Diary of a Flying Scotsman

Week ending February 21, 2025

Regular readers and indignant subscribers may be wondering where on earth I’ve been in the past few weeks. The answer is that I have been engaging in the historian’s passion: time travel. The fruits of my expedition through six centuries are now available.

My paper on “Ferguson’s Law” will be published by the Hoover Institution later today, so this is a preview for subscribers. Inspired by the 18^th-century Scottish political theorist Adam Ferguson, I wanted to explore the relationship between debt service (interest plus repayments of principal) and defense spending, going back to 16^th century Castile and coming up to the present-day United States. The result confirms Ferguson’s Law.

Here’s the abstract:

Are there financial determinants of great-power decline and fall? This paper proposes “Ferguson’s Law,” which states that any great power that spends more on debt servicing than on defense risks ceasing to be a great power. The paper identifies the “Ferguson limit,” or the point at which interest payments exceed defense spending, as the tipping point after which the centripetal forces of the aggregate debt burden tend to pull apart the geopolitical grip of a great power. This is because the debt burden draws scarce resources towards itself, reducing the amount available for national security, and leaving the power increasingly vulnerable to military challenge. Using historical case studies that are analogous to the situation of the modern United States as the dominant global power, the paper shows that it is very rare but not unprecedented for a great power to return to the right side of the Ferguson limit. The paper is timely, as the United States began violating Ferguson’s Law for the first time in nearly a century in 2024.