Ferguson’s Law: Debt Service, Military Spending, and the Fiscal Limits of Power

Are there financial determinants of great-power decline and fall? This paper proposes “Ferguson’s Law,” which states that any great power that spends more on debt servicing than on defense risks ceasing to be a great power.

States have endeavoured, in some instances, by pawning their credit, instead of employing their capital, to disguise the hazards they ran. They have found, in the loans they raised, a casual resource, which encouraged their enterprises. They have seemed, by their manner of erecting transferable funds, to leave the capital for purposes of trade, in the hands of the subject, while it is actually expended by the government. They have, by these means, proceeded to the execution of great national projects, without suspending private industry, and have left future ages to answer, in part, for debts contracted with a view to future emolument.

So far the expedient is plausible, and appears to be just. The growing burden too, is thus gradually laid; and if a nation be to sink in some future age, every minister hopes it may still keep afloat in his own. But the measure, for this very reason, is, with all its advantages, extremely dangerous, in the hands of a precipitant and ambitious administration, regarding only the present occasion, and imagining a state to be inexhaustible, while a capital can be borrowed, and the interest be paid.… an expense, whether sustained at home or abroad, whether a waste of the present, or an anticipation of future, revenue, if it bring no proper return, is to be reckoned among the causes of national ruin.—