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Thursday, February 18, 2010

Adam Smith's Prophecy: Today's Debt Crisis

From Get Liberty:

“[A] foolish man devours all he has.”—Proverbs, 21:20.

In 1776, when Adam Smith published The Wealth of Nations, Great Britain was faced with a monumental sovereign debt crisis that would not be seen again until the 21st Century — when the U.S. finds itself with a rapidly accelerating $12.4 trillion national debt, soon rising to 100 percent of the Gross Domestic Product within a few years. The last chapter of his opus magnum, “Of Public Debts,” was dedicated to persuading the British Parliament of the calamity the British Empire was faced with. And, alas, they did not listen.

Reading through it today, one might easily surmise that Adam Smith, the Scottish economist and Enlightenment political philosopher, was actually a time-traveler who had foreknowledge of the crisis that faces the world today. For, the crisis he describes in exquisite, haunting detail is, nearly verbatim, eerily reminiscent of the calamity that now threatens the economic survival of the modern world — and threatens to enslave future generations for decades to come.

But, the truth is, there is nothing new under the sun. The crisis today that the U.S. faces — and troubled European debtor-nations Greece, Spain, Portugal, and Italy — with the increasing risk of a national debt default, is just the latest example in the factual and unfortunately oft-repeated economic history of the world. And Smith saw it coming.

In short, republics, empires, and other nations since the dawn of time have fallen for the same exact reason: they spent far beyond their means.

Awesome article. Your thoughts.

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