Debt

Funds and assets whose owner makes them available for use by another person, usually for a price and for an agreed period.

It is often asserted that debt is the driver of economic growth and hence of our discontents, but it is not as simple as that. Societies discovered growth a long time before they discovered money and banks. Money smoothes the path to debt, and debt helps to smooth the path of growth, but neither are essential. A growing civic society has to build big infrastructures (such as the 1^st century Roman Pont du Gard viaduct across the River Gardon in the south of France, 48 metres high and 360 metres long), which may be paid for with borrowed funds, so that interest—and often power—accrues to lenders. But it is the need for the infrastructures that drives the process, and if the debt were unavailable, alternative means could be found, such as draw-downs from capital or taxation, or the slavery that built the Coliseum, or retained earnings, or just widely-shared participation.^D3

Debt can though be used as an instrument of direct exploitation. Companies saw in it a means of sustaining control over employees in the early years of the Industrial Revolution, when a company could own the only available shop, so that a worker might owe his soul to the company store—attempts to make this illegal finally became effective in the UK with the Truck Act of 1831. And it has been used by the Bretton Woods institutions—notably the World Bank—as part of a programme to encourage or require developing economies to become market economies exporting food and raw materials, and importing services and finished goods from OECD countries. Debt undermines settled, resilient, subsistence societies, turning them into unstable societies with substantial fractions of their populations living in poverty.^D4

High levels of debt in the developed countries will mean that many people and institutions will become bankrupt after the oil peak, and lenders could go the same way. We saw a rehearsal for this in 2008–2009. The consequences are hard to predict. Market economies are robust, but a major breakdown of the financial system as a result of unpayable debts could ripple through to the breakdown of employment, incomes and essential distribution systems.^D5

Related entries:

Economics, Usury, Resilience, Complexity, Credit Union.