Adam Ferguson was an eighteenth-century political scientist and economist. He was a Scottish contemporary of Adam Smith. His work is reviewed in a recent Hoover Institute paper by Niall Ferguson entitled FERGUSON’S LAW DEBT, SERVICE, MILITARY SPENDING, AND THE LIMITS OF POWER. In his 1766 paper Adam Ferguson identified what today is being called the “Ferguson Limit”, that states that any country that spends more on servicing their national debt than they do on military spending risks ceasing to be a great power. Because debt burden draws scarce resources towards itself, reducing the amount available for military spending, the great powers in almost every case became increasingly vulnerable to military challenges.
Despite some now proven to be false Keynesian economic theories about a war economy creating economic activity and jobs, after WWII Milton Freidman pointed out that when those scarce resources are directed away from consumers, the overall economy suffers. Today 68% of our GDP comes from consumer spending. A chart following this article will demonstrate the importance of spending outside of government and in the private and business sectors. Consumer spending and private investment and spending by business are always what will fund government spending. Without declaring bankruptcy or going into receivership, or without “monetizing the debt” by printing money which will decrease the value of all asset classes, the only way to decrease our National Debt is to have policies that grow our businesses and increase wealth to individuals and families.
The paper is of considerable relevance to the United States today. In 2024, according to the Congressional Budget Office (CBO), net interest outlays on the U.S. national debt reached 3.1% of GDP, surpassing defense spending (3.0%) for the first time in nearly a century. In 2024 to quote the paper:
“It was fiscal mismanagement, not defeat in war or revolution, that laid low the first “empire upon which the Sun never set.” At its height during the Siglo de Oro, the Spanish Empire was a colossus. The territories ruled by the House of Habsburg extended from the Kingdom of Castile across four continents. Spanish tercios (infantry formations) mastered the use of pikes and firearms (arquebuses). Spanish galleons shifted the fulcrum of global trade from Eurasia to Western Europe. The empire’s sixteenth-century rulers, notably Charles V (r. 1516-56) and Philip II (r. 1556-98), could credibly aspire to establish a universal monarchy. However, over-reliance on a complex and costly system of debt financing ultimately undermined the position of their successors. Revenues from American silver mines—accounting for nearly 20% of crown income during the 16th century—were crucial to financing Spain’s expansive military endeavors. Yet, as is well known, this system had defects understood by few contemporaries. As bullion flowed in, the price level rose, undermining the purchasing power of state revenues and distorting the broader European economy in what economic historians used to call the “Price Revolution.”
Sun Tsu in the Art of War recognized the connection between financial stability and the ability to mount warfare. Not only the Habsburgs and Castellans, but the French, English, Dutch, pre–Soviet Russia and Far Eastern Dynasties and Monarchies were unable to solve the equation of “guns or butter”, or the means to service an ever-increasing national debt and support a military to defend one’s country.
Are there financial determinants of a great power signaling a future decline? The 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. Our country has done int before over 100 years ago, but at great costs to WE THE PEOPLE.
We can’t continue to keep funding foreign proxy wars, rebuild a Navy that has fifty-two fewer capital ships of the line than it did 6 years ago, and continue supporting a system of reverse Federalism sending ever increasing amounts of cash to the states paid for with public debt.
Seems like Donald Trump and his supporters understand the problem. Those at all levels of government—and look at the chart below and note that aggregate State spending is more than Federal spending, to “suck it up” and “gird their loins” or we will all be speaking something other than our new National Language—ENGLISH.
Components of Real GDP (2023)
| Component | Amount (trillions) | Percent |
| Personal Consumption | $18.6 | 68% |
| Goods | $6.2 | 23% |
| Durable goods | $2.2 | 8% |
| Nondurable goods | $4.0 | 15% |
| Services | $12.4 | 45% |
| Business Investment | $4.8 | 18% |
| Fixed investment | $4.8 | 18% |
| Nonresidential | $3.7 | 14% |
| Structures | $0.8 | 3% |
| Equipment | $1.4 | 5% |
| Intellectual property products | $1.5 | 5% |
| Residential | $1.1 | 4% |
| Change in private inventories | $0.1 | 0% |
| Net Exports | -$0.8 | -3% |
| Exports | $3.0 | 11% |
| Goods | $2.0 | 7% |
| Services | $1.0 | 4% |
| Imports | $3.8 | 14% |
| Goods | $3.1 | 11% |
| Services | $0.7 | 3% |
| Government Spending | $4.7 | 17% |
| Federal | $1.8 | 6% |
| National defense | $1.0 | 4% |
| Nondefense | $0.8 | 3% |
| State and local | $3.0 | 11% |
