This short political-economic essay, dated April 1995 and later printed under the title “Budget Deficits,” argues that federal deficit finance is not a technical budget problem but a destructive transfer of capital, a moral burden placed on future generations, and a symptom of corrupt public opinion. Sennholz begins from the scale of the U.S. debt in the mid-1990s—approaching $5 trillion and growing by roughly $300 billion annually—and frames the issue as a crisis of political legitimacy as well as economic productivity.
An old English proverb may help us understand the nature of debt: “A small debt makes a man your debtor, a large debt makes him your enemy.”
The essay’s central thesis is that government debt consumes savings that would otherwise become productive capital. Sennholz contrasts public borrowing with business borrowing: private debt can finance production and raise productivity, while public debt represents past consumption charged to taxpayers. This distinction is the essay’s core conceptual move, because it lets him treat deficits not as stimulus but as capital destruction. In his view, the crucial economic variable is “the amount of capital invested per worker,” and deficits obstruct that process by absorbing funds in capital markets.
The federal debt is a pyramid of IOUs for income and wealth consumed in the past.
The structure proceeds from diagnosis to explanation to remedy. First, Sennholz identifies deficits as a cause of falling investment, stagnant living standards, unemployment, and declining competitiveness. Second, he rejects the Keynesian or “new economics” view that government spending stimulates prosperity. He insists that public expenditure merely redirects scarce resources from private uses to political uses, often inferior ones. His argument relies on a seen/unseen contrast: voters see checks, subsidies, public buildings, and programs, but not the private goods and opportunities forgone by those taxed or crowded out.
Government spending is presented as a benefit without cost, a grand addition to general welfare, a social achievement of the highest order.
Against this, Sennholz reads visible public abundance as evidence of hidden deprivation. The “marble temples of politics” become symbols of a society that honors state power over private accumulation and voluntary choice. His relevance lies in connecting budget deficits to a wider critique of democratic political incentives: politicians overspend because voters demand benefits, and voters demand them because prevailing economic teaching has made spending appear productive and costless.
The essay is also strongly moral. Sennholz argues that one generation has no right to mortgage the labor of the next. His language is intentionally severe: political debt is not merely inefficient but unjust, because it places liabilities on people who did not consent to them.
As individual debt is the worst measure of poverty, so is political debt placed on our children the greatest outrage.
Sennholz does not expect a balanced-budget amendment by itself to solve the problem. Legal restraints cannot overcome the political desire for transfers, benefits, and visible largess. He therefore shifts the proposed cure from constitutional mechanism to public morality: only a change in ideas can make fiscal restraint politically possible. The essay ends with a deliberately concrete gesture, proposing symbolic sacrifice by political leaders—salary cuts for the president and legislators, and a freeze on entitlements—as the sort of example that could make austerity credible.
No law or constitutional amendment can break the spending predilection.
The work’s enduring significance is its fusion of Austrian-style capital theory, public-choice suspicion of political incentives, and moral indictment of intergenerational debt. Sennholz treats deficit spending as a sign that society has mistaken redistribution and state construction for wealth creation. His final lesson is that fiscal repair must begin with intellectual repair: voters must cease believing that government can spend society into prosperity, and officeholders must visibly surrender privileges before asking citizens to accept restraint.
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