The power of debt
With the growth of the financial sector, the creditor-debtor relationship has become the dominant force in society. Yet, as David Graeber has demonstrated, debt as an instrument of power has been around since time immemorial. Remi Nilsen draws conclusions for a post-crisis order.
On 17 December 2010 the Tunisian street vendor, Mohammed Bouazizi, set himself on fire outside the police station in Sidi Bouzid in a desperate, last-ditch protest against the police who had confiscated the goods he had got himself into vast amounts of debt to obtain. On 22 December, Ramzi Al-Abbouidi took his own life after incurring huge debts through a micro-credit programme. These two events were contributing factors in triggering the Arab Spring – the rebellion that swept through North Africa and the Middle East, fuelled by populations that were, and still are, mired in economically hopeless situations, under regimes combining political oppression with neoliberal economics.
The wave of suicides that led up to the rebellion was not symbolic politics, as is often implied in western media, but the desperate actions of young men in bottomless debt. The full force of debt’s power was tangibly experienced when it spread to Europe and North America, where a private debt crisis has been transformed into a public debt crisis that threatens the dissolution of society in these regions.
The Keynesian idea of “the euthanasia of the rentier” now seems like the dream of yesteryear; never before have shareholders wielded so much power over companies and wage-earners, and over society as a whole. The sovereignty of the nation-state is coming under heavy fire from rating agencies, financial investors and institutions like the IMF. European social policy is dictated by “the markets”. The current situation in Europe raises questions not just about the nature of debt but also about its historical relationship with “the market” – because debt is money.
In his widely discussed book Debt: The First 5000 Years, anthropologist and “Occupy!” strategist David Graeber shows how the destructive power of debt is very far from being a new phenomenon. In Sumer and Babylon, bad harvest years created major debt crises and indebted farmers had no option but to abandon their sedentary lives and merge with the semi-nomadic groups that subsisted on the fringes of the resident civilization. The rulers of the kingdom therefore frequently had to cancel debts, return possessions and family members – allow them to start anew with a “clean slate” – in order to prevent communities from completely disintegrating. This is the origin of the Bible’s jubilee years, where every seven to fifty years, private debts would be cancelled, “and the daughters given back”. Even the concept of freedom has its roots in debt: the Sumerian word amargi, the earliest known term for freedom came from these “declarations of freedom” – it literally means “return to mother”.
Interest-bearing loans are thought to have been invented in the Mesopotamian nation-states and to predate writing. Their origins are therefore uncertain; the system probably came into being as a response to the fact that the temples (on which nation-states were founded) financed the region’s important caravan trade – the region was very fertile but lacked metals and other key raw materials. The temples advanced goods to merchants and the interest became a way for the temples to obtain their share of the profits. However the practice rapidly developed into the creation of different kinds of loans, including consumer loans – or usury, as it used to be known. When farmers were unable to pay their debts, lenders began to take “grain, sheep, goats and furniture, then moved on to fields and houses, or alternatively, or ultimately, family members. Servants, if any, went quickly, followed by children, wives, and in some extreme occasions, even the borrower himself.”1 Debt slavery was not a metaphor but a reality that made the Jubilee years a necessity for the continued functioning of society.
Debt is a potent instrument of power, perhaps the most potent there is, because in contrast to raw power, debt infiltrates the entire social sphere, as Graeber writes: “This is what money meant to the majority of people for most of human history: the terrifying prospect of one’s sons and daughters being carried off to the homes of repulsive strangers to clean their pots and provide the occasional sexual services, to be subject to every conceivable form of violence and abuse, possibly for years, conceivably forever, as their parents waited, helpless, avoiding eye contact with their neighbours, who knew exactly what was happening to those they were supposed to have been able to protect.” 2
The indebted human being
Debt deprives us of “the future, that is to say time, as choice, as possibilities,” writes the sociologist and philosopher Maurizio Lazzarato in Fabrique de l’homme endetté. Today debt is used as an instrument of power to reduce wages to a minimum and cut social services to enable the welfare state to tend to its new “needy” – the companies and the rich – and to privatise everything. “We lack the theoretical instruments, concepts and expressions to analyse not only the financial sector but also the economy of debt of which it forms a part, as well as its specific politics of oppression,”3 argues Lazzarato. Debt, he writes, is an economic relationship that cannot be separated from the production of a debt-subject and its “morality” – economic and subjective production, an ethos. The indebted human being has become the most significant subspecies of homo economicus.
In ten years, public debt in Norway risen from 28.5 per cent to 43.7 per cent of GDP. The average debt for people over 17 rose from 270,200 kroner in 2001 to 573,700 in 2009.4 In November, the IMF warned of a property bubble that could lead Norwegians to incur similar levels of household debt as in America prior to the financial crisis in 2008. Norway is far from any real danger of this in the near future since its international balance sheet is in the black. But even with its relatively high levels of capital, both public and private debt levels are rising steadily. This is a striking feature in a society centred around debt and the power relations it establishes and cements, and may even be a conscious strategy. Alan Greenspan, the former chairman of the US Federal Reserve, admitted in 2007: “I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk. But I believed then, as now, that the benefits of broadened home ownership are worth the risk.”5
The debt economy
The international rating agencies that downgraded Ireland, Greece, Portugal and Spain, causing interest rates to rise and forcing budget cuts are the same ones that consistently gave good grades to the toxic assets that triggered the financial crisis. “Debt interest is the method by which the markets have ruthlessly exploited the population for forty years,” writes Lazzarato. Neoliberalism has reduced companies to financial assets that “give more to the shareholders than the funds they receive from the latter”. Consumption, which in the industrialised nations constitutes the majority of GDP (70 per cent in the USA), is another important source of income for creditors. The most significant expenses – buying a house, a car, paying for education – are all facilitated by loans. Household debt in the USA and the UK stands at 120 and 140 per cent of disposable income. Paying down public debt is the second-largest item in the French national budget (after education). Almost all the income the French government receives from income taxation goes towards paying down this debt.
In the form of interest, vast sums are transferred from the population, companies and the welfare state to creditors. In the USA, finance, real estate and insurance surpassed industry in the 1990s; in England the financial sector is the economy’s biggest sector. But it is artificial to differentiate between the different sectors, because one is needed in order to sell the other. We should stop identifying capitalism exclusively with industrial capitalism, both historically and theoretically. It is a mistake to divide real economics from financial speculation (where money generates money without recourse to the commodity form), because financial speculation is capitalism in its purest form (money generates money). The financial sector is not a form of exaggerated speculation that needs to be regulated, a means to attract investment, nor is it greed: it is a power relationship. The debt economy is the correct name for today’s financialised economy, as evidenced by the increase in tuition fees in England, which has created even more debt. In the USA, student debt is so high that it is almost impossible to pay off, and deprives graduates of any room for manoeuvre when they enter the job market. The creditor-debtor dynamic is a power relationship that controls subjectivity. “What’s striking about the historical record is that in the case of debt crises,” remarks Graeber, “many actually did become indignant. So many, in fact, that most of our contemporary language of social justice, our way of speaking of human bondage and emancipation, continues to echo ancient arguments about debt.”6
The history of debt
“If one looks at the history of debt, then, what one discovers first of all is profound moral confusion,” writes Graeber. “The majority of human beings hold simultaneously that (1) paying back money one has borrowed is a simple matter of morality, and (2) anyone in the habit of lending money is evil.”7 Religious institutions like the Catholic Church and the Buddhist temples forbid interest-bearing loans but have also themselves been major borrowers.
The current debt crisis has its roots in the idea that virtual money – electronic, digital – provided new opportunities for growth, at least this is what the finance industry has convinced everyone of, from poor Americans to Norwegian rural municipalities. But virtual money is nothing new. In fact, it is the original form of money; systems of credit existed long before cash. Credit is as old as civilization. The history of debt shifts between regarding money as an abstract construction, a virtual unit of measurement, and as precious metals, where gold and silver are money. One major modern myth, Graeber points out, is the myth of the barter economy; that first there was barter trading, then money came along and simplified things and credit and debt came into being as a consequence. The problem here is the lack of empirical evidence for this world of barter societies that supposedly preceded monetary society.
Nonetheless the myth provides the basis for the Smithian economic thought. Adam Smith contested the idea that money was created by those in authority: in line with classical liberalism, he believed that property, money and markets not only came into being before political institutions, but actually constituted the reason for the latter’s creation, as a means of safeguarding them. Smith’s argument originates in barter trading among the American Indians, but glides quickly over to the small business model with a basis in the division of labour in the village: “The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each of them be willing to purchase a part of it.”8 To resolve this situation, Smith believed, there had to be a unit of exchange: “Different metals have been made use of by different nations for this purpose.” Yet a society with a barter economy in the absence of a monetary economy has never been discovered. Smith’s reference to North American Indian society is evidently purely fictional, since American Indian communities had other complex institutions for distributing goods, for example the Iroquois’ longhouse stockpiles run by women councils.
This does not mean that barter trade did not take place, just that it was not practised among friends and village dwellers. Rather, it was a method of negotiating with presumed enemies. Neighbours, families and friends have no need to trade with one another. “Primitive” society in actual fact characteristically displayed a deep-seated communism, which Graeber calls “human economies”. Here, the inhabitants help one another as required, while at the same time indebting themselves symbolically and in communal solidarity by accepting or declining help. The “economic” exchanges are incorporated within a system of obligations. In this sense, Smith’s monetary economy is the utopia of a debtless society in which money is exclusively positive, never negative in the form of debt (symbolically or in communal solidarity). Smith’s utopia is the obligation-free exchange, a transaction that ends there and then, without creating any kind of relationship. A utopia that today is visibly a nightmare for heavily indebted states and individuals.
Even when economies “go back to barter trading”, as Europe is said to have done in the Middle Ages, they do not stop using money. They just stop using cash. Money lives on as an abstract unit of measurement. “The reasons why anthropologists haven’t been able to come up with a simple, compelling story for the origins of money is because there’s no reason to believe there could be one. Money was no more ever ‘invented’ than music or mathematics or jewellery. What we call ‘money’ isn’t a ‘thing’ at all, it’s a way of comparing things mathematically, as proportions: of saying one of X is equivalent to six of Y. As such it is probably as old as human thought.”9 But so is debt. The first monetary form was the IOU, which was accepted as payment because people were certain of its exchangeability: that the debt could be “cashed in”.
The visible hand
The world’s first recorded coin was created in the kingdom of Lydia, today western Turkey, in around 600 BC. Coins began life as simple gold and silver alloys made by goldsmiths, but a royal mint quickly took over production. The same happened in India and China soon after. At the same time, a period marked by wars, a new type of soldier appeared; professional warriors, mercenaries, who took over from the warrior noblemen made famous by Homer’s Iliad. In all probability, money was invented in order to pay soldiers; but in order for money to have any benefit there had to be markets in which it could be used. The simplest way to create markets was to introduce a tax that citizens are required to pay in state-minted coins, compelling them to obtain coins by selling goods (in despotic times, the state could of course just have taken what it wanted).
The first debt crises in Athens and Rome came just before the advent of coins; cash was simply a solution to the crises. These crises had two possible outcomes: the aristocracy could turn the poor into the rich man’s debt slaves, or the people could redistribute the land and establish safeguards against debt slavery. The latter took place and opened the floodgates for a class of free farmer who could produce children that were able to spend their time training for war. The Greek city-states’ “economic” policies were actually based on the redistribution of the spoils of war. “Gold, and especially silver, were acquired in war, or mined by slaves captured in war,” writes Graeber. The city-states did not just distribute money to soldiers, sailors and those responsible for equipping the ships, but also to the general population, for example as remuneration for taking part in popular meetings, with the proviso that this money be used in various types of transaction. The Roman Empire followed the same practice and taxed newly conquered regions, obliging local farmers to sell food to the soldiers and thus spare the armies from having to transport vast amounts of food.
Markets were thus created by the state to keep the war machine running smoothly. The only historical instance of markets that were, so to speak, free from state intervention, the type of market that today’s prevailing ideology calls “free”, were to be found in the Indian Ocean after the Islamic Expansion. The prerequisites for these trading markets were an extremely strong code of honour and the absence of competition, since cutthroat competition without state control (monopoly of violence) will lead to the literal cutting of throats as an universal currency. Credit is dependent on trust, unlike cash, and in competition-based markets trust is a scarce resource.
“The poor, together with their wives and children, were enslaved to the rich,” writes Aristotle in The Athenian Constitution. In the wake of neoliberalism’s defeat, the generalised debt economy can emerge victorious and the history of debt start all over again.
David Graeber, Debt: The First 5000 Years, Melvillehouse, New York, 2011, 65.
Maurizio Lazzarato, La Fabrique de l'homme endetté, Editions Amsterdam, Paris, 2011.
Figures from Statistisk årbok [Statistical Yearbook], SSB, www.ssb.no.
Alan Greenspan, The Age of Turbulence: Adventures in the New World, Penguin, New York, 2007.
David Graeber, Debt, 85.
Adam Smith, The Wealth of Nations, 1776.
David Graeber, Debt, 52.
Published 7 June 2012
Original in Norwegian
Translated by Nicole Fishlock
First published by Le Monde diplomatique (Oslo) (Norwegian version) 1/2012; Eurozine (English version)
Contributed by Le Monde diplomatique (Oslo) © Remi Nilsen / Le Monde diplomatique (Oslo) / EurozinePDF/PRINT