Debt remains, as it long has been, the Dr. Jekyll and Mr. Hyde of capitalism. For a small minority, it’s a blessing; for others a curse. For some the moral burden of carrying debt is a heavy one, and no one lets them forget it. For privileged others, debt bears no moral baggage at all, presents itself as an opportunity to prosper, and if things go wrong can be dumped without a qualm.
Those who view debt with a smiley face as the royal road to wealth accumulation and tend to be forgiven if their default is large enough almost invariably come from the top rungs of the economic hierarchy. Then there are the rest of us, who get scolded for our impecunious ways, foreclosed upon and dispossessed, leaving behind scars that never fade away and wounds that disable our futures.
Think of this upstairs-downstairs class calculus as the politics of debt. British economist John Maynard Keynes put it like this: “If I owe you a pound, I have a problem; but if I owe you a million, the problem is yours.”
After months of an impending “debtpocalypse,” the dreaded “debt ceiling,” and the “fiscal cliff,” Americans remain preoccupied with debt, public and private. Austerity is what we’re promised for our sins. Millions are drowning, or have already drowned, in a sea of debt — mortgages gone bad, student loans that may never be paid off, spiraling credit card bills, car loans, payday loans, and a menagerie of new-fangled financial mechanisms cooked up by the country’s “financial engineers” to milk what’s left of the American standard of living.
The world economy almost came apart in 2007-2008, and still may do so under the whale-sized carcass of debt left behind by financial plunderers who found in debt the leverage to get ever richer. Most of them still live in their mansions and McMansions, while other debtors live outdoors, or in cars or shelters, or doubled-up with relatives and friends — or even in debtor’s prison. Believe it or not, a version of debtor’s prison, that relic of early American commercial barbarism, is back.
Debt would continue to play a vital role in national and local political affairs throughout the nineteenth century, functioning as a form of capital accumulation in the financial sector, and often sinking pre-capitalist forms of life in the process.
Before and during the time that capitalists were fully assuming the prerogatives of running the production process in field and factory, finance was building up its own resources from the outside. Meanwhile, the mechanisms of public and private debt made the lives of farmers, craftsmen, shopkeepers, and others increasingly insupportable.
This parasitic economic metabolism helped account for the riotous nature of Gilded Age politics. Much of the high drama of late nineteenth-century political life circled around “greenbacks,” “free silver,” and “the gold standard.” These issues may strike us as arcane today, but they were incendiary then, threatening what some called a “second Civil War.” In one way or another, they were centrally about debt, especially a system of indebtedness that was driving the independent farmer to extinction.
From one presidential election to the next and in state contests throughout the South and West, irate grain and cotton growers demanded that the government expand the paper currency supply, those “greenbacks,” also known as “the people’s money,” or that it monetize silver, again to enlarge the money supply, or that it set up public institutions to finance farmers during the growing season. With a passion hard for us to imagine, they railed against the “gold standard” which, in Democratic Party presidential candidate William Jennings Bryan’s famous cry, should no longer be allowed to “crucify mankind on a cross of gold.”
Should that cross of gold stay fixed in place, one Alabama physician prophesied, it would “reduce the American yeomanry to menials and paupers, to be driven by monopolies like cattle and swine.” As Election Day approached, populist editors and speakers warned of an approaching war with “the money power,” and they meant it. “The fight will come and let it come!”
But the age of primitive accumulation in which debt and the financial sector had played such a strategic role was drawing to a close.
Today, we have entered a new phase. What might be called capitalist underdevelopment and once again debt has emerged as both the central mode of capital accumulation and a principal mechanism of servitude. Warren Buffett (of all people) has predicted that, in the coming decades, the United States is more likely to turn into a “sharecropper society” than an “ownership society.”
In our time, the financial sector has enriched itself by devouring the productive wherewithal of industrial America through debt, starving the public sector of resources, and saddling ordinary working people with every conceivable form of consumer debt.
Household debt, which in 1952 was at 36% of total personal income, had by 2006 hit 127%. Even financing poverty became a lucrative enterprise. Taking advantage of the low credit ratings of poor people and their need for cash to pay monthly bills or simply feed themselves, some check-cashing outlets, payday lenders, tax preparers, and others levy interest of 200% to 300% and more. As recently as the 1970s, a good part of this would have been considered illegal under usury laws that no longer exist. And these poverty creditors are often tied to the largest financiers, including Citibank, Bank of America, and American Express.
Credit has come to function as a “plastic safety net” in a world of job insecurity, declining state support, and slow-motion economic growth, especially among the elderly, young adults, and low-income families. More than half the pre-tax income of these three groups goes to servicing debt. Nowadays, however, the “company store” is headquartered on Wall Street.
Debt is driving this system of auto-cannibalism which, by every measure of social wellbeing, is relentlessly turning a developed country into an underdeveloped one.
Dr. Jekyll and Mr. Hyde are back. Is a political resistance to debt servitude once again imaginable?
Beware the hollow calls for “austerity” and “debt reduction,” without first understanding the meaning of “debt” and the motives of those making for such calls.