infant
American Republic, Alexander Hamilton for one.

The triumph of the funding system and its corollary of perpetual debt is undeniable. It rules the world. While there is some expressed concern about the size of the Bush deficits, almost no member of either the intelligentsia or the ruling elite has suggested, or even considered, paying
the debt down. Just consider the likelihood of congressmen agreeing to set aside $400 billion a year in a sinking fund instead of spending it on programs, projects, and overseas adventures designed to get him, or her, reelected. The possibility of it happening is as remote as that of an
American mountaineer summitting the highest peak on Mars.

This reminds us again of the passage from Macaulay's History of England:

At every stage of the growth of the debt the nation has set up the same cry of anguish and despair....[After the Napoleonic Wars] the funded debt of England...was in truth a fabulous debt; and we can hardly wonder that the cry of despair should have been louder than ever. Yet like Addison's valetudinarian, who continued to whimper that he was dying of consumption till he became so fat that he was shamed into silence, [England] went on complaining that she was sunk in poverty till her wealth showed itself by tokens which made her complaints ridiculous....The beggared, the bankrupt society not only proved able to meet all its obligations, but while meeting these obligations, grew richer and richer so fast that the growth could almost be discerned by the eye.

Apparently even Austrian economicsists can eventually be shamed into accepting reality.

Posted by Orrin Judd at January 27, 2004 9:56 AM