The Simplified Wealth of Nations of Adam Smith, Book 5, Chapter 3: Public Debts

Chapter 3a: Ways to pay public debts -- Personal treasure or credit of ruler

1 In Book 3, I showed that the person who has a large revenue in the rude state of society can enjoy that revenue only by maintaining as many people as possible. 2 Hoarding prevailed in the sovereign and in his subjects. 3 The sovereign of a commercial country rich with luxury naturally spends much of his revenue buying those luxuries. 4 The lack of parsimony in peacetime imposes the necessity of contracting debt in wartime. 5 The same commercial state of society which morally leads government into borrowing, produces in its people an inclination to lend. 6 A country filled with merchants and manufacturers is full of people who circulate more capitals, as other people's money or goods, than a private man, who circulates only his own capital through his own income. 7 Commerce and manufactures can seldom flourish long in any state where: In short, commerce and manufactures can seldom flourish where there is no confidence in the justice of government. 8 Such a government relies on the people's ability and willingness to lend money on extraordinary occasions. 9 In a rude state of society, there are no great mercantile or manufacturing capitals. 10 The progress of the enormous debts which presently oppress all the great European nations has been pretty uniform. 11 The unfunded debt of Great Britain is contracted as a personal credit.

Two methods of paying the debt: Anticipation and Funding

12 When this resource is exhausted and assigning or mortgaging the public revenue is needed to pay the debt, government has had two expedients:

Next: Chapter 3b: Perpetual Funding