9. Debt, Capitalism and Politics
Debt in the modern world
This is the second post summarising key ideas from the Radio 4 series Promises, Promises: A History of Debt.
Debt and the Birth of Capitalism
In a previous post we saw that debt is just a promise to pay a certain amount under certain conditions by a certain time. In the early modern period this promise took a stronger form. Debts became more than moral obligations, and were enforced at any cost.
This period is also known for the birth of capitalism, conventionally explained by technological and financial innovations. Graeber notes that these were only made possible by a mass of disciplined labour - often through slavery or the exploitation of free people. Merchants and explorers took large loans to finance their overseas expeditions. Given debts had to be paid off, people were driven to do so by any means necessary - usually using violence and exploitation
Politics and Debt
Over the last 50 years, Western governments have extended loans to poorer countries and then set up mechanisms to protect creditors. An example of a mechanism is the International Monetary Fund (IMF), which acts as a gatekeeper of the international debt markets.
They enforce debts through ‘structural adjustment’ policies that re-orient the debtor economies towards exports (so they can generate enough foreign currency to pay their loans). This often means cutting public spending or privatising assets, and is usually not in the best interests of the local population. Stipulations by the IMF mean self-governance is relatively impossible. It’s another form of colonisation.
In the IMF’s own words:
In about half of the 80 poorest countries, unsustainably high external debt has also become a key constraint on development
Future
The new millennium saw popular uprisings that aimed to expose the global bureaucratic structure that enforced debt arrangements. In a way, these are similar to the debt revolts throughout history where peasants revolted against landlords.
Graeber suggests there must be a return to institutionalised debt forgiveness, as there was in the ancient and medieval world. For example, the Old Testament called for debts to be removed on the tenth day of the seventh month every fifty years. In our time, this debt forgiveness exists in some ways at a personal level1 through bankruptcy, but there aren’t any solutions between nations.
A middle path is the most realistic option on the international stage, where some debts are forgiven and others are paid off. Importantly, there shouldn’t be any structural adjustment policies.
In the modern world you can inherit capital but not debt. The asymmetry hasn’t always existed - bonded slavery.