Forgotten (or ignored) wisdom

We seem to have forgotten (or ignore) so much of what we should already know. Here’s former Chairman of the US Federal Reserve Marriner Eccles talking about the false equivalence of household and government debt in 1938 (p5)*:

“Isn’t it about time that we learned this simple truth? Is it so hard to understand that when an individual owes money he generally owes it to another individual, but when a nation owes money it owes it to itself? When an individual pays a debt, he pays it to someone else. When a nation pays a debt, it pays it to its own people. Now, this doesn’t mean that a nation can go on and on piling up debt or that any amount of expenditure and taxation is justified. The point is that we get into wholly misleading con­ceptions if we make the old mistake of confusing the matter of in­dividual solvency with the solvency of the nation as a whole. The individual solvency depends upon continued income and living within that income. The nation’s solvency depends upon the productiveness of all of its people. The individual cannot create money. The gov­ernment can and must as one of its fundamental sovereign functions. Its primary responsibility is to create an adequate supply of that money for the purpose of aiding production. The individual cannot increase his income by taxation. The Government can. In fact, it seems superfluous to pursue further the point that there is no com­parability between the case of an individual and the case of a Gov­ernment.”

And about the way we are mislead about the dangers of government debt (p7):

“I think it is unfortunate to say the least to have public attention misled into becoming alarmed over the wrong things. I very much regret that responsible leaders, however conscientiously, nevertheless mistakenly create public alarm over the solvency of the nation or the soundness of its credit, This is just what they do
when they call attention to one set of facts or figures without show­ing their relationship to other facts and figures. Isn’t it up to us to keep our eyes on the important things? And what seems to me to be vitally important is that the Government shall do all it can both to create an adequate supply of funds and then to facilitate the flow of funds throughout our economy in the most productive way possible— that is, productive of real wealth. That is what, as I see it, the Govern­ment has been attempting to do, often clumsily, awkwardly and in­effectively. I do not suppose anyone has been more critical openly than I have about policies or expenditures that seemed to me to be unproductive or that seemed to me to interfere with production. The point I want to make here is that I do not think it is realistic, or that it helps us to solve the problems before us today, or that it contributes to saving our system or our democracy to work ourselves up into a frenzy over deficits or increases in the debt while at the same time failing to take account of the enormous gains that have been made [In terms of growth of national wealth].”

All the things we hear today about the dangers of debt and deficits have been thoroughly debated and debunked a long time ago, and yet politicians continue to return to these themes when it suits their political purpose. We should be able to see through them by now.

*Thanks to this blog by Bill Mitchell for drawing my attention to Eccles’ speech. Do read the whole thing.

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