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Adam Smith on the Myth of ‘We Owe It to Ourselves’

Posted By Don Boudreaux On January 12, 2013 @ 2:45 pm In Adam Smith,Debt and Deficits,Myths and Fallacies,State of Macro | Comments Disabled

Here’s the great Scot writing in Book V, Chapter 3 [1] - on pages 926-927, Vol. 2, of the 1981 Liberty Fund edition [2] - of An Inquiry Into the Nature and Causes of the Wealth of Nations [3]:

In the payment of the interest of the public debt, it has been said, it is the right hand which pays the left.  The money does not go out of the country.  It is only a part of the revenue of one set of the inhabitants which is transferred to another, and the nation is not a farthing the poorer.  This apology is founded altogether in the sophistry of the mercantile system….

Unfortunately, this particular piece of mercantilist sophistry (like most pieces of mercantilist sophistry) seems nearly impossible to kill off [4].  Among the reasons for its immortality is that it sports a sufficiently visible patina of cleverness while simultaneously – with its mistaken focus on money as wealth – satisfying the prejudices of the economically ill-tutored man in the street.  And it doesn’t hurt that widespread acceptance of this myth eases the way for politicians to engage in what Jim Buchanan called [5] fiscal “debauchery.”

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URLs in this post:

[1] Book V, Chapter 3: http://www.econlib.org/library/Smith/smWN22.html#B.V,%20Ch.3,%20Of%20Public%20Debts

[2] 1981 Liberty Fund edition: http://www.amazon.com/Inquiry-Nature-Causes-Wealth-Nations/dp/0865970068/ref=sr_1_2?s=books&ie=UTF8&qid=1355945344&sr=1-2&keywords=adam+smith+wealth+of+nations+liberty+fund

[3] An Inquiry Into the Nature and Causes of the Wealth of Nations: http://www.econlib.org/library/Smith/smWNCover.html

[4] seems nearly impossible to kill off: http://krugman.blogs.nytimes.com/2011/12/28/debt-is-mostly-money-we-owe-to-ourselves/

[5] Jim Buchanan called: http://cafehayek.com/2013/01/quotation-of-the-day-518.html

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