CURRENT NATIONAL DEBT

How Schools of Thought (writers) analyze the Current National Debt

Table of Contents

Introduction3

Discussion3

Adam Smith and Current National Debt3

David Ricardo and Current National Debt7

Thomas Robert Malthus and Current National Debt9

Conclusion9

How Schools of Thought (writers) analyze the Current National Debt

Introduction

The study is related to current national debts, which is being discussed in relation to the schools of thought that include Adam Smith, David Ricardo and Thomas Robert Malthus. The current national debt is the total amount of loans that the state, the state-owned autonomous regions, provinces, municipalities, public institutions of assistance and charity, companies and special bodies belonging to the state contract periodically as the budget deficit (Schumpeter, 1954). In layman's terms, current national debt is only the debt contracted by the state at home and abroad, and most often only the domestic debt.

Discussion

Adam Smith and Current National Debt

In the view of Adam Smith, “when the national debts of a country have been mounted up to a certain level, there is short of supply, Adam Smith believed, a single instance of their having been entirely paid. The liberation of the public revenue has always been brought about by a bankruptcy; however, if the public revenue has even been brought about at all; sometimes by an avowed one that is inflation, but always by a real one, though frequently by a pretended payment” (Smith, 1937).

In above paragraph Adam Smith refers to the pretended payment which indicates that the governments would seek to escape their debts by inflating the currency. In this way, governments could legally deny creditors what they are due in real terms, while at the same time avoiding the formal bankruptcy.

In context of current national debt, it is important to consider a question that is: if governments have increased their debt in the process of implementing programs which have already been approved by the parliament, would parliament have yet another option like inflating the currency in order to stop the government from continuing the expenses authorized by refusing to raise the debt ceiling? The answer is obvious when observing the reason why this check guarantee has been introduced in nearly all countries of the world. Throughout modern history, war has been the main cause of increase in current national debt. In addition to this, most governments operate in fiscal balance during peacetime, financing their spending and investments with the collection of taxes. The emergencies of war push this balance into deficit - sometimes for defensive wars and sometimes for aggression (Schumpeter, 1954).

In United States, the parliamentary control of government spending is designed to prevent ambitious rulers from waging wars. This was the big argument against current national debt. Adam Smith persisted that wars were financed on the basis of immediate payment. He posited if the people immediately feel the economic impact of war rather than postponing it with government loans taken in order to fulfill the needs, they would be less likely to support military adventurism. In addition to this, it is also important to note that the impact of war ...