“Nothing is more advantageous to the socialists in our midst than a futile and confusing preoccupation with debt. Thomas Babington Macaulay provides some useful historical perspective in his discussion of Britain’s fiscal straits at the end of the twelve-year War of the Spanish Succession, which had engulfed Western Europe and spilled over to North America. “When the great contest with Louis the Fourteenth was finally terminated [in 1713] by the Peace of Utrecht,he wrote in his History of England, “the nation owed about fifty millions; and that debt was considered, not merely by the rude multitude, not merely by foxhunting squires and coffee-house orators, but by acute and profound thinkers, as an incumbrance which would permanently cripple the body politic….” Over the next hundred years, while fighting three more fabulously costly wars, including the American Revolution,”

“The beggared, the bankrupt society not only proved able to meet all its obligations, but, while meeting these obligations, grew richer and richer so fast that the growth could almost be discerned by the eye…. Meanwhile taxation was almost constantly becoming lighter and lighter; yet still the Exchequer was full.

… Those who uttered and those who believed that long succession of confident predictions … erroneously imagined that there was an exact analogy between the case of an individual who is in debt, and the case of a society which is in debt to part of itself; and this analogy led them into endless mistakes…. They were under an error not less serious, touching the resources of the country. They made no allowance for the effect produced by … the incessant effort of every man to get on in life. They saw that the debt grew, and they forgot that other things grew as well as the debt.

Anyone who imagines that the British national debt during this period was smaller as a proportion of GDP than the government debts of the current era should think again. The debt that all the experts of the day predicted would ruin the British economy reached a pinnacle of more than 250 percent of GDP in the 1820s, when the British Empire was flourishing. Until around 1865 it did not drop below 100 percent, which is where America’s debt stands today.”

Excerpt From: Gilder, George. “Knowledge and Power.” Regnery Publishing, 2013-05-14. iBooks.

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HKO comment:

Careful not to take this out of context.  The debt does matter but it also matters what it is spent on.  Spending it to defeat communism and create a global environment that propels entrepreneurs is one thing. Spending it to create a larger group of dependents is another.

The greater issue in Gilder’s view is the restraint that is placed on unleashing economic growth by the bureaucracy of the regulatory state.  His example is that great debts can be overcome with greater productivity.