The Trump administration finalized new Section 301 tariffs on dozens of trading partners, ranging from 10 to 12.5 percent, perfectly timed to take effect as the temporary global tariff of 10 percent under Section 122 expires. The basis for these new tariffs is a five-month investigation into whether those countries have done enough to keep goods made with forced labor out of their supply chains. 

There has been plenty of coverage on this. Ilya Somin lays out why this action is likely illegal and runs afoul of Section 301’s own requirements as well as the major questions and nondelegation doctrines. Scott Lincicome argues, powerfully, that the investigation itself was a sham, with the outcome promised early and repeatedly by several members of the administration well before the investigation was completed.

But there’s a far worse outcome from this that cannot be undone by courts, elections, or policy reversals. These new tariffs and their justifications have only served to further destroy the relationships with allies and trading partners that we had previously taken as given. The costs of this will outlast every tariff schedule, court ruling, and this administration. They won’t show up on BLS reports, BEA analyses, or Fed surveys. But they will be felt by every single American for years to come.

As a result of these tariffs, Japan, South Korea, and Australia now face 12.5 percent tariffs for their alleged complicity in using forced labor. China is in the same boat. Three of our closest allies are now accused of being just as negligent about slave labor as China.

Canada, the European Union, the United Kingdom, and Mexico now face 10 percent tariffs for their alleged forced labor practices. Canada and Mexico are, of course, also parties to the USMCA, a trade agreement that this very president negotiated, signed, and called “a colossal victory” only to then walk away from. That same week, the President hit Canada with an additional 50 percent tariff on goods ranging from “wine to hockey sticks to cement” regardless of whether or not those goods qualify under the USMCA.

So in the span of a week, the White House effectively told Canada, our closest trading partner and ally, that America’s word means nothing and then told them that they are complicit in forced labor.

An ordinary tariff is a tax. Trading partners are annoyed, sometimes retaliate, and sometimes negotiate. These tariffs are different. We didn’t just tax Japanese goods. We announced to the world, as an official finding of the United States government, that Japan is profiting from slavery and needs to be punished for it. Norway, Switzerland, Australia, the United Kingdom, and South Korea are guilty of this, too. Then we set a penalty that just so happens to approximate the Section 122 tariffs that just expired.

Foreign officials must now contend with an even clearer reality: not only is an agreement with the United States not worth the paper it’s printed on, but we will accuse you of horrendous practices if it means that an administration can re-impose tariffs. Our trading partners saw that the findings of investigations will be written to fit the desires of an administration instead of the facts on the ground. They learned that not only is America protectionist but that they will publish a serious moral accusation against a friend when doing so is politically convenient.

This changes how other countries will deal with us going forward.

Consider what a foreign trade minister in Tokyo or Ottawa does next. Obviously, over the coming days, they will be releasing press statements. But over the following years, two things become obvious. First, an agreement with the US is never a settled matter. Second, compliance with the American findings buys nothing because the US Trade Representative did not issue any guidelines of what sorts of labor practices could be adopted to lift these tariffs.

If nothing you do can get you off the list, there’s no reason to try. And if no trade agreement is actually binding, there’s no need to come to the table. Instead, there is every reason to find new trading partners.

That work is already happening. The countries hit by tariffs this week have been signing agreements with one another, expanding trading blocs that do not include the US, and diversifying supply chains away from the American market. Every one of those deals is a small, but largely permanent move away from doing business with America. Factories being built in Europe, China, and India won’t be picked up and moved if the US suddenly reverses its tariff policy. These lost opportunities won’t show up in BLS reports, BEA analyses, or Fed surveys.

The impacts of these tariffs and the accusations they come with aren’t confined to the commercial realm. They also affect our national security. Alliances, whether they be trade or otherwise, work based on accumulated good will. When we ask a country to host our submarines or NATO members to send troops somewhere, we draw upon the goodwill that we have accumulated over decades. Those governments have to sell the request to their own legislatures and voters who will sensibly ask: “What has America done for us lately?” And unfortunately, trade policy over the past 18 months has not engendered support.

A schedule of tariff rates can be repealed by proclamation. An accusation, once made and in the name of the United States government, is not so easily repealed. Those accusations carry weight because, traditionally, we have used them sparingly and when the evidence was abundantly clear. Now, if Lincicome is correct, our credibility on this stage has been strained.

These new tariffs may not survive on a legal basis. Courts struck down the emergency tariffs in February and the Section 122 tariffs in May. Somin expects this action to be challenged and believes that courts will strike these down, too. Whether or not the courts strike these down, too, the damage is already done.

The trust that America enjoys took generations to build and is being spent at a record pace. In the meantime, the world is moving on and increasingly without us. Unfortunately, courts cannot restore what was actually lost this week. Judges can void tariffs and force refunds, but they cannot unsay an accusation. 

“Fascism entirely agrees with Mr. Maynard Keynes, despite the latter’s prominent position as a Liberal.” 

So wrote the British fascist James Strachey Barnes in his 1928 book Universal Aspects of Fascism, which included a glowing preface written by Mussolini himself. “In fact,” Barnes continued, “Mr. Keynes’s excellent little book, The End of Laissez-Faire…might, so far as it goes, serve as a useful introduction to fascist economics.”

Even today, crackpots apply Keynes’s name to economic nonsense, hoping that some of his credibility will rub off; what might be called “Keyneswashing.” Was Barnes “Keyneswashing” fascist economics, or is there a genuine similarity with the Keynesian variety? 

Laissez-Faire 

Keynes defined “laissez-faire” as the “idea of a divine harmony between private advantage and the public good.” Adam Smith’s legacy, he summarized was, “in the main, to allow the public good to rest on the natural effort of every individual to better his own condition.”

The balance rested on two pillars, Keynes reasoned. First was ideology: if economic theory was followed to its conclusion, laissez-fire would be found at the end. He argued that this was not so, that the great economists — Adam Smith, David Ricardo, John Stuart Mill — had said no such thing, that this was only “what the popularizers and the vulgarizers said.” It was they, not the economists, who “fixed laissez-faire in the popular mind as the practical conclusion of orthodox political economy.” 

Second, an accident of historical circumstance meant that “the corruption and incompetence of eighteenth-century government, many legacies of which survived into the nineteenth” coincided with “material progress between 1750 and 1850 [which] came from individual initiative, and owed almost nothing to the directive influence of organised society as a whole.” This practical experience, it was said, confirmed the “a priori reasonings” of the economists. 

By the time Keynes published The End of Laissez-Faire in July 1926, these no longer held.  

Keynes rejected the a priori reasonings. “It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest,” he wrote. “Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these.” Keynes argued that experience showed that individuals, acting collectively, through government, actually could make better decisions than they did acting individually.

The experience of World War I was what Keynes had in mind. “War socialism unquestionably achieved a production of wealth on a scale far greater than we ever knew in peace, for though the goods and services delivered were destined for immediate and fruitless extinction, none the less they were wealth,” he wrote. If “the dissipation of effort was…prodigious, and the atmosphere of waste and not counting the cost…disgusting to any thrifty or provident spirit,” that merely reflected “socialism” in wartime; in peacetime, it could be different. 

Corporatism 

“[P]rogress lies in the growth and the recognition of semi-autonomous bodies within the State.”

— John Maynard Keynes, The End of Laissez-Faire  

Such was Keynes’s proposed model for these bodies were corporations. “Bodies whose criterion of action within their own field is solely the public good as they understand it, and from whose deliberations motives of private advantage are excluded,” he wrote, giving the examples of universities, the Bank of England, the Port of London Authority, the railway companies, and “joint stock institutions,” which, “when they have reached a certain age and size, [tend] to approximate to the status of public corporations rather than that of individualistic private enterprise.” 

This is corporatism, as Merriam-Webster tells us: “the organization of a society into industrial and professional corporations serving as organs of political representation and exercising control over persons and activities within their jurisdiction.” 

And it was corporatism with a wide scope. Keynes argued for government direction of savings, foreign investment and income distribution. “I do not think that these matters should be left entirely to the chances of private judgement and private profits, as they are at present,” he wrote.  

This was “Keynes’s Middle Way” between capitalism and socialism, as his biographer, Robert Skidelsky explained; “Today we might call it a Third Way.” 

Fascism 

“The fascist state is corporative or it is nothing.”

— Benito Mussolini 

Political scientist Andrew Heywood wrote that the distinguishing feature of fascist economic thought is the idea of corporatism. Mussolini, architect of the first fascist state, explained that “the fascist state is corporative or it is nothing” and called the corporations “the fascist institution par excellence.” 

Corporatism was the thin end of the authoritarian wedge. In 1926, Mussolini created a special ministry of corporations, explaining that a new cooperative machinery, as well as fixing wages and conditions of work, would eventually regulate the whole economy and that, eventually, the corporations would affect what would amount to compulsory recruitment of all Italian citizens for civilian work. In 1927, twenty-two corporations were established representing employers, workers, and government, charged with overseeing the development of all the major industries in Italy. In 1930, a National Council of Corporations was set up, comprising seven large worker and employer organizations; it had no legislative power, but could issue binding orders in matters concerning wages and conditions. By 1934, this had been expanded to include twenty-two sectors of the economy and social life. 

Finally, in 1939, a chamber of Fasces and corporations was created to replace parliament. Mussolini saw this, Heywood writes, as a “‘third way’ between capitalism and socialism.” 

Can Economic Planning Remain Politically Neutral?

Much of this lay in the future as Keynes wrote, and perhaps we should not condemn him for lack of foresight. 

Keynes believed, according to his biographer, the economist Roy Harrod, that “the government of Britain was and would continue to be in the hands of an intellectual aristocracy,” of which he was part. He supported economic central planning, via corporatism, because he assumed that enlightened experts like himself, a leading member of the Bloomsbury group, not a goon like Mussolini, would be doing the planning. He underestimated the political dangers of replacing decentralized decision-making with central planning, assuming that economic freedom could be curtailed without curtailing other freedoms. 

But if we can excuse such a belief held in 1926 as naivety, how can we excuse it still held ten years later when fascism’s true nature was becoming apparent? In September 1936, Keynes wrote in the preface to the German edition of his masterpiece, The General Theory of Employment, Interest and Money, that “the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.” 

If a totalitarian state is the price we must pay for the Keynesian “theory of output” to be put into practice, it is not a price worth paying. Likewise, if laissez-faire was the economic manifestation of political liberalism, then its death was to be mourned, not celebrated. If economic freedom is surrendered, other freedoms follow. “The economy” is just people acting, and one can only control “the economy” by controlling people.  

Fortunately, and not for the last time, Keynes would be proven wrong. Laissez-faire was, like the Norwegian Blue parrot, not dead, but merely resting. Given the alternative, it is a good thing for humanity that this was so. 

A Little More Social, University of Chicago professor Nicholas Epley’s book that can help repair our frayed civic fabric, opens with a hat story.

Riding a commuter train, Epley watches a woman in an elegant red hat take the last open seat beside him. Around them, passengers sit with “heads bowed in silence on the hunt for their own isolated acreage of solitude.” Then Epley says, “I love your hat.” She lights up. Thirty minutes of conversation follow — about families, jobs, and “how often we choose to ignore each other” in situations like this.

Epley’s paradox is simple: we are “social creatures whose happiness, health, and success depend” on other people, yet we are often reluctant to reach out in ways that positively connect us with them.

Through theory and empirical studies, Epley teaches us that our “overly pessimistic expectations about how others will respond” to our efforts to be social keep us from “doing good for others” and, in the process, “ourselves.”

Epley is not asking the socially awkward among us to operate hospitality wagons or engage in endless small talk. He wants us to notice the habitual reactions that keep us from helping build a more civil society.

Introverts might worry that Epley is asking them to transform themselves into extroverts. But Epley takes social anxiety seriously, drawing on clinical research to insist that the cure is not reassurance but exposure; anxious people “don’t think their way into feeling better; they feel their way to thinking better.”

The book’s first part is weakened by an overemphasis on studies of the benefits of extroversion. Introversion and extroversion can be fluid labels, as David Hume might have pointed out, and Epley’s best advice does not require extroversion. So, introverts, read on.

Reading A Little More Social reminded me of the years I flew Southwest. Weekly travel brought “A-list” status, and one woman flying regularly on the same route often stood near me in line. At first, she was only a familiar face. Then we began to talk, and eventually we sat together. The stranger in line became a person with a demanding job as an air traffic controller and a childhood marked by orphanhood. Epley’s experiments explain why that memory stayed with me: a small breach in routine silence turned a commute into meaningful engagement.

Other encounters are briefer: a kind word to a mother struggling with a child and luggage in an airport elevator, a passing compliment, a few minutes with someone we might otherwise treat as background. Most exchanges do not become friendships, but each weakens the habit of assuming strangers are best left alone. They are tiny acts of building a high-trust society.

In his biography of Thomas Jefferson, Jon Meacham recounts Margaret Smith’s first meeting with Jefferson, a scene that shows how the person imagined from a distance is often a shadow cast by rumor, party, and fear. Mrs. Smith’s Federalist world had taught her to distrust the “violent democrat” — “an enemy of all rank and order.” Instead, she found him gentle, attentive, and disarming. In conversation, caricature gave way to the human being. As Jefferson ended his visit with Margaret and Samuel Smith, he said, “I am your friend.”

Why, then, are we so eager, especially on social media, to make potential friends into enemies?

We treat our imagined version of another person as evidence for engaging with or dismissing them. From afar, the stranger, neighbor, opponent, or public figure becomes whatever our fears make of them. But Epley’s experiments show that contact usually corrects the forecast: conversation lets reality replace projection, often revealing the other person to be warmer, kinder, and more approachable than we assumed.

Across many experiments, Epley and his collaborators find that we systematically underestimate how good it feels to connect with others. Ask commuters to predict whether their ride will be better if they keep to themselves or strike up a conversation with a stranger. They expect solitude to be pleasant and conversation to be a small ordeal. Then send them out to do both. The result reverses the forecast: those asked to connect have the most positive commute, and those left to solitude the least.

“Reaching out wasn’t just positive,” Epley writes. “It was surprisingly positive.”

Although I once tested as an introvert on the Myers-Briggs scale, I learned Epley’s lesson decades ago when I overcame my internal resistance and began having extended conversations with the technicians and repairmen who came to our house. I look for opportunities to engage in conversations about their work and how they see the world. As in Epley’s experiments, the results have been uniformly positive.

On the surface, I had little in common with some of the technicians I befriended, including a large man whose main hobby was snowmobiling. But our shared humanity ran deeper than appearances.

In A Treatise of Human Nature, David Hume calls man “the creature of the universe, who has the most ardent desire of society,” then presses the point: “A perfect solitude is, perhaps, the greatest punishment we can suffer. Every pleasure languishes when enjoyed apart from company, and every pain becomes more cruel and intolerable.” Epley argues that we are starving in front of an open refrigerator, and he offers actionable steps to remedy our hunger.

Why do we misjudge so badly, and in the same direction, repeatedly? A social decision, Epley observes, “is guided not by how a decision will actually make you feel but rather by how you think a decision will make you feel.” Our forecasts of how strangers, neighbors, and even friends will receive us are quietly, chronically too negative.

Epley notes that “we live our social lives in a confusing learning environment with incomplete feedback.” We cannot see how the conversation we declined to start would have gone. So the pessimism never gets corrected: “Being overly pessimistic is self-fulfilling. Fearing the worst in others means never giving yourself the chance to learn what others are like at their best.”

Epley resists treating sociality as merely a mood and instead treats it as a set of choices with moral content. The book’s third part turns to three of those moral choices — gratitude, kindness, and honesty — and in each, Epley finds the same gap between dread and reality. We withhold the compliment we could pay, the help we could offer, or the honest word a friend needs because we predict our overture will misfire. It rarely does.

Having written often on gratitude — and having received a lesson decades ago about the ingrate within — I found Epley’s chapter on gratitude perhaps the most valuable.

When William James received a letter of gratitude from his students, the founder of American psychology confessed he had missed something in his previous theorizing: “The deepest principle of Human Nature is the craving to be appreciated.” Epley devotes a chapter to that craving and to our reluctance to feed it in others. Hume wrote, “Of all crimes that human creatures are capable of committing, the most horrid and unnatural is ingratitude.”

A free society is held together neither by the state nor the market alone. It rests on a vast, unlegislated web of voluntary regard between strangers: the willingness to trust, extend goodwill, and treat the person in the next seat as a potential friend rather than, in the phrase Epley’s colleagues used, a “serial killer.”

When we underestimate one another, we do not merely forfeit pleasant interactions. We starve the trust on which a people committed to liberty depend.

Separating Monetary Reality from a Popular Myth

1. Introduction: The Appeal and Persistence of the Claim

Some ideas become popular because they are true; others because they are simple. The assertion that “money is debt” owes much of its appeal to the latter.

Once largely confined to heterodox monetary circles and technical discussions of banking, the phrase now appears routinely in documentaries, cryptocurrency debates, social media, populist politics, anti-central bank rhetoric, and even some university classrooms. To many listeners, it sounds less like a description than a revelation: an unsettling disclosure about how the monetary system “really” works. In its strongest form, the claim holds that nearly all money enters circulation as interest-bearing debt, that governments issue money only through borrowing, and that modern economies therefore require ever-expanding indebtedness to function.

The slogan’s popularity is understandable. The Global Financial Crisis weakened public trust in financial institutions and policymakers. Bail-outs, near-zero interest rates, and repeated rounds of quantitative easing contributed to the impression that money could be generated almost arbitrarily even as debt burdens continued to rise. At the same time, digital media rewarded concise explanations for complex systems, and “money is debt” proved unusually effective because it compressed banking, sovereign borrowing, monetary policy, and financial instability into a single memorable phrase.

The rhetorical formula also persists because it contains an important kernel of truth. Commercial bank lending frequently creates deposits. Governments rely heavily on debt issuance. Central banks maintain balance sheets populated largely by financial claims. In that limited institutional sense, debt undeniably plays an important role in the creation and circulation of modern money. But saying that money is often created through debt is one claim; saying that money itself is debt is another.

This distinction matters because money and debt describe different economic phenomena. Debt is a contractual relationship involving obligations across time. Money is generally defined by its economic functions: a medium of exchange, a unit of account, and a store of value. The two often overlap institutionally, but overlap does not imply equivalence. Debt frequently contributes to money’s creation, especially within modern banking systems, but a method of issuance does not determine essential character any more than widespread financing of mortgages makes houses themselves into debt.

The phrase “money is debt” is ultimately misleading because it conflates monetary creation, accounting conventions, legal liabilities, and the economic nature of money itself. Debt matters enormously. Credit cycles shape economic growth and financial stability. Fiscal and monetary institutions deserve scrutiny, and understanding these issues requires conceptual precision rather than slogans.

The sections that follow distinguish among the major variants of the money-is-debt thesis before examining the conceptual foundations of money and debt, the historical record, modern banking mechanics, and central banking operations. While debt frequently accompanies money and often contributes to its creation, money itself is neither conceptually nor economically reducible to debt.

2. The Major Variants of the “Money Is Debt” Thesis

One difficulty in evaluating the claim that “money is debt” is that the phrase is used in various, often incompatible ways. In some formulations it functions as a narrow observation about banking mechanics; in others it becomes a sweeping claim about the nature of money itself or even a prediction of inevitable systemic collapse. Treating these formulations as identical causes both advocates and critics to talk past one another. For clarity, the debate can be understood as encompassing four broad versions of the thesis: an accounting version, an institutional version, an ontological version, and an apocalyptic version.

The narrowest and least controversial formulation concerns modern banking mechanics. In contemporary monetary systems, commercial banks frequently create deposits through lending activity. When banks extend loans, they generally create corresponding deposits, expanding broad measures of the money supply. In this limited sense, much modern money does enter circulation through debt relationships. As an institutional description, this claim is substantially correct. Yet the conclusion that money therefore is debt does not automatically follow. The process through which something comes into existence does not necessarily define its essential character. Most home purchases are financed through mortgages, but houses are not debt; debt may finance acquisition without exhausting the meaning of the underlying asset.

A broader and still largely defensible formulation emphasizes that modern monetary systems are deeply debt-mediated. Central banks, sovereign bond markets, commercial banks, and private lending institutions collectively create an environment in which much economic activity depends upon credit contracts. This observation contains substantial truth. Government securities underpin reserve systems, banks expand deposits through lending, and financial claims frequently function as near-money substitutes. Modern economic systems are therefore deeply intertwined with debt relationships. Yet institutional importance does not imply conceptual identity. Debt may structure monetary systems without fully defining the nature of money any more than roads, however essential, exhaust the meaning of commerce.

The strongest version of the thesis argues that money and debt are fundamentally identical phenomena viewed from opposite sides of a balance sheet. According to this interpretation, all money represents debt claims and therefore cannot meaningfully exist independent of indebtedness. Chartalism is a primary strain of the “money is debt” tradition, defining money as a state-recognized credit or liability, rather than an independently emergent commodity.

This strain of ontological claim constitutes the main target of critique in this paper. Historically, money long predates many modern debt institutions and has frequently existed in forms difficult to describe as debt instruments at all. Commodity monies such as gold and silver, physical currency held without repayment obligations, and immediate settlement media complicate attempts to collapse money entirely into debt. More fundamentally, debt itself presupposes prior concepts of valuation, exchange, and settlement, because debt contracts are typically specified in monetary terms.

Finally, a more polemic version of the argument — common in activist, anti-central bank, and heterodox monetary reform circles — holds that because money enters circulation as debt, perpetual debt expansion becomes mathematically necessary, rendering eventual collapse inevitable. Claims that “there is not enough money to pay the interest,” that “the system requires infinite growth,” or that “debt slavery is inevitable” often rest upon misunderstandings of the dynamics of circulation, repayment, and refinancing. Interest payments do not disappear permanently from the economy, but instead recirculate through wages, investment, dividends, and spending. Credit cycles unquestionably create fragility, but fragility does not imply inevitability. Distinguishing among these versions matters because it transforms the debate from a simplistic dispute over definitions into a more serious evaluation of different claims often compressed into one phrase.

3. What Are Money and Debt?

Any serious evaluation of the claim that “money is debt” must begin with a more basic question: what exactly are money and debt? Much of the slogan’s persuasive force derives from conceptual ambiguity. In ordinary conversation, people often move casually among money, credit, banking, loans, and finance as though they describe variations of the same phenomenon. They do not. Without clear definitions, discussions of money quickly collapse into semantic disputes, accounting abstractions, or circular reasoning.

Economists have traditionally defined money according to its function rather than its institutional origin. Across classical, Keynesian, monetarist, Austrian, and other traditions, there is broad agreement that money serves three principal roles: it acts as a medium of exchange, a unit of account, and a store of value. As a medium of exchange, money eliminates the need for the “double coincidence of wants” required under barter. As a unit of account, it provides a common language for prices, comparison, and economic calculation. As a store of value, it allows purchasing power to move across time, facilitating saving, planning, and investment. Whatever form money takes, its defining characteristic lies primarily in what it does rather than how it was created.

Carl Menger offered one of the most influential explanations of money’s emergence. In his account, money develops spontaneously through exchange as individuals gravitate toward goods possessing superior exchange characteristics: durability, divisibility, portability, recognizability, scarcity, and broad acceptance. Certain goods become increasingly marketable, and over time they evolve into generally accepted media of exchange. In this view, money emerges because people expect others to accept it, not because debt contracts require it. Social coordination, rather than indebtedness, lies at the center of monetary function.

Debt belongs to a different conceptual category altogether. Debt is fundamentally a contractual relationship involving obligations across time. It presupposes a creditor, a debtor, repayment conditions, a specified horizon, and some mechanism of enforcement. Mortgages obligate borrowers to lenders. Bonds commit firms or governments to future payments. Loans establish claims upon future resources. In every meaningful sense, debt is relational: one party owes something to another.

The distinction becomes clearer when the concepts are compared directly.

Money	Debt
Medium of exchange	Contractual obligation
Settles claims	Creates claims
May circulate indefinitely	Has repayment terms or maturity dates
Does not require a creditor and debtor	Requires both creditor and debtor
Valued primarily for liquidity and acceptability	Valued according to repayment expectations
Functions as settlement	Functions as a claim on future resources
Examples: currency, specie, transaction balances	Examples: mortgages, bonds, loans

The essential difference is simple: debt creates obligations, while money settles them. A mortgage is debt. The dollars used to make the mortgage payment are money.

Much of the confusion surrounding the phrase “money is debt” arises because modern monetary instruments frequently appear as liabilities on institutional balance sheets. Commercial bank deposits are liabilities of banks, while currency appears as a liability of the issuing central bank. To many observers, this accounting treatment appears decisive: if deposits are liabilities, and liabilities are debts, then money must be debt.

The conclusion does not follow. Accounting classifications reveal institutional structure, but they do not necessarily determine economic meaning. Under commodity-backed systems, liabilities carried obvious significance because circulating notes were redeemable into gold or silver. Under modern fiat systems, however, convertibility has largely disappeared. A Federal Reserve note is not redeemable for a specified external asset, making its liability classification largely an accounting convention rather than evidence of debt in the ordinary financial sense.

The distinction between money and credit further illustrates the problem. Credit reallocates purchasing power across time by creating obligations. Loans create claims. Credit cards extend spending power. Bonds transfer resources from savers to borrowers. Money performs a different role. Money facilitates exchange by providing final settlement. Debt creates claims; money extinguishes claims. Although modern banking systems often generate money through lending, it does not follow that money itself is reducible to debt.

If money and debt are conceptually distinct, the fact that debt frequently contributes to monetary creation does not establish that money and debt are identical. Methods of creation do not necessarily determine essential character. The historical record provides a useful test of that proposition.

4. Historical Evidence Against the Claim

If money were inherently debt, one would expect that relationship to hold consistently throughout monetary history. But even a brief examination of historical monetary systems suggests otherwise. For much of recorded history, societies relied upon forms of money that were not anyone’s liability, carried no repayment obligation, and circulated independently of debt relationships. Credit and lending certainly existed — often extensively — but money itself frequently neither originated as debt nor depended upon indebtedness for its existence.

The earliest widely accepted monies were generally commodities possessing characteristics conducive to exchange. Anthropological and historical evidence points to cattle, salt, grain, shells, copper, silver, and gold serving monetary roles in different societies. What united these monies was not indebtedness but usefulness. They tended to be durable, divisible, portable, recognizable, relatively scarce, and broadly accepted. Their value derived primarily from their role in facilitating exchange rather than from any underlying debt relationship.

Precious metals provide the clearest challenge to the claim that money is debt. Gold and silver functioned as money across civilizations for millennia, from the ancient Mediterranean to medieval Europe and early modern commercial societies. Yet a gold coin is not anyone’s debt in any meaningful economic sense. Possession represented ownership of a widely accepted exchange good, not a contractual claim against a debtor. No maturity date existed, no repayment obligation stood behind the asset, and no counterparty promised future performance. Asking whose debt a gold coin represented reveals the difficulty for strong versions of the money-is-debt thesis: nobody’s.

Advocates of the money-is-debt view sometimes respond that modern fiat money differs fundamentally from historical commodity systems. That is true, but it does not establish that money itself has become synonymous with debt. Institutional arrangements evolve; economic functions persist. Historically, the causal relationship often ran in the opposite direction from that implied by the slogan. Once societies established trusted media of exchange, increasingly sophisticated credit systems emerged around them. Merchants issued bills of exchange, banks stored specie and issued redeemable claims, and financial intermediation expanded around pre-existing monetary foundations.

This sequencing matters. Historically, debt often developed around money rather than money developing from debt. Under metallic standards, banknotes circulated because holders trusted their redeemability into specie. Debt and money interacted closely, but they remained analytically distinct. The fact that redeemable claims circulated alongside money does not establish that money itself was debt; it demonstrates that credit instruments frequently leveraged trusted monetary systems.

The transition to fiat money complicates matters but does not rescue the stronger versions of the thesis. During the nineteenth and twentieth centuries, many economies gradually moved away from commodity-backed systems toward discretionary central bank-managed arrangements, culminating in the collapse of the Bretton Woods system in 1971. Major currencies became fully fiat, deriving value not from redemption promises but from legal acceptance, taxation, institutional credibility, and network effects. Yet modern fiat money still lacks the defining characteristics of ordinary debt instruments. A dollar bill has no maturity date, pays no interest, and promises redemption into no specified asset.

Historical crises further reinforce the distinction between money and debt. During banking panics and financial instability, depositors frequently sought to exchange institutionally issued claims for cash or specie. That behavior reveals an intuitive distinction: people sought settlement assets precisely because confidence in debt relationships had weakened. Even today, periods of financial stress often generate demand for cash, insured deposits, reserves, and short-term government securities while riskier debt instruments lose liquidity or undergo sharp repricing.

None of this implies that debt plays no role in monetary systems. Credit expansion and financial intermediation have profoundly shaped economic development. But intertwined concepts are not identical concepts. The historical record repeatedly demonstrates that money has existed independent of debt obligations, while debt systems have often evolved around trusted monetary foundations rather than creating money in the first instance.

5. The Modern Banking System: Why the Confusion Exists

If history weakens the claim that money is inherently debt, modern banking helps explain why the assertion nevertheless appears plausible. Most money today exists not as physical currency but as bank deposits, and commercial banks play a central role in creating those deposits through lending. It is here, within the mechanics of modern banking, that the phrase “money is debt” derives much of its intuitive appeal.

At the center of the debate lies a straightforward institutional reality: banks frequently create deposits when they make loans. Contrary to the common image of banks merely lending preexisting savings, commercial banks often expand the money supply through credit creation. When a bank issues a mortgage, approves a business loan, or extends a line of credit, it records a new asset on its balance sheet — the borrower’s repayment obligation — while simultaneously creating a deposit liability in the borrower’s account. In this sense, new money enters circulation through a debt relationship.

This fact is important and often misunderstood. It explains why many observers conclude that money and debt are fundamentally the same thing. If deposits are created through lending, and deposits constitute most of the modern money supply, then it may seem natural to conclude that money itself is debt.

The conclusion, however, goes beyond what the evidence supports. The strongest defensible version of the argument is relatively modest: much modern money originates through lending. Commercial-bank credit expansion undeniably influences monetary growth, liquidity, investment, and economic activity. But a method of creation does not necessarily determine the nature of the thing created. The fact that deposits frequently arise through lending demonstrates that debt is an important mechanism of monetary issuance. It does not establish that money and debt are economically identical.

This distinction becomes clearer once deposits begin circulating through the broader economy. A contractor paid from mortgage proceeds does not regard the deposit received as a claim against the original borrower. Nor does a grocery store accepting payment inquire into whether the funds originated from a mortgage, a business loan, retained earnings or some other source. Money functions as money because others accept it in exchange. Its usefulness derives from liquidity, transferability, and broad acceptance rather than from the details of its origin.

Much of the confusion arises because deposits appear as liabilities on bank balance sheets. Deposits are recorded as liabilities because banks owe depositors access to transferable balances on demand. Yet these liabilities differ in important respects from ordinary debt instruments. Deposits overwhelmingly lack fixed repayment schedules, maturity dates, and negotiated contractual terms. Their primary economic role is not to function as investment claims, but as immediately spendable settlement balances.

The distinction becomes particularly apparent during periods of financial stress. When uncertainty rises, households and firms seek highly liquid settlement assets such as cash and insured deposits. At the same time, many debt instruments lose liquidity or undergo substantial repricing. If money were simply another form of debt, such behavior would be difficult to explain. Market participants consistently distinguish between settlement assets and ordinary credit claims.

Modern banking systems are also more constrained than popular versions of the “money is debt” thesis often imply. Banks cannot create unlimited purchasing power at will. Capital requirements, liquidity standards, regulatory oversight, creditworthiness, collateral constraints, and profitability considerations all limit credit creation. Failed lending destroys capital and bad loans generate losses. Financial crises repeatedly demonstrate that credit expansion carries substantial risks.

None of this diminishes the importance of debt within modern monetary systems. Credit creation profoundly influences economic growth, asset prices, leverage, and financial stability. But recognizing debt’s importance should lead to a more precise conclusion: in modern economies, debt frequently creates money, but money remains distinct from debt. The relationship is close, but it is not identical.

6. Central Banking, Fiat Currency, and the Misinterpretation of State Money

If commercial banking explains why the phrase “money is debt” appears plausible, central banking helps explain why it gained renewed popularity after the Global Financial Crisis, quantitative easing, and the rapid growth of public debt. Expanding central bank balance sheets, large-scale asset purchases, and unconventional monetary policies encouraged many observers to conclude that money is simply government debt circulating in another form. Yet the institutional realities are more complicated.

Modern monetary systems are layered. At the foundation sits base money, consisting primarily of physical currency and reserve balances held by commercial banks at the central bank. Broader monetary aggregates, including checking and savings deposits, sit atop that foundation and are influenced heavily by commercial-bank lending. Treating all monetary instruments as interchangeable creates confusion. A Federal Reserve note, a reserve balance, a checking account deposit, and a Treasury bill may all be highly liquid, but they differ economically, legally, and institutionally.

Much of the “money is debt” argument focuses on central bank balance sheets. Currency appears as a liability of the issuing central bank, while central bank assets often consist largely of government securities. Critics therefore argue that governments issue debt, central banks purchase debt, and money is created as a result; therefore money must be debt. The reasoning appears straightforward, but it risks confusing accounting relationships with economic identity.

Historically, monetary liabilities carried clearer meaning. Under commodity-backed systems, banknotes represented redeemable claims. Holders could exchange currency for gold or silver according to established conversion rules. In such systems, the liability designation reflected a genuine obligation to deliver a specific asset. That world largely disappeared during the twentieth century. Following the collapse of Bretton Woods in 1971, major economies moved decisively toward fiat monetary arrangements. Under fiat systems, currency no longer promises redemption into gold, silver, or any other specified asset.

That distinction is crucial. Ordinary debt instruments possess recognizable characteristics: principal amounts, repayment obligations, maturity dates, contractual counterparties, and often interest payments. Fiat money possesses none of these features in any conventional sense. A twenty-dollar bill does not mature, pay interest, or entitle its holder to redemption into some underlying asset. It functions instead as a widely accepted settlement instrument.

Quantitative easing further contributed to public confusion. During and after the 2008 financial crisis, central banks dramatically expanded their balance sheets by purchasing government securities and other financial assets. To many observers, this appeared indistinguishable from “printing money” to finance government borrowing. In practice, however, quantitative easing largely operates through asset swaps. Longer-duration securities are exchanged for highly liquid reserve balances. What changes is often the composition of financial claims rather than the immediate spending power available to households and firms.

Similar misunderstandings arise with sovereign debt. Governments unquestionably borrow, and sovereign debt markets play an essential role in modern financial systems. Yet governments influence monetary systems through multiple channels, including taxation, spending, reserve creation, seigniorage, regulation, and central bank operations. The existence of government debt does not automatically imply that money itself is debt any more than the existence of corporate debt makes equity shares debt instruments.

Modern monetary systems are undeniably intertwined with sovereign debt markets, commercial banks, and central bank operations. But intertwined systems are not identical systems. People use dollars because dollars facilitate exchange, preserve liquidity, and settle obligations. They do not use dollars because they represent ownership stakes in chains of sovereign indebtedness.

None of this diminishes legitimate concerns about excessive government borrowing, inflation, central bank discretion, or financial fragility. Those concerns are real and deserve scrutiny. But they become easier to analyze when money and debt remain conceptually distinct. The problem with the slogan “money is debt” is not that it identifies a false relationship. It is that it mistakes an important feature of modern monetary institutions for the essence of money itself.

7. Why the “Money Is Debt” Claim Persists—and Why It Misleads

If the claim that “money is debt” is conceptually imprecise and historically incomplete, why has it become so persuasive? The answer lies in its unusual combination of partial truth, explanatory simplicity, and emotional resonance. In an era marked by financial crises, rising public indebtedness, inflation concerns, and declining trust in institutions, the phrase functions less as a technical economic proposition than as a broader narrative about instability, power, and fairness.

Its appeal begins with simplicity. Modern monetary systems are extraordinarily complex. Commercial banking, sovereign debt markets, central banking, payment systems, reserve balances, and financial regulation interact through layers of institutions unfamiliar to most citizens. People use money every day and naturally seek simple explanations for how the system works. “Money is debt” offers an elegant shortcut. Rather than wrestling with institutional complexity, one receives what appears to be a unified explanation for banking, government borrowing, inflation, and financial instability.

The phrase also gained traction following the Global Financial Crisis. To many observers, governments and central banks appeared capable of creating vast quantities of purchasing power while households faced foreclosure, unemployment, and stagnant incomes. Bailouts, quantitative easing, and ultra-low interest rates reinforced the perception that money was being generated through expanding debt. Whether that perception was entirely accurate is less important than the fact that it resonated with broader concerns about economic insecurity and institutional credibility.

Part of the slogan’s durability stems from the fact that it contains a significant element of truth. Modern monetary systems rely heavily on credit expansion. Commercial banks create deposits through lending. Governments issue debt securities. Central banks maintain portfolios of financial claims. Debt and leverage matter enormously for liquidity, growth, financial stability, and asset prices. Observers who notice rising indebtedness are not imagining things.

The difficulty arises when that observation is extended beyond what the evidence supports. To say that debt plays a central role in modern monetary systems is uncontroversial. To say that money itself is debt requires a much larger conceptual leap. The first describes a relationship; the second asserts an identity. Throughout this paper, that distinction has proven decisive.

The slogan also tends to blur important analytical boundaries. Money, debt, credit, banking, and monetary institutions become compressed into a single category. Yet these concepts perform different functions. Credit reallocates purchasing power across time. Debt creates obligations. Banking intermediates between borrowers and lenders. Money facilitates exchange and provides settlement. Conflating these concepts may produce an appealing narrative, but it often obscures the mechanisms one hopes to understand.

Perhaps the greatest weakness of the “money is debt” framework is that it encourages overly deterministic conclusions. Variations of the argument frequently suggest that modern economies require perpetual debt expansion, that collapse is mathematically inevitable, or that monetary systems are fundamentally unsustainable. History provides little support for such claims. Monetary systems evolve, adapt, and occasionally fail, but they do so for many reasons, including inflation, fiscal mismanagement, political instability, technological change, banking crises, and shifts in public confidence. No single variable explains monetary history.

Debt matters enormously. And so do banking systems, business cycles, central banks, and public finance. But reducing money itself to debt ultimately obscures more than it reveals. The slogan succeeds rhetorically because it compresses institutional complexity into a memorable phrase. Its weakness is that the resulting simplification sacrifices important distinctions necessary for serious analysis.

8. A Better Way to Think About Money

The phrase “money is debt” is not just erroneous, but also obscures more than it clarifies. So what should replace it? Criticism alone is insufficient. Any useful alternative must explain both historical monetary systems and contemporary fiat arrangements while preserving the important, though limited, role that debt and credit play in modern economies.

A better starting point is to return to money’s economic function. Money is a widely accepted settlement asset that facilitates exchange, enables economic calculation, and allows purchasing power to move across time. Whether composed of gold, silver, paper, or electronic balances, money performs a fundamentally social role. It allows strangers to transact

without requiring barter, extensive trust, or complex chains of reciprocal obligations. None of this is feasible without a generally accepted medium through which prices emerge and transactions settle. Money is therefore not merely a financial instrument but one of civilization’s most important coordinating institutions.

Debt performs a different role. Debt reallocates purchasing power across time. It allows borrowing, lending, investment, and financial intermediation. Money, by contrast, facilitates exchange and provides settlement.

The modern economy reinforces this point daily. Commercial-bank deposits may originate through lending, but once they begin circulating they function independently of their origins. A worker receiving wages does not ask whether payroll was financed through retained earnings, a bank loan, or a bond issue. Exchange becomes possible precisely because money abstracts from those underlying relationships.

Seen in this light, money appears less as a debt instrument than as a social technology embedded within legal systems, market expectations, and institutions of exchange. Its forms have changed dramatically across centuries, but its essential purpose has remained remarkably consistent: facilitating exchange, coordinating economic activity, and settling claims.

A more accurate characterization, therefore, is not that money is debt, but that modern economies frequently create money through debt relationships.

9. Conclusion: Money Is Not Debt

The claim that “money is debt” persists because it captures an important feature of modern monetary systems while overstating its significance. Modern monetary systems are deeply intertwined with debt relationships, and any serious account of money must acknowledge that reality. But institutional relationships are not conceptual identities. For much of recorded history, societies relied upon forms of money that were not anyone’s liability and carried no repayment obligation. Gold, silver, and other commodity monies circulated because they were widely accepted in exchange, not because they represented enforceable claims against debtors.

Even within modern financial systems, money and debt perform different functions. The stronger versions of the money-is-debt thesis nevertheless deserve engagement because they identify genuine institutional real-ities. Credit expansion influences economic growth and financial stability.

Excessive leverage can destabilize economies. Governments can borrow imprudently, and central banks can make costly policy mistakes. These concerns are real and deserve serious attention. But they become easier to analyze as distinct concepts rather than compressed into a single slogan.

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In April 2021, the government of Sri Lanka banned the import of synthetic fertilizer and pesticides overnight, announcing that the island would become the world’s first fully organic farming nation. The policy arrived wrapped in the language of health and sustainability, and it carried a quieter motive: the country’s foreign-exchange reserves were collapsing, and fertilizer imports were expensive. It was bold, broadly popular in the abstract, and morally self-assured. 

K.K.G. Thilakabandara had no time to prepare. A rice farmer in the country’s eastern growing belt and the chairman of Sri Lanka’s largest farming association, he watched the ban take effect with no consultation and no transition, and then watched compost fail to do, in a single growing season, what synthetic nitrogen had done for decades. Farmers, he told Reuters, “couldn’t get a good harvest from just organic material” and grew desperate. 

He was not an outlier, and the experiment did not last. By the time the government reversed course seven months later, rice harvests had fallen by as much as a third, and the country had lost an estimated $425 million in tea exports alone. Sri Lanka was experiencing a food crisis. A nation long self-sufficient in rice was suddenly importing it. At the same time, the price of the national staple climbed — and the agricultural collapse poured into a wider economic crisis that, within months, helped drive President Gotabaya Rajapaksa from office. 

What is remarkable here is not that the policy failed; policies fail all the time. It is how fast and how completely reality forced the reversal. The government did not rediscover its values. It collided with a fact it could not legislate away — and the fact announced itself as a price. 

A Price Is Not an Opinion 

The easy reading of Sri Lanka is a story about agronomy: concentrated synthetic nitrogen works, and national-scale compost does not. That is true. The deeper lesson, however, is about what a price actually represents.

In 1945, Friedrich Hayek published “The Use of Knowledge in Society,” arguably the most consequential economics essay of the twentieth century. Its claim was modest in form and radical in effect. The knowledge a society needs to use its resources well never exists in one place; it is scattered across millions of minds — the farmer who knows his soil, the trader who knows his shortage, the household that knows its own budget. No central authority can assemble it. The price system, Hayek argued, performs the one task no planner can: it compresses all that dispersed, local knowledge into a single number that everyone can read and act on at once. He did not claim that every market outcome is good or that every cost appears in a price. His claim was narrower and harder to dismiss: no one has ever found another mechanism that coordinates dispersed knowledge half as well.

The corollary is the part politics keeps forgetting. A price is not an opinion you can outvote. It is a message about reality — about scarcity, effort, and the stubborn physical facts of the world. When a government bans an input, caps a rent, or shuts down an industry, it does not abolish the underlying scarcity. It silences the messenger. The scarcity remains, invisible for a while, until it returns — later and larger — as a shortage, a blackout, or a queue outside a shop.

None of this means a price is the final word. But there is a difference between a market that has failed to account for a cost and a government that overrides a cost the market has already counted. Sri Lanka, Buenos Aires, and the shuttered reactors were all cases where political decisions overrode price signals. The signal was not incomplete; it was inconvenient.

Sri Lanka never repealed the chemistry of nitrogen. It only repealed the signal that told farmers what nitrogen was worth, and the chemistry took its revenge through the harvest.

Why Politics Shoots the Messenger 

If prices carry such reliable knowledge, why do governments override them so routinely — and why does it so often take a catastrophe to stop them? The answer is the least romantic and most dependable part of political economy. 

A market transmits a price almost instantly. Politics transmits it slowly and through heavy distortion. Mancur Olson explained its core: the beneficiaries of an intervention are usually concentrated, organized, and loud, while those who pay for it are dispersed, unorganized, and often not yet harmed. The economist Anthony Downs added the problem of rational ignorance — no single voter has much reason to study any single policy — and Bryan Caplan pushed further in The Myth of the Rational Voter, arguing that voters are not merely uninformed but systematically biased about economics, because holding a comfortable but mistaken belief costs an individual voter nothing. 

Put these together, and you get a machine engineered to suppress price signals for a long time before it finally corrects. Nowhere is the pattern clearer than in rent control. Economists have agreed for generations that it shrinks the supply and quality of housing; politics has run the other way for just as long, because sitting tenants are a concentrated, voting bloc and the renters who never find an apartment are an invisible one. 

Argentina pushed the experiment much further than most countries had. A 2020 law capped increases and dictated lease terms; landlords fled the market, and the supply of rental housing in Buenos Aires collapsed. Then, in December 2023, President Javier Milei repealed the law by decree. The effect was almost immediate: rental supply rose by more than 170 percent, and real rents fell by roughly 40 percent from their pre-repeal level. The surge did not cure every ailment of a country running 200 percent inflation, but it proved something simpler and more damning: the shortage the law was meant to relieve had been largely manufactured by the law itself. 

Notice what that reversal proves. The knowledge the price had been trying to transmit — that the controls were strangling supply — was true the entire time they were in force. Suppressing the price did not make it false; it only hid it. The instant the signal was allowed to speak again, the housing reappeared. The years of “protection” were not a period of success. They were the measure of the damage. 

The Decade-Long U-Turn 

Nothing captures the reversal more cleanly than Three Mile Island. The most notorious address in the history of American nuclear power — for a generation, a synonym for meltdown — is seeing one of its reactors restarted to meet the electricity demand of data centers. The company reopening it offered the bluntest epitaph a decade of energy policy could ask for: “We made a mistake in shutting down this plant.” 

It is not an isolated change of heart. For most of the 2010s, opposing nuclear power and constraining fossil fuel use were the safe political stances across Europe and much of the United States. Then prices spoke. After 2022, as energy costs surged and the consequences of having dismantled a reliable supply showed up on every household bill, the politics reversed almost everywhere at once. 

In Europe, the change came in a rush. Belgium repealed its 2003 nuclear phase-out law in 2025, citing sustained price increases; Denmark moved to overturn a 40-year ban, and Germany — having taken its last reactors offline only in 2023 — abandoned its long-standing opposition to treating the atom as clean energy. In the United States, Governor Gavin Newsom of California, who had accepted the closure of the Diablo Canyon plant, instead acted to keep it running; in 2026, federal regulators approved a twenty-year extension. 

No new argument for nuclear power had been discovered in the interval. The physics had not changed since the plants were closed. What changed was the price — and the price had been right the whole time. 

The Bill Always Comes Due 

Three countries, three sectors, one mechanism. A fertilizer ban, a rent law, an energy policy: each began as a confident political decision to override what prices were saying, and each ended with reality collecting what it was owed. The only variable was the lag. In Sri Lanka, the bill came due in seven months and cost a president his office. In rent-controlled cities, it can take decades, paid quietly by the families who never find a home. In energy, it took the better part of a decade, paid in higher costs, lost industry, and the eventual humiliation of restarting the very plants a government had vowed to close. 

There is a comforting version of this story in which the reversals prove the system works — that democracies, however slowly, correct themselves in the end. That is half true, and it is the dangerous half. They do correct. But the correction is never free, and the moment of reversal is not the moment to celebrate. The cost was already paid, during all the years the signal was held under: in the harvests that failed, the apartments never built, the industries that packed up and left. The deepest implication of Hayek’s essay is not that you cannot fight a price. It is that you can — for a while — and that the length of the fight is simply the size of the reckoning. 

Reality never sends its invoice at once. It waits — sometimes months, sometimes decades — and the longer a society suppresses the signal a price is sending, the larger the bill grows. The question is never whether it arrives — only who will be made to pay, mostly without ever knowing the charge was theirs. 

The Ankara NATO summit was a success, at least by today’s relaxed standards for diplomatic behavior. Still, President Donald Trump captured headlines by sharply criticizing some of NATO’s European members.

At least he ended his participation on a positive note.

“There was tremendous unity in that room,” declared the president. “There was a love in that room. It was great. So this was a tremendously successful summit.” Of greatest policy relevance was his announcement that “We want to remain with you.”

These came after an unnamed NATO diplomat told Politico Europe: “I’m sick and tired of panicking about Trump.” The diplomat nevertheless praised Europe’s increased defense efforts: “We have to do this for ourselves.”

Most European states are taking their defense responsibilities more seriously, which is welcome. Washington’s overwhelming military role in NATO was necessary at the beginning of the Cold War. Western Europe and Japan had been ravaged by war and were vulnerable to diplomatic coercion and even military attack. No one knew if the Soviet Union would do so, but no one wanted to risk such dangerous uncertainty.

That world disappeared, however, after America’s defense dependents recovered economically. Unfortunately, both sides continued to support the US military dole. Members of Washington’s bipartisan foreign policy “Blob” preferred to dominate global and allied affairs, despite the policy’s significant cost. Allies preferred to focus on domestic development, including their burgeoning welfare states, leaving security to the US.

Eventually, the imbalance grew too great, and a succession of American officials pushed the Europeans, in particular, to do more, with only indifferent success. In 2011 Defense Secretary Robert Gates famously warned future American officials “may not consider the return on America’s investment in NATO worth the cost.” 

Donald Trump seemed to be that person. Despite his rhetorical excess, though, the president did not make good on his threat to leave the alliance in either his first term or the first 18 months of his second term. Rather than negotiate a structured political and military withdrawal from NATO, leaving the Europeans to decide on their own security policy, he evidently prefers using America’s continuing presence to shake down allies economically, imposing tariffs, obstructing regulations, and forcing investment. For him, the military is more a mercantilist than a security tool, and it worked on Europeans who abhorred the cost of declaring independence from the US.

Now he is reversing that approach, turning mercantilism into a security tool, though in practice he is more likely to harm America’s international position by doing so. Trump has long targeted Spain’s Prime Minister Pedro Sánchez for rejecting NATO’s increasing spending standards, despite their manifold loopholes. Sánchez’s position is understandable: no one believes that Vladimir Putin’s legions will imminently approach the gates of Zaragoza, Barcelona, Seville, Valencia, or Madrid. Moreover, Sánchez’s stand against US military and foreign policy, along with other high-profile progressive advocacy, has bolstered his popularity, a particularly important factor given the political misconduct scandals besetting his government.

Now Trump is considering reverse mercantilism by cutting off US trade with Spain even though the latter buys more from America than it sells, thereby reducing America’s global trade deficit, a long-time Trump goal. Last year the president complained that Spain was “unbelievably disrespectful” and threatened to end trade with that nation, and in March repeated that position. The issue then faded as he appeared to lose interest in favor of his Washington, DC construction projects and Middle East warmaking.

Alas, the latest NATO summit apparently rekindled his anger and he again threatened economic war against Madrid. He termed it a “terrible partner in NATO” and a “wasted cause. We don’t want to do any trade business with Spain anymore.” 

Sánchez denied any tension, responding: “Relations between the United States and Spain are very positive relations in social, cultural, economic and also political terms.”

This time Trump issued instructions. In Ankara, the president publicly told Treasury Secretary Scott Bessent: “I don’t want to do any trade with them, alright?” He added: “I don’t want anything to do with Spain. Cut off all trade with Spain, please, including visits, OK?” 

Bessent responded “yes, sir” and several agencies began developing a “menu” of products to be banned. Most likely, the administration would use the International Emergency Economic Powers Act to embargo some or all Spanish imports. This follows similar threats from four months ago. Then the president appeared to flip-flop again, declaring: “They honored a request for lots of payments, and if they didn’t, we wouldn’t have even talked to them.” (Apparently, Madrid convinced him that it met the current NATO standard.)

Had he moved forward, the administration would have had to ground its decision in national security and declare a national emergency, as it previously did against Cuba and North Korea. But Spain poses no comparable challenge, no threat by any serious definition. No doubt, the issue would have ended up in court. As the president discovered in February, his power over trade is not plenary. The Supreme Court rejected his attempt to use the IEEPA to launch trade wars with virtually every other nation on earth. Although jurists tend to defer to presidential claims in such cases, they recognized that he was grossly abusing emergency provisions for partisan policy purposes. Trump’s continuing, extravagant demands stirred opposition even among the long-submissive GOP congressional caucuses.

Cutting off Spain would be bad policy. Americans benefit from commerce with the Spanish.  

From them, Americans purchase olive oil, refined petroleum, electrical transformers, perfumes, vaccines, ceramics, wine, gas turbines, tires, aircraft parts, and nuts. From us, the Spanish buy crude petroleum, pharmaceuticals, petroleum gas, vaccines and other medical products, gas turbines, aircraft and spacecraft, soybeans, and nuts. Then there’s investment banking: “BlackRock holds €104 billion ($119 billion) worth of Spanish equities, debt and other assets, and Spain is the US-based firm’s main bet at a global level for the next six months,” Reuters reported.  

Fundamental liberty is also at stake. Trade is not government-to-government, but person-to-person and firm-to-firm. Nor is it a restricted legal privilege. Commerce occurs because both sides gain. The president might want nothing to do with Spain, but millions of Americans do. They trade with people and visit Spain. US policy should not be based on a president’s arbitrary anger and personal pique. It should reflect America’s national interest, not his belief that he is “running the world” and therefore is entitled to arbitrarily impose his will. Ironically, Sánchez is implementing Trump’s governing philosophy, a form of “Make Spain Great Again,” acting in Spain’s interest rather than that of other nations, including the US.

Mercantilism was largely abandoned because it hindered economic success and undermined national development. It was bad when Trump adopted that failed model as America’s new approach. It became much worse when Trump malformed security policy to reinforce his mercantilist approach. Punishing Spain, or any other nation that ends up in his sights, would hurt Americans even more.

NATO’s Ankara summit delivered little of the expected fireworks. Unfortunately, however, though superficially successful, it reinforced the outdated policies of American primacy and European dependency. It also highlighted Trump’s mercantilist bent and willingness to sacrifice Americans’ economic interests for dubious political ends. 

We all are likely to be poorer as a result.

For the first time in five years, the Federal Communications Commission (FCC) has announced its intentions to vote on authorizing the sale of 160 MHz of spectrum, heralding the return of spectrum auctions following a several-year drought. This move comes almost a year after Congress passed the One Big Beautiful Bill (OBBB), which both reauthorized FCC spectrum auctions and required the various agencies charged with spectrum management to identify at least 100 MHz for auction by this time next year.

Ahead of the Commission’s vote, analysts highlighted that releasing this new band of spectrum could add billions of dollars to the US economy, create millions of new jobs, and generate between $30 billion and $75 billion for the Treasury. Nevertheless, these various prospective benefits point to the challenge and importance of spectrum auction design. Namely, while a spectrum sale raises revenue for the US Treasury, the broader economic benefits of releasing more spectrum into the marketplace are what matter. The FCC should not focus on maximizing the revenue implications of the auction, but should instead focus on structuring the sale to optimize the benefits it provides to consumers, businesses, and the economy.

The electromagnetic spectrum refers to the various bands of energy waves that underpin modern communications and information technologies to convey information between devices. As such, the spectrum represents the lifeblood of the modern information economy. The management of this vital resource has, since 1927, been under the “command and control” of the FCC. For decades the FCC determined the allocation of spectrum through a highly inefficient process of “beauty contests” wherein prospective users would have to make their case to the Commission that theirs was the best use for a particular bandwidth. Unsurprisingly, these hearings and other non-market allocation processes the Commission devised were mired by all manner of chicanery and cronyism. 

The decision by Congress in 1993 to authorize the use of auctions introduced a much-needed dose of economic rationality to US spectrum policy. However, owing to bureaucratic inertia and congressional inaction, the FCC’s authorization to conduct auctions expired in 2023, once again leaving much of this valuable resource idle. Thus, the OBBB’s reauthorization of auctions is a welcome improvement from the past several years of spectrum policy.

The reopening of spectrum auctions goes a long way toward shifting spectrum to higher-valued uses, as growing demand from wireless providers, internet/cable providers, artificial intelligence, and low-Earth orbit satellite constellations all continue to compete for existing bands. Much of the spectrum to be sold comes from what is referred to as the “upper C-band,” running roughly from 3.98–4.14 gigahertz (GHz), which is currently allocated for use by satellite operators and aviation users. A CTIA-commissioned study that examined the economic benefits of mid-band spectrum reallocation estimates that each additional 400 MHz tranche of spectrum will, on average, yield approximately $264 billion in GDP, 1.55 million new jobs, and a direct benefit to consumers between $320 and $480 billion. 

However, here lies a tension in spectrum policy. The primary value of auctions is in the benefits they create for consumers by shifting scarce spectrum from low- to higher-valued uses, as these are revealed by what consumers actually pay for wireless services and devices in retail markets. Their use as a means to generate revenue for the government is of decidedly secondary importance, yet much of the public campaigning around auctions, as well as much of the professional advice rendered to the FCC, focuses on this particular aspect. This can be seen in the media coverage of the FCC’s previous 2.5 GHz auction, which cast the $428 million earned by the government as underwhelming. 

Since the price of a license represents the present value of the profits that can be earned from owning it, the price paid to the FCC at auction can be inflated by, for example, limiting the amount of bandwidth auctioned or setting high minimum prices. Such policies may maximize the revenues earned by the FCC, but at the cost of hurting consumers by limiting competition in the marketplace. Thus, the emphasis on public finance considerations risks biasing auction design in directions that harm consumers.

As economists have repeatedly emphasized, the FCC should auction spectrum rights with an eye toward market efficiency, not maximizing auction revenue. Ideally, this would mean granting licensees full property rights over the spectrum they purchase rather than restricting them to specific uses under the current licensing regime. Presently, the FCC auctions “flexible use licenses,” which, while providing licensees with greater discretion over how they can use the frequencies under their control, constrains the use of specific bandwidths to the production of specific services. For example, the 1993 legislation authorizing auctions provided for the sale of bandwidth for use by Personal Communication Service networks only, limiting firms’ ability to reallocate these bands as communications technology evolves. The FCC should avoid these issues by allowing private actors to own particular bandwidths outright. Doing so would allow licensees to determine the highest and best use of their spectrum based on changing market conditions rather than arbitrary regulatory constraints. 

Economists have shown that restricting the use of spectrum licenses limits consumer gains from auctions by restricting the extent of market competition. Moreover, full property rights would enhance the flexibility of spectrum markets, allowing users to shift band deployment as technology and demand evolve. Barring this, the FCC should simply get as much bandwidth on the market, in as short a time as possible, allocating spectrum to where it provides the largest benefit to society writ large.

The return of spectrum auctions is a welcome development in spectrum policy. However, whether the benefits of the FCC’s proposed sale will generate the most value possible for consumers will depend critically on how the Commission conducts the sale. A wrongheaded focus on maximizing revenue risks biasing policy in a direction that will limit market competition, thus harming consumers. Maximizing consumer welfare and enabling the fullest utilization of the airwaves requires that auctions be conducted to enhance efficiency in wireless markets rather than be narrowly focused on generating revenue. 

Markets in spectrum gave rise to the efflorescence of cellular and digital technologies enjoyed by many today. Keeping that revolution moving requires that full property rights to the spectrum be provided to the innovators and companies that will put them to use.