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was one of the superstitions of "orthodox" economics. The "new"economics had its own fresh theory. Public debt must be sharplydistinguished from private debt. Public debt can be expandedalmost indefinitely provided it is internally held. In fact, where agovernment owes merely an internal debt it can be said to be debtfree. Of course debts call for interest payments. But the taxpayersmerely pay the interest to themselves. 13The idea was not new for we find Renatus in his Twelfth Hour ofCapitalism, before Hitler came into power, complaining that theidea that internal debt, where the "money remains in the country,"is not dangerous had been used by the old empire government tomake the war loans more palatable. 14 That was pressure propagandaduring a war to unload mountains of securities. But now economistswho believed that principle dominated government thinking. Andthe theory became an extraordinarily convenient one.Between 1926 and 1931 the republican government built upanother 6,813,000,000 marks of debt and the various state governmentshad accumulated a new deficit of 13,988,000,000 marks. 15Here was a combined federal and state deficit over just these fiveyears of 20,801,000,000 marks. Playgrounds, swimming pools,schools, hospitals, and health projects were built and carried on bystates and cities with the aid of government financing. Roads—thetime-honored extravagance of governments in search of means ofspending—were built profusely. Heavy subsidies were paid tou Sigmund Neumann in Permanent Revolution (Harper's, 1942) says: "Nazi fiscal policieshave been a challenge to nineteenth century ideas. Running into debt no doubt spelledcertain ruin for a government because it indicated that the state was living beyond itsmeans, i.e., its capacity to be taxed. In a period of expanding economy it had becomeaxiomatic that it was private industry which provided all the opportunity for the investmentof savings and guaranteed the natural flow of capital. Twentieth-century economicssoon realized the limitation of such an automatic self-regulation in a contracting society.It reconsidered, therefore, the essential place of the state in the direction of productiveforces through active state interference. It commenced to view ^national debt' in a differentway. The real concern of modern capitalist society must be whether its total financialwealth, including the national debt, is large enough to permit the production of the nationalincome that its fiscal capacity affords. Such considerations probably opened the way tosome kind of financial double morality that conceived of different standards in individualhousehold and state bookkeeping."u Twelfth Hour of Capitalism, by Kuno Renatus, Alfred A. Knopf, New York 1932."The figures for these deficits are as follows. They are taken from the Basle Report onGerman Finances made by the Young Plan Advisory Committee, December 23, 1931, andapproved by the Bank for International Settlements, which is reported in full in Current94