From 1972: James Tobin on the "Ricardian Equivalence" of Government Debt and Taxes
James Tobin (1972), "Friedman's Theoretical Framework," Journal of Political Economy 80:5 (October), pp. 852-863:
The crucial issue is whether government interest-bearing time debt is of any significance. If not, then an increase in the quantity of money has the same effect whether it is issued to purchase goods or to purchase bonds. If all kinds of debt matter, then the genesis of new money makes a difference. To borrow an overworked metaphor, is a "rain" of Treasury bills promises to pay currency in three months or less-of no consequence for the price level, while a "rain" of currency inflates prices proportionately?
It may be true that the debt involves an expected stream of taxes equivalent to the stream of interest. But the two streams do not wash out. Bills and bonds share some of the attributes, and perform some of the functions, of the currency they promise to pay. The government has a monopoly of their issue, as it does of currency. As long as the government does not expand the supply of these assets to the point where the public no longer pays an interest premium for their advantages, they will be valued more highly than the corresponding stream of taxes. The tax liabilities forced into public balance sheets are not the same in maturity, risk, convenience, etc., as the government obligations of which they are the counterpart. The tax liabilities will be discounted at the rate appropriate for the incomes on which the taxes are levied...
