Spencer Heath Archive

Item 494

Penciling by Heath on notepad paper

No date

Periods of great public works or other political expenditures coincide in history with economic collapse or decline.

The obligations that governments assume for public expenditures are accumulated in private hands under the mistaken impression that they are wealth. This belief in them makes them for a time exchangeable for wealth. But when this belief in them fails, when governments find themselves unable to recall any of their expenditures or to use public works as assets for the payment of public debts, then governments either default in their obligations or only postpone them by issuing new promises. This is called refinancing.

When governments fail to pay their debts to private persons then private persons become unable to meet their promises and obligations to each other and the whole exchange system is impaired or falls down. Promises and obligations shrink down to the level of the amount of goods and services, existing or in prospect, wherewith they can be met. In the case of governments this is eventually nil. This is because governments have no business or administrative technique for using their borrowed expenditures to produce any income or create any kind of assets that can be liquidated. Government officers do not own the funds and properties over which they have jurisdiction and control and hence do not follow any policies or give any supervision over their subordinates looking to the conservation of community property and causing it to yield income and returns — particularly since public officers, not being proprietors, would have no title to the returns if there should be any and have staked nothing to lose if there are none.

Taxation takes wealth out of the common markets in which it is pooled. It is not any exchange because nothing goes back into the market in recompense for taxes. Industry and trade feed their products and services into the market but only part of them is taken out by industry and /trade/ through voluntary exchange. Government feeds nothing into the markets; hence it creates no income to itself out of the market, therefore it can obtain from the market only by raiding it — or by raiding the incomes that flow out of the markets — and by putting promises (bonds etc.) in the market in exchange for what it takes out. While the business world accumulates these promises (or notes issued against them) believing them to be wealth there is much economic activity and “prosperity.” These obligations are bound, sooner or later, to default because the wealth that was obtained for them is not so administered, invested or employed as to produce any income. When the inevitable default occurs those who suffer it are rendered incapable of meeting their obligations and thus the wave of default is propagated and business bogs down.