The Moral Case for Debt Repudiation

Thirty-eight trillion dollars. The number climbs by six billion every day, by seventy thousand dollars every second. Interest payments alone now exceed a trillion dollars annually, consuming more of the federal budget than Medicare or national defense. And nobody knows what to do about it.

The proposals on offer range from the implausible to the fantastical. Cut spending, say the fiscal hawks, yet every coalition protecting existing programs outlasts every coalition for reform. Raise taxes, say the progressives, yet the math collapses long before you reach the wealthy. Grow our way out, say the optimists, yet growth rates sufficient to outpace compounding interest have been absent for decades and show every sign of staying that way. Inflate it away, say the cynics who understand how these things end, and that is the path we are already on, though its architects prefer to leave it unspoken.

There is another option, one with a long history and a principled foundation, though it is seldom discussed in polite company: repudiation. Refuse to pay. The national debt is the accumulated proceeds of theft, dressed in the language of fiscal responsibility. Repudiating it would be the restoration of justice.

Begin with the fundamental distinction that Murray Rothbard articulated in 1992. Private debt carries moral weight because the debtor pledges his own resources. When a man borrows to buy a house, he commits his future labor to repay the loan. The creditor advances present goods in exchange for future goods, and both parties benefit from the voluntary exchange. Default on private debt is theft from the creditor, who advanced real value and deserves repayment.

Public debt operates on an entirely different principle. When the government borrows, the politicians who sign the bonds pledge only other people's resources. They commit our fortunes, our children's labor. Rothbard put it plainly: whatever politicians happen to be in charge tell creditors to lend money now and promise to extract repayment from the people later. The people themselves were bypassed entirely, bound by obligations contracted on their behalf by men whose primary qualification for office was skill at winning popularity contests.

The creditors are complicit parties in this arrangement. Treasury securities represent a claim on future tax revenues, which is to say a claim on wealth that will be extracted by force from people who were excluded from the transaction entirely. Every bondholder knows this. When an investor purchases government debt, he purchases a share of future confiscations, a stake in coercive extraction where the returns flow from compelled tribute. Jeffrey Rogers Hummel compared it to investing in a criminal enterprise: the returns are real, but the source taints them. He drew the parallel to slavery, noting that he favors total repudiation of government debt for the same reason he favors abolition of slavery with zero compensation to slaveholders. In both cases, the supposed property right rests on systematic violation of human beings.

Consider what this debt funded. The post-2001 wars alone account for five to six trillion dollars when interest and veterans' obligations are included, making them the most expensive wars in American history. Unlike every previous American war, these were financed through pure borrowing, with taxation and war bonds bypassed entirely. Linda Bilmes of Harvard calls this the Ghost Budget, a mechanism by which successive administrations prosecuted wars with minimal oversight and zero sacrifice demanded from the public. The bills were quietly sent to future generations. Beyond the wars, the debt funded bailouts of financial institutions whose executives walked away enriched, agricultural subsidies that fattened large corporations, and an ever-expanding surveillance apparatus that treats citizens as suspects. The taxpayer received the invoice only after the fact.

Some object that repudiation would harm innocent parties, particularly pension funds and small savers who hold government bonds. The concern is understandable but misplaced. If compensation is owed to anyone, it is owed first to the taxpayers who were robbed to service this debt. Any claim the creditors might have must wait until the victims of taxation have been made whole. Since the debt vastly exceeds any plausible compensation for decades of overtaxation, the creditors' claims effectively dissolve. They invested in what they knew to be a coercive enterprise, and their claims are subordinate to those of the people who bore the coercion's costs.

Repudiation is far from a novel or unprecedented position in American history. Following the panics of 1837 and 1839, nine American states defaulted on their debts, and five repudiated them entirely. Mississippi, Arkansas, Michigan, Louisiana, and the Florida Territory refused to pay, with Mississippi going so far as to amend its constitution to prohibit future payment. The debt had been contracted for wasteful internal improvements and speculative banking ventures, and the citizens refused to burden themselves with obligations incurred by corrupt predecessors. Jefferson Davis openly advocated repudiation while serving in the United States Senate. The repudiating states faced temporary exclusion from credit markets, but they recovered, and the refusal to pay established a principle: debt contracted by governments does not automatically bind the governed.

The international law doctrine of odious debt recognizes this same principle. Debts incurred without the consent of the people, for purposes contrary to their benefit, and with full knowledge by creditors, may be repudiated by successor governments. The United States itself invoked this doctrine in 1898, arguing that Cuba should bear no responsibility for debts the Spanish colonial government had imposed upon it. Soviet authorities repudiated all Czarist debts in 1917 on similar grounds. The principle is sound: people cannot be bound by contracts they never made, for purposes they never approved, by rulers they never chose.

Hans-Hermann Hoppe explained why democratic governments accumulate debt with particular abandon. Democratic rulers are temporary caretakers who face no personal liability for the obligations they create. Their time horizon extends only to the next election, and they can purchase votes today by promising benefits whose costs will fall on future administrations. The result is precisely what we observe: debt rising without limit, interest consuming ever-larger shares of revenue, each generation inheriting obligations heavier than the last. Democracy does not solve the problem of legitimate governance; it distributes the theft across time, making victims of those not yet born.

The practical benefits of repudiation extend beyond the immediate relief. Rothbard noted that default would function as a balanced budget amendment with real teeth. A government that cannot borrow must live within its tax revenues, and a government limited to current taxation faces meaningful constraints. Voters who must pay immediately for programs they approve will demand fewer programs. The cycle of accumulation breaks, and capital that would otherwise flow into government bonds becomes available for productive private investment.

Repudiation would also involve, on Rothbard's proposal, liquidation of federal assets to provide some compensation to creditors. The national lands, the buildings, the Tennessee Valley Authority, the CIA headquarters at Langley that he noted should fetch a handsome sum for condominiums: all of this could be sold, with proceeds distributed to bondholders on a pro-rata basis. The government would be treated as what it is, a bankrupt organization whose assets should be liquidated for the benefit of creditors to whatever extent they can be satisfied. This combination of repudiation and privatization would go far toward reducing the tax burden, establishing fiscal soundness, and desocializing the American economy.

The objection that markets would lose confidence in the United States government misunderstands the purpose. We should want capital to stop flowing to Washington. We should want investors to recognize that lending to governments is lending to criminals, and that the returns depend on continued criminality. The supposed crisis of confidence would be the beginning of sanity.

Thirty-eight trillion dollars, accumulated over decades through wars of choice, corporate bailouts, and the steady expansion of the surveillance state, sits on the books as an obligation of the American people. The people never agreed to it. Their children never agreed to it. Their grandchildren, not yet conceived, have already been pledged as collateral. The creditors who hold this debt knew exactly what they were buying: a claim on future coercion. Repudiating that claim would harm them, certainly, but it would free everyone else from obligations they never assumed and never should have been made to carry.