Note: I’ll begin by saying that this is an essay by someone outside and even hostile to our own tradition. Of course, linking to it here doesn’t constitute any endorsement of what may be its underlying claims, or what its author may have said elsewhere. However, the essay does make a number of interesting points that I’d like to see discussed, even if I may not have the necessary ability myself to discuss them.
I like this point:
“Debt may no longer lead to slavery or prison. But debt still corrodes freedom in subtler ways. Those who are self-employed have more liberty of thought and action than employees, who are pressured to conform to the opinions and tastes of their employers. For the same reasons, property owners are freer than renters. And debt and foreclosure are the major factors in turning the self-employed into employees and property owners into renters. Thus if we wish to reestablish a society with a large middle class of self-employed farmers and businessmen, we need to revisit the idea of debt repudiation.”
One answer is that people shouldn’t get into debt, and should take the consequences if they do run up more debt than they can handle. This is true, but may not be wholly true in current circumstances. We live in a culture where the most visible forms of success have come about from the clever management of debt. Both political and economic wings of the ruling class encourage debt. Other forms of credit that depended on interpersonal relationships – loans between friends and loved ones, credit unions, building societies, etc – have been taxed or regulated out of existence, or absorbed into the official banking system. People should think for themselves, but mostly don’t. They take their lead from those above them. We live in a world where not getting into debt has come to be seen as a sign of eccentricity.
Therefore, when levels of personal and mortgage debt – especially to fictitious entities – reach the point where they become leading contributory factors in the growth of economic and social inequality, it is worth considering whether and how to cancel the debt.
Whatever the case with individual debt, I do think it would be a good idea to repudiate the national debt. Most of it was run up by people who were only notionally acting on our behalf. It’s now so big that it never will be paid off in any honest way. We seem to have a choice between inflating it away and open repudiation. The only question remaining is to whom is most of this debt really owed? I don’t think any of it is owed to me. Is any owed to you? Is it owed to people who owe money to us? Since it won’t be paid back, does this really matter? Why not repudiate and start again?
I turn to the matter of “interest bearing money.” I know this gets a combination of sneers and glazed eyes from mainstream economists. And I’ve never had any time for Major Douglas and the other monetary heretics. But there is a relevant issue here. At the moment, governments don’t just print money to cover their deficits and live with the blame for what this does to prices. What they do is borrow at interest from banks that create the money out of nothing. The resulting upward pressure on prices may then be disguised for years by sucking much of the new money into asset bubbles, or can be blamed on causes far beyond normal understanding.
The best alternative would be a fully-convertible gold standard, with no fiduciary issue. Since that is not currently on offer, to what extent do the other alternatives mentioned above serve the public interest? I suggest that one advantage to the present banking system is that it limits the inflation. When politicians can simply print and print and print, that’s what they will do. When they have to sell bonds, they will have to go though the motions of running a responsible monetary policy. On the other hand, the present system has led to the emergence of a an artificial moneyed interest that enriches the ruling class and makes government even more corrupt that it would otherwise be.
It also has a degrading effect on political and economic debate. As said above, anyone can understand the effect a billion more £5 notes has on the price of fish fingers. It takes a lot of learning and hard thought to understand how a change of interest rate policy can have no effect for years and years on the Retail Prices Index, but does funny things to the price of houses and bonds – and then can suddenly send measured inflation to double figures in a couple of months.
You may have noticed that I’m not writing with my usual certainty. Can anyone enlighten me, therefore? SIG