More than thirty years ago—in 1928, to be precise— H. G. Wells published a minor propagandistic novel called “The Open Conspiracy.” Though I reviewed it at the time, I’ve forgotten now exactly what that open conspiracy was. But the description seems to fit with peculiar aptness something that is happening in the United States today. Our politicians, and most of our commentators, seem to be engaged in an open conspiracy not to pay the national debt—certainly not in dollars of the same purchasing power that were borrowed, and apparently not even in dollars of the present purchasing power.
There is of course no explicit avowal of this intention. The conspiracy is, rather, a conspiracy of silence. Very few of us even mention the problem of substantially reducing the national debt. The most that even the conservatives dare to ask for is that we stop piling up deficits so that we do not have to increase the debt and raise the debt ceiling still further. But anyone with a serious intention of eventually paying off the national debt would have to advocate overbalancing the budget, year in, year out, by a sizable annual sum.
Today one never sees nor hears a serious discussion of this problem. We see hundreds of articles and hear hundreds of speeches in which we are told how we can or should increase Federal expenditures or Federal tax revenues in proportion to the increase in our “gross national product.” But I have yet to see an article that discusses how we could begin and increase an annual repayment of the debt in proportion to the increase in our gross national product*
When we look at the dimensions the problem has now assumed, it is not difficult to understand the somber silence about it. If someone were to propose that the debt be paid off at an annual rate of $i billion a year, he would have to face the fact that at that rate it would take 289 years, or nearly three centuries, to get rid of it. Yet $1 billion a year is even now no trivial sum. Republican Administrations, after World War I, did succeed in maintaining something close to such a steady annual rate of reduction between 1919 and 1930; but they were under continual fire for such a “deflationary” policy. Because of such deflationary fears, one would hardly dare mention a higher rate today.
One suspects that there is at the back of the minds of many of the politicians and commentators who sense the dimensions of the problem an unavowed belief or wish. This is that a continuance of inflation will scale down the real burden of the debt in relation to the national income by a constant shrinkage in the value of the dollar, so reducing the problem to “manageable proportions.” Such a policy would be indignantly disavowed. But this is precisely what our reckless spending is leading to. On the debt we contracted twenty years ago we are paying interest and principal in 48-cent dollars. Are our politicians hoping to swindle government creditors by paying them off in dollars twenty years from now at less than half the purchasing power of the dollar today?
This trick, alas, has a long and inglorious history. I hope I may be forgiven for repeating here part of the quotation from Adam Smith’s “Wealth of Nations” that I made in Chapter 31. “When national debts have once been accumulated to a certain degree,” wrote Smith in 1776, “there is scarce, I believe, a single instance of their having been fairly and completely paid. The liberation of the public revenue, if it has been brought about at all, has always been brought about by a bankruptcy; sometimes by an avowed one, but always by a real one, though frequently by a pretended payment [i.e., payment in an inflated or depreciated monetary unit]. The honor of a state is surely very poorly provided for, when, in order to cover the disgrace of a real bankruptcy, it has recourse to a juggling trick of this kind, so easily seen through, and at the same time so extremely pernicious.”
Our government is not forced to resort, once more, to such a “juggling trick.” It is not too late for it to face its responsibilities now, and to adopt a long-term program that would eventually pay off its creditors with at least the present 48-cent dollar, without plunging us further into inflation or deflation.
[Excerpted from What You Should Know About Inflation]