As we get closer to the presentation of the interim budget no doubt we will hear the Minister of Finance tell us we need not worry about the internal B$ debt.

But as Professor Don Boudreaux over at Cafe Hayek reminds us, even Adam Smith knew that was a hoax back in 1776.

Here's his full post from January 12, 2013:

Adam Smith on the Myth of ‘We Owe It to Ourselves’

by Don Boudreaux on January 12, 2013

Here’s the great Scot writing in Book V, Chapter 3 – on pages 926-927, Vol. 2, of the 1981 Liberty Fund edition – of An Inquiry Into the Nature and Causes of the Wealth of Nations:

In the payment of the interest of the public debt, it has been said, it is the right hand which pays the left.  The money does not go out of the country.  It is only a part of the revenue of one set of the inhabitants which is transferred to another, and the nation is not a farthing the poorer.  This apology is founded altogether in the sophistry of the mercantile system….

Unfortunately, this particular piece of mercantilist sophistry (like most pieces of mercantilist sophistry) seems nearly impossible to kill off.  Among the reasons for its immortality is that it sports a sufficiently visible patina of cleverness while simultaneously – with its mistaken focus on money as wealth – satisfying the prejudices of the economically ill-tutored man in the street.  And it doesn’t hurt that widespread acceptance of this myth eases the way for politicians to engage in what Jim Buchanan called fiscal “debauchery.”

Read the entire post here…