Debt

Debt is something owed. Anyone having borrowed money or goods from another owes a debt and is under obligation to return the goods or repay the money, usually with interest. For governments, the need to borrow in order to finance a deficit budget has led to the development of various forms of national debt, also known as public debt.

Productive debt

The distinction between "productive" and "consumptive" debt is not always be clear and exact and, therefore, may give rise to much controversy, it is significant as to motive and effect. A debt incurred for productive purposes, e.g., a commercial or industrial investment designed to earn future incomes, may cover its interest costs and even yield entrepreneurial profits.

In contrast, new debt in the form of a second mortgage on a home may finance the purchase of a vacation home, new furniture or another automobile, or even a luxury cruise around the world. The debtor may call it "productive," but it surely does not create capital, i.e., build shops or factories or manufacture tools and dies that enhance the productivity of human labor. It actually may consume capital and thereby depress standards of living.

External links

• Debt on Wikipedia
• The People Who Borrow from Debt: Private and Public, Good and Bad (pdf) by Sir Ernest Benn, June 2010
• Productive Debt versus Unproductive Debt by Doug French, December 2009
• The Global Debt Crisis by Marius Gustavson, March 2010
• The Roots of the Federal Debt by Mises.org, September 2003
• Who Owes What, and To Whom? Public Debt, Ricardian Equivalence, and Governmental Form (pdf) by Richard E. Wagner, 1996