Debt Culture

William Kherbek dissects the notion of debt

British currency © Maria Toutoudaki
© Maria Toutoudaki

Recently, I taught a non-technical introductory course to economics. The best academic experiences are always full of surprises, but perhaps the most surprising aspect of the course was how difficult it was to make the notion of ‘debt’ comprehensible. You’d think it would be easy; owing people money is a nearly universal concept in today’s society, but therein was the problem.

To understand debt on a personal level is easy enough for anyone with a credit card — or a university degree — but to genuinely get a feel for what debt means in the global economy seemed nearly impossible. As I listened to myself explain that debts on a personal level were ‘a kind of mirror image of debts at the level of nation states,’ even I began to wonder if economics is just a respectable guise for mental illness. I was talking about the problem with a colleague when he calmly produced an aphorism that most of us spend our whole lives trying to formulate: “Money,” he said, “is debt”. For a moment I had that ‘Through the Looking Glass Feeling’ — then I realised he was right.

That money even exists presumes the notion of debt; the more money that floats around, the more debt it chases. And there’s a lot of debt to be chased at the moment, but, crucially, there’s not much money doing the chasing. The circuit is broken. The great comprehensibility gap that I spent so much time in the classroom trying to explain — how if individuals are in debt, the solution can possibly be institutions further up the food chain taking on debt — suddenly looked much clearer.

A fairly venerable body of work has existed for more than eighty years which considers questions of economics as a particular subspecies of questions about psychology. If we strip away the formalisations and idealisations that have made economics so mystifying in recent years (not least to the 90-or-so per cent of mainstream economists who somehow managed to overlook one of the largest bubbles in history), we’re left with a kind of confidence game — albeit a very well dressed confidence game. What is true or false matters far less than what we believe is true or false.

Without complete information — an impossibility in an age of computer-aided trading — all economic actors have to work with are guesses. How’s the economy doing? Well, how do you think it’s doing? People have only figured out one way to gauge how the economy’s doing: how much are people spending? If they’re spending a lot, everything is fine. If they’re spending nothing, well, that’s bad news.

We haven’t been spending much lately, in fact, we’ve been hoarding money. It’s not just us ‘normal people’, the institutions up the food chain are hoarding too. Why? Because we’ve lost our confidence things will improve. Why? Because lending institutions won’t lend. Why? Because spending institutions won’t spend. Money is debt.

Wiliam Kherbek is a writer and recovering musician based in London