Northampton, MA: Edward Elgar, 2017.322 pp. $126 (hardcover).

Dr. Richard M. Salsman’s book is an intellectual laser beam that offers clarity and precision in an important but neglected area of political and economic thought: public debt theory. The book’s title indicates the ambitious scope of the project, and the result matches the ambition. The book is engagingly written and structured in a concise, intuitive manner that traces the development of public debt theory from its earliest Classical era to the more recent Keynesian and Public Choice schools of thought.1

One thing in particular that makes Salsman’s discussion accessible and enjoyable to read is that he quotes writers at length, which enables readers to form their own conclusions about the ideas under discussion, rather than relying solely on Salsman’s assessments. This not only provides greater clarity; it also unearths some surprises. For example, I was surprised at the antipathy that many pro-free market classical economists have had toward any level of public debt. Adam Smith held that public debt “enfeebles” states and tended to “ruin” them, and he only reluctantly admitted that in the “exigency [of war] government can have no other recourse but in borrowing” (54).2

Anti-free market economist John Maynard Keynes is well-known for his antipathy toward creditors. He called bondholders “rentiers” and called for their “euthanasia” by having government drive interest rates down so low—as close to zero as possible—that these “rentiers” would be destroyed (9).3

This policy may sound familiar. Central banks, including America’s Federal Reserve, have deliberately kept short-term interest rates close to zero, a policy termed “financial repression.” Salsman explains why:

Zero-interest-rate policies (ZIRPs) [have been] in place in Japan since the mid-1990s and since 2008 in the United States, Britain, and the eurozone. . . . Artificially low public bond interest rates disguise the full cost of public borrowing just as public borrowing itself disguises the full cost of public spending; each reflect a policy of making a costly welfare state seem less costly to a democratic electorate than it really is. (253)

Salsman classifies public debt theorists into three categories that clarify their essential differences: pessimists, optimists, and realists. As one might expect, Salsman is a realist. As he explains, “Public leverage, for the realist, is neither inevitably disastrous nor metaphysically infinite”; whereas “pessimists seem continually dumbstruck that things aren’t deteriorating as much as they feared, while optimists seem perpetually surprised that things aren’t improving as much as they hoped” (260). . . .


1. Some representative economists from each era: Classical (1776 onward: Adam Smith, David Ricardo, and Jean-Baptiste Say), Keynesian (1930s onward: John Maynard Keynes, Alvin Hansen, and Abba Lerner), and Public Choice (1950s onward: James Buchanan and Richard Wagner).

2. Smith’s wariness of public debt made him a debt pessimist, explained below.

3. Keynes detested public bondholders (“rentiers”), but he nevertheless advocated an expansive role for public borrowing. He and his followers were debt optimists, explained below.

4. GDP stands for gross domestic product, a measure of the economy’s total output. Great Britain successfully paid down the debt on both occasions. Although its public debt is growing again, today Great Britain’s public debt to GDP ratio stands at about 50 percent.

5. Calculated from the consumer price index, January 1971–June 2016. Cumulatively, the reduction in real value since January 1971 is 84 percent.

6. There was a brief and rare modern exception from 1998 to 2001, when the U.S. government ran surpluses and politicians even considered paying down the national debt. It didn’t last. Large budget deficits due to the War on Terror after 2001, and especially due to expenditures related to the housing finance crisis after 2008, caused the national debt to nearly double from 57 percent of GDP in 2000 to 104 percent of GDP in 2016.

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