Wednesday, July 10, 2013

Of Hume and Bugs Bunny

If Hume is to be believed, the states of antiquity would hoard treasure to be spent in times of war. By the time he penned Of Public Credit, Wm. of Orange had long ascended the throne and debt financing of state-led aggression was well-established. It is in this post-Glorious Revolution environment that he wrote:
There are also, we may observe, in ENGLAND and in all states, which have both commerce and public debts, a set of men, who are half merchants, half stock-holders, and may be supposed willing to trade for small profits; because commerce is not their principal or sole support, and their revenues in the funds are a sure resource for themselves and their families. Were there no funds, great merchants would have no expedient for realizing or securing any part of their profit, but by making purchases of land; and land has many disadvantages in comparison of funds. Requiring more care and inspection, it divides the time and attention of the merchant; upon any tempting offer or extraordinary accident in trade, it is not so easily converted into money; and as it attracts too much, both by the many natural pleasures it affords, and the authority it gives, it soon converts the citizen into the country gentleman. More men, therefore, with large stocks and incomes, may naturally be supposed to continue in trade, where there are public debts; and this, it must be owned, is of some advantage to commerce, by diminishing its profits, promoting circulation, and encouraging industry.
If you recognize the theme here, it's a proto-MMT argument, that liquidity is important. Debt financing supports commerce. In our terms here, it features positive externalities. It's good.

But much like Hume anticipated Keynes and Sumner, so too he anticipated Bastiat and Hayek.
But, in opposition to these two favourable circumstances, perhaps of no very great importance, weigh the many disadvantages which attend our public debts, in the whole interior Ĺ“conomy of the state: You will find no comparison between the ill and the good which result from them.
He then goes on to list five shortcomings of debt financing, including: redistribution from the modest to the elite, an early version of Gresham's Law, oppressive ex post taxation, obeisance to foreign bondholders, and an argument ad segnitium (that bondholders will live an indolent life and produce little).


The rest of the essay is set to mockery of public credit and those who enjoin to live lives of culpable comfort on the rents claimed by the excise of taxes. He warns of the perils of sovereign default and contrasts nicely the bankruptcies of the crown with the private landowner.

So what does this have to do with B. Bunny? With euvoluntary exchange?

During the big, early-20th century wars, ordinary folks would go see shorts like the one above before their feature films and know that Johnny who had gone off to fight Hitler or Tojo would have a few extra bullets in the chambers of their M1 Garands or a fresh set of tracks draping their (notably crappy) M4 Shermans. Euvoluntary. Sure, there might be a fungibilty filter as the purchase twists its way through the general fund on its way to the Pentagon, but folks pretty much knew what they were getting with the ossification of their savings: an increased probability of battlefield victory.

How about debt financing in peacetime? When you snag a T-bill these days, what are you buying? Liquidity? Funding for regulatory agencies? Stimulus? Do you even know? How would the post-Space Jam Bugs sell QE? I guess part of the point of the apparatus of modern banking is that he doesn't have to.

I wonder if anyone else has ever attempted to link Mel Blanc and David Hume. Hm.

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Do you have suggestions on where we could find more examples of this phenomenon?