18th Century Lessons for Today’s Debt Ceiling Crisis

Posted by on Jul 30, 2011 in All Posts, American Revolutionary War | No Comments

Same old, same old?  I couldn’t help but identify similarities and connect some dots between this 18th century essay, published in the 1766 January 23 edition of THE PENNSYLVANIA JOURNAL, at the height of Stamp Act resistance and the beginning of the American Revolution, to today’s debt ceiling/default crisis.  Perhaps this 18th century newspaper article can shed some light and perspective on the potential consequences of massive debts and default.

To the PRINTER

IT is of great importance that the lovers of liberty be convinced, that if Great-Britain should push matters to the last extremity to execute the Stamp-act, we shall be able to maintain our ground, and she obliged to desist; for such a conviction will tend strongly to animate the courage of all to struggle chearfully[sic] with temporary difficulties, as they will see that we are not engaged in a desperate cause. This may apologize for my attempting to shew, in addition to what was said in my former letter, how the credit of the government will be affected, if their American commerce be lost, or stopped for a time.

The credit of states is much of the same nature with that of private men. A merchant or tradesman are said to be in good credit, when his visible gains are greater than his expenses, when he makes punctual payments, and the wares he fells may be depended upon as to their goodness and value, and when those who deal with him can have a reasonable assurance that he will make a profit by the commodities they intrust him with: and if it should happen otherwise, that he has a remaining substance sufficient to answer all demands. Such men will be trusted with near as much as they are worth and some times more, at the lowest price for the goods they buy, and the lowest interest for the money they borrow. So a nation may be said to be in good credit, when it has ample revenues, and is not incumbered with debts, or if that should be the case, has at hand effectual and equitable means to discharge them; when her public expenses do not exceed what can easily be raised without overburdening the people with taxes, or if they do exceed at any time, she is able to make abundant provision for them; and when the subjects have a reasonable assurance that the government is well able to fulfill punctually all her contracts with them. Hence it is easy to see that the credit of a state is to be kept up in the same way that private men maintain theirs, viz. by securing to itself the means of doing justice to particulars, and always doing it with the strictest honour; any chicane or appearance of disability will necessarily have the same effect here as among individuals. Indeed states are more concerned to keep up a good opinion of their integrity than private men; because those that trust them have only their honour and interest to depend upon for payment. —— Let us now-see whether Great Britain will be able punctually to fulfill her engagements with her subjects, if her intercourse with America be cut off; and but a very superficial view of the present state of the nation will be sufficient to determine this point. For it well known that their public debts are swelled to an enormous size; above one hundred and thirty millions have been borrowed to defray the expenses of the various wars they have been engaged in, for which their standing revenue has been insufficient. Of this prodigious sum but a small part has been occasioned by the defence[sic] of America. Almost every considerable branch of the revenue is appropriated to the discharge of the interest of the several loans, as it becomes annually due. The sinking fund, which is made of the surplusages[sic] that arise from those taxes and impositions that produce more than the sums charged on them, is expected to pay off the principal after a certain number of years. As the government has been able hitherto to perform punctually all its bargains with the subjects, because these branches of the revenue have produced money enough to answer all demands upon them, or if at any time they have happened to be deficient, it has been easy to provide for that deficiency, public credit has been unshaken; men of property have been ready to advance their money, whenever a vote of parliament has called for it, because they had a reasonable assurance that the interest voted would be regularly paid, and the principal be secure. Not it is plain that if the parliament becomes unable to fulfill its contracts with the subjects, all confidence in them must expire: but whenever those branches of the revenue are by any accident so lessened as to become not sufficient to pay the interest of the sums charged upon them, and no new ways of raising money occur, every one must see it will be impossible for them to fulfill their contracts any longer. Now this will infallibly be the event if they loose their trade to this continent. For the whole revenue will be affected, and many of its most considerable branches exceedingly reduced, yea entirely ruined.

Now some of the principal articles of the revenue that are mortgaged for the payment of the national debt are these, a poundage on goods exported and imported, that is, a subsidy of one shilling in the pound on all commodities imported into, or exported out of the kingdom, except some few articles allowed to be imported & exported duty free, the duty on candles, coals, and cinders, the malt tax, that on all spirituous liquors & the duty on tobacco. But if the exports out of the kingdom are lessened to the value of two or three millions (which will be the case if exportation to this continent cease) the aforesaid subsidy on goods exported must be lessened in proportion to that prodigious sum. So if above a million of the manufacturers of Great-Britain are turned out of employ, and reduced to the most distressing poverty (which I have shewn in my last will be a consequence of the loss of the American trade) the consumption of candles, coals, and cinders, malt, sprituous[sic] liquors, and tobacco will be prodigiously lessened, because a great part of the consumers will be unable to pay for them. But these duties produce more or less always in proportion to the encreased or diminished consumption of the articles mentioned. Hence they will soon prove insufficient for the payment of the sums charged upon them. Therefore the government will have no other way to fulfill its obligations to the subjects but by contriving new taxes to supply the deficiency so arising; but in so great and general a decay of trade that method will be plainly impracticable. The revenue then must prove unequal to the annual demands upon it; whenever this happens, the subjects must be deprived of what is justly due to them; the proprietors of the public funds will sell out as fast as possible, for every one will try to save himself as well as he can in the general ruin; this will occasion stocks to fall away suddenly to nothing. Transferable annuities with all the security the government can give will be little valued, and all confidence in parliamentary faith destroyed. But almost all the monied men in the nation are more or less interested in those funds, and many have lent their whole fortunes to the public, supposing the principal always secure, and that the interest would be punctually paid; the latter would be reduced to beggary, and every one of the former would be sufferers, as the nation is more or less deeply indebted to them. Such an event as this must involve the government in the utmost confusion and distraction; all orders of men would be affected, and a kind of universal bankruptcy ensue. It is not possible to conceive the rage and indignation that would boil in every breast. To see multitudes of families by their confidence in the public faith tumbled in an instant from affluence and splendor to the lowest depths of penury and distress, while all are feeling the effects of the general ruin, will inflame even unprejudiced spectators against the government that betrayed them; much more than the unhappy sufferers. In short it appears to me highly probable that such a catastrophe would be very near unhinging the constitution itself, and reducing them to as chaotic a state, as the earth was at first, when it was without form and void, and darkness covered the face of the deep.

It would exceed the limits of this paper, to paint all the consequences of a loss of the public credit; it is plain they would be terrible and lasting. If parliamentary faith is once violated, it will be the work of ages to recover the lost confidence of the subject; none will be willing to advance their money on securities given by the government, through the necessity that calls for it be ever so urgent, unless such an enormous interest is allowed, as will attone[sic] for the risk they run. Great-Britain, unless she is perfectly infatuated, will certainly take a special care to maintain her public credit; but it is obvious from the deduction given above, that this cannot be done without preserving her trade to America. In a very few years such growing deficiencies in the revenue must arise, if our intercourse with her is stopped, as will highly perplex the Ministry and Parliament, distress many individuals, and raise a general alarm throughout the nation. Multitudes will see that it is impossible for them to live without us, and whatever besotted orders may have been given respecting the seizure of our ships, they will be forced, in spite of their utmost resolution, to recall them; or if a fit of madness should size the bulk of the nation, so that they determine to put all to the risque rather than not compel us to submit, we may rest assured that their public credit cannot long survive such a determination, but if that once fails, Great-Britain will not be in a condition to attempt any thing very formidable against us. We have therefore all the assurance, that the nature of the thing admits, that if we are but unanimous, steadily refuse the stamps, transact all business as usual without them, cultivate a spirit of frugality and industry, and persist in the noble resolution of declining all commerce with our mother country, we shall in a few years at farthest compleat[sic] our deliverance from the present meditated scheme of oppression, and effectually establish our liberties for the future.

PHILELEUTHERUS.

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