Government debt is one of the modern State's foundations. It not only allows the State to exploit financial markets, extracting resources, but it also ties in closely with national defense. Governments usually depend on borrowing to wage war, with those that are better at doing so wielding far more power.

Government debt is a vulnerability of the modern State as well. Government fiscal crises helped provoke both the American and French Revolution in the past, for just two prominent examples, and the looming fiscal burden of social insurance in all the western democracies has today become apparent to nearly all.

Current holdings of government debt are too widely disbursed, however, to define a class or even net tax beneficiaries. Of course, strictly speaking, to the extent that you own Treasury securities, your returns come from taxation. But a large segment of the U.S. population does so indirectly through such modern financial innovations as money market mutual funds, and then only as part of much larger portfolio that includes many other assets, some of which also benefit from taxation yet many of which are hurt by it.

Consider some numbers: The gross debt of the U.S. Treasury in mid-2003 stood at over $6.5 trillion. But about $3 trillion of that was held by the social security and medicare trust funds, thus representing one government program (temporarily) running a surplus that was transferred into other government programs. The Federal Reserve held about $650 billion and foreign investors and central banks more than one-third of the remainder. That left about $2 trillion spread among depository institutions, mutual funds, insurance companies, state and local governments, pension funds, trust funds, corporate and noncorporate businesses, and private investors.

Nor have the returns on government debt been all that exorbitant. Indeed, prior to the reduction of inflation in the 1980s, holders of long-term Treasuries earned negative real rates of return, turning them into net losers with respect to those holdings. For the U.S. government, this"revenue" from the inflationary erosion of the real value of the debt far exceeded by a large margin the direct seigniorage from printing money. The fact that individual and institutional holders of government debt finally caught on, putting an inflationary premium on government debt, is one of the main ways financial markets disciplined the U.S. government into reducing inflation.

None of this belies the tremendous importance of debt as a mechanism through which the State plunders the economy. One of my favorite bumper stickers reads:"Invest in Your Own Destruction, Buy Government Bonds." The one consistent libertarian position with respect to these securities that can be financed only with future taxes, in my opinion, is immediate and total repudiation (just as the abolitionists advocated immediate and uncompensated emancipation of all slaves).