… is from page 435 of Jim Buchanan’s 2000 collection Debt and Taxes, which is Vol. 14 of the The Collected Works of James M. Buchanan; specifically, it’s from Jim’s Fall 1986 Journal of Law, Economics, and Organization article (co-authored with Viktor Vanberg) “Organization Theory and Fiscal Economics” (original ellipses, brackets, and emphasis; links added):
To argue, as Abba P. Lerner (see Buchanan, Public Principles, 12) did, that “for national debt which is owed by the nation to citizens of the same nation … [there] is no external creditor … We owe it to ourselves…” is to blur the fundamental distinction between the organized unit “state” and “the society” or “the economy.” If by “nation” Lerner meant the state, and by “we” all the citizens in their capacity as members of the state, then for what is called “national debt” there is an “external creditor,” namely, citizens in their private capacity, i.e., with those of their resources that remain outside the state’s domain, and the statement “We owe it to ourselves” is simply misleading. The imputed collectivity “we” (“the society,” “the economy”) simply does not exist as a “unit of account.” Only in the limiting case of a perfectly totalitarian system would the proposition “We owe it to ourselves” make sense.
Anthropomorphizing the collective – that is, assuming that this mythically single-minded collective possesses a set of ordered preferences that are analogous to a set of ordered preferences of a sort that is possessed and acted upon by each flesh-and-blood individual – and assuming, in addition, that actions by the state faithfully reflect and pursue these preferences, is a never-ending source of deep confusion.
If it is stipulated that Jones and Smith are one entity – that Jones and Smith are to each other much like a person’s left side is to that same person’s right side – then if Jones, say, steals $1,000 from Smith, no relevant harm is done. Jones and Smith are assured by some furiously typing professor that they “stole” it from themselves. Smith possesses $1,000 less than before; Jones possesses $1,000 more than before. Being, by assumption, the same entity – “Jonessmith” – this collective entity Jonessmith bothers itself unnecessarily if it should worry that it might be made worse off if its Jones part routinely snatches resources from its Smith part.
Likewise, if the Jones part borrows money from the Smith part: the furiously typing professor – who sees “Jonessmith,” rather than Jones and Smith – concludes that the Jones’s-part obligation to repay the Smith-part cannot possibly be a burden to “Jonessmith” because, well, Jonessmith is a single entity. It owes it to itself. Therefore, concludes the furiously typing professor, it is naive to worry about the amounts of money that the Jones part of Jonessmith owes to the Smith part of Jonessmeith – and, hence, equally naive to worry that the Jones part of Jonessmith might today be borrowing (quaint word here!) too much from the Smith part of Jonessmith.