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Long-Run Implications of Alternative Fiscal Policies 103
Notes
1. J. M. Buchanan, Public Principles of the Public Debt (Homewood, Illinois: Richard D. Irwin,
1958).
2. J. E. Meade, “Is the National Debt a Burden?” Oxford Economic Papers, Vol. 10. No. 2, June
1958, pp. 163–83, and “Is the National Debt A Burden: A Correction,” ibid., Vol. 11, No. 1, February
1959, pp. 109–10.
3. R. A. Musgrave, The Theory of Public Finance (McGraw-Hill, 1959), especially chapter 23. Other
recent contributions include: the reviews of Buchanan’s book by A. P. Lerner, Journal of Political
Economy, Vol. 47, April 1959, pp. 203–6; E. R. Rolph, American Economic Review, Vol. 49, March
1959, pp. 183–5, and A. H. Hansen, Review of Economics and Statistics, Vol. 41, June 1959, pp.
377–8; also “The Public Debt: A Burden on Future Generations?” by W. G. Bowen, R. G. Davis and
D. H. Kopf, American Economic Review, Vol. 50, September 1960, pp. 701–6; and the forthcoming
note by A. P. Lerner, “The Burden of Debt” Review of Economics and Statistics, Vol. 54, No. 2, May
1961.
4. This definition implies that the national debt could in principle be negative. Even in this case we
shall refer to it by the same name, although its magnitude will be expressed by a negative number.
Similarly, we refer to an operation that reduces the algebraic value of the national debt as a “reduction,”
even if the debt was initially zero or negative.
5. The difference between the increase in the national debt in a given interval and the government
expenditure contributing to future income corresponds roughly to the net increase in what Professor
Meade has called the “deadweight” debt. Cf. op. cit.
6. The reader interested in establishing just who said what will find much useful material in
Buchanan, op. cit., especially chapters 2 and 8, and in B. Griziotti, “La diversa pressione tributaria
del prestito e dell’imposta” in Studi di scienza delle finanze e diritto finanziario (Milano: Giuffre,
1956), Vol. II, pp. 193–273.
7. See, e.g., J. E. Meade, “Mr. Lerner on ‘The Economics of Control,’” Economic Journal, Vol. LV,
April 1945, pp. 47–70.
8. See, e.g., “Functional Finance and the Public Debt,” Social Research, Vol. 10, No. 1, and “The
Burden of the National Debt” in Income Employment and Public Policy (New York: Norton &
Company, 1948).
9. Meade, op. cit.
10. See, e.g., the references in note 7 above, and in Buchanan, op. cit., p. 14, note 8.
11. This is precisely the position taken by Musgrave, op. cit., p. 577.
12. Cf. F. Modigliani and M. H. Miller, “The Cost of Capital, Corporation Finance and the Theory
of Investment,” American Economic Review, Vol. 58, No. 3, June 1958, pp. 261–97. However, Miller
has suggested to me that r may be the more relevant measure of return on capital as it deducts an
appropriate allowance for the “cost” of risk bearing.
13. This is especially true if current consumption is appropriately defined to include the rental value
and not the gross purchase of consumers’ durables.
14. Bowen, Davis and Kopf, op. cit., p. 704.
15. See, however note 1, p. 746, for a different explanation of Buchanan’s omission.
16. The need to curtail investment when government expenditure is increased at full employment,
even though it is fully tax covered, is the counterpart of the so-called multiplier effect of a balanced
budget when starting from less than full utilisation of resources. The tax-financed expenditure per se
increases the aggregate real demand for goods and services by a dollar per dollar of expenditure. But
if we start from full employment, this extra demand could only result in inflation. Hence it must be
offset by a fall in investment of s dollars per dollar of expenditure, which, taking into account the
multiplier effect, will reduce total demand by s/s = 1 dollar per dollar, as required.