A future without debts? Capitalism is but a chain letter (2nd Part)
Second and final part of the english translation of the essay published in “Die Zeit” by Wolfgang Uchatius on October 12,2012 under the title “They have the debts- we, the profits”
Germany´s past was an indebted past.
At the end german firms were able to cancel their debts. Nevertheless the economy went on growing. This can also be explained with the help of our set up scenario. In spite of our companies not taking up more loans, the economy could still go on growing as long as others step in and borrow: the consumers, for instance.
If some borrow money to buy more soup and more bread our companies will record higher revenues. They will be able to hire more workers and pay higher wages.
The credits raised by some drive the wealth of the others. Workers and employees improve their means, soon they afford to eat steaks and Swabian pockets (homemade pasta squares). In turn indebted consumers increase their liabilities. At some point it becomes clear that they won´t be able to pay back. Then they are about to go broke.
Just as the Greeks, the Spaniards, the Italians. The once so good customers of German companies.
Contrary to steam engines, light bulbs or cars, debts can´t be grasped with the hands. The first steam engine was a revolution, the first light bulb a miracle, the first car a revelation. Each of this inventions is today a symbol of the progress and wealth that humanity has experienced over the last two and a half centuries. The same applies to the telegraph, the locomotive, the aeroplane. Debts in contrast, are just some numbers on a piece of paper. May be this is why it is almost always overlooked that one thing doesn´t come without the other: wealth without debts.
In 1769 the Scottish James Watt invented the steam engine
In 1879 the American Thomas Alva Edison devised the light bulb
In 1886 the German Carl Benz developed the first motor vehicle
They were brilliant heads, close in their historical significance to European sovereigns such as Alexander The Great, Frederick II or Julius Caesar, who subdued Gaul.
Just a moment… he alone? “Didn´t he have at least a cook by him?” This is the question that Bertolt Brecht posed in his poem “Fragen eines lesenden Arbeiters”. Didn´t Alexander have soldiers that were killed for his sake, no servants either, no slaves? Did the old Frizt wage his wars alone?
The historical narrative overlooks small people. Bertolt Brecht wanted to draw our attention to this fact. History also tends to forget debts. Watt invented the steam engine? Great accomplishment but how did he manage to produce it massively? Edison devised the light bulb? A stroke of luck but where did he get the money from to bring his device to market? Ben developed the motor vehicle? An achievement, but how did customers manage to buy hundreds of them?
Debts are not good. Debts are not bad. They are just there, anywhere where wealth is formed. If wealth happens to rise, then debts will also rise, there´s no counter-example. The modern world casts an image as if capitalism were an individual and taking on debts an excretion strange to him, repulsive in some way. Something that would make the swabian housewife screw up her nose.
The truth is that the swabian housewife wouldn´t have existed if it hadn´t been for the debts. Nor, for that matter, a housewife from Bavaria, Schleswig Holstein or Hessen. Housewives in general wouldn´t have existed because no housewife could have allowed herself to stay at home instead of earning money. In this prehistoric, poor world no autos, no fridges, no washing machines could be found.
The Sumerians didn´t use coins but they did know what a credit stood for.
There were, anyhow, women farmers that spent the whole day burrowing in the ground. As well as women labourers that received a few potatoes in reward for their menial work. But no coins, nor notes.
Because without debts money wouldn´t even exist.
In the fourth century before Christ the Sumerians lived in Mesopotamia , on the banks of the rivers Euphrates and Tigris, in today Irak´s national territory. They developed the first written language of mankind- and the first money system.
The Sumerians were farmers, craftspeople, tradesmen. They used no coins. These were invented about 3.000 years later but they knew well what credit stood for. The American anthropologist David Graeber writes about this in his book “ Debts: the first 5.000 years”: if the Sumerian trader A wanted to buy a goat from trader B but didn´t have a consideration on hand, he produced a debt note. He wrote in cuneiform writing a sign in a clay tablet and he gave the tablet to trader B
He sometimes didn´t keep with him the tablet for long and passed it on to trader C in exchange for perhaps two sacks of barley. It wouldn´t take long for the clay tablets to circulate in the Sumerian economy as an early form of banknotes. They became gradually legal tender. It was the invention of money.
However each of the early historical clay tablets came to the world because someone incurred debt.
In this sense the world hasn´t changed much since the Sumerians.
When nowadays a man goes to the bank and takes up a loan in order for example to buy a car, the amount is credited to his account. It´s not easy to believe this, but the money is not debited anywhere, it´s not being taken from anyone. It´s a promise. It´s just there, stemmed from nowhere, as if just created by God. That´s why economists talk about money creation.
Capitalism is a chain letter. The last ones are the losers.
The car buyer can then go to an automatic cash dispenser to get the notes with which he will pay the new car. The money is transferred to the car trader who may use it to buy a ring to her wife. The woman at the jewellery doesn´t know to whom the note belonged previously, she doesn´t need to care for that. What´s sure in any case is that each euro note owes its existence to the fact that someone sometime borrowed money.
Every euro is a debt-euro just as every dollar is a debt-dollar and a swiss frank a debt-swiss frank.
In contrast to old Mesopotamia money creation takes place nowadays in a more complex way, steered by the big central banks such as the European Central Bank, the Bank of England or the American Federal Reserve Bank. They are the ones that press the Euro, Dollar or Pound notes and put them at the disposal of commercial banks such as the Deutsche Bank, the Commerzbank or savings banks, which will in turn transfer them in the form of credit to the broader public.
One thing always applies, however: incurring debt is the founding act of each note, of each digit in the account statement. Debt brings money into the world.
A future without debts would imply therefore a future without money. Anyone who stands for such a thing is as anticapitalistic as the SED (East Geman Communist Party). In East Germany at least they had aluminium coins.
At some point the car buyer has to cancel his debts. He transfers the money plus interest rates back to the bank, the loan is paid back, the bank removes the debt claim from its books. In order for capitalism not to come to a halt, and for the economy to grow further, someone else must at this point take up a loan, the car trader, may be, who may now borrow money to expand his business or perhaps the jeweller, who will buy gems. Time and again new debts need to be added to replace the former ones. Only then will money keep on moving.
The Austrian economist and publicist Thomas Strobl, author of the book “ Nothing works without debts” puts it in this way: “ Capitalism is a single big chain letter”
Already in the time of the Sumerians loans made out of clay caused trade to flourish. And already then liabilities reached a point where the debts grew at a faster pace than welfare, at which point the chain letter broke. Someone then- an individual, a family, half the city- was about to be broke. Just as Greece today.
Then the leader appears before his people, just as it happened in 2014 BC, when the Sumerian king Emmetena had a declaration read in which “Freedom”- “Amargi” was proclaimed.
Freedom for the debtors, which meant: the clay tablets should be destroyed and liabilities forgotten. Money will then again circulate and new wealth created through credit.
People have always tried to classify the economy in classes and categories to understand capitalism. According to their ideology they either identify greedy capitalists and exploited workers or confident consumers and dynamic entrepreneurs.
But if we use debt as a standard, the resulting view is different. The world is then divided in two parts. At the top stay the nations that are rich and not debt-ridden. For decades they have accumulated wealth, for decades they have produced it with the help of the indebted countries.
Germany belongs to this high society. Germany as a whole is not indebted. The State has indeed big liabilities but the private household wealth is far bigger. The country can be compared to a family in which the husband has borrowed a lot of money from her wife. He owes her the money but that doesn´t affect the welfare of the family as a whole. In Germany it even grows year on year.
At the bottom stay the countries that are debt-ridden. Families in these countries are indebted to other families, sometimes to so many that they are not able to cancel the debts. They stay at the end of the debt chain. The Greeks, the Spaniards, the Portuguese belong to these countries. The European economy has kept on running for decades on their debts. Now they are the losers.
You can compare these nations to those cheap workers who in some factories in Asia ensure that german shelves are full with IPhones and T- Shirts. Capitalism needs them. Without them the economy wouldn´t grow. As for them they don´t profit much.
Two years ago more than a dozen workers in the Chinese factories of Apple committed suicide. They couldn´t stand it any longer. Ten days ago 2.000 workers waged fight against the police. It seems they had reached the limits of resistance.
In Greece there are also people that can´t no longer cope with their lives. Before the crisis nowhere in Europe was the suicide rate so low as in Greece. Since then it has tripled. People throw themselves from the Acropolis, they drowned themselves in the sea, they hang themselves in their homes. A former pharmacist wrote in his farewell letter that he didn´t want to burrow in dirt and become a burden for his son. He shot himself under a tree in front of the parliament.
These incidents can be played down and dismissed as the phantom pains of an spoiled , profligate society that must finally learn to economize. This standpoint is quite popular in Germany.
However one can also conclude that Greece has reached its limit of resistance and that the time has come for “Amargi”, the big debt relief.
Since the beginning of the crisis the question hangs in the air: ought Greece file for insolvency, declare bankruptcy? Liabilities would be removed, the country debt-free. Left wing politicians have claimed such a step to be taken. But also representatives of the FPD. Both, having generally few things in common, agree on their wish for an end of the debts.
To cancel all liabilities- that sounds so well as does a new beginning. It sounds like the traslation of “ a future without debts” to precise policy. It sounds as if then everything would be different.
In reality “Amargy” features a deceptive freedom, a moment strange to capitalism in which interest rates and yields cease to play a role. Before a new credit chain is created through new debts and new welfare. Providing all goes well. If it doesn´t Greek companies and the Greek State will find no banks and no investors to grant them new credits. It would be clear then that sometimes freedom from debts is followed by freedom from growth and welfare and a new translation would be needed for “Amargi”: poverty.
In view of this danger it´s no surprise that European policymakers have followed till now another path: not cancelling all debts but incurring new ones! Not smaller liabilities but bigger ones! That is also the path on which the chancellor has embarked in spite of her likings for sustainable growth as well as the one from which the SPD candidate to the chancellorship Peer Steinbrück doesn´t want to stray. Along this path you often hear words such as “European solidarity” or expressions referring to values and ideals. But what really matters is just one thing: not the hope that a new credit chain will be built up after a debt write-off, but the endeavours to extend the old debts. That´s why the Greeks are granted one credit facility after another, that´s why European commercial banks can provide themselves with liquidity from the BCE as swiftly as never before. Finally they should grant loans again to companies, to states, to consumers so that the borrowed money produces new growth.
It seems as though debts have still a long future.