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My Dear Friends,
In 2025, your government spent more on interest than on its fleets and armies.
Not on roads, or schools, or the old. On interest: the price of money already spent.
This is an imagined letter from Adam Smith to the Americans of 2026. The letters in this series are constructed from Smith’s own words and ideas, primarily those in “The Theory of Moral Sentiments” and “The Wealth of Nations.” All quotations are verbatim; paraphrases are faithful to Smith’s views. Interested readers can learn more about the sources here.
At the close of the Wealth of Nations I warned my own country about its debt. The warning, in one sentence:
Debt lets a people enjoy what government provides without feeling its full cost today—and makes the promise to pay later easier to give than to keep.
What borrowing changes
When a great nation fights its wars far from home, I wrote, many of its people feel scarcely any inconvenience from them. They pay a little more in taxes and enjoy, at their ease, “the amusement of reading in the newspapers the exploits of their own fleets and armies.”
Many were dissatisfied, I noted, when peace returned. It put an end to their amusement and to “a thousand visionary hopes of conquest and national glory.”
Borrowing is what kept the taxes small. A war paid for by loans asks the taxpayer only for the interest—a little now, and a little each year after. A war paid for within the year asks for the whole.
Make them pay for the war within the year, and they “would soon grow weary of it.” Wars would be “less wantonly undertaken.”
Borrowing does not only move the bill to a later date. It changes what you buy today.
And it is no longer only wars. Every program, every subsidy, every tax cut can be enjoyed on credit, and my newspaper reader is still with you. He cheers what his government provides and would be sorry to see it end. He has seldom been better entertained. Much of the bill comes later.
Everything he cheers has a cost. Who bears it, and when? Ask that not of the undertaking you already call wasteful, but of the one you believe your country needs. Its benefits and its bill belong in the same sentence.
Why later never comes
Now the promise to pay later.
I never said a nation must not borrow; a war does not wait for the tax collector, nor does a plague. My country borrowed for every war, having saved little in peace.
When peace returned, most of the wartime taxes stayed. They had been pledged to pay the interest, and the creditors did not go home with the troops.
Even the money set aside to retire the debt was not safe. Whenever a new expense arose, there it sat, already collected, and spending it was easier than raising a tax. A fund meant to pay old debts, I observed, mostly made new ones easier: it was always at hand to be borrowed against.
Raise another tax, and people complain. Postpone repayment, and few notice.
The same comfort that makes borrowing easy makes repaying hard. Paying is felt today. Postponing is felt later, by people who cannot yet complain.
I said as much of those who governed my country: Relieving the present difficulty was what chiefly interested them. The freeing of the revenue they left “to the care of posterity.”
Your economists have a name for the view opposite to mine: that a people foresee the future taxes behind every loan and save to pay them, so that it makes no difference whether the bill comes now or later. A generation after me, Mr. Ricardo explained that arithmetic, then doubted whether people behave accordingly.
The pretended payment
So how did the great nations pay?
“When national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and compleatly paid.” Nations were freed from their debts by bankruptcy: “sometimes by an avowed one, but always by a real one, though frequently by a pretended payment.”
The pretended payment was a trick with the coin. Suppose a king owes twenty shillings. He declares that coins with half the silver shall now be called shillings and pays twenty of them. The promised number. Half the silver. I called it a “juggling trick,” so easily seen through, and I said an honest bankruptcy was less shameful to the debtor and less harmful to the creditor.
Your coin cannot be clipped. Your money can be printed. And a lender who is promised dollars is not promised what those dollars will buy.
Between the end of 2020 and the end of 2023, your prices rose by about 18 percent. A dollar promised at the start of those years and paid at their end bought about 15 percent less.
No king stamped a new name on anything. The promise had not changed. What the payment could buy had.
We have always managed
You will tell me the lenders still come. I said the same of my country. Britain “seems to support with ease, a burden which, half a century ago, nobody believed her capable of supporting.” Then I added: “Let us not, however, upon this account rashly conclude that she is capable of supporting any burden.”
A bill that has not come is not a bill that will not come.
The question is not only when the bill comes. It is who will find that the bill was theirs.
Ask for the bill now.
Your humble servant,
Adam Smith
Ross Levine is the Booth Derbas Family/Edward Lazear Senior Fellow at the Hoover Institution and co-director of Hoover’s Financial Regulation Working Group. He is a founding member of the Hoover Program on the Foundations of Economic Prosperity. Levine is also a research associate at the National Bureau of Economic Research.