I am inspired to return to debt by the gospel reading for today’s proper, Proper 19A, Matthew 18:21-35:

Then Peter came and said to him, “Lord, if another member of the church sins against me, how often should I forgive? As many as seven times?” Jesus said to him, “Not seven times, but, I tell you, seventy-seven times. For this reason the kingdom of heaven may be compared to a king who wished to settle accounts with his slaves. When he began the reckoning, one who owed him ten thousand talents was brought to him; and, as he could not pay, his lord ordered him to be sold, together with his wife and children and all his possessions, and payment to be made. So the slave fell on his knees before him, saying, ‘Have patience with me, and I will pay you everything.’ And out of pity for him, the lord of that slave released him and forgave him the debt. But that same slave, as he went out, came upon one of his fellow slaves who owed him a hundred denarii; and seizing him by the throat, he said, ‘Pay what you owe.’ Then his fellow slave fell down and pleaded with him, ‘Have patience with me, and I will pay you.’ But he refused; then he went and threw him into prison until he would pay the debt. When his fellow slaves saw what had happened, they were greatly distressed, and they went and reported to their lord all that had taken place. Then his lord summoned him and said to him, ‘You wicked slave! I forgave you all that debt because you pleaded with me. Should you not have had mercy on your fellow slave, as I had mercy on you?’ And in anger his lord handed him over to be tortured until he would pay his entire debt. So my heavenly Father will also do to every one of you, if you do not forgive your brother or sister from your heart.”

First, yes, there is something about debt forgiveness in there somewhere, along with a not negligible bit of social stratification — the slave-master relationship — and outright cruelty. He handed him over to be tortured? “So my heavenly Father will also do to every one of you”? Really?

But I am also inspired to return to debt because barely a day goes by without my being accosted by views on debt, often from the pens of economists who ought to know better (e.g., the late David Graeber), that do less to clarify than to obscure the nature of debt under capitalism.

This is largely the fault of left-leaning scholars, some of whom regrettably are Marxian, who have never fully come to terms with the truly revolutionary character of the capitalist social formation. In their view, the essence of debt remains today, as it was prior to the emergence of capitalism, a form of stealing; which, without question, is precisely what it was prior to the emergence of capitalism.

In the capitalist formation, debt rests upon the multiple temporal horizons on which value operates. These multiple horizons were but poorly understood in the era of classical economic thinking, from roughly 1776-1860. The first substantive breakthrough came with Jean-Baptiste Say, who was able to develop a mathematically rigorous model for showing how the values of all goods in any market both shaped, and in turn were shaped by, the values of all other goods. The next substantive breakthrough came with William Stanley Jevons, who was able to show that the values of identical goods in different places and the same good at different times, including the monetary good, could and often did differ substantially. Jevons also showed that the same monetary instrument at the same instant could be credited with different values depending on its own differing possible temporal horizons, i.e., the future value of the assets in which it could be or would be invested.

In this context debt arises from an investor’s calculation that the present value of the monetary good in her possession will have marginally greater value at some specified future date, when a loan is due, than it enjoys in the present; whereas the debtor calculates that her debt in the present will be marginally lower on some specified future date, when her debt is due, than it bears in the present. If we consider all of the multiple debt schedules that every business of any considerable size is juggling simultaneously, never mind any reasonably well-endowed household, it is clear that both lenders and debtors are unceasingly calculating future values with dates of maturity and anticipated values that differ wildly from one another. This is not a defect, as Marx noted, but a feature. The monetary instrument does not measure value in a snapshot, but in a three-dimensional, constantly shifting, montage.

This also, of course, holds for the labor commodity. Yes. Labor is the source of all value. And, yes. The labor commodity is unique insofar as, unlike other commodities, it wants to live and can only do so if it submits to the marginal value of its good, its own labor. (We assume, for the time being, the “Ava,” the lead in Hollywood’s Ex Machina, is a fiction and that machines and intellectual property are not subject to the same compulsion to desire life.) To the multiple product lines of human beings, therefore, there are also multiple schedules based, among other things, on the marginal values of the products investors anticipate winning from their employment. Note, as well, that for Marx, as for other economic thinkers after 1860, the value of the labor commodity is calibrated and recalibrated moment by moment not only in relation to the aggregate values of all human labor product lines, but all commodities in aggregate, such that the values enjoyed by the labor commodity may fluctuate wildly even when the immediate conditions of production (factor costs) remain relatively constant.

Debt under capitalism rests upon a calculation that the macroeconomic ratio ΔQL, the marginal product of labor (MPL), will continue to grow; a calculation that the numerator, the change in quantity, will continue to outpace the change in labor required to produce that change in quantity; and, therefore, that tomorrow’s dollar will continue to be worth more than today’s dollar; and, therefore, that investing that dollar today will generate greater value than that dollar spent today. But what if that does not hold true? What if tomorrow’s dollar is worth less? What if ΔQ, the change in quantity, is not keeping up with ΔL, the change in the labor required to produce that change in quantity? In that case, the future values of today’s goods will be less than their present values. And, as an investor, in that case, it would be foolish for me to lend capital today to make less value tomorrow and it would be foolish for me to borrow capital today to realize less value tomorrow.

As Lord Keynes showed almost a century ago, it is impossible to compel investors to invest money today to make less money tomorrow. This is the definition of bad debt.

But let us look at this debt from the vantage point of the only commodity, the human commodity, eager to maintain its life. Viewed from the vantage point of capital, investing even in this commodity beyond its marginal value would be foolish. To illustrate this point, we can think of three workers. For the first, the reserve wage, the wage below which she will refuse employment, is $200/hour; for the second, the reserve wage is $100/hour; for the third, it is $50/hour. But let us suppose that even at $1/hour an investor anticipates realizing less than $1 in future value. That is to say, what if there is no wage at which an investor anticipates realizing a return? In that case, the value of the labor commodity is zero. In fact, it is less than zero. In order to preserve whatever value investors still enjoy, in that case, they must neither a lender nor a borrower be.

Lord Keynes penned an interesting section in his General Theory in which he contemplates a regulatory solution to this problem:

If I am right in supposing it to be comparatively easy to make capital-goods so abundant that the marginal efficiency of capital is zero, this may be the most sensible way of gradually getting rid of many of the objectionable features of capitalism. For a little reflection will show what enormous social changes would result from a gradual disappearance of a rate of return on accumulated wealth. A man would still be free to accumulate his earned income with a view to spending it at a later date. But his accumulation would not grow. He would simply be in the position of Pope’s father, who, when he retired from business, carried a chest of guineas with him to his villa at Twickenham and met his household expenses from it as required. Though the rentier would disappear, there would still be room, nevertheless, for enterprise and skill in the estimation of prospective yields about which opinions could differ. For the above relates primarily to the pure rate of interest apart from any allowance for risk and the like, and not to the gross yield of assets including the return in respect of risk. Thus unless the pure rate of interest were to be held at a negative figure, there would still be a positive yield to skilled investment in individual assets having a doubtful prospective yield.

JM Keynes, General Theory, Chapter 16.

Notice. Lord Keynes is not suggesting that investors cannot win returns on all investments. They simply cannot win returns on money. They have to invest in stuff. Moreover, they can leave things to their heirs and assigns. But they cannot leave capital goods. The paragraph could well have been written by Thomas Piketty and Immanuel Saez. What the paragraph does not say, and cannot say, is that investors are forbidden from investing in other’s ventures, investments that presumably will mature and yield returns greater than the original investment. In other words, we have not really escaped from the lender-debtor framework with its multiple, differential, temporal horizons.

A second attempt by capitalism to leap over its shadow was proposed by Friedrich von Hayek, who, in 1932, over the signatures of this LSE colleagues, engaged in a highly acrimonious debate with Lord Keynes and his oxbridge colleagues on the pages of the Times of London. Following his mentor, Carl Menger, von Hayek held to a “realist” view of the monetary instrument. Borrowing from the future to pay for the present (i.e., printing money and lowering interest rates) was illegitimate, claimed von Hayek, because it cheated creditors of the real value of their assets in the present). Lord Keynes demurred. First, just as they had for the Great War, so in the Great Depression, public emergency took precedence over the wealth of the rentier; but, second, just as investors in the Great War actually realized the value of their capital, and then some, so they might anticipate healthy returns in from their investment in the present. Lord Keynes and his oxbridge colleagues proposed not monetary realism, but monetary relativism.

Ironically, at the time of this acrimonious exchange, von Hayek was dissertation advisor at LSE to a certain Oscar Lange, the same Oscar Lange who during the war was a professor of economics at the University of Chicago, and who, following World War II, took his dissertation advisor’s monetary realism all they way to Poland. From there monetary realism spread throughout the Comintern as the only acceptable doctrine in truly socialist economies.

On this view, debt was a capitalist invention, a means to steal, not from the rentier, as von Hayek thought, but from the state — and, therefore, by inference, from the workers who were identical to the state. The only challenge was to identify and confer upon all things, including the monetary instrument, their true value.

Perhaps even more ironically, this Austrian School “realist” view of money and debt became a non-negotiable pillar among Eastern European and Soviet economic thinkers, including, not surprisingly, Karl Polanyi, notwithstanding the many points of contention between Polanyi and von Hayek.

So, where did these economic thinkers get it wrong? They got it wrong, let me suggest, right out of the block. Capitalist debt differs fundamentally from debt prior to the emergence of capitalism. That is because capitalist debt, although it expresses itself in the monetary commodity, is in fact grounded in the social valuation of the labor commodity. When in the fourteenth century masters began to measure the value of their workers in equal units of abstract time, the abstract form of value generated in this calculation took on the appearance of a transcendental social form valid for all commodities, no matter their kind. The value of labor was no longer counted a specific practice, e.g., carpentry, that produced a specific good, e.g., furniture. Instead, the practice, carpentry, was translated into a duration of time having value. And the furniture was translated into the value of that time. Translated into value, labor becomes infinitely transportable not only spatially, but temporally. Its value produces a future value that is greater or smaller than its current value. This quasi-independent value, once it has acquired general social validity, appears to be dictated by society in general. Oscar Lange can object that debt is stealing from workers. Friedrich von Hayek can object that debt is stealing from investors. But, as Marx repeatedly noted, the thief here is not the capitalist. The thief is the value form of the commodity or, more specifically, capitalism.

Back to Matthew’s gospel. Why was Jesus so preoccupied with debt forgiveness. Why would his Father even go as far as torturing creditors who failed to forgive debt? What exactly is at stake here?

Let us suppose for the moment that the only debt we should owe anyone is love (Romans 13:8). And let us suppose that debt forgiveness is the essence of divine emancipation. Finally, let us suppose then that we are all debtors and that in the divine economy we all owe this debt. But then let us suppose that this debt was paid. What, the debt to love one another? No. The debt paid was the debt accumulated for our failure to love one another. What exactly is at stake here? Do you claim to be a Christian? Do you claim to be a Christian nation? Is your debt forgiven? So, how are you going to respond to individuals and nations indebted to you?

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