A Free Nation Deep in Debt: The Financial Roots of Democracy

by James Macdonald

Nowadays, the idea that the way a country borrows its money is connected to what kind of government it has comes as a surprise to most people. But in the eighteenth century it was commonly accepted that public debt and political liberty were intimately related. In A Free Nation Deep in Debt , James Macdonald explores the connection between public debt and democracy in the broadest possible terms. He starts with some fundamental Why do governments borrow? How do we explain the existence of democratic institutions in the ancient world? Why did bond markets come into existence, and why did this occur in Europe and not elsewhere?

Macdonald finds the answers to these questions in a sweeping history that begins in biblical times, focuses on the key period of the eighteenth century, and continues down to the present. He ranges the world, from Mesopotamia to China to France to the United States, and finds evidence for the marriage of democracy and public credit from its earliest glimmerings to its swan song in the bond drives of World War II. Today the two are, it seems, divorced--but understanding their hundreds of years of cohabitation is crucial to appreciating the democracy that we now take for granted.

Genres: Economics, History, Finance, Politics, Nonfiction, Business, Political Science

576 pages, Hardcover

First published January 8, 2003

Reviews

[Rudi Matt · Rating 5 out of 5]

Fascinating history of debt and how it has changed little in 1000s of years.

[Tim · Rating 3 out of 5]

Historian MacDonald delves deeply into the roots of modern debt-based mechanisms of public finance to tell a tale about the development of democracy. He suggests that high per capita incomes are at best only a partial explanation for the rise of democratic institutions. More important, he argues, was the war-driven need of the leadership of tribes, pre-modern societies, and modern states to mobilize their societies in the face of external threats, particularly threats to collective security. As a matter of historical development, some rulers and societies tied democratic practices to public borrowing with great success. Less successful societies adapted or were swallowed up. The great global conflicts of the 20th century present the pinnacle of this pattern. But World War Two may have ended it as well, MacDonald concludes. With the globalization of state financing through borrowing, citizen creditors no longer command the central role they once did though, as voters, they still wield considerable political power. However, the massive amounts of debt held by other states and people outside many nations' boundaries today wield considerable influence through the bonds they hold if not the ballots they cast. As others have suggested, today's debt regime is part and parcel of the erosion of a state-centric global polity. But what will come next politically is not so clear. MacDonald, writing before 2003, did not foresee the possibility of a new global conflict - perhaps a war on terror - that might marshal global financial resources in some new way. So far that conflict remains chiefly a regionally focused U.S.-led war funded through relatively modest borrowing, at least compared with the financing for, say, World War Two. What is particularly noteworthy is that Chinese, Japanese, European, Saudi, and other investors are essential sources of financing in this new world. Though his account carries us only to the threshold of today, MacDonald reminds us of the political significance of debt in the rise of citizen creditors, democratic elections and government, and the evolution of the state system. Three simple ideas together - debt, democracy, and the state - gave rise to the increasingly complex global polity we today inhabit.

[Bill Phillips · Rating 4 out of 5]

Dense…now using as a reference :)