#WealthofTweets: Book 5.3
Of Public Debts
7 Mar • 24 tweets • adamsmithworks/status/1368570398862872576
Can it really be...the last chapter of #AdamSmith's #WealthOfNations? Were we geographically proximate, we'd pinch each other. We must be dreaming! (V.iii.) #WealthOfTweets #SmithTweets
This chapter is on government financing through debt. That sounds like a bit of a slog, but it's not so bad if you think of it as 40 pages of low-key (sometimes not so low-key) #SmithSnark. (V.iii.) #WealthOfTweets #SmithTweets
It's been so long since Smith explained that in pre-commercial society the rich had no way to spend their 💰 but on dependents—commerce gave them somewhere to spend 💰 and thus freed their dependents, that he has to explain it again. (V.iii.1) #WealthOfTweets #SmithTweets
Without peace, order, and good government, there was also an incentive to hoard treasure for a rainy day. Or, like, a war. (V.iii.1) #WealthOfTweets #SmithTweets
Once you have peace and security, you can have commerce. Commerce doesn't just give rich folk somewhere to spend their 💰, it also creates the sort of people who can lend to the government. (V.iii.2–9) #WealthOfTweets #SmithTweets
Having a bunch of ready lenders really puts a dent in the argument for a treasure hoard. Plus you can buy pretty pretty things with all that 💰💰💰. Sovereigns, just like anyone else would, buy the pretties and give up hoarding. (V.iii.2–9) #WealthOfTweets #SmithTweets
Unfortunately, knowing that they can borrow means governments don't just give up hoarding. They give up saving in time of peace, too. They spend what revenue is available to them. (V.iii.2–9) #WealthOfTweets #SmithTweets
If you don't save up money and then you go and start a war anyway, you need a lotta cash. Raising money through taxes takes time. And, like, there's a war on. Luckily, governments are not frugal borrowers—lenders are happy to oblige. (V.iii.2– 9) #WealthOfTweets #SmithTweets
(Smith also says that lenders will lend to the government because they trust it and understand that it's the real source of the stability that lets them accumulate wealth...somehow we think it's more to do with the favourable terms.) (V.iii.2–9) #WealthOfTweets #SmithTweets
Smith thinks the oppressive debts that all the nations of Europe have accumulated will probably eventually ruin them. (V.iii.10) #WealthOfTweets #SmithTweets
For a while, governments issue debt, some that pays interest, some that doesn't. But eventually they have to start mortgaging revenue streams, like taxes. (V.iii.11–12) #WealthOfTweets #SmithTweets
Britain hasn't mortgaged the land or malt tax, but anticipates and spends them before they come in. All other revenue streams, says Smith, have been mortgaged. (V.iii.13) #WealthOfTweets #SmithTweets
At first, the mortgaging of taxes was meant to be temporary. Smith lists times the temporary mortgages were prolonged. There were many times. Then they just went ahead and made the mortgages permanent. (V.iii.14–25) #WealthOfTweets #SmithTweets
(Now we wish Bob Higgs was on Twitter.)
Governments can keep borrowing (and Britain's does) because new taxes are unpopular. "To relieve the present exigency is always the object which principally interests those immediately concerned with the administration of publick affairs." (V.iii.26) #WealthOfTweets #SmithTweets
Sometimes governments legislate a lower interest rate, making debt cheaper to service. In this case, they start a "sinking fund" for the money they save on interest to pay off their debt. But then they normally mortgage or spend it. (V.iii.27–28) #WealthOfTweets #SmithTweets
Governments also borrowed on annuities (set annual payments) that came in terms of years, terms of lives, and the perpetual sort. And also tontines. (V.iii.29–36) #WealthOfTweets #SmithTweets
Smith vs. the French: til the very end of this book. Here, a detailed explanation (involving women refusing to marry French men) of why the French have no cares that extend past the end of their own lives. Oof. (V.iii.34–36) #WealthOfTweets #SmithTweets
Government spending is set by its revenue, not concern for its proper role. Even in time of peace. Rather than make this explicit by instituting an unpopular and embarrassing new tax, they just borrow to fund wars. (V.iii.37) #WealthOfTweets #SmithTweets
The lack of an unpopular and embarrassing new tax means that citizens not directly affected by the fighting see wars as entertainment. They don't even have to feel the burden of its cost. They may even be sad when peace returns. 😬 (V.iii.37) #WealthOfTweets #SmithTweets
Even if a government institutes a new tax to pay for a war, the end of the war doesn't bring with it relief from the tax. (V.iii.38) #WealthOfTweets #SmithTweets
You don't need a war to cause this problem, though. Because governments spend whatever revenue comes in, extraordinary expenses in peacetime create the same problem. (V.iii.39–40) #WealthOfTweets #SmithTweets
Britain's debt. Smith thought it was a lot.
*laughs in 21st century debt burden* (V.iii.41–46) #WealthOfTweets #SmithTweets
We're about halfway through V.iii and Smith is about to pivot from facts about debt to debt myths and solutions, so we're gonna leave you with one more cliffhanger. Tomorrow we will conclude (OMG) #WealthOfNations🥳 AND #WealthOfTweets🥳!• • •
8 Mar • 34 tweets • adamsmithworks/status/1368943787800731648
Yesterday we were excited but today we're feeling a little misty-eyed, to tell you the truth. 🥺🥺🥺 We'll be wrapping up #AdamSmith's #WealthOfNations with the end of Book V, Chapter 3, on public debts. (V.iii.47–92) #WealthOfTweets #SmithTweets
Also yesterday: Smith laid out the situation of European (and especially British) government debt. It seemed bad! But not everyone thought so! Some people argued that debt effectively adds to a country's capital. Nah, says Smith. (V.iii.47–51) #WealthOfTweets #SmithTweets
There's a set amount of capital available in any given country. The government borrowing can't create more, it can only divert some of what there already was (to less productive purposes!). (V.iii.47–51) #WealthOfTweets #SmithTweets
Other folks'll say that government debt is OK because it's just people in the country lending to each other. We, the SmithTweeters, think that the kids today call this "We owe it to ourselves". Nah, says Smith. (V.iii.51–52)
First of all, that's just a hot pile of mercantile system sophistry. Second, it's not like foreign countries don't own government debt. It's just a silly idea all around. (V.iii.52) #WealthOfTweets #SmithTweets
There's another argument that says public creditors have the right incentives to make sure the capital is used well because they need the country to do well enough to pay them. Nah, says Smith. (V.iii.53–56) #WealthOfTweets #SmithTweets
Public creditors want the government to pay its debts, but they don't have any of the knowledge, nor the decision making power, to ensure that land and capital are kept up and not degraded by over-borrowing by government. (V.iii.53–56) #WealthOfTweets #SmithTweets
Some people say that even though these methods of funding government have worked out badly everywhere else, Britain is better managed and has better revenue streams, so it'll be OK. Nah, says Smith. (V.iii.57–58) #WealthOfTweets #SmithTweets
Britain's tax system is better, but so long as government sets spending based on revenue, it will keep needing more. Even the best government will switch to bad taxes when it's exhausted all the good ones. (V.iii.57–58) #WealthOfTweets #SmithTweets
Don't assume that because Britain (or any country) is carrying its debt load well that it can carry a debt of any size or even deal well with a slightly larger debt. (V.iii.58) #WealthOfTweets #SmithTweets
Governments that really and truly run out of money can resolve the situation by declaring bankruptcy and pretending to pay their debts by devaluing the currency. (V.iii.59–65) #WealthOfTweets #SmithTweets
Devaluing the currency is a calamitous disgrace. It punishes people with money and rewards those deepest in debt to meet the needs of a negligent sovereign. (V.iii.59– 65) #WealthOfTweets #SmithTweets
Currency can be devalued by augmentation—openly changing the denomination of the currency, or by adulterating the currency—secretly changing the silver content to devalue it. (V.iii.59–65) #WealthOfTweets #SmithTweets
Both adulteration and augmentation are unjust. But augmentation is at least just open violence. Adulteration is treacherous fraud.
How do you really feel, Dr. Smith? (V.iii.59–65) #WealthOfTweets #SmithTweets
The only way any country will actually pay off its debt is either by raising a lot more revenue or reducing its expenses. Smith is probably annoyed that he has to tell anyone this. (V.iii.66) #WealthOfTweets #SmithTweets
Smith has some ideas about this (in addition to all the ideas he had about this in Chapter 2) involving extending taxation, freedom to trade, and representation to the colonies to make them proper provinces of the British Empire. (V.iii.68–77) #WealthOfTweets #SmithTweets
[We would go into detail about this, but the Canadian contingent of the SmithTweeters is distracted by the small American flag being waved around by our American counterpart.] (V.iii.68–77) #WealthOfTweets #SmithTweets
We will, though, take a moment for the comment on Black slaves, who Smith says are worse off than even the poorest Scottish or Irish citizen because they are enslaved. Even if they are well fed and provided with luxuries by their enslavers. (V.iii.77) #WealthOfTweets #SmithTweets
[And may we just point the attention of the @Edinburgh_CC to this particular moment in #AdamSmith's work as well as to the following few tweets in this thread??] "The Scottish poor are better off than a well-fed slave" is a very strong claim. Smith says poor Scottish mothers often lost 90% of their children to starvation. (I.viii.23) It was horrific to be poor. #SmithAgainstSlavery (V.iii.77) #WealthOfNations #SmithTweets
But Black workers, however well fed and supplied with luxuries, were enslaved. And the poor, however horrific their condition, are free.
Adam Smith 𝙝𝙖𝙩𝙚𝙙 slavery.
We, the SmithTweeters, say: damn straight. #SmithAgainstSlavery (V.iii.77) #WealthOfNations #SmithTweets
But we can't fangirl forever. (At least not here.)
Smith thinks that if making the colonies into provinces worked out, it might increase revenues by rather a lot and allow Britain to pay off its debt and reduce the tax burden. (V.iii.68–77) #WealthOfTweets #SmithTweets
[We,the SmithTweeters, think it's awfully convenient to say that this plan would pay off Britain's debt after spending the first 2/3 of this chapter explaining governments will spend however much they can get their hands on.] (V.iii.68–77) #WealthOfTweets #SmithTweets
Some people say that the American colonies can't be taxed because they don't have any gold or silver to pay their taxes. Nah, says Smith. (V.iii.78–87) #WealthOfTweets #SmithTweets
If anything, Smith's probably excited that Americans seem to agree with him about gold and silver: they're just commodities. If you have the means to buy them, you can get what you want. The Americans just don't want it. (V.iii.78–87) #WealthOfTweets #SmithTweets
Americans colonists have to send all their goods straight to Britain because they're in colonies. They don't need to sell them to Britain in exchange for gold or silver as they probably would under free trade. (V.iii.78–87) #WealthOfTweets #SmithTweets
(And if they did sell it to Britain for gold or silver, says Smith, mercantilists would have to think those goods were bad for Britain's economy #SmithSnark). (V.iii.78– 87) #WealthOfTweets #SmithTweets
Smith thinks that both the American colonies and Ireland would be obviously better off if they were proper provinces. We, the SmithTweeters, doubt that either the Irish or most American colonists agreed. (V.iii.88–90) #WealthOfTweets #SmithTweets
[We would go into detail about this, but the Canadian contingent of the SmithTweeters is worried by the violent fidgeting that Smith's claim that Americans owe everything to the Brits is inspiring in our American counterpart.] (V.iii.88–90) #WealthOfTweets #SmithTweets
Smith is less glowing in his description of how great it would be for the territories of the East India Company to become provinces but he does think they'd be less oppressed. He thinks that's a low bar. (V.iii.91) #WealthOfTweets #SmithTweets
And now some EPIC shade cast on British Empire, which has hitherto existed "in imagination only. "Smith says: Put up or shut up. Stop with this silly mercantilist nonsense and do yer jobs. (V.iii.92)
#WealthOfTweets #SmithTweets
That. Is. 𝙄𝙏. #WealthOfTweets #SmithTweets
What did we learn in Book V?
1. There's a proper role for government.
2. There are good ways to fund government.
3. Governments ignore 1 and 2. That makes debt. (It's bad.)
4. Death to the mercantile system or death to the British Empire. #WealthOfTweets #SmithTweets
And, finally, that maybe the real wealth...was the friends we made along the way? Thanks for sticking with us. SmithTweeters out! #WealthOfTweets #SmithTweets