Don't Buy Government Bonds

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17, Out
of Step
(1962). An MP3 audio file of this article, read by
Steven Ng, is available
for download
. The reader might consider the further merits of
Chodorov’s argument, given the existing federal debt of $12 trillion.

In 1800, the
United States Treasury owed $83 million. The population was then
three million. Every baby born that year was loaded down with a
debt burden of about $28; if the interest rate was 6 percent, the
newborn citizen could look forward to paying a service charge on
the national debt of $1.68 per year. Today the debt load of the
nation comes to well over $290 billion, and the population is, in
round figures, 180 million. Thus, while the population has increased
by 60 times, the national debt has increased by 3,600 times; and
figuring the interest rate at 4 percent, the cost of handling this
debt is, roughly, $68 per citizen per year. The child is now loaded
down at birth with a debt load of $1,700. These figures might be
adjusted to the increased production per citizen, and to the decreased
value of the dollar. Even so, the fact sticks out that posterity
does not pay off anything of the national debt, that each administration
adds to the debt left to it, and that the promise of liquidation
implied in every bond issue is a false promise.

The bulk of
the rise in the national debt has occurred since 1933, when Franklin
D. Roosevelt abolished the gold standard and thus made money redeemable
in – money. When money was redeemable in gold, the inherent
profligacy of government was somewhat restrained; for, if the citizen
lost faith in his money, or his bond, he could demand gold in exchange,
and since the government did not have enough gold on hand to meet
the demand, it had to curtail its spending proclivity accordingly.
But, Mr. Roosevelt removed this shackle and thus opened the floodgates.
The only limit to the inclination of every politician to spend money,
in order to acquire power, is the refusal of the public to lend
its money to the government. Of course, the government can then
resort to printing money, to make money out of nothing, but at least
the people will not be compounding the swindle. Therefore, I offer
the following gratuitous advice:

Don’t buy bonds.

The advice
is based on purely moral, not fiscal, grounds. I could point out
that when the government issues a bond it is diluting the value
of all the money in existence. Every bond is, in effect, money:
the fact that the indenture bears the seal and imprint of the government
makes it so, even though it may not enter the market place as money;
it does not become monetized for some time. That is, every bond
issued by the government is inflationary, and thus robs the savers
of the value of their savings. That, of course, is a swindle and
is immoral. But, the immorality of bonds runs much deeper.

In the first
place, when the State spends more money than it receives in taxes
– a fact indelibly written into the bond – it is deliberately
committing an act of bankruptcy. If your neighbor should do that
you would promptly put him down as a dishonest person. Is the dishonesty
transmuted into its opposite when committed by a legal entity? By
what multiplier can robbery be made a virtue? The act of borrowing
against imaginary income is a fraud, no matter who does it, and
when you make a loan to that borrower you aid and abet a fraud.

The State’s
excuse for borrowing is that it invests the proceeds of its bonds
for the benefit of posterity. Instead of putting the entire burden
of meeting the cost of its beneficial acts on the living, it proposes
to demand of unborn children their share of the cost. Quite plausible!
But is this not the impossible doctrine of control of the living
by the dead? What would you think of a prospective father who deliberately
put a debt load on his expected offspring? That is exactly what
you do when you cooperate with the State’s borrowing program. You
are loading on your children and your children’s children an obligation
to pay for something they had no voice in, and for which they may
not care at all. Your "investment for posterity" may earn
you nothing but the curses of posterity.

The use of
the word investment in connection with a bond issued by the
State is a treacherous euphemism. When you buy an industrial bond
you lend your money to a corporation so that it can buy a machine
with which to increase its output of things wanted by the market.
The interest paid you is part of the increased production made possible
by your loan. That is an investment. The State, however, does not
put your money into production. The State spends it – that
is all the State is capable of doing – and your savings disappear.
The interest you get comes out of the tax fund, to which you contribute
your share, and your share is increased by the cost of servicing
your bond. In effect, you are paying yourself. Is that an investment?

When you depart
from this earth you pass on to your heirs both the tax-collecting
bond and the tax-paying obligation it represents. Or, as is usually
the case – for the history of bonds is that ownership tends
to concentrate in a few hands – if you sold your bond, the
new owner in due time passes on to his heirs a claim on the production
of your offspring. Your great-grandchildren are called upon to labor
for his great-grandchildren. The bond thus becomes a legacy of slavery.

The fact is
that posterity never pays off its ancestral debts – or not
in the way you are led to believe by the bond-selling State. The
present generation is posterity to all the generations that have
gone before. Are we paying off any of the debts incurred by our
forebears? Hardly. We have spending of our own to do and must leave
to our posterity some new debts as well as those we inherited. They,
in truth, will do likewise.

Whether or
not there is any obligation on the living to liquidate the debt
left by an arbitrary ancestry, the political machine prevents its
being done. Actual liquidation would necessitate increased taxation,
on the one hand, and a curtailment of State spending on the other.
Increased taxation the State always welcomes, for any increase in
taxes means an increase in State power, and the politicians are
always for that; it can never spare a sou for the reduction of the
national debt. No State – absolutist or constitutional –
has ever put aside its ambitions to make good on its promissory
notes. The "posterity should pay" argument, in the light
of this historic fact, becomes the equipment of a confidence game.

What, then,
becomes of the national debt? It grows and grows until, like a balloon,
it bursts. But, though this is inevitable, thanks to the money-making
monopoly of the State, it takes a long time before the balloon does
burst, and certain conditions must prevail to cause the explosion.

When the promissory
paper of a small nation is held by a powerful one, some semblance
of financial rectitude is maintained by means of the marines; the
economy of the defaulting State is impounded until the debt is liquidated,
and sometimes for a longer period. Internal debts, on the other
hand, are never liquidated. When the burden of meeting the service
charges becomes economically unbearable, and the State’s credit
is gone, repudiation or inflation is resorted to.

Of these two
methods, repudiation is by far the more honest. It is a straightforward
statement of fact: the State declares its inability to pay. The
wiping out of the debt, furthermore, can have a salutary effect
on the economy of the country, since the lessening of the tax burden
leaves the citizenry more to do with. The market place becomes to
that extent healthier and more vigorous. The losers in this operation
are the few who hold the bonds, but since they too are members of
society they must in the long run benefit by the improvement of
the general economy; they lose as tax collectors, they gain as producers.

commends itself also because it weakens faith in the State. Until
the act is forgotten by subsequent generations, the State’s promises
find few believers; its credit is shattered. Never since the Russian
repudiation of 1917 has the regime attempted to float a bond issue
abroad, while its import operations have been largely on a cash
basis. Internally, Russia does its "borrowing" from its
own nationals as a highwayman does.

Anyhow, since
honesty and politics are contradictory terms, the State’s standard
method of meeting its debt obligations is inflation. It pays off
with engraved paper. To be sure, even as it issues its new IOUs
to pay off its defaulted ones, the inflationary process is on, for
every bond is in fact money; like money, it is a claim on production.
The bond you buy increases the circulatory medium, thus depressing
its value, and you are really exchanging good money for bad. You
are cheating yourself. That is demonstrable by comparing the purchasing
power of the dollar at the time you bought the bond with its purchasing
power at maturity.

As Germany
did in the 1920s, the State can make inflation and repudiation synonymous;
it can inflate for the purpose of repudiation. This is what is called
"uncontrolled" inflation, another impostor term. There
is really no such thing as "uncontrolled" or "runaway"
inflation, because the printing presses do not run themselves; somebody
must start and keep them going until the desired end, the wiping
out of the national debt, is accomplished. The disadvantage of this
process, as against outright repudiations, is that in wiping out
the debt it also wipes out the values which the citizenry have laboriously
built up; it wipes out savings. However, no nation has ever resorted
to "uncontrolled" inflation until its economy has been
destroyed by war, until production was unable to meet the expenses
of the political establishment, to say nothing of the debt piled
up by its predecessors.

But, how about
the natural pull of patriotism? In the face of national danger,
is it not right that we put our all into the common defense? Of
course it is right; and people being what they are, the pooling
of interests is spontaneous when community life is threatened, as
in the case of a flood, an earthquake or a conflagration, or when
the Indians attacked the stockade. In such catastrophes we give;
we do not lend. Patriotism weighted with profit is of a dubious
kind. Bonds do not fight wars. The instruments and materials of
war are forged by living labor using the existing stock of capital;
the expense must be met with current production. The bonds are issued
because laborers and capitalists are reluctant to give their output
for the common cause; they put a greater value on their property
than on victory. Were confiscatory taxation the only means of carrying
on the war its popularity might wane; the war would have to be called

This specious
resort to spurious patriotism reaches its ultimate in the textbook
justification for the public debt. It runs something like this:
citizens who have a financial stake in the State, by way of bonds,
take a livelier interest in its doings. Thus, love of country is
made contingent on the probability of returns, both as to capital
and to booty. This smacks of the kind of patriotism that motivated
the money brokers of the Middle Ages; once they invested in their
king’s ventures they could not afford to become lukewarm in their

It is not patriotism
that is engendered by the borrowing State. It is subservience. With
its portfolio chock-full of bonds, the financial institution becomes
in effect a junior partner whose self-interest compels compliance.
An allotment of bonds to a bank carries force because its current
large holdings might lose value if doubt were thrown on the credit
of the State. A precipitate drop in the prices of federal issues
would shake Wall Street out of its boots; hence new issues must
be taken up to protect old issues. The concern of heavily endowed
universities in their holdings of bonds is such that professorial
doubt of their moral content could hardly be tolerated. Even the
pacifist minister of a rich church would have to be circumspect
in voicing his opinion of the public debt. That is, the self-interest
of the tax-collecting bondholders, not patriotism, impels support
of the State.

Taken all in
all, the bond is a thoroughly immoral institution. I would not be
caught dead with one of these papers on me.


Chodorov (1887–1966), one of the great libertarians of the
Old Right, was the founder of the Intercollegiate Society of Individualists
and author of such books as The
Income Tax: Root of All Evil
. Here he is on “Taxation
Is Robbery
.” And here
is Rothbard’s obituary of Chodorov

Best of Frank Chodorov

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