New Europeans

A Test Site For Everyday Life

Deeply Emotional Value for Money May17 2016, Amsterdam

A Flag Dialogue, part 1: A Brief History of Debt

A series of flags have recently been raised at the New Europeans site. At first glance you’d be forgiven for thinking that they merely represent a set of unordered statements you might hear in an everyday conversation. But closer inspection reveals an exchange between each consecutive flag. The conversation is meant to replicate the relations between a debtor and a creditor, as the debtor is sold things on credit. It’s an important message for many reasons, but it’s especially pertinent to Europeans in the context of the grossly misunderstood Greek Debt Crisis.

One of the principal obstacles in this still yet to be resolved crisis is that there has been insufficient understanding of debt and the actual relationship between a debtor and a creditor. This despite the fact that the relationship between a debtor and a creditor is in fact as old as human history itself.

In primitive societies, exchange was usually carried out through an elaborate credit system which relied on the knowledge of everyone with whom you exchanged things with. In these circumstances there were many checks and balances which ensured that no one would end up owing too much to another person in the community. In this context, debt was never something that had to be paid off.

As societies have developed, their networks of exchange have tended to grow far beyond the local society. This made it necessary to introduce a unit of exchange that is universally valuable: money, and for more advanced societies cash money (basically a form of IOU). The value of money is that it can mediate the exchange between all manner of items, thus permitting trade with people in far away places. Its disadvantage is that it transcends the human interaction and strong bonds that make enclosed societies more harmonious. As such, money-based societies often become a lot more cruel in their external and internal relations, with much harsher punishments for people who could not afford to pay their debts.

In fact, as David Graeber argues in his excellent book “Debt: The First Five Thousand Years”, it is with the introduction of universal money systems that more sophisticated war machines come into being. Taking this idea further, it is his contention that the two are mutually constituted: money proliferates in times of war, war proliferates in times of money.

In the modern era we have seen a further development, going from a cash economy and returning to an economy based primarily on credit (albeit greatly removed from the credit economy of a primitive society). This has led to the massive growth in the financial services industry, the increasing indebtedness of whole countries (first in the developing world but later also in the developed world) and a massive increase in household debt. It has also led to the rise of the IMF as a global enforcer of financial responsibility, or, as Graeber crudely puts it, as the global equivalent of the guys who come round to break your legs if you haven’t paid the loan shark. This development has further transformed our relationship with debt, with indebtedness becoming a means of disciplining not just ordinary people but whole countries of people.

The reason for this brief history is to underline how much our attitudes to debt have changed according to the type of society in which the practice has taken place. As such, it is fair to say that there is no universal truth attached to the idea that people should always pay their debts. And with that, we turn again to Greece.

In recent years the government of Greece was found to be unable to pay back the massive loans it had been given after its accession to the Eurozone in 2001 (loans which went to infrastructure, projects such as the 2004 Olympics, but mainly to cover the trade deficit that had developed since joining the eurozone). After not being able to service this debt, the country has been forced by the European Union and the IMF into receiving several bailout loans and had to accept the need for extremely punitive fiscal restructuring, with massive deregulation of state run services, privatisation and the selling off of state assets. Such policies led directly to the election of a radical left government which unsuccessfully sought to resist the hugely damaging policies of the EU and IMF.

Throughout the debt crisis, the Greeks have persistently been described as having a moral responsibility to pay their debts. The country has also been frequently described using the hugely simplistic metaphor of a household which has spent beyond its means. But as the brief history suggests, the idea that you have to pay your debts has nothing to do with morals. It is also totally misleading to talk in these household terms, since this fails to acknowledge that a country is capable of borrowing in a completely different way to a household. Moreover this way of framing the issue totally disregards the responsibility of the creditor to only lend if the prospective debtor can afford the loan.

In the case of Greece, the creditors manifestly failed in their duty to evaluate the creditworthiness of the debtor (due mainly to the fact that the prevailing attitude of the IMF denies the traditional responsibility of the creditor and always backs them up). As echoed by the flag conversation, when the Greek government started borrowing from European banks to cover the cost of the country’s trade deficit and then when they subsequently took on increasingly unaffordable bailout loans, the obvious ramifications of taking on debt to manage a debt burden were clearly not properly discussed with the Greek people.

After all, think about it, would the Greek people have allowed these initial loans to be taken out had they known that the massive interest repayments and punitive measures that accompanied non-payment would lead to the collapse of their economy? I expect not.

The flags convey a common situation in which someone is sold something under terms not properly communicated to them in the first instance. I’m well aware that this reduces things to the same everyday terms as the household debt metaphor. But if we’re going to reduce things it might as well be done honestly. Because the Greek situation is a clear manifestation of the power at play after two parties enter into a loan agreement whose terms are not properly conveyed to the debtor.

In an article to follow I will talk more about the genuine relevance of describing debt relationships in everyday language, specifically by highlighting the presence of these relationships in the most commonplace language.