Money, Banks and Finance in Economic Thought

Debt against democracy? How recent controversies may threat an old connection

de Saint-Phalle Pierre, Université de Lausanne / Université Paris-I Panthéon-Sorbonne

Sovereign debt has been studied and analyzed from the moment it became a common way to finance wars in Europe between the 17th and the 18th century (Defoe [1702], Law [1705], Montesquieu [1748], Hume [1752], Steuart [1767], Smith [1776]). Two of these authors, Hume and Steuart, had a debate on the nature of the influence of public debt on political regimes. The study of sovereign debts as an object per se became a relevent topic in recent history, in view of understanding how European countries became states of law with balanced political institutions (North and Weingast [1989], Sonenscher [1997], Stasavage [2003] Macdonald [2012]). In this article, I suggest that today a normative conflict exists within the fields of economics and political science, concerning how the sovereign debt influences political regimes. Theorists have rallied around two opposed interpretations. One group can be called “the restrainers" : skeptical about the capacity of a parliamentary regime, elected by a majority vote, to run the sovereign debt correctly, these authors advocate the constitutional check of the capacity of representative institutions to manage the debt, promoting independent agencies or automatic legal mechanisms (Buchanan [1967], Salsman [2017], Feld [2018]). Another group can be described as “the reformers”. These authors are critical of the influence of the current system of public borrowing on social inequalities. Therefore, they advocate a profound reform of public debt systems and monetary financial institutions, to make them politically responsible and to place the management of the debt system into the hands of more democratic institutions (Piketty [2012], Lemoine [2016], Tinel [2016], Porcher [2018]). The first group want a less democratic management of public debt (fearing irrational options such as default), whereas the second one view the actual system as insufficiently democratic (fearing the destruction of the welfare state). In both cases, representative democracy and debt in their present form are considered as a threat to one another.

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Keywords: sovereign debt, representative democracy, monetary financial institutions, history of political ideas, history of economic ideas, economic philosophy, political philosophy

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