Debt, Default and Two Liberal Theories of Justice

There is a fundamental disconnect between the public discourse around sovereign and external debt, as against private domestic debt. The latter is predominantly viewed through a Humean lens, which understands economic morality in terms of contingent social institutions, justified by the valuable goods they realize; while the former is viewed through a Lockean lens, which understands property, contract and debt as possessing an intrinsic moral quality, independent of their social context or consequences. I examine whether this Lockean perspective on sovereign and external debt is compatible with the dominance of Humean approaches to the domestic economy. I consider and reject the most plausible argument for reconciling these views, which emphasizes the different qualities of cooperation in the international and domestic economies. I further argue that many standard objections to a Humean approach to sovereign debt suggest, not the Lockean approach that we find, but rather a Hobbesian international moral skepticism. Concluding that the Lockean approach is unmotivated, I instead advance a Humean account of sovereign debt and default. I show how taking seriously the demand for institutional justification and the idea of persons and peoples as free and equal provides an account of the duties of states, whether creditors, debtors or third parties, in sovereign debt crises. I further examine the implications of each approach for democratic choice about sovereign default.