The Political Economy of Public Debt: Three Centuries of Theory and Evidence.

• Author: Salter, Alexander William
• Position: Book review

* The Political Economy of Public Debt: Three Centuries of Theory and Evidence

By Richard M. Salsman

Cheltenham, U.K.: Edward Elgar, 2017.

Pp. viii, 322. $140 hardback.

Richard Salsman's book is an extensive treatment of the theory of public debt as well as of the practice of sovereign borrowing and indebtedness. Equal parts history of thought and applied political economy, Salsman's project is comprehensive and well written, and the topics it covers are certainly timely.

The introduction provides an overview of die book's structure and outlines the analytical framework Salsman will use in exploring theories of public debt. Salsman classifies theories of public debt as pessimistic, optimistic, or realistic and the theorists who espouse them as pessimists, optimists, or realists. Pessimists argue that public debt is mainly pernicious, a hindrance to the effective employment of scarce capital. Optimists argue that public debt is mainly beneficial, a necessary part of a strong state's tool kit in promoting economic prosperity. Realists eschew blanket condemnation or praise of public debt, arguing it may be either pernicious or beneficial depending on social, economic, and political context.

In chapter 1, Salsman covers the history of public debt beginning in the ancient world and culminating in modernity. Key themes are the transition of government debt from the private obligations of sovereigns to liabilities of the public at large, the development of banking systems and their role in facilitating secondary markets for debt, and how central banks affect public-financing conditions. Salsman also provides aggregate statistics on borrowing for the OECD (Organization for Economic Cooperation and Development) countries, showing how the increases in public debt following World War II went hand in hand with larger public spending.

The second chapter focuses on theories of public debt from the classical period of political economy, which in Salsman's treatment spans from England's Glorious Revolution (1688-89) to the subjectivist-marginal revolution in economic theory (1871-74). The thinkers are a mix of optimists, pessimists, and realists, but the most famous, such as David Hume and Adam Smith, are certainly pessimists. Also covered are debates between Thomas Jefferson and Alexander Hamilton during the early days of the United States as well as later between European classicals such as David Ricardo, John Stuart Mill, and even Karl Marx.

Salsman...