Debt

Richard D. Wolff

Debt as an Economic and Social Issue

Across the United States, unsustainable debt helps force millions out of their homes, undermines consumption, prevents the extension of new credit, and in these ways sustains massive unemployment. Record volumes of personal bankruptcies intertwine with debt-driven collapses of banks, hedge funds, insurance companies, and other financial as well as nonfinancial enterprises. Even government debt in rich industrial economies has reached problematic levels, provoking political confrontations in the streets of Europe and elsewhere, forcing far-reaching political and economic changes. Debt is everywhere central to capitalism's current, global crisis.

Debt is thus very much on today's social agendas and nowhere more so than in the United States. Yet sober assessments of the complexities of debt and its social effects are rare, and rarer still are analyses of the role of capitalism in generating unsustainable debt. Urgent and intense ideological, economic, and political stakes are involved in how debts—and especially unsustainable debts—get resolved. After all, history offers many examples of debt contributing to the collapse of civilizations from ancient Rome during the period of slavery to feudal Europe. Might it be contributing to the decline of ours? And if so, is someone or something to blame? Can the debt "problem" be corrected or fixed, and at whose expense? Given the role of the United States in world affairs, the effects of a US debt problem extend well beyond our borders. Moreover, the position and impact of debt in the United States parallel its positions and impacts in many other countries.

First, a few general points to clear away some of the overheated rhetoric that sometimes surrounds the topic.

Debt is an economic process that occurs when two economic entities, such as individuals, businesses, or governments, are brought by circumstances to engage in a particular kind of transaction. One, the borrower, obtains objects of value—a loan—from the other, the lender. The lender agrees to the transaction with these conditions: (1) the borrower must contract to return those objects or an agreed-upon value equivalent at an agreed-upon future date, and (2) the borrower must pay a fee—"interest"—to the lender for this temporary use of those objects. These days, debts are mostly about quanta of money.

Debt (borrowing/lending) is a ubiquitous economic process in many societies, past and present. Individuals, households, clans, villages, enterprises, governments, and other social groups and institutions have engaged in a maze of debt processes with one another. Like commodity production and exchange, saving, and investment, debt is one of the processes that together constitute the economic dimension of society. A vast array of different wants, needs, perceptions, and motivations propel lenders and borrowers to agree on and enter into debt processes. And debt processes react back upon those who enter into them in complex ways that also affect all the other economic processes and thereby the society as a whole. Debt is part of the dialectic of interdependence, interaction, and the resulting ceaseless change within and among all the processes that make up societies.

Depending on the conditions in which they occur, debt processes can satisfy both lenders and borrowers; they can enable economies to share the pains of economic setbacks and the gains of economic progress. However, debt can also enrich one part of a community at the expense of another; it can, as it does today, function to reduce the level of economic activity, incomes, and well-being of social majorities. Usually debt contributes to all these outcomes at the same time and unevenly across societies.

Debts are therefore not good or bad, or, to say the same thing, they are good and bad. They have many complex effects, just as they have many complex causes. Consider the many factors weighing on the minds of borrowers and lenders worried about the costs and benefits of agreeing to a loan versus refusing it. Debts are, at least formally, voluntary acts in modern societies, but the actors face pressures and conditions that are not of their own choosing. Decisions by lenders and borrowers depend on the totality of forces affecting them, both those they are conscious of and can calculate and those that elude their consciousness or calculations.

Much as the larger social conditions and contexts shape the nature and consequences of debt, the effects of debt also shape people's thoughts, feelings, and actions. Those who feel victimized or otherwise damaged by debt will often become critical, whereas those who find debt's effects positive will more likely celebrate or at least defend it. Differences over the causes and consequences of debt can become blame and vilifications of lenders or borrowers. History echoes with comments about lenders like those made today about Goldman Sachs and with comments about borrowers like those made today about the millions of Americans currently unable to sustain their mortgage payments.

When debt is seen as one of the causes or as the chief cause of economic and social distress, tensions over finance can become acute. Social and political movements square off in struggles about whether and how to change finance. Defenders of the status quo may blame irresponsible borrowers who could not afford their loans and dishonestly hid relevant facts from lenders. Defenders may also attack government policies for forcing wisely reluctant lenders into imprudent loans; the problem then is not debt but government intervention in debt processes. Critics of the status quo will more likely blame irresponsible lenders who misled borrowers, manipulated government regulators, and disregarded the proper limits and safeguards for their financial activities. The relative political strengths of defenders and critics usually determine whether financial regulations and reorganizations will occur, how far they will go, and how long they will last.

In contemporary society, where the capitalist system prevails, the intimate connections...