But unlike the great war-bond drives of the past, this campaign involved no celebrities–not even Bono–and what little press attention it received was mostly derisive. These “Patriot Bonds,” it turned out, were just regular Series EE savings bonds with a new label, and what revenue they raised was not even earmarked for the war on terrorism. “Don’t buy a Patriot Bond just because it makes you feel good,” sneered one financial columnist. “If buying a bond doesn’t fit into your investment plan, you’d be better off purchasing an American flag.”

Yet nine months later, the Treasury Department was pleased to announce a 36 percent increase in the sale of ordinary saving certificates since they were relabeled as war bonds. It’s not clear how much of this can be credited to patriotism, and how much to the tanking stock market. But the phenomenon surely must cheer James MacDonald’s heart. For it is just such “citizen creditors” of the government, he argues in his new book, A Free Nation, Deep in Debt, who keep despotism in check and who are the founts of democracy.

This assertion might seem odd to James Carville, who once mused that he would like to be reborn not as the president or the pope, but as the bond market–because then he could “intimidate everyone.” It would also provoke objection from Thomas Jefferson, who railed against public debt as a tyranny imposed by dead generations. But properly understood, MacDonald’s thesis does provide an insight into why mass democracy emerged in the modern era. Kings and dictators might be very good at imposing order, but as early bankers learned the hard way, they can’t be trusted to pay back their debts. In modern democracies, however, ordinary citizens usually are all too happy to snap up government bonds, even when they are inferior investments, because they can’t conceive that their elected politicians will ever allow for a default. As the cost of war has grown ever higher, this democratic advantage in finance has more and more determined the course of history, MacDonald argues.

The link between public debt and democracy was commonly perceived in the 18th century. MacDonald opens his book by quoting an anonymous English pamphleteer, who in 1719, wrote:

“No Man whatever having lent his Money to the Government on the Credit of a Parliamentary Fund has been Defrauded of his Property … The Goodness of the Publick Credit in England, is the reason why we shall never be out of Debt … Let us be, say I, a free Nation deep in Debt, rather than a Nation of Slaves owing Nothing.”

The despotic monarchy in France, meanwhile, learned that while it could clip coins and sell offices and titles to rentiers, it could not match the English in raising low coupon debt. In 1774, a French public official warned that “if people believe [Louis XVI] to be a despot, it will be impossible to open loans, or if that route is taken, they will be so costly that England will always finish by having the last cu in any war.” Fourteen years later, when the Bourbon monarchy declared bankruptcy and recalled the long-banished Estates General, the point became settled: However many coins may be in his treasure chest, a king can never acquire the credit line needed to finance a modern military without ceding power to “the people.”

In the 20th century, MacDonald concludes, the link between public debt and democracy became even more profound. Viewing history, as always, through the lens of public finance, he informs us that during World War I, it cost the Allies $36,485 to kill an enemy soldier, as opposed to $11,345 for the Central Powers. But despite the Allies’ military inefficiency, they could borrow far more from their “citizen creditors”–and that, in the end, made all the difference. Who won the Great War? MacDonald quotes a prize-winning student essay of the time: “I am known all over the world and hailed as the right hand of freedom’s champions. Many scraps of paper has the Kaiser torn up but I am the scrap of paper that will tear up the Kaiser. I am, as probably you will have guessed, a Liberty Bond.”

For MacDonald, a former investment banker, this first book is clearly a labor of love. Coming in at 550 pages, it is a magisterial history, ranging from the Bronze Age to the present, of public debt and how it changed the balance of power between nations. In some instances, MacDonald may exaggerate the necessary connection between debt and liberty (just ask any Brazilian these days), but he does make an important point. Though today’s “citizen creditors” buying up “Patriot Bonds” are unlikely to turn the tide in the war on terrorism, they do exemplify a reserve of trust between citizen and government that is a sure measure of national power, and that depends on the will of the people.

Phillip J. Longman

Phillip Longman is senior editor at the Washington Monthly and policy director at the Open Markets Institute.