Public Debt and Rules of Monetary Growth: An Exercise in Monetarist Arithmetic

Abstract

The problem of the financing of government deficit and of public debt is an old one and covers different issues. In earlier literature the major question regarded the alternative ways of financing a once-and-for-all extraordinary expenditure incurred by the State, because, say, of a war: the obvious reference here is to Ricardo (ed. Sraffa, 1962) and to de Viti de Marco (1953), where a wealth of arguments which were later rediscovered and redebated can be found. A great deal of attention was then devoted to the question of the burden of the debt and a number of open issues here were settled by Modigliani (1961). In Keynesian times and in the frame of the IS-LM paradigm there was a shift of attention: deficit spending was considered a possible tool for economic stabilisation and the debate concerned the relative merits of monetary financing and debt financing.¹