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A Free Nation Deep in Debt: The Financial Roots of Democracy Paperback – May 22, 2006


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Product Details

  • Paperback: 576 pages
  • Publisher: Princeton University Press; 1st Princeton Ed edition (May 22, 2006)
  • Language: English
  • ISBN-10: 0691126321
  • ISBN-13: 978-0691126326
  • Product Dimensions: 9 x 6.2 x 1.3 inches
  • Shipping Weight: 2 pounds (View shipping rates and policies)
  • Average Customer Review: 4.4 out of 5 stars  See all reviews (8 customer reviews)
  • Amazon Best Sellers Rank: #1,834,982 in Books (See Top 100 in Books)

Editorial Reviews

From Publishers Weekly

Public borrowing from citizens in times of war has gone hand in hand with modern democracy, Macdonald argues in this dense, sweeping economic history. A former investment banker now living in London, Macdonald traces the history of public financing of "national emergencies" (read: wars), from the biblical era through the present day. Until modern times, he shows, nations relied on stored treasure and surpluses to finance wars, often with detrimental results. Indeed, Macdonald argues that an inability to raise taxes for wars was one of the causes of Rome's downfall. Placing the importance of credit back at the center of historical causality is one of the book's strengths. The system of public credit swept onto the world stage in 18th-century Britain, France and the United States, and was intricately linked, notes the author, with revolutions in these latter two countries. During the 20th century, the system-and the notion of a "citizen-creditor"-reached its strongest point during WWI and likely had its swan song during WWII, because of postwar inflation, the succeeding decline in trust in government in the West and the increasingly global understanding of citizenship. There is much to learn here, but despite Macdonald's best attempts at accessibility, readers without a background in economics will struggle through.
Copyright 2002 Reed Business Information, Inc. --This text refers to the Hardcover edition.

From Booklist

MacDonald, a former investment banker, examines the historical linkage between political freedom and public debt, showing why representative governments have been able to borrow more cheaply from citizen lenders than autocratic heads of state who do not consider their citizens to be equals. Beginning at the end of the Bronze Age, this wide-ranging, comprehensive treatise traces the story of public finance and political freedom through the Napoleonic Wars to the twentieth century. We learn that the U.S. role in World War I was funded with public debt and, it is interesting to note, that World War II was the last major engagement in which savings bonds were a vital part of national security and the war effort. The mature bond markets of today have a global reach, and governments no longer depend upon citizen lenders. Even when considering the hard facts of money and credit markets--and their political implications--the author emphasizes the relationship between the state and its people, in this well-considered work. Mary Whaley
Copyright © American Library Association. All rights reserved --This text refers to the Hardcover edition.

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19 of 19 people found the following review helpful By Dr. Jonathan Dolhenty on February 8, 2003
Format: Hardcover
"A Free Nation Deep in Debt" is James Macdonald's first literary contribution to the field of political economy and it is rich in historical detail, a fact which may make it a challenging read for anyone unacquainted with ordinary economic history and its specific historiography. Macdonald, an investment banker for many years who now lives in Oxford, England, discusses the idea that the way a country borrows its money is associated with what kind of government it has. In his discussion, Macdonald traces the evolution of public debt from antiquity to the present, arguing that public finance and political freedom are more closely interrelated than most people realize.
For those who like some structure in a book of this complexity, it can easily be divided into an introduction and four main sections. The first seven pages, with the title "Introduction: The Financial Roots of Democracy," sketches out what is to come, providing the reader with a framework for the coming text and raising the essential questions with which the author will wrestle.
The first section traces the history of public finance and political freedom from the end of the Bronze Age to the end of the Dark Ages, contrasts two different types of finances -- tribal and imperial, explains the historic advantages of autocratic government, considers the critical period when some of the emerging societies settled down and civilized themselves without losing their political freedom, and, in regard to the so-called Dark Ages, asks why they had a more intense and enduring effect in western Europe than in other places. This initial section sets the stage for a comprehensive description of the relationship of public finance and political freedom in the Middle Ages and modern times.
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7 of 7 people found the following review helpful By Gaetan Lion on August 24, 2003
Format: Hardcover
This book is not what you think. The title suggests the repeat of the theme exposed by Paul Kennedy in the 80s in his book "The Rise and Fall of Great Powers." But, the two books advance almost symmetrically opposed theories. Paul Kennedy suggested that great powers eventually decline because they can't withstand the fiscal burden of maintaining a nonproductive military effort to govern their empire (the Imperial Overstretch concept). Macdonald instead advances that a public bond market is a nation?s best tool in raising funds for emergencies such as warfare. In Kennedy's book debt is bad. In Macdonald it is good.
Macdonald's argument starts with the fiscal stress associated with having to raise huge amount of funds in preparation for warfare. In such situation, raising taxes is impractical. Often tax rates would have had to double or treble to raise adequate funds to finance wars throughout history. A government can?t do that without causing a revolution. Often what states and government did before the advent of well developed public bond markets was to mine their grounds (or grounds of conquered territories) for mineral riches (gold and silver). The states would then hoard these gold reserves as funds available for a rainy day (war). But, as Macdonald points out this treasure hoarding was most inefficient from an economic standpoint.
Public debt markets became a much preferred alternative to treasure hoarding for financing wars. This was true for several reasons. Treasure hoarding represented a huge amount of wasted capital not reinvested in the economy where it could have generated rapidly rising living standards for society at large. Bond financing (public debt) was so much more flexible a tool for war financing than an ongoing tasking treasure hoarding mechanism.
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7 of 7 people found the following review helpful By Steven Martinovich on February 12, 2003
Format: Hardcover
For the record, I won't pretend to be an expert on public debt and all its related trivia so I'll judge this book as a layman only.
A Free Nation Debt in Debt is an impressive bit of research and analysis. Macdonald does a remarkable job tracing the role of public debt stretching back thousands of years in an attempt to advance the notion that democracies are inextricably tied to government funding, and indeed exist because of it. Throughout history, Macdonald argues, public debt has applied pressure on government to become more transparent to both creditors and the citizens it represents.
Of course, the problem with public debt is that it necessitates taxation -- and it may irk readers to hear Macdonald judge who is under- and over-taxed -- an intimately related issue. In fact, taxation plays such a role that you could argue it's a minor character in Macdonald's story.
Does A Free Nation Deep in Debt succeed? That will depend on your perspective. Small government types probably won't care for Macdonald's primary thesis while others may nod in agreement. Either way, it is a fine example of historical research. Warning: Not a casual read. You don't need a degree in economics to pick this up but don't expect to breeze through through it either.
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3 of 3 people found the following review helpful By Calvin H. Johnson on November 13, 2003
Format: Hardcover
MacDonald argues that democracy arose to allow governments to borrow for war from their people. There is superb chapter on France versus England in eighteenth century. England had half the GNP of France, but it was always able to outspend France in their wars. England relied on 3% perpetual debt, readily marketable by holders, with published information about budget and single market indicator of England's credit rating. Plus England was run by "heroic citizen-creditors" who were willing to entrust their capital to Bank of England (for loan for war) because they ran the government and were sure they would get taxes to make the debt sound.
France had kings who defaulted on a whim, a bramble bush
of borrowing instruments, a terribly inefficient tax system, with lots of exemptions for their aristocrats, no public information and a lousy resale market. French citizen did not lend to France. England paid 3% on its debt and France paid 11% on its debt as the Revolution neared. England carried debt of double its GNP and France went bankrupt which killed the ancien regime with debt of 2/3d of GNP. Terrific story.
MacDonald is concise and accurate summarizer of the literature on issues (American Revolutionary War debt) that I know about.
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