The Moral Case for Repudiating the National Debt



I am dedicated to an ideologically pure form of anarcho-capitalist thought in the libertarian style, following the mold of great thinkers like Murray Rothbard.

People do not expect anarcho-capitalists to encourage the repudiation of debt. After all, we consider bankruptcy laws little more than state-endorsed fraud.

But this is the general position held by right-wing anarchists toward the national debt.

The reasons for this are simple.

Production Precedes Consumption

Something must exist before it becomes subject to economic action.

The very existence of debt is an attempt to consume before production occurs.

It is important to note that debt is not inherently immoral. It displays a higher time preference than the alternative–saving until consumption–and both parties assume some risk.

Assuming that a debt forms between two consenting parties, and that neither party acts to defraud the other, there is no ground for ever canceling a debt. The parties may bilaterally agree to alter an arrangement.

These reductions in liability take many forms, often from the sale of an outstanding debt at a portion of its current value to recoup losses on bad lending. The new holder of debt needs only to cover the discounted price of the debt, and may enter negotiations with a debtor to guarantee these payments for a reduced overall liability.

It is also worth pointing out that we do not argue that we should force all debtors to absolute deprivation. They may establish any sort of collateral at the time of a contractual arrangement. For instance, the person who takes out a loan to buy a house often agrees to maintain the house, but also to return it to the lender it if they cannot repay their debts.

The pawnbroker industry uses precisely this mechanism to lend money, while also letting people buy and resell second-hand goods through an intermediary.

In this sense, there is already an alternative to bankruptcy under the free market through debt resale and the use of collateral in contractual lending.

However, the repudiation of debt is immoral (or at least illegal) in a standard context. It is nothing more than refusing to meet a contractual obligation, which is itself criminal fraud.

Why the State’s Debt Differs

However, the state is not engaged in a sole contract between itself and another party. When it issues its debts, it has none of its own financial capital to pay them from.

I will refer to the public debt in general as bonds, though these are not necessarily the only form of public debt.

What is the collateral that the state uses to issue bonds?

What shall the state surrender if it cannot comply with its contractual obligations?

This is where the distinction between the common debtor and the state comes.

If the common debtor has not established some collateral which he can surrender to be released from his debt, he must pay his debts with the sweat of his labor.

But the state can never labor to pay its debts. Its employees are the reasons for its debt, and if their labors were to be used toward the sole reason of paying off public creditors, they would seek employment elsewhere in the free market, where they could get paid by a solvent firm.

When the state enters debt, it is not pledging to pay its own resources to pay the debt.

It is obligating itself to tax its citizens or to debase the currency at a later date to cover their bonds.

In the second case, they have not truly paid their debts, either, in a legal sense.

Against Taxation

The fundamental flaw of the argument of taxation is that it does not follow that the state is paying its own debts when it taxes.

Instead, taxpayers face a reckoning for the action of a few hundred people (to use the charitable term to describe politicians) in the District of Columbia.

We do not need to argue that taxation is inherently coercive theft to build this case, though it may also be true.

Because of the United States governmental structure, spending at the federal level has long drifted away from any citizens’ efforts to curtail that spending. Even if a politician promises to prevent spending, they may be entirely ineffective or entirely deceitful when the time comes to keep that promise. There is, to my knowledge, no major nation with debts which can also claim to have been fully accountable to its population about how they have decided on spending.

We can fall back to the argument of Lysander Spooner here. A distant conspiracy of people colluded to engage in actions for which they are personally unaccountable. They claim to have a contractual arrangement with either a piece of paper, which they interpret as they will, or a collective group of people, though anyone who dissents about being in this group must play along.

There are taxpayers who can honestly and ardently protest that they have never intended to spend this money, and not just naives who chose not to look out the window as the politicians plied their trade.

They do not bear the personal liability. It is the politicians who contracted the public debt who are lawfully accountable for that debt, even if they cloak it in institutional arrangements.

Further, there are those yet unborn who will be left bearing the cost of the national debt, which at the time of writing has surpassed the $30 trillion mark.

Against Inflation

Let us see why the state cannot pay its debts through inflation (i.e. the printing of money).

They have issued bonds that they later repaid in an altered currency, one worth less than it was at the time of the bond’s issue.

One cannot hold a private citizen liable for this because they do not have control over the value of the currency. If they had made a contract to pay in gold and the price of gold changes, they would still be responsible only to provide the agreed-upon amount of gold.

In private affairs, lenders apply a premium over time for the lending of money above and beyond the mere time preference rate of the lender. The lender sets the interest rate when they lend so that they expect to make an acceptable return on investment and cover the effects of currency inflation.

If the government prints money to pay its creditors, it has the effect of inflating the currency supply. Creditors will try to–and have a legitimate moral claim as defrauded lenders to–demand that they receive payment after adjusting for the inflation caused by the state.

They may object that the repudiation would have an equivalent effect on the currency, but this is only because of the consequences of the fiat system. The currency itself loses value because of the guarantor being proven untrustworthy.

That this would be true as well in an inflationary perspective does not alter the moral equation. Those who choose to recognize the currency of an unsound borrower can do so at their own hazard, but those who hold inflated notes have no recourse.

Public Creditors Deserve Repudiation

Of course, up to now I have simply made a case to show that it is more immoral to tax or inflate the debt away than it is to tolerate its existence. This does not lead to the point of repudiation.

Indeed, we could go through our lives watching the debt clock tick up.

But while that debt is still around, the state must service it, which is still encouraging taxation and inflation.

But who is the government paying those debts to?

We could break down the statistics on who holds government bonds, but this is not relevant. It is inappropriate to deny someone the benefits of a voluntary and fair interaction because they are unpalatable or because we dislike them.

Rather, it is the fact that government’s debt payments will go to people who have insisted on taxation and inflation in order to get their due that justifies repudiation.

Of course, there will be those who fight this claim. After all, the government often encourages the buying of bonds–such as in times of war–and most people do not think about the consequences of buying government debt.

And the repudiation of the national debt will be painful. It might even be enough to destroy the government. Setting aside the desirability of that outcome, we are not talking about the ideal scenario for a transition to a stateless society of private law or a peaceful secession process that ends with states that at least have more of an incentive to serve their people.

However, this pain is entirely a consequence of engaging in collusion with a criminal organization.

This is because the national debt has reduced the population to involuntary servitude, made less odious only by the proportion of their property which is plundered but not by the ends to which the government spends taxpayer money.

Just as it would be illegal and immoral to continue a system dependent on human sacrifice or slavery, it is illegal and immoral to create a system that depends on the taxation of future generations to pay for the pleasures of those who currently live.

Insolvency and Credit Issues

Barring the short-term consequences, it would be logical to assume that any government (or institution that follows) a repudiation would be incapable of finding lenders again in an emergency.

A common objection is that the repudiation of debt means that a nation is an untrustworthy borrower and may not find further funds.


Public debt is inherently immoral, and there would be no point in returning to it.

The usual objections to this are that it would leave us without the government’s protection or benefits. If these are to be provided, they must be provided without debt. Anything else defies even the loosest idea of the social contract by binding future generations in an agreement they have not signed onto.

Further, though it may require a shift toward decentralized policies, such as local militias rather than a large military capable of international force projection, it would not change the actual quality of life for American citizens to refuse to use debt financing.

I am convinced that all public services, including law, defense, and infrastructure, could be provided more efficiently on the free market, but this is not a place for all of those discussions.