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Robust Political Economy

Classical Liberalism and the Future of Public Policy

Mark Pennington

This important book offers a comprehensive defence of classical liberalism against contemporary challenges. It sets out an analytical framework of ‘robust political economy’ that explores the economic and political problems that arise from the phenomena of imperfect knowledge and imperfect incentives.
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The Political Economy of Public Debt

Three Centuries of Theory and Evidence

Richard M. Salsman

How have the most influential political economists of the past three centuries theorized about sovereign borrowing and shaped its now widespread use? That important question receives a comprehensive answer in this original work, featuring careful textual analysis and illuminating exhibits of public debt empirics since 1700. Beyond its value as a definitive, authoritative history of thought on public debt, this book rehabilitates and reintroduces a realist perspective into a contemporary debate now heavily dominated by pessimists and optimists alike.
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Richard M. Salsman

Not until the Enlightenment and the financial revolution in the eighteenth century did sovereigns borrow publicly, regularly, and responsibly. Constitutionalism, the rule of law, ethical acceptance of lending, and more respect for sanctity of contract increased creditors’ willingness to lend. Three centuries of data show that public leverage – the ratio of public debt to GDP – was highest at the end of the Napoleonic Wars and World War II. Public leverage since 1980 has increased steadily for many sovereigns, but for most of them leverage is still far below prior peaks. The multi-decade rise in public leverage reflects burgeoning welfare states but also coincides with an anomalous decline in public borrowing costs, due mainly to repressive central bank policies.

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Richard M. Salsman

Classical views of public debt are mostly pessimistic: Smith, Hume, Say, Ricardo, Postlethwayt, Jefferson, Mill, Marx, and others believe government borrowing is invariably wasteful, ruinous to prosperity, and even morally unjust. Exceptions include realists like Davenant, Melon, Steuart, Hamilton, McCulloch, and Macaulay, who stress the context of borrowing, distinguish productive versus wasteful spending and argue that certain state services are legitimate, productive and indispensable to prosperity. Public debt optimists (De Pinto, Mortimer, Malthus, and Dietzel) are a minority during this era but influence subsequent Keynesian theory.

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Richard M. Salsman

Keynesian views of public debt are mostly optimistic: Keynes, Hansen, Lerner, Musgrave, Samuelson, and Krugman believe government borrowing – including for avowedly unproductive public projects – stimulates output, especially in recessions, by absorbing excess savings and boosting aggregate demand. Exceptions include realists like McCord and Seymour, who endorse cyclical but not chronic deficit spending. Clark and Moulton, although sympathetic to the Keynesian view, are pessimistic about Lerner’s “functional finance.”

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Richard M. Salsman

Led by Buchanan and Wagner, public choice theory revives classical school pessimism about public debt in the service of critiquing more radical Keynesian views. The main novelty is its theory of “fiscal illusion” whereby inflationary debt finance displaces tax finance so as to render an otherwise painfully burgeoning welfare state electorally palatable. Precursors of the approach include Mises and Lutz. Although also skeptical of the benefits of vast public spending, Mundell, Laffer, and Barro interpret public debt as innocuous.

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Richard M. Salsman

As public leverage in major nations reaches heights not seen since World War II, questions about the sustainably and outer limit of public debt issuance become more relevant and urgent. The extent to which a government might overborrow or default has enormous implications for a nation’s political economy. Pessimists and optimists alike are theoretically incapable of discerning the true incidence, sustainability, or limit of public debt, not to mention the fast-accumulating sums of contingent public liabilities. Public credit – the capacity to borrow – is one of many crucial contexts realists incorporate in a proper analysis of public debt.

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Richard M. Salsman

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Richard E. Wagner

This book advances a social-theoretic treatment of public finance, which contrasts with the typical treatment of government as an agent of intervention into a market economy. To start, Richard Wagner construes government not as an agent but as a polycentric process of interaction, just as is a market economy. The theory of markets and the theory of public finance are thus construed as complementary components of a broader endeavor of social theorizing, with both seeking to provide insight into the emergence of generally coordinated relationships within society. The author places analytical focus on emergent processes of development rather than on states of equilibrium, and with much of that development set in motion by conflict among people and their plans.
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Liberty and Equality in Political Economy

From Locke versus Rousseau to the Present

Nicholas Capaldi and Gordon Lloyd

Liberty and Equality in Political Economy is an evolutionary account of the ongoing debate between two narratives: Locke and liberty versus Rousseau and equality. Within this book, Nicholas Capaldi and Gordon Lloyd view these authors and their texts as parts of a conversation, therefore highlighting a new perspective on the texts themselves.