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The Balanced-Budget Question

Tags Big GovernmentFree MarketsMonetary Theory

04/20/2011Murray N. Rothbard
"In bypassing Congress in this way, the American public has shown that it realizes only too well that Congress has been the major culprit in budget deficits."

[From the Libertarian Review, May 1979, Rothbard provides a well-rounded discussion of the strengths and weaknesses of a balanced-budget amendment and assesses the significance of the movement that was pushing the idea.]

According to the US Constitution, if two-thirds (now 34) of the state legislatures propose a particular constitutional amendment, "Congress shall call" a constitutional convention to consider its passage. If the convention passes the amendment, it becomes part of the Constitution — if it is subsequently passed by three-fourths of the state legislatures.

The libertarian antitax, antispending organization, the National Taxpayers Union, has been toiling in the vineyards of the state legislatures for years, getting one after another to pass a proposed constitutional amendment to require the federal government to balance its budget. Last year and this, in the wake of the great mass upsurge of antitax, anti-inflation, and antigovernment sentiment across the country, state after state has passed this amendment, until now 29 out of the required 34 have endorsed the idea. The NTU — and the media — expect that the amendment will pass the required 34 states this year. What stand should the libertarian movement and the Libertarian Party take on this amendment?

First, we should realize that the balanced-budget amendment is a genuine mass movement, overwhelmingly supported by the bulk of the people in this country, regardless of income group, occupation, party label, or self-proclaimed status as "liberal" or "conservative." Let us look at the overwhelming consensus of the most recent polls. Gallup gives the results as 81 percent for the amendment, 11 percent against; CBS-New York Times makes it 70 percent pro, 17 percent against. The ABC Harris poll makes the amendment a 3 to 1 winner: 69 to 23 percent. Associated Press-NBC is even more conclusive at 4 to 1: 75 percent pro to 16 percent against.

So we have a genuine, overwhelming mass movement, led by an authentically libertarian organization. Before we repudiate or fail to go along with such a movement, we must think hard and long. Not only that: the instinct of the public in supporting the amendment is sound as a bell. The public is not only rising up against our chronic and aggravated inflation, but it has finally, and at long last, identified federal deficit spending as having something vital to do with that inflation. This insight of the masses must be encouraged, not repudiated.

Secondly, the public, in its wrath, is courageously taking up a never-before-used clause of the Constitution. The usual procedure, of course, has been to pressure Congress to pass an amendment which the state legislatures must then ratify. In bypassing Congress in this way, the American public has shown that it realizes only too well that Congress has been the major culprit in budget deficits. If Congress has been so conspicuously a crucial part of the problem, how can we wait for it to be part of the solution? In its willingness to use a previously unheralded part of the Constitution, Americans are showing themselves willing to be radical, to use legal but unorthodox procedures to bypass the State. Our presumption, then, must be to support and endorse the balanced-budget amendment. What are the arguments against it?

  1. Worry over a wide-open convention. In its scare tactics against the amendment, the Establishment has raised the specter that constitutionally, the convention, once in session, could see fit to expand the scope of its deliberations and pass all sorts of irrelevant and even monstrous amendments, e.g., outlawing abortion, or even repealing the Bill of Rights. There are many rebuttals that can and should be made to this common charge:

    1. It is quite likely that the delegates to the convention will be expressly limited — either by statute or by judicial interpretation — to discussing the one amendment it was called to consider.

      Anything else could be considered beyond its legal scope.

    2. Even if a doesn't work out, the delegates who run for the convention can pledge themselves to deal with only the balanced-budget question. Since that, in fact, is why the 34 states have called the convention, the pledge should not be difficult to exact.

    3. Even if a and b are somehow surmounted, and the convention passes irrelevant measures, three-quarters of the state legislatures would still have to ratify whatever the convention passed.

    4. If the balanced-budget amendment ever got close to the convention stage, it is extremely likely that Congress, desperately anxious not to be circumvented by the convention procedure, would finally be stampeded into passing a proposed balanced-budget amendment of its own.

    For all these reasons, with all these safeguards, the worry about a wide-open convention is simply an Establishment red herring.

    But more than that:

    1. Fear of the convention is part of the old conservative syndrome of fearing the people. There is an abiding difference between conservatives and libertarians that has been often overlooked: libertarians consider their main enemy to be the State, whereas conservatives consider their main enemy to be the masses, the general public. Conservatives fear the public as the source of political evil, whereas libertarians consider them our potential (and recently more and more our actual) ally, since we are all exploited by statism. Revealingly, conservative senator Paul Laxalt (R., Nev.), a top Reagan aide in 1976, opposes this constitutional convention. Says Laxalt, "The idea of a constitutional convention going off on its own strikes me with a great deal of fear."

    There are, of course, other, and far more cogent, arguments against the balanced-budget amendment. Let us consider them in turn:

  2. "Emergency" loopholes. Unfortunately, the proposed balanced-budget amendments all contain loopholes by which Congress can unilaterally declare an "emergency" any time it wishes, and by a two-thirds vote nullify the balanced-budget provision. But this argument is only a prescription for chronic evasion; for, after all, every year the Congress keeps blithely raising its own statutorily imposed limit on the public debt. The Congress can always find "emergencies"; they abound everywhere.

  3. The balancing can be up, not down. If there is a deficit, the public, as well as libertarians, mean by the amendment that the government must be forced to balance its budget by cutting its expenditures, in short, by balancing its budget down. But, it might be argued, the federal government could with perfect legality, evade and circumvent the spirit of the amendment by balancing its budget up, that is, by raising taxes to meet its swollen expenditures.

  4. The Federal Reserve can inflate, even with a balanced budget. Not all federal deficits (i.e., those financed by selling bonds to the public) are inflationary. So we can have bank-credit inflation even while the budget is balanced. The Federal Reserve can buy government bonds even if the federal budget is balanced, and thereby create inflation. Or, to put it another way, even though federal deficits are an all-important cause of inflation, the process works if and only if they are financed through the Fed and through the government-dominated banking system. Though in practice the linkage is close, there could be federal deficits that are noninflationary, and Fed inflation even with a balanced budget.

All these points (2–4) are important correctives. They must be pushed by libertarians, pointing out to our allies on this issue that the balanced-budget amendment, however worthy, will not serve as a panacea for the federal budget or for inflation.

But this does not mean that we should fail to support or even oppose the balanced-budget amendment. It simply means that, while calling enthusiastically for its passage, we should point out to the other advocates, as well as the public, the various loopholes and snags that the Establishment could use to scuttle or discredit the amendment.

Our best course while pushing for the amendment is to point out the problems, and to call for further statutes or amendments to solve them: e.g., by imposing sharp federal-income-tax cuts or by restricting the power of the Fed to purchase assets and thereby to "print" money. In short, we must support the balanced-budget amendment, and at the same time call for pressing further to effect deep slashes in the pernicious federal income tax as well as to eliminate the Federal Reserve's power to inflate the money supply.

So let us support and welcome the libertarian instincts of the public on this issue, and call for correction by pushing them further, ever further, on the road to liberty.


Murray N. Rothbard

Murray N. Rothbard made major contributions to economics, history, political philosophy, and legal theory. He combined Austrian economics with a fervent commitment to individual liberty.