“A good case can be made out for short-term government debts under special conditions. Of course, the popular justification of war loans is nonsensical. All the materials needed for the conduct of a war must be provided by restriction of civilian consumption, by using up a part of the capital available and by working harder. The whole burden of warring falls upon the living generation. The coming generations are only affected to the extent to which, on account of the war expenditure, they will inherit less from those now living than they would have if no war had been fought. Financing a war through loans does not shift the burden to the sons and grandsons. It is merely a method of distributing the burden among the citizens. If the whole expenditure had to be provided by taxes, only those who have liquid funds could be approached. The rest of the people would not contribute adequately. Short-term loans can be instrumental in removing such inequalities, as they allow for a fair assessment on the owners of fixed capital.” (Mises 1998: 213).Come again? According to Mises, there is a good case for short-term government debt under special conditions. Presumably, war in legitimate self defence is one of them.
And “financing a war through loans does not shift the burden to the sons and grandsons.” That is to say, the real burden of required real resources for the war “falls upon the living generation” and is “a method of distributing the burden among the citizens.”
Funny, but Abba Lerner said something like this.
But many modern Austrians would say the exact opposite: they argue that government debt for public infrastructure and public works spending now (as in a Keynesian stimulus) impoverishes future generations. Those modern Austrians should have read their Mises more closely!
And a Keynesian would reply that the real burden is only felt by the present generation, because all real resources can only be provided now.
“The coming generations are only affected to the extent to which, on account of the war expenditure, they will inherit less from those now living than they would have if no war had been fought.”This is reasonable in that the future generations will lose both capital goods and (probably mostly durable) consumption goods that could have been produced in place of war materiel.
But the other side of the coin is that allowing an economy to collapse into depression without quick stimulus also impoverishes future generations in exactly the same way: the future generations lose the capital goods and durable consumption goods that could have been produced had stimulus been applied.
The future repayment of money debt is a mere redistribution of income at a future period. There is no way for the future generations to send real resources back in time for us to use now.
What Mises says above is not far from this Keynesian view.
Mises, L. 1998. Human Action: A Treatise on Economics. The Scholar's Edition. Mises Institute, Auburn, Ala.