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Money, Credit, and Debt: Where Is the Morality?

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 It is important for us to realize that the basis for most economic discourse is just ideological thinking converted by repetition into “common knowledge,” or “common sense.”  The assumption of humans as “rational” actors in economic matters is only the most egregious error economists make.  It turns out they don’t know much about topics such as money, debt, and markets as well.  David Graeber uses his background as an anthropologist to elucidate humanity’s economic origins to address critical misconceptions in his wide-ranging book Debt: The First 5,000 Years.  

Given our present state in contending with the economic effects of what is currently a year-long pandemic, it seems a propitious time to pause and reflect upon some significant issues.  Graeber suggests his motivation for writing his book was prompted by a casual conversation that led him to point out the often-malevolent motives for creating debt, and the abhorrent consequences that followed.  His comments elicited a casual response.

“’But,’ she objected, as if this were self-evident, ‘they’d borrowed the money!  Surely, one has to pay one’s debts’.” 

Paying off debts had been converted in the popular mind from an economic issue to a moral issue.  If patriotism is the ultimate refuge for political scoundrels, morality is the ultimate refuge for economic scoundrels.

“If history shows anything, it is that there is no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt—above all, because it immediately makes it seem that it’s the victim who’s doing something wrong.  Mafiosi understand this.  So do the commanders of conquering armies.  For thousands of years, violent men have been able to tell their victims that those victims owe them something.  If nothing else, they ‘owe them their lives’ (a telling phrase) because they haven’t been killed.”

Economic power and military power have always gone together.  Economic power implies the ability to physically punish those who don’t follow the rules imposed upon them.  Colonial powers habitually would invade a country in order to rob it of something the country possessed and the colonial power desired.  Once in control of the country, roads would have to be built to transport the loot to the sea.  Harbors would have to be built to accommodate the ships needed to load the loot from the vehicles using the roads and transport it back home.  The colonial power would then charge the natives of the invaded land the costs of being invaded, and the costs of the roads and harbors used to rob them.  The natives were placed in debt.  Debt created in this way was recognized as a valid imposition on the conquered peoples and recognized by the club of colonizing nations as a debt the country had a moral responsibility to repay.

“In 1895, for example, France invaded Madagascar, disbanded the government of then—Queen Ranavalona III, and declared the country a French colony.  One of the first things General Gallieni did after ‘pacification,’ as they liked to call it then, was to impose heavy taxes on the Malagasy population, in part so they could reimburse the costs of having been invaded, but also, since French colonies were supposed to be fiscally self-supporting, to defray the costs of building the railroads, highways, bridges, plantations, and so forth that the French regime wished to build.  Malagasy taxpayers were never asked whether they wanted these railroads, highways, bridges, and plantations, or allowed much input into where and how they were built.  To the contrary: over the next half century, the French army and police slaughtered quite a number of Malagasy who objected too strongly to the arrangement (a hundred thousand, by some reports, during one revolt in 1947).  It’s not as if Madagascar has ever done any comparable damage to France.  Despite this, from the beginning, the Malagasy people were told they owed France money, and to this day, the Malagasy people are still held to owe France money, and the rest of the world accepts the justice of this arrangement.  When the ‘international community’ does perceive a moral issue, it’s usually when they feel the Malagasy government is being slow to pay their debts.” 

The best example of the morality associated with debts resides in the history of Haiti.  There, the slaves and natives actually threw out their French masters, formed a nation, and resisted subsequent attempts at “re-pacification.”  France immediately insisted that the new republic owed it 150 million francs in damages for the expropriated plantations, as well as the expenses of outfitting the failed military expeditions.  All other nations, including the United States, agreed to impose an embargo on the country until it was paid.  The sum was intentionally impossible (equivalent to about 18 billion dollars), and the resultant embargo ensured that the name ‘Haiti’ has been a synonym for debt, poverty, and human misery ever since.”

The words obligation and debt can be used interchangeably, and often are, but as a technical matter, they are quite different things.  An obligation is something one individual owes to another individual.  The set of such obligations are what defines a given society.  Economists like to believe that humans were wired to trade and establish markets and that barter was the way humans initially satisfied their needs.  However, anthropologist Graeber points out that no anthropologist has ever discovered a society that developed a system whereby so many chickens were worth one goat.  Instead, early societies managed their affaires by establishing obligations between individuals: “I need corn and you have more than you need, so you help me now and I will repay you in some way either now or in the future.”  This form of society has worked just fine for thousands, if not millions, of years.  Inherent in this society is the nature and character of each individual.  Debt, on the contrary, is a legal obligation which is devoid of any characteristic of the individuals involved.  It is just a matter of money.  An obligation involves morality; a debt is designed to exclude morality.

“From this perspective, the crucial factor…is money’s capacity to turn morality into a matter of impersonal arithmetic—and by doing so, to justify things that otherwise seem outrageous or obscene.”

“This allows debts to become simple, cold, and impersonal—which, in turn, allows them to be transferable.  If one owes a favor, or one’s life, to another human being, it is owed to that person specifically.  But if one owes forty thousand dollars at 12-percent interest, it doesn’t really matter who the creditor is; neither does either of the two parties have to think much about what the other party needs, wants, is capable of doing—as they certainly would if what was owed was a favor, or respect, or gratitude.  One does not need to calculate the human effects; one need only calculate principal, balances, penalties, and rates of interest.  If you end up having to abandon your home and wander in other provinces, if your daughter ends up in a mining camp working as a prostitute, well that’s unfortunate, but incidental to the creditor.  Money is money, and a deal’s a deal.”

With the introduction of money into society and its economies came the desire of those who had plenty to wish for even more, while those who had little always had the need for more.  This naturally led to the wealthy investing in the creation of debt to be borne by the not wealthy—a source of inevitable conflict. 

“For thousands of years, the struggle between rich and poor has largely taken the form of conflicts between creditors and debtors—of arguments about the rights and wrongs of interest payments, debt peonage, amnesty, repossession, restitution, the sequestering of sheep, the seizing of vineyards, and the selling of debtors’ children into slavery.  By the same token, for the last five thousand years, with remarkable regularity, popular insurrections have begun the same way: with the ritual destruction of debt records—tablets, papyri, ledgers, whatever form they might have taken in any particular time and place.  (After that, rebels usually go after the records of landholding and tax assessments.).  As the great classicist Moses Finley often liked to say, in the ancient world, all revolutionary movements had a single program: ‘Cancel the debts and redistribute the land.”

Times have surely changed, but perhaps not as much as one might think.  Money is still being extracted from the masses and accumulated by the wealthy.  That hasn’t changed.  And debt still plays a major role in putting the masses in economic peril.  While we no longer must put up our daughters as collateral, debtor prisons are mostly gone, and some protection from destitution is available from bankruptcy laws, going into debt has become a way of life.  We have mortgage debt, auto debt, education debt, retail debt, and credit card debt.  It has never been easier to accumulate additional debt, and it has never been so necessary.  Most people do not have significant savings, so most purchases end up requiring debt acquisition, while the associated administrative and interest charges boost the effective price to the consumer of whatever is being acquired and increase the profits of a bloated financial sector.  While revolution is not in the offing, current trends are not indefinitely sustainable—and difficult to claim they are morally acceptable.

Recall that this discussion was prompted by the statement “Surely, one has to pay one’s debts.”  Is the answer still so clear?  Graeber points out that from an economic perspective, the assumption that all loans must be repaid makes no sense.

“Actually, the remarkable thing about the statement ‘one has to pay one’s debts’ is that even according to standard economic theory, it isn’t true.  A lender is supposed to accept a certain degree of risk.  If all loans, no matter how idiotic, were still retrievable—the results would be disastrous.  What reason would lenders have to not make a stupid loan?”

“If a bank were guaranteed to get its money back, plus interest, no matter what it did, the whole system wouldn’t work.”

It would seem the moral thing to do would be to share the risk between the creditors and debtors more equally.  This would help eliminate the moral hazards lenders are subject to when they know the burden of failure falls entirely on the debtor.  This could be accomplished by modifying bankruptcy laws or establishing some sort of intermediate stage for debtor-creditor negotiation.

Although we have been indoctrinated with the notion that it is always the “moral” thing to do to pay our debts no matter how they might have been initiated, we are clearly not satisfied with that notion.  Graeber provides this observation.

“If one looks at the history of debt, what one discovers first of all is profound moral confusion.  Its most obvious manifestation is that most everywhere, one finds that the majority of human beings hold simultaneously that (1) paying back money that one has borrowed is a simple matter of morality, and (2) anyone in the habit of lending money is evil.”


You can learn a little about a lot of things or you can learn a lot about a very few things. Guess which is the most fun.


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