Reinhart/Rogoff on Debt

The recent discussion around the study on the economic consequences of public debt by Harvard economics professors Carmen Reinhart and Kenneth Rogoff is mainly about statistical methodology. About which I will not comment. However, the question of public debt has played a major role in European and US history for many centuries, including recent history since 1700. The South Sea Bubble in England and the Mississippi Bubble in France in1720 led to political changes in both countries. In England it ushered in the Whig Supremacy (and Salutary Neglect) of Sir Robert Walpole and Henry Pelham (1720-1760) who pursued low taxes which permitted the capital accumulation for industrialization. It ended with the succession of George III. The Peace of Paris (1763) ended the Seven Years’ War which gained victories for England but left England with the largest national debt in its history. George III’s King’s Friends sought to increase taxes in England and America, creating a new Whig opposition in both. Another success in the Seven Years’ War was the gaining of Indian provinces by the English East India Company. It re-assigned land property rights in Bengal, creating a famine and a fall in its stock price on the London Exchange. The English parliament sought to boast the stock price by creating an East India bureaucracy in the colonies to export tea.

(The colonists bought tea from the Dutch through its islands in the Caribbean at lower prices.) The Boston Tea Party led to the abolition of the Massachusetts charter, the military occupation of Boston and the meeting of the Continental Congress. The new French king decided to go beyond secret help to the Americans by going to war with England. France and America were successful but at the price of a much larger national debt for France.

The French Revolution followed, as well as a war between England and France. England’s defeat of Napoleon found it with another huge debt. England
returned to the Gold Standard. It reformed its parliament and ushered in free trade. It had sound economic policy set by William Gladstone for almost half a century, while France kept its tariffs and experienced revolutions in 1830, 1848 and 1871. These policy decisions may help to illuminate the purely statistical analysis in the economic studies.