The Past Speaks

The Financial Revolution made the rise of the modern state possible by establishing the credibility of sovereign borrowers and thus reducing their borrowing costs. Whenever you look at an aircraft carrier or an Interstate Highway, think of the Financial Revolution.  The financial revolutions in the Netherlands, England, and later the United States involved the creation of systems to ensure that the government’s creditors were always promptly and in full. The result was increased state creditworthiness and falling borrowing costs. Even during major wars, governments could borrow. The geopolitical and social implications of this change were massive. All of this was founded on investors’ trust in the state.

Of course,  hardcore libertarians have never been happy about the emergence of the strong states that the Financial Revolution made possible. In the last few decades,  libertarian minarchists and anarcho-capitalists have used a number of tactics to roll back the state: “starve the beast” tax cuts, encouraging tax competition,  constitutional litigation, charter cities, seasteading. These tactics haven’t been terribly effective. 

Now many of the more impatient libertarians are supporting the  Republican legislative posturing that now threatens to cause the US to default, which raise sovereign borrowing costs.

One has to admire the elegant simplicity of this tactic: cause a default and you effectively repeal the Financial Revolution,  making it much harder to operate the fiscal-military welfare- warfare state the libertarians despise.

I would suggest that these libertarians in a hurry need to ask whether libertarian policies have ever emerged from a crisis.