In This Review

A Free Nation Deep in Debt: The Financial Roots of Democracy
A Free Nation Deep in Debt: The Financial Roots of Democracy
By James Macdonald
Farrar, 2003, 550 pp.

The fate of states often hinges on their financial capacity, but that fact does not engage historians (or their readers) as much as the personalities of leaders and the outcomes of battles. MacDonald attempts to correct this deficiency by offering a fine history of public finance from ancient Greece and Persia to the present. His thesis: the growth and relative success of democratic government is intimately related to its superior ability to raise public funds, especially public debt at modest interest rates. "Democracy" here takes its traditional meaning of decisions by citizens, even when citizens are a minority of the population. The key feature is that creditors are collectively in political control of public finance, assuring their interests are not seriously abused. Leading historical examples are the Netherlands and the United Kingdom. Public coffers come under stress, especially in time of war, and democracies have demonstrated a superior ability to finance war even against economically larger opponents -- for example, the Dutch against the Spanish in the sixteenth century, or the British against the French in the eighteenth century. Germany floated extensive public debt in World War I -- nearly as much as the United Kingdom did -- but it relied markedly less on taxation. In the modern era, however, the crucial creditor-debtor link is broken by extensive international lending. And since the real value of public debt fell greatly as a result of universal inflation following World War II, the author recognizes that the lessons he has drawn from the past need not apply to the future.