Debt

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Debt is a socially-recognized claim on one's property or future income by another person, bank, or other corporate entity. It is the flip side of credit: when one party issues credit, the other goes into debt. The claim on another's income and property is enforced through social, legal, and moral mechanisms.

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Debt - a form of slavery?

As many a mortgage holder or student loan recipient knows, debt is closely akin to slavery: the fruits of one's labor are not one's own. There are some important differences of course: people can be born into slavery, but are not born into debt. Borrowing money is, ostensibly, always a choice. Secondly, at least in Western society, the coercive mechanisms that enforce debt do not extend to those of a slave-based system. One will not be whipped, thrown in debtor's prison, separated from family, or killed for defaulting on debts.

Perhaps these differences are not so great as they might seem. Yes, to go into debt is a choice, but the system is set up in a way to compel most people to make that choice. That is because money, needed in order to survive, is created through debt. In a fractional reserve banking system, each dollar originates as a dollar of debt; moreover, because debts bear interest, the future value of all debts exceeds the present quantity of all money, forcing everyone into competition to obtain the scarce money to repay their debts. While some people may never go into debt, a majority must. Indeed, because another feature of an interest-based system is the concentration of wealth, the debtor majority is a growing majority.

While it is true that one will not be killed, whipped, or imprisoned for non-payment of debts (excluding imprisonment for non-payment of tax debts), the means by which debts are enforced are becoming more coercive. Part of that coercion is psychological: people are made to fear the destruction of their credit rating, as well as the social stigma attached to defaulting. Collection agency representatives are expert in manipulating these fears and the stigma, and most people find their collection calls quite traumatic. Moreover, creditors can and do take debtors' property through outright force, through agency of the law (court orders, sheriff's sales, etc.) With the Bankruptcy Reform Act of 2005, creditors became able to take future income by force as well, through mandated payment plans giving them a right to a portion of the debtors' wages.

The tendency of debt toward slavery is not a new phenomenon. In ancient Athens at the time of Solon, the society was in crisis because numerous farmers were unable to pay their debts and had lost their freedom. Solon responded with the famous Seisachtheia, or "shaking off of burdens" that annulled all debts. Debt annulment was also practiced in ancient Sumer, Babylon, and other societies.

Debt annulment

Debt annulment has profound political implications, because the distribution of debt and wealth determines, to a great degree, who holds power in a society. Ultimately, debt is nothing but an agreement, a story that specifies who owes and who owns, who has a claim on the assets and labor of whom. To change the distribution of debt is to change the distribution of wealth, and therefore of the capacity to direct and coordinate human activity. It is therefore significant that, facing the financial and economic crisis that began to intensify in 2008, the Bush and Obama administrations did everything they could to keep as many debts as possible on the books. Widespread defaults amount to transfer of wealth away from creditors and toward debtors. Inflation has much the same effect; hence the fiscal authorities have long sought to prevent both.

Rise of indebtedness

For the last four decades, the level of indebtedness in the developed world has steadily risen: household debt, corporate debt, and public debt. That means that more and more of one's income goes toward debt payments; in other words, more and more income goes to the banks and bondholders. Or one could argue that this is a deepening slavery to the banks. As of 2009, income is insufficient to service accumulated debts, and cannot ever become sufficient without the kind of economic growth not seen since the 1960s. One cannot pay any more, yet the debts must keep growing. Something has to give. There is no way out besides defaults and inflation. Both are likely to occur in the coming years - first one, then the other - opening an opportunity for new currency systems (demurrage-based, mutual credit, etc.) that do not create and depend on ever-growing debt.

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Author: Charles Eisenstein