Patriot gains.

• Author: Longman, Phillip J.

A FREE NATION, DEEP IN DEBT by James MacDonald Farrar, Straus & Giroux, $30.00

ON THE THREE MONTH COMMEMORATION of the September 11 attacks, Secretary of the Treasury Paul H. O'Neill, yielding to congressional pressure, held a press conference to announce a new way Americans could fight the war on terrorism. Besides going to the mall or investing in the stock market, they could go to the bank and buy up the government's brand new "Patriot Bonds."

But unlike the great war-bond drives of the past, this campaign involved no celebrities--not even Bono--and what little press attention it received was mostly derisive. These "Patriot Bonds," it turned out, were just regular Series EE savings bonds with a new label, and what revenue they raised was not even earmarked for the war on terrorism. "Don't buy a Patriot Bond just because it makes you feel good," sneered one financial columnist. "If buying a bond doesn't fit into your investment plan, you'd be better off purchasing an American flag."

Yet nine months later, the Treasury Department was pleased to announce a 36 percent increase in the sale of ordinary saving certificates since they were relabeled as war bonds. It's not clear how much of this can be credited to patriotism, and how much to the tanking stock market. But the phenomenon surely must cheer James MacDonald's heart. For it is just such "citizen creditors" of the government, he argues in his new book, A Free Nation, Deep in Debt, who keep despotism in check and who are the founts of democracy.

This assertion might seem odd to James Carville, who once mused that he would like to be reborn not as the president or the pope, but as the bond market--because then he could "intimidate everyone" It would also provoke objection from Thomas Jefferson, who railed against public debt as a tyranny imposed by dead generations. But properly understood, MacDonald's thesis does provide an insight into why mass democracy emerged in the modern era. Kings and dictators might be very good at imposing order, but as early bankers learned the hard was they can't be trusted to pay back their debts. In modern democracies, however, ordinary citizens usually are all too happy to snap up government bonds, even when they are inferior investments, because they can't conceive that their elected politicians will ever allow for a default. As the cost of war has grown ever higher, this democratic advantage in finance has more and more determined the course of history...