Views Regarding Public Debt:

Academic views regarding the burden of public debt have been changing according to the changes in general economic thinking about state intervention.

In the Eighteenth century, public debt   was favoured by economists as they had great faith in the role of state in economic  activities. Their favourable attitude towards public debt was a part of mercantilist doctrine.

But in the Nineteenth Century and the early part of the Twentieth Century public debt was condemned by early classical  economists mainly because of their lack of faith in the role of state in economic activities. David Hume, Adam Smith and David Ricardo had identical views about the consequences of public debt. Their opposition to public debt was on the ground that public expenditure is wasteful and unproductive. David Hume opposed public debt and said that, "nations once they began to borrow,
would be unable to resist, until they reached the point of bankruptcy."

Adam Smith thought that, once the sovereign started to borrow, his political power was increased because he was no longer  dependent on tax exactions from his subjects.

Therefore, borrowing encouraged the sovereign to wage needless wars. On the other hand, if taxes were raised to meet current costs, war would in general be more speedily concluded and less wantonly undertaken. In short, the ability to engage in loan finance makes for irresponsibility in sovereign."

Ricardo characterized national debt as '...one of the most terrible scourges, which was ever invented to afflict a nation. However, subsequent thinkers like Malthus, Mill, Sidgwick and Cairnes had some liberal view about the consequence of public debt.  As  Malthus said that, "The material debt is not evil which is generally supposed to be. Those who live on the interest from the  national debt, like statesmen, soldiers and sailors..........contribute powerfully to distribution and demand.... They ensure that effective consumption which to necessary to give the proper stimulus to production......... therefore, the debt, once created, is not a great evil".

The modern theory of public debt is an offset of the economics of depression or the Keynesian economics. The economic anomaly   created by the Great Depression of the 1930s gave way to the development of the new theory of public debt. The classical theory of public debt assumed full employment and unproductiveness of public expenditure and the classical antagonism towards public borrowing was based on these assumptions. But S E Harris observes that once the economists allowed for unemployment,  assumed elasticity in monetary supplies and agreed that that Government expenditures could be productive and need not  necessarily be wasteful, the case of public borrowing was strengthened. "Prof. AH Hansen the exponent of modern fiscal theory said that public debt is an essential means of increasing employment and has become an instrument of economic policy today.

Thus the modern theory of public debt is concerned with macro economic variables and not with individual utilities. It assumes the whole economy as a unit. Modern economists believe that internally held public debt involves no burden since we owe it to ourselves.

According to them external debt is regarded as definite burden as since repayment of principal and interest to foreign countries are entailed, such repayments involves a transfer of real goods and services from the debtor to the creditor country in payment of interest and principal amount.