A World In Debt
Albert Friedberg has performed a real service in unearthing and republishing this unnoticed gem. Freeman Tilden was a man of classical education and historical insight, which most professional economists emphatically are not. Writing on the eve of the Keynesian revolution, Tilden  emphasized many ancient truths that economists have insisted ever since are fallacies, but the veracity of which we are presently seeing demostrated once again. As a post-Keynesian financier I would not wish to be quite as straight-laced as Tilden is. But it is daily becoming more difficult to dispute his conclusion: "Once introduce the notion that in contracting a debt, the debtor has thereby added something to his own or to the community's wealth, and you have created a labyrinth into which a million optimists are eager to flock, but out of which most of them will stumble, sooner or later, disillusioned, seedy and sullen."Tilden makes with admirable clarity the point that civilization depends upon the framework of orderly and reliable expectations provided by the general observance of contractual obligations, so that political abrogations of debts tend to destroy the fabric of civilization itself. He also deals with the wiping out of the real value of debts through ruinous inflation, which in the past was the result of war or deliberate governmental fraud. But the specific threat we face today is a new twist upon these ancient practices. It is that national governments, strengthened by the centralizing consequences of two world wars and terrified by the growing danger of a return to the deflation and depression of the 1930's, will use the credit of the sovereign state to guarantee all the private liabilities, and bail out all the overextended debtors, whose collapse would otherwise be likely to bring deflation and depression upon us once again...Mr. Friedberg, in his concluding Commentary For The Eighties, makes some suggestions... [H]is basic principle is to reduce the reliance upon political guarantees of the liabilities of financial institutions to a point at which the concern of depositors and other individual creditors for the safety of their funds once again forces a prudent self-discipline upon the lending policies of those institutions. With that, I heartily agree. --Ashby Bladen, former columnist Forbes Magazine