In 1791, the national debt equaled about 40 percent of the gross domestic product. With its interdict on paper money and its stable dollar guarantee, the Constitution combined with the financial instruments Hamilton created to fund the debt provided an incredibly powerful stimulus to economic growth. National and foreign trade reopened. Federal revenues grew rapidly from sales of western lands and the tariff. Old taxes were cut, and the Jefferson and Madison administrations imposed new limits on federal spending. By 1836, 45 years after Hamilton initiated his audacious debt plan, the U.S. government paid off the entire debt.
From this history, we see that a debt crisis dissolves social bonds, weakening economic, personal, social, moral and political relationships. As government monetizes the debt to meet rising interest rates, inflation is unleashed and the currency devalued. Money whose future value is unpredictable cannot serve its most important purpose, to provide a common rule to equate goods, services and work effort. When social transactions are undermined, people lose trust in one another.
A society without trust cannot long remain free. A paralyzed democratic government, unwilling to act against a predictable threat, such as a growing debt crisis, invites popular contempt and resistance. Frightened citizens whose representatives will not protect their private property or the public treasury may not only give up on their representatives but dismiss constitutional self-government as weak, inadequate, servile and ignorant.
Recent polls show a near majority believe their government has now become the chief danger to their rights.