The Ontology of Debt
For the benefit of kings
What is debt?
Basically it's the obligation of one entity to pay another.
Often debts are associated with credits that is the credit and debt balance.
But not always when governments need money they impose taxes a tax is a debt that people have to pay. Taxes have been said to be the fee that is charged for participation in society and I can see that perspective but I think that's a bit starry eyed.
Debt and taxes are ancient institutions far pre-dating our present squabbles about men with guns collecting taxes.
Ancient rulers needed to collect taxes to pay for everything from armies to palaces and granaries. But this didn't really work with a barter economy. In a barter system most of the stuff that is valuable is perishable. You can imagine the king's chagrin when farmers tried to pay their taxes with stacks of newly harvested tomatoes.
So the king made tokens and handed them out they were basically IOU's there were many types. The thing is that those tokens were the only way to pay your taxes.
The farmers were forced to find a way to accumulate the tokens by trading tomatoes for tokens. So here is what the king was doing his tokens were his promise to accept them as the way to pay taxes to him.
The tokens had other functions.
In hard years, when farmers had little to barter the king could just issue them with tokens that they could use at his granary to buy bread.
And of course if over time the farmer couldn't repay that debt the farmer's kids would be sold into slavery to make up the difference.
We can see one of the functions of debt now it's a huge lever for the king on his population. He gets to set the conditions under which people fall into debt and then they will scramble desperately to escape slavery. He just sets up the conditions and seems magnanimous and just waits for random weather fluctuations to drive slaves into his hands.
Money whatever sort of money from gold coins to cowrie shells to slips of paper is basically an IOU a promise to pay a certain value.
In Hong Kong once British soldiers would pay their bar tabs with cheques drawn on banks in England. The Chinese merchants would just endorse the cheques over to each other and treat them like money. Heck I've done that myself. But there were reports of soldiers seeing cheques they'd written months before covered in re-endorsements still in circulation. Potentially that could go on forever.
So we come to this strange idea money is a promise to pay an IOU A loonie in my pocket is a promise from SOMEBODY to let me exchange that for something worth a buck. And it works. But it's not like the soldier's cheques I assume that eventually those got cashed. A loonie (Canadian dollar coin) never gets cashed out it just keeps circulating.
And here's a strange thing when you go to borrow money for a new car the bank basically just makes up the money on the spot. (there are some complications of course but that's what happens)
What the bank does is just raise the number that represents your bank balance on your promise to repay. Then you can write checks on that balance. The bank doesn't need that money in its vaults to do the loan or anything like that.
And here's what happens when people can't keep their promise to repay the system unravels. And here in Canada people don't go into slavery but bankruptcy caused by loss of a job so you can't pay your debts is no fun.
A thing to consider: the ancient kings needed to think that not paying a debt was a positive evil because after all his world would fall apart without the power that debt gave him. But our understanding of economics is more subtle now since Keynes we've understood that it's important to keep commerce flowing whatever way we can. And in the last 20 years we are seeing in a dramatic way that the old system of providing good jobs to everyone who needs them is broken beyond repair.
And one of the big problems is a plain liquidity problem caused by the massive inequalities in our economy the mass of people are needed by the market to consume the stuff it makes but the labor market isn't providing enough money to those people to consume sufficiently.
So for a while there was easy credit to try to prop the markets up. The band aid solution helped for a bit but is now falling apart. Greece is now held up as an example of people abusing their finances I think there is a certain irony there. Greece was dependent on foreign investors to develop their economy but I don't think those foreign investors risked their own funds with their investments. What they did is borrow the funds in the name of Greece. As is usual in cases like this when that scheme made profits then the profits were theirs but when the profits failed the losses belonged to all Greeks. See what happens with a case like that? The profiteers build things that make easy money like resorts not things like factories that build productivity 66and skill levels.
So the Greek economy couldn't develop no matter how much the profiteers borrowed because they weren't interested in Greek economic development. And so when the foreign investors bailed the Greeks were left with both a debt and an unproductive economy AND a reputation for being spendthrifts. The ancient kings were forced by economic and social instability to declare fairly regularly a jubilee year a time when all debts were forgiven. They needed to do it to rebalance their economy.
Maybe it's time we do it to.
What do you think?