From Garet Garrett’s analysis of The New Deal, known today as The Revolution Was and Ex-America:
[T]he perfect welfare state must in the end ration the national income, and, when it does that, money comes to be like coupons in a wartime ration book. At first, however, the government must borrow heavily. In order to transfer wealth from the few to the many — wealth in the modern forms, so largely imponderable and nonportable — it must be able to borrow and spend, and unless people who have savings to lend believe in the public credit and trust it, the government cannot borrow. If it cannot borrow in order to spend, the revolution will be bankrupt in the preface. That is why in the second and third months, with the Treasury empty, the New Deal was obliged to sell government bonds under the false promise to pay the interest and redeem the interest in gold dollars — a promise it was preparing to repudiate.
Well, the rest is simple because the method was simple.
For a while, and to the limits of credulity, the New Deal kept saying it was going to balance the federal budget — honest to goodness it was, and anybody who said to the contrary belonged to darkness. In July of the first year [President Roosevelt] said, “It may seem inconsistent for a government to cut down in regular expenses and at the same time to borrow and to spend billions for an emergency. But it is not inconsistent, because a large portion of the emergency money has been paid out in the form of sound loans which will be repaid to the Treasury over a period of years; and to cover the rest of the emergency money we have imposed taxes to pay the interest and the installments on that part of the debt.”
If true, that would mean a solvent government with a balanced budget; but it wasn’t true.
At the beginning of the second year, going to the Congress with a budget that stunned all old-fashioned ideas of public finance, the president blandly postponed a balanced budget for two years, and said afterward to the people, “Nevertheless, the budget was made so clear that we were able to look forward to the time, two years from now, when we could hope the government would be definitely on a balanced financial basis, and could look forward also to the commencement of reduction of the national debt.” And that was the end of that line.
The second line was a resort to the European device of double bookkeeping. There were two budgets. The one representing the ordinary expenditures of government was balanced. The other one, representing extraordinary expenditures, for recovery and so on — that one would have to be regarded separately for a while. It would be balanced when recovery had been really achieved and when the national income could stand it. That was the line for several years.
The third line was the idea of the investment state. The government’s continued deficit spending, with enormous additions to the public debt, was not what it seemed. Actually, whether you could account for it physically or not, the debt was balanced by assets. The government was investing its borrowed funds not only in the things you could see everywhere — beautiful and socially useful things that were not there before; it was investing also in the health and welfare and future happiness of the whole people. If there was any better investment than that, or one likely in time to pay greater dividends, what was it? In a while that line wore out, and although it was never abandoned it was superseded.
The fourth line was a doctrine invented and promulgated by New Deal economists — the doctrine of perpetual unlimited public debt. What difference did it make how big the debt was? It was not at all like a debt owing to foreign creditors. It was something we owed only to ourselves. To pay it or not to pay it meant only to shift or not to shift money from one pocket to another. And anyhow, if we should really want to pay it, the problem would be solved by a rise in the national income.
Many infuriated people wasted their time opposing this doctrine as an economic fallacy. But whether it was a fallacy or not would be entirely a question of the point of view. From the point of view of what the New Deal has called the fetish of solvency it was a fallacy. But from the point of view of scientific revolutionary technique it was perfectly sound, even orthodox. From that point of view you do not regard public debt as a problem of public finance. You think of it only in relation to ends. A perpetual and unlimited debt represents deficit spending as a social principle. It means a progressive redistribution of wealth by will of government until there is no more fat to divide; after that comes a level rationing of the national income. It means in the end the cheapening of money and then inflation, whereby the middle class is economically murdered in its sleep. In the arsenal of revolution the perfect weapon is inflation.
(And all of that was before the war, even before the beginning of the defense program.)
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