Thesis Number: #5 (Page 7 of 9)
Ethical Economics?
The pathological nature of sovereign debt has been understood for at least two centuries. Criticism by moral philosophers began in the 18th century (Hudson 2012). One of the most eccentric objectors was a peer of the English realm, the 12th Duke of Bedford, who penned his critique in 1947.
Hastings Russell was born in 1888. He witnessed both the first and second world wars. He turned into a pacifist known by the nickname of Spinach Tavistock. The national debt was an “absurdity” (Russell 1953).
In The Absurdity of the National Debt, Russell tracked how government debt mounted inexorably ever since the formation of the Bank of England.
- Between 1694 and 1914, debt increased from the original £1.2m to £700m. Over the 70 years up to 1914, about £1.5bn had been levied in taxes to pay interest to the State’s creditors.
Russell censured this as “mad” and “unfair”. From the taxpayers’ viewpoint, so it was. From the viewpoint of bankers and rent-seekers, this was lucrative business!
- Between 1914 and 1918, the national debt rose from £700m to £7bn, at which level it remained until 1939. Average annual interest charges over this 21-year period amounted to £240m, without reducing the debt.
The combination of war and compound interest worked its magic.
- By 1947, the debt stood at £20bn and “It is indeed doubtful if it can stop rising!” Russell concluded.
Russell’s critique made no impression on people who otherwise objected to the tax burden. He challenged them with this observation:
Educated people who were wealthy, or had once been wealthy, never had the sense to ask themselves why, when the nation’s power to produce goods and services was greater than before, they, because of increased taxation, must be content with less; nor did they ever enquire why the poor could not be given a larger amount of the increased wealth in goods, without their own standard of living being reduced.
Critics of the tax burden generally assume that this burden was due to increased spending on public services. Wrong, explained Russell. Such spending was “a mere flea-bite by comparison with the amount they had to pay in order to provide interest on the ever-growing National Debt”.
Russell described the outcome in these terms: “Thus it came about that the spirit of class hatred and antagonism tended to increase, largely because both sides were putting the blame in the wrong place!”
Russell’s financial calculations were impeccable. His sociological analysis of the cultural context in which the fraud was perpetrated was flawed, however. The National Debt was not absurd. It was an instrument of State, a key tool for redistributing income to those who owned land, or who exercised the power to capture rents by exercising monopoly power.