ABSTRACT

Sir James Steuart’s analysis of public debt seems singular in the history of economic thought. This chapter discusses the main reasons that justify the originality of Steuart’s analysis of debt, primarily in the links he made between: public debt, bank liquidity and market liquidity; public debt and the complementarity between liquidity and solvency; and public debt and active banking activity. It examines the originality of Sir James Steuart’s analysis of public debt and better understand his place in the history of economic thought between the mercantilist authors and the fathers of the classical political economics. The chapter then presents the link between public debt and liquidity that can be observed in Steuart’s writings. It also analyzes the relation he established between public debt and state solvency. The liquidity provided by public debt, through its support for banks, has the advantage of ‘naturally’ lowering the interest rate, which Steuart considers to be ‘the soul of trade’.