America is awash in debt. It is now normal to see a trillion-dollar increase in America’s public debt in 100-day intervals. Even more ominously, there is little political will on the part of legislators or citizens alike to stabilize—let alone reverse—this situation.

Runaway public debt is often symptomatic of deeper problems. In retrospect, the four state defaults incurred by Spain in 1557, 1560, 1575, and 1596 were an indication that the Spanish Empire’s decline had begun. Two hundred years later, the disastrous state of France’s public finances underscored the ancien régime’s political bankruptcy and helped trigger the French Revolution.

In The Financial Revolution in England: A Study in the Development of Public Credit 1688-1756 (1967), the Oxford historian P. G. M. Dickson illustrated that modern public debt, as we understand it, began when the Bank of England was founded in 1694 to act as the British government’s private banker and debt-manager. Britain’s subsequent acquisition of significant financial muscle helped lay the foundation for its rise as a world power.

These arrangements, however, had their critics. The most vocal was the Scottish Enlightenment philosopher, David Hume. In his 1752 essay, “Of Public Credit,” Hume dramatically stated that “either the nation must destroy public credit, or public credit will destroy the nation.” Hume was not averse to changing his mind. But this is one subject on which his opinion never altered. Indeed, some of his insights help us grasp the deeper dynamics underlying America’s present debt challenges.

Liberty, Necessity, and Degeneracy

Hume first signaled his concerns about Britain’s public debt in his 1741 essay “Of Liberty and Despotism.” Here Hume referred to the “degeneracy” generated by the ever-growing amounts of tax revenue being used to service debt. The tax burden, he claimed, was “becom[ing] altogether Intolerable.” It would, Hume warned, compromise liberty in Britain and reduce the country to the “same State of Servitude with all the Nations that surround us.”

In his public credit essay, Hume acknowledged instances in which governments had little choice but to incur substantial debt. He had in mind circumstances in which governments required resources exceeding their existing financial assets and tax revenues (what Hume called “treasury”) to address emergency situations, such as terminating a war.

Such “necessity” debt, as Hume construed it, could be legitimately understood as an extension of “treasury.” “These temporary expedients,” as Hume described them, were often rendered unavoidable by “the necessity of human affairs.” Beyond these circumstances, however, Hume saw a growing public debt as threatening a state’s well-being.

The error lay in using public debt for purposes that were not a matter of necessity. The initial impetus behind the Bank of England’s founding was funding William III’s wars against Louis XIV’s France. Yet it was not long before successive ministries started drawing on public debt for other purposes. To explain this shift, Hume focused on who decides what constitutes “necessity” and the motives shaping this decision-making process. Here Hume’s realist view of human nature comes to the fore:

It is very tempting to a minister to employ such an expedient, as enables him to make a great figure during his administration, without overburdening the people with taxes, or exciting any immediate clamors against himself. The practice, therefore, of contracting debt will almost infallibly be abused, in every government.

In short, why wouldn’t ministers of the crown use public debt to fund projects that enhanced their popularity while avoiding the ignominy attached to raising taxes? The temptation for governments to go down this path is, Hume observed, overwhelming.

Taxes, Interest, and Inflation

Hume’s warnings did little to deter British policymakers from using public debt to fund several wars in his lifetime. Indeed, public debt was central to Britain’s emergence as the eighteenth-century’s most formidable fiscal-military state: one capable of financially sustaining not only its own armed forces in globally scaled wars but also its allies.

Wider recourse to public debt was further encouraged by those who believed that states could use public debt to stimulate their economies. In his widely-read Traité de la Circulation et du Crédit (1764), the Dutch merchant-banker and philosophe Isaac de Pinto contended that a public debt increased the circulation of money and fostered the wider use of credit throughout society.

Neither these arguments nor Britain’s comprehensive victory over France in the Seven Years’ War altered Hume’s views about public credit. If anything, Hume’s prognostications became even more pessimistic.

In a letter dated March 11, 1771, Hume insisted that the sheer size of Britain’s debt would mean “certain and speedy Ruin either to the Nation or to the public Creditors.” Three months later, he referred in a June 25 letter to “our public Debts, which bring on inevitable Ruin, and with a Certainty which is even beyond geometrical, because it is arithmetical.” For Hume, the debt issue surpassed all other economic questions in importance. Six months after the outbreak of the War of Independence, Hume was railing in a letter dated October 26, 1775, against the “overwhelm’d and totally ruin’d State of our Finances.”

The actual state of Britain’s debt at the time belied Hume’s outbursts. The most reliable statistics available indicate that Britain’s public debt was 130.3 million pounds in 1769. This dropped to 128.9 million pounds in 1771, before declining further to 127.3 million pounds in 1775. This trajectory indicates relative stability, not impending fiscal doom.

That said, other late-eighteenth-century British thinkers began to express concerns similar to Hume’s. In his Commentaries on the Laws of England, William Blackstone claimed “that the present magnitude of our national incumbrances very far exceeds all calculations of commercial benefit, and is productive of the greatest inconveniences.” For one thing, Blackstone wrote, “the enormous taxes, that are raised upon the necessaries of life for the payment of the interest of this debt, are a hurt both to trade and manufactures” by forcing businesses to charge higher prices to consumers in order to absorb the cost of tax increases.

Hamilton excoriated in Hume-like terms exorbitant taxes, undisciplined government spending, and heavy debt.

Hume’s friend, Adam Smith, focused on a different problem. “When,” he wrote in his Wealth of Nations, “national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.” According to Smith, history tells us that governments would invariably try to circumvent the problem, “frequently by a pretended payment” like debasing the currency through inflation and devaluation, thereby reducing people’s purchasing power.

Pitt’s Scheme, Hamilton’s Gamble

Hume was thus not alone in warning about the debt’s effects on Britain’s well-being. It took, however, a lost war to persuade British politicians to take such concerns seriously.

By the end of the Revolutionary War, Britain’s national debt had doubled to 243 million pounds in government loan stock. To put this in perspective, annual tax revenues in 1783 were 12.5 million pounds. Furthermore, over a third of Britain’s annual budget was devoted to interest payments on the debt.

These numbers necessitated new fiscal thinking. Like many of his generation, the young MP William Pitt had read Hume and Smith on economic topics. Upon becoming Prime Minister and First Lord of the Treasury in 1783 at the age of 24, one of Pitt’s immediate priorities was to get the national debt under control.

Pitt’s solution involved putting 1 million pounds each year from 1786 onwards into a “sinking fund” that accumulated compound interest. This fund was used to pay down the existing national debt. By the early-1790s, that debt had almost been halved. In 1792, Pitt established another sinking fund to pay down all future debt. Even after the outbreak of war with Revolutionary France in 1793, Pitt maintained the funds in place, such was his commitment to getting Britain’s financial house in order.

These developments were closely followed on the other side of the Atlantic by another careful reader of Hume’s writings. Unlike Hume, however, Alexander Hamilton concluded that a public debt need not be a fiscal albatross. Rather, Hamilton saw it as key to Britain’s powerful position in international affairs. He also held that America needed something similar to maintain its independence in a world of competitive states. In addition, Hamilton thought that the US government’s assumption of the thirteen states’ debts would bind the republic together and give domestic and foreign investors a financial stake in its well-being.

One objection to Hamilton’s subsequent establishment of a national debt came from Virginia’s House of Delegates. It pointed to “a striking resemblance” between the legislation passed by Congress and the measures “introduced into England at the [Glorious] Revolution—a system which has perpetuated upon that nation enormous debt, and has moreover insinuated into the hands of the Executive an unbounded influence.”

The Humean edge of these observations would not have been lost on Hamilton. In his Report on a Plan for the Further Support of Public Credit (1795), Hamilton excoriated in Hume-like terms exorbitant taxes, undisciplined government spending, and heavy debt. But he also underscored his ambition to render America’s public credit “immortal” by preventing an unrestrained accumulation of debt. To that end, Hamilton proposed that

with the creation of debt should be incorporated the means of extinguishment; which means are two fold, the establishing at the time of contracting a debt funds for the reimbursement of the Principle, as well as for the payment of Interest within a determinate period—The making it a part of the contract that the funds so established shall be inviolably applied to the object.

Every loan contract into which the US government entered would thus specify the terms under which the debt would be paid off. This principle was eventually embodied in two acts passed on March 3, 1795, and April 28, 1796, that established the necessary provisions for the public debt’s redemption over time. By such means, Hamilton believed, America would enjoy the advantages of a public debt while diminishing the risks stressed by Hume and others.

Self-Interest Cuts Both Ways

Plainly, Hamilton’s and Hume’s assessments of public debt differed significantly. The two men, however, had a similar understanding of human nature. In this connection, their emphasis on self-interest’s remorseless workings was critical to their thought about public finances. For Hamilton, appealing to self-interest was central to persuading people to lend money to the US government. By contrast, Hume thought that the pursuit of self-interest by political leaders was turning Britain’s public debt into a fiscal time bomb.

Both men had legitimate points. When, however, we examine the dynamics driving America’s debt today, Hume’s observations are especially pertinent.

Today’s stunning expansion of America’s debt is driven by entitlement programs like Social Security, Medicare, and Income Security. In 2023, these consumed 68 percent of US government spending. That same year, the government collected almost 4.5 trillion in revenue but spent 6.16 trillion.

Public debt has become the means by which Washington has managed the revenue-expenditure gap since 2000. Interest payments on the debt, however, now exceed the amount spent on Medicaid and veterans’ benefits and are projected to become the federal budget’s largest category by 2051.

Behind these raw numbers lies something else. The ultimate cause of this “degeneracy” (as Hume would call it) lies in many Americans’ unwillingness to contemplate any entitlement cuts whatsoever. Nor do I see any William Pitt on the horizon with the courage to tackle the problem. Instead, most American legislators perceive support for entitlement cuts as the road to political perdition. In both cases, legislators and citizens are following their immediate self-interest.

Therein lies our dilemma: how do we align people’s self-interest so that it favors rather than impedes policies that will address America’s national debt crisis? Perhaps, as in late-eighteenth-century Britain, things will have to get much worse before enough twenty-first-century Americans see it as being in their self-interest not to allow our public debt to become the ruin of a nation.