Debt, morals and politics

## Debt regimes

* Based on collateral
* Based on taxing power
* Based on capacity to increase production
* Based on sovereign power to enforce contracts

## General notes

* Reading an article: Who is speaking to whom (audience), with what purpose (why) and on what grounds (why is it being said this way)?
* Balance sheets as an epistemic agent (not only showing things, but also leaving things out)
* Close reading of a text vs. figuring out the moral compass of the author

## Credit rating agencies

* Institutions - incentive systems - experts
* Credit ratings are an input into the bureaucracy that regulates banking
* Credit rating agencies as a performative socio-technical device of control, the act of (sovereign) rating and its institutional agency (CRAs)
* The authoritative capacity of rating sovereign debt, in large part, stems from how convincingly ratings normalize a fictitious bifurcation between the ‘economy’ and ‘politics’ in the constitution of what counts as authoritative knowledge in the market.
* Political discretion becomes increasingly marginalized and censured as normalizing mathematical/risk models depoliticize the decision-making process
* Ratings construct an infrastructure of referentiality – via the ‘AAA’ scale – denoting what ‘correct’ and ‘normal’ fiscal conduct should entail
* Investment-grades grant access to liquid capital markets so governments must adapt to satisfy their (austere) criteria and align with the norm in order to perform the functions of ‘government’ and refinance existing debt obligations.
* It subjects European budgetary politics to an artificial uniformity exogenous of national contexts as it privileges disinflationary logics aligned with self-systemic, and thereby self-regulating, forms of what may be identified as ‘neoliberal’ capitalism
* Risk and uncertainty as modalities of governance
* Sovereign ratings as depoliticizing
* CRA have sustained authority which they, in part, derive from their monopoly over the constitution of a (neoliberal) politics of creditworthiness
* The tenacious (authoritative) capacity of ratings must be carefully considered in relation to how they perform a neoliberal politics of creditworthiness, which reinforces their epistocratic grip over democratic forms of rule.
* Contributing to the enduring control which CRAs exercise over the construction of the politics of limits is their purported ability to divorce technoscientific epistemology from its messy politico-economic context.
* The ‘fetishization of the normal distribution curve’, CRAs betray their ‘desire to replicate the prescriptive and predictive success of the hard sciences and a belief in the infallibility of rationalist-empirical epistemology’
* Sovereign rating ranges rest on a judgment – codified and commercialized as the ‘risk of default’ – about ‘the capacity and willingness’ of governments to raise the necessary resources for the timely servicing of their debt obligations
* **Probability of payment depends on the tolerability and costs of austerity.**
* Ratings communicate how well a government adheres to specific disinflationary logics aligned with Anglo-American versions of capitalism.
* The salience of sovereign ratings derives from how persuasively they manage to constitute this neoliberal notion of budgetary rectitude as the hegemonic discourse against which democratic governments are judged and managed
* The ‘operational’ dimension of fiscal relations: estimated ‘political risks’ (such as a ‘government’s payment culture’) or a regime’s ‘legitimacy. The ‘pain’ threshold which a constituency can endure fluctuates according to its changing political economy
* CRAs prescribe an approach to fiscal management which privileges the mentality of financial markets rather than that of electorates.
* Through risk there is a concerted effort to mask the informal judgment necessary to assess sovereign creditworthiness.
* The infrastructure of referentiality underpinning the politics of creditworthiness is (discursively) constituted
* Meaning and materiality must be studied together
* How ratings represent ‘correct’ and ‘normal’ budgetary conduct, as a social fact and goal for which to strive, is central to their legitimation and the performativity
* The purpose is to translate more uncertain (political) events into statistical regularities; which enhances the epistocratic leverage of CRAs over the politics of limits.
* For example, S&Ps Rating Analysis Methodology Profile to quantitatively capture the five analytical (sovereign) categories it monitors:

1. political score – political risks and institutional effectiveness
2. economic score – economic structure and growth prospects
3. fiscal score – fiscal flexibility and debt burden
4. external score – external liquidity and international investment position
5. monetary score – monetary flexibility.

* The comparative fiscal normality against which peers are assessed is artificially static, and therefore erroneous outside of the strict confines of its underlying assumptions; which attempt to ‘freeze’ fluid fiscal relations via ceteris paribus clauses. Disaggregating governments into so many components, judging these individually before reassembling them also cannot adequately account for their interdependencies and interplay in shaping the debt-bearing capacity of an entire nation.
* ‘Economic resiliency’ is based on the ‘quality of a country’s institutional framework and governance’ – including nebulous and contingent factors like the ‘predictability of government action’ and ‘the degree of consensus on the key goals of political action’
* It is primarily through the ‘continuous effort to make the analysis more quantitative’ that ratings command and sustain their authority. Hegemonic risk calculus serves as their legitimizing force.
* The deliberate discounting of uncertainty-based practices, in favor of a defendable calculus of risk, prejudices how the problem of sovereign creditworthiness is constituted to privilege quantitative means, which helps normalize an adherence to epistocratic dictates – often irrespective of their accuracy – and exacerbates the asymmetry between CRAs and governments. Amplified by a fallacious quantitative/qualitative distortion in the analytics of ratings, this obscures how contingent liabilities factor into the production of CRA judgments; which would otherwise detract from their clout
* We must first understand the way that CRAs operationalize risk and uncertainty. In large part, their authoritative capacity is commensurate with how well ratings eliminate the perception of imperfect information
* Orthodoxy dictates that the more supposed uncertainty that CRAs replace with risk, as they attempt to aggregate contingent fiscal relations into a calculable measure of variance around an expected value (represented as ‘AAA’) the more consequential ratings become. → Expertise (of a disinflationary neoliberal logic by utilitarian calculus of risk) mediates this representational process.
* Technical expertise gives the impression that Moody’s or S&P disavow any ideological content to their rating judgments.
* What is a social fact appears to be transformed into objective knowledge as the calculation of an indeterminate fiscal future is purported to become tractable to defendable risk management
* A fictitious dichotomy between the quantitative (risk) and qualitative (uncertainty) is promoted. Quantitative risk is constructed as a tangible phenomenon tractable to rational choice modeling and equilibrating outcomes but uncertainty cannot be assigned a definite numerical probability
* Technological advancements (e.g., statistical actuarialism) and enhanced information supposedly enable experts, such as auditors or rating agencies, to patrol the margins of indeterminacy between risk and uncertainty. With the right ‘tools’, they claim to translate more contingent events into statistical probabilities; which help predict a Paretooptimal equilibrium
* **Knowledge as statistics translates economic relations into a manipulable field for management.** CRAs attempt to extend this approach to fiscal relations.
* As constructs, risk and uncertainty change depending on how they are deployed.
* Risk is in a permanent state of virtuality. Once it happens, and a static figure is available, it is now a full-blown crisis and no longer a probability
* Attribute the leverage that CRAs exert over global capital markets to the historical institutionalization of norms and rules surrounding creditworthiness, or the ‘embedded knowledge network’.
* Arguably, CRAs authoritative capacity is constituted through the performative effects of ratings, which create the conditions and subjectivities that serve to validate this epistemic/discursive framework, and thus their utility and leverage. Performativity combines this relationship between action and authority. Hegemonic risk discourse is at the centre of this depoliticization process
* Sovereign ratings have ‘illocutionary’ performative effect: these utterances communicate a range of judgments about proper fiscal conduct, which inform the constitution of a politics of limits or the fiscal constraints facing governments.
* The effective control of ratings to provoke the prescribed disinflationary management of member state finances is intimately linked to the naturalization of the neoliberal logics implied in and promoted by said ratings.
* Action and authority combine to ‘govern-at-adistance’
* Ratings connect notions of proper fiscal conduct (i.e., neoliberal orthodoxy) to economic behavior (of states and market participants).
* Whereas discipline entails both individualization and normalization, regimes of control regulate deviance rather than fundamentally reform the actor. As long as either Italy or Portugal behaves in a manner conducive to achieving a higher investment grade, then whether they have truly embraced the neoliberal mentality is secondary.Outcomes matter for CRAs.
* An antagonistic relationship between the programmatic/expertise and operational/politics dimensions of fiscal governance develops; which pits the two competing logics of legitimacy (in the eyes of financial markets) and accountability (to citizens) against each other.
* To dampen the potential adverse effects that democratic politics may have on creditworthiness, and on the predictive power of ratings themselves, a bifurcation between politics and economics is promoted. Technocratic governments are seen by CRAs as typically superior in implementing the structural reforms necessary to manage the crisis.
* Ratings function as self-validating feedback loops. They 'perform' the market by helping to create and sustain the entities [they] postulate’. Procyclicality exhibits its own (amplifying) feedback effects which strengthen the position of CRAs.
* As governments initially change to conform to the austere prescriptions implicit in ratings and investors react based on these accounts, ratings – however accurate – are legitimized.
* Ratings enable investors to capitalize on the variance in creditworthiness between member states. Synchronically connected, heterogeneous economies become comparable as ratings help determine who is eligible to access liquid capital markets and at what cost. In short, the institutionalization of ratings helps constitute ‘speculators’ as it equips them with an arsenal of tools with which to exploit the relative vulnerability of national governments.
* Lacking time, real inclination and a reliable approach to assess these judgments, market participants incorporate and act on these credit scores to create the conditions which help validate the assumptions implicit in the rating.
* Demanding a high level of description of qualitative inputs – including the ‘scope of qualitative judgment’ – presupposes some kind of standardized metric/benchmark, according to which subjective decisions about unique national fiscal positions can be made.
* Qualitative elements elude being captured through quantitative techniques
* Management through uncertainty cannot be systematically orchestrated because it fails to reproduce itself at regular intervals.
* How experts become biased: bribery/vested-interest, education/indoctrination, funding-dependence/sponsor, confirmation bias/herding (orienting oneself by other experts)
* The regulatory feedback mechanism (negative reputation if the ratings are too optimistic) is permanently prevented by the federal monopoly the CRAs have
* The usual bias is to give too high ratings (because of personal relations with client etc.)
* Ratings don't take worst-case scenarios into account because they take averages

## Uncertainty & risk

* The distribution of possible outcomes is unknown
* Any attempt to capture dynamic rather than static phenomena must grapple with the problem of fundamental uncertainty. The distribution of possible outcomes is unknown
* Uncertainty as probable risk (likely to occur)
* Uncertainty as Arrow commodities (treat future as finite and assume that you can buy insurance for each possible outcome)
* Uncertainty as randomness (i.e. you don't know the probability distributions)
* Simple displacement strategy
* Metaphysically there is a huge difference between treating something as as stochastic process (there is a probability distributions but we don't know where we are on it) and as indeterminate

## Transparency

* Holmstrom:
	+ Money market funds: trading of short-term notes; up to 100 days (capital markets start from 6 months); financial intermediaries who need access to liquidity quickly (i.e. banks)
	+ Equity markets as information-sensitive
	+ Debt markets as information-insensitive
	+ Opacity in money markets is good because it reduces bargaining costs and if you have over-collateralization, you don’t have to worry about price changes
	+ The best collateral is also debt because debt is easy to produce and liquid and coarse-grained/indistinguishable
	+ Liquidity decreases the probability of risk but increases its explosiveness
	+ From a political science perspective, one can say that Holmstrom doesn’t even problematize who is bearing the costs of the bailouts (he has an enormous status quo bias)
* Anderson argues that neoclassical econs have stripped “equality” and “freedom” off its morality and defined it only in economic terms
* Anderson: Three conceptions of debt (historical evolution of debt in capitalism):
	+ Christian ethic of debt: sin, personal responsibility of the debtor, full repayment, no interest (instead compassion as the motive)
	+ Aristocratic ethic of debt: zero-sum, structural inequality, social status hierarchy, double standard of rules (if your wealthy you need credit to show your wealth – repayment is not the main issue; whereas if you’re the serving, you’ll repay in kind/as soldier – dependence relationship)
	+ Capitalist ethic of debt: Since credit was essential to production, it could no longer be regarded as a sign of prodigality and sloth; economic interest, not honor, motivated the creditors to whom distant debts were assigned; the capitalist ethos generated a powerful rationale for laws enabling voluntary bankruptcy

## A legal theory of finance

* Financial systems, i.e. systems that mobilize capital today for future returns
* Finance is legally constructed; it does not stand outside the law. Financial assets are contracts the value of which depends in large part on their legal vindication
* The "inherent" hierarchy of money is deconstructed as being in important aspects institutionally determined
* Entities that engage in maturity transformation, i.e. banks, are widely held to be vulnerable to crises. They finance long-term commitments with short-term funds that can be withdrawn on demand. The vulnerability of financial markets to such bank runs has found a regulatory response in the form of deposit insurance.
* Financial innovation has made possible the splitting of credit, default and interest rate risk; prior to the global crisis it was widely believed that this kind of risk diversification had ushered in a period of ‘‘great moderation’’, where instability was contained
* Market actors are more concerned with relative, not absolute value of commodities
* In a market-based credit system that is largely reliant on ‘‘Ponzi-finance’’ the distinction between speculators and other market participants becomes less tenable.
* For a crisis to occur uncertainty must meet liquidity shortage: The likelihood of such an extreme scenario depends on how many investors will have to seek refinancing at the same time; the number will be higher the more investors have built their strategies on the ability to refinance on demand.
* The most important stylized facts of contemporary finance, both national and global, are

1. that financial assets are legally constructed
2. that law contributes to finance’s instability
3. that there is a pecking order of the means of pay, which implies that finance is inherently hierarchical
4. that the binding nature of legal and contractual commitments tends to be inversely related to the hierarchy of finance: Law tends to be binding on the periphery and relatively more elastic at the apex of the financial system

* Examples of publicly issued financial instruments are the officially designated state money, or legal tender, as well as sovereign debt contracts. Sovereign debt may be issued under domestic or foreign law and may be denominated in domestic or foreign currency. When the sovereign issues debt under its own laws, it can escape legal obligation by changing those very laws. Still, financiers have successfully sued even their own sovereigns for default as early as the seventeenth century in England
* For all these financial products to develop, contractual practices had to be standardized to ensure scalability and investors needed reasonable assurance that these instruments would withstand legal scrutiny by regulators and courts in countries where they were issued, held and traded
* An additional layer of interdependence is created by the fact that many IOUs explicitly reference other assets or IOUs.
* If all enforce their rights at the same time, however, a system built around maturity mismatch must collapse. Deposit insurance is one way to mitigate against this risk, but because of moral hazard concerns is limited to regulated banks. Market-based solutions protect individual parties against future events through insurance devices; they tend to operate in a pro-cyclical fashion and can therefore exacerbate rather than mitigate the system’s instability.
* In normal times most financial instruments appear as close substitutes to official or state money in the sense that they can easily be bought and sold for one another or for cash. However, when too many investors seek to change their portfolio of assets at the same time, some assets will no longer find takers as investors flee to safety: They buy cash or close cash substitutes, such as reputable corporate or government bonds. This implies that finance is not flat, but hierarchical
* Private parties as emergency lenders or dealers in times of crisis are questionable. They can assume this role only up to the point where their own survival is at stake. This implies that in the last instance the only true lender or dealer of last resort is an agent with unlimited supplies of high-powered money (Mehrling, 2011).9 Only few actors can assume this role: Sovereigns (or their central banks) that control their own currency and who issue most of their debt in that currency. The global crisis demonstrated that Ireland, for example, lacked these attributes. The lack of its own currency undermined its ability to stabilize finance by socializing private debt.
* There is thus a clear hierarchy in global finance, which is mirrored in the organization of foreign exchange markets. The dollar is the currency against which all other currencies in FX markets are compared. All other ‘‘major’’ currencies are valued in dollars before they are compared to one another. It is also the currency for which there is the highest demand in times of crisis irrespective of weaknesses in the performance of the US economy
* Domestic financial markets are also hierarchical. Liquidity provision is hierarchical because first primary dealers authorized to acquire US treasuries at the New York Fed’s open market desk are bailed out. Then second to special purpose vehicles of major banks; then intermediaries with exposure to asset-backed commercial paper of non-financials (among them, again, money market funds) and last intermediaries investing in asset-backed consumer loans. The sequence of Fed actions reflects its primary concern with ensuring the proper functioning of the apex of the system, namely the funding of the sovereign, followed by the funding of intermediaries that fund the sovereign, followed by the funding of their counterparties → one’s location in the hierarchical system has important implications for one’s legal treatment in times of crisis and beyond.
* Laws are, however, elastic. The elasticity of law can be defined as the probability that ex ante legal commitments will be relaxed or suspended in the future. In general, law tends to be relatively elastic at the system’s apex, but inelastic on its periphery
* An important purpose of financial innovation is to alleviate the costs of regulation by, for example, freeing capital from reserve requirements and making it available for lending purposes
* The Basel Accords, which are said to have created incentives for the extensive use of off-balance sheet accounting and structured finance to free up regulatory capital
* The countries at the top of the global hierarchy owe their position to historical contingencies, for example as winners of world wars (the US) or beneficiaries of cold wars (Germany). Where one is located in the hierarchy matters for one’s survival constraint. Those at the very apex of the system exercise discretionary powers in times of crisis over whether to intervene and whom to rescue, and those sufficiently close to the apex are more likely to benefit from the relaxation or suspension of ex ante legal commitments than those on the periphery.
* Law matters for the position of different actors within the hierarchy. Whether housing loans are structured as recourse or non-recourse loans determines the distribution of losses between borrowers and lenders (recourse debt = backed by collateral from the borrower; allows the lender to collect from the debtor's assets in the case of default as opposed to foreclosing on a particular property or asset as with a home loan or auto loan)
* On rule of law grounds such differential application of the law is objectionable. Yet, in the context of a highly instable financial system, the elasticity of law has proved time and again critical for avoiding a complete financial meltdown. This was the most important lesson drawn from the Great Depression, when the Fed’s refusal to buy anything but those assets that had been enumerated in law contributed to collapse
* Financial markets as

1. rule-bound systems: (even for shadow banking) the credibility and value of fungible financial contracts depends on the law authoritatively vindicating the rights and obligations of contractual parties; there is thus no deregulation, only the implicit delegation of rule making to other (non-state) entities with the understanding that in all other respects they enjoy the protection of the law. Example: the governance of the largest of all financial markets, the global foreign exchange market, has been delegated to a club-like informal coalition of market participants and public regulators
2. essentially hybrid: Financial systems are not state or market, private or public, but always and necessarily both; contemporary finance is based

on money as the legal tender, relies on the legal enforceability of private/private commitments and in the last instance depends on backstopping by a sovereign.

1. beset by the law–finance paradox: one the one hand, law as necessary enforceability, on the other, actual enforcement of contracts would bring down the system
2. power: where law is elastic decisions are not predetermined by legal rules but left to the discretion of "power wielders". Power can thus be defined as the differential relation to law. Where law is elastic power becomes salient. The critical questions are who exercises it, to whose benefit, how its exercise is legitimated and to whom the power wielders are held accountable; for countries on the periphery an unrelenting adherence to contractual commitments was deemed critical for their access to global capital markets

* Thus, law is central to finance in at least three respects: Law lends authority to the means of payment; it spurs regulatory pluralism by delegating rulemaking to different stakeholders and in doing so helps draw boundaries between different markets; and it vindicates financial instruments and other financial contracts. Further, law sets the stage for legal pluralism by determining which actors, activities and instruments to regulate and which to leave to private regulation.
* Law lends credibility and predictability to contracts, but under conditions of uncertainty this can turn into a source of financial instability
* As a credibility enhancing device law is critical for the expansion of finance from the apex into the periphery
* The costs and benefits of financial expansion are not equally distributed. Initially, actors at the apex and the periphery benefit from financial expansion; the former in the form of greater market share or higher profitability, the latter from improved access to affordable credit. However, in times of crisis the periphery is more likely to face the full force of the law generating higher default risks and greater economic stress.
* The survival of the system is determined at its apex. Those entities (states or intermediaries) in greater proximity to the apex are therefore more likely to benefit from a relaxation of the rules or a suspension of the full force of the law.
* **What is good or bad law, good or bad behavior may well differ when viewed from the perspective of individual actors or the system.**
* Contemporary finance can no longer rely on social relations to ensure compliance with promises made in the past. Large-scale markets are feasible only if commitments made by someone far afield can be enforced without any concern for the conditions under which those commitments were made
* These reforms, however, do not address the problem of the plurality of legal regimes – public and private – which under competitive pressure will be exploited by regulatory arbitrage.

## Philosophy of debt

* For Douglas, there are some obligations that are fake (if there was no due diligence)

### Language

* Distinguish different kinds of debt, e.g. life-debt for which payment can be acknowledged but never be settled
* Ought (duty) implies can - only that part of a debt that I also can possibly pay back is my duty
* Polemarchus believed that it was enough to appeal to the principle that kindness should repay kindness: lending something is a kindness, and so, in most circumstances, is returning it (except the neighbor who lent me the sword and would now kill people if I gave it back)
* While we sometimes treat owning and being owed as the same relation, there is a logical difference between them. To say that ‘I own a mower’ entails that there is some particular mower that I own. To say that ‘I am owed a mower’ does not entail this; at most it entails that somebody ought – ‘owes it’ – to give me any one of all the mowers acceptable as replacement for the one originally borrowed → the suppositio of ‘a mower’ is discrete in ‘I own a mower’ and confused or distributive in 'I am owed a mower'
* Your money in the bank is actually not something you 'own' but something the bank owes you. When you pay for something with your debit card, you transfer over the deposit – legally, the bank’s promise to pay – rather than cash. However, this distinction between owe and own is in the case of money irrelevant. Of course if there is a risk of the bank defaulting on the deposit then this is a clear basis for discriminating between owning and being owed
* Fraudulent conveyance: give someone a loan in the full knowledge that he won't be able to pay back/doesn't have the capacity to do so (different from his willingness!), thus only in order to get the collateral/assets
* Similarly, credit is only really a credit if the creditor also expects to be paid back, thus credit implies at least a past trust that the debtor will pay back. Thus, it is rational to demand past trust in the creditor as a necessary element in generating obligation but not to demand present trust
* Credit means belief and genuine belief involves the possession of sufficient reason to belief
* Credit ratings generate an ‘ought’ of prudence rather than of duty
* The social dimension of keeping one's promise in the form of debt is the social benefit that we derive collectively from living in a society that honors obligations → the institution of debt is of social benefit to all of us. It allows us the convenience of entering into mutually profitable arrangements with relative strangers.
* Moral injunctions are not addressed to one as a specific person in a particular situation. Rather, they are addressed to one as something more general: as an abstractly defined rational agent, as Kant might have it, or as a human being, as Anscombe herself would have it.
* To say that one ought to keep one’s promises or honour one’s debts is to say that keeping promises or honouring debts are good things for humans to do in general.
* The necessity of the institution of promising, as she sees it, grounds an obligation upon society as a whole not only to keep promises but also to make them in the fi rst place. The reason we ought to keep promises is because if we do not do so we weaken the institution of promising, but we need the institution of promising in order to get each other to do things without violent coercion.
* Repaying one's debt rests on a set of claims about the role that paying one’s debts plays in supporting an institution and the role of that institution in helping us to ‘attain the goods of common life’.

### History

* The claim now under discussion is that one should pay one’s debts so as to support the institution of debt and thus preserve certain vital social goods. The key questions are (i) whether the institution is necessary and sufficient to preserve those social goods and (ii) whether always paying one’s debts is the best way to support the institution.
* The arrangement (of 'I help you today, you promise to help me tomorrow) makes sense only within a certain kind of society. For instance, for there to be my corn and your corn, there must be an institution of private property. Moreover, it shouldn’t be the case that, by rule of common custom, neighbours are simply expected to help each other in times of need, since then mutual aid would be guaranteed by common custom rather than through private debt contracts
* The grounding of a moral argument is ultimately in facts about human life. On Anscombe's account, answering to human needs is what morality is about on her view.
* On the other hand, if I follow up Hume’s reply with the question: ‘why am I morally obliged do what is required for this kind of society to exist?’, Hume would be on much weaker ground in replying that morality is simply about doing what this kind of society requires. There are societies, after all, in which there is nothing like our institution of private property, and where neighbours help each other as a matter of social responsibility rather than private contract
* Hume is thinking of a large modern state, in which citizens are strangers and the bonds that hold society together must be those formed upon the recognition that private and public interests align
* Each failure of repayment makes it less likely that people will, in general, lend in the future, and lending is generally a positive, perhaps a necessary thing for humans to be able to do
* Aristotle on usury (lending for profit; or as the term was later watered-down 'lending for excessive profit'): The trade of the petty usurer is hated with most reason: it makes a profit from currency itself, instead of making it from the process which currency was meant to serve.
* So long as the economy as a whole produces enough surplus to cover the interest payments, this is unproblematic. But if the interest charges pile up faster than the economy can produce enough to pay, debtors must either go deeper into debt to service their existing debt or begin handing over their own resources to their creditors as collateral. This can lead to debt deflation:
* Debt deflation, defined roughly as a situation in which debt grows faster than the processes generating the income to pay it; a situation in which the collateral used to secure a loan (or another form of debt) decreases in value. A more specific form of debt deflation is where this effect is brought about primarily because the cost of debt service itself slows down the rate at which income to pay debt accumulates.
* The problem is that at no time in history has output grown at sustained rates approaching the 33-1/3% rate of interest charged for agricultural loans, or even the 20% commercial rate’. Thus the inevitable result of this arrangement was that the value of interest due on loans grew at a much faster rate than output. Agricultural debtors, finding themselves unable to pay, had to turn over collateral – crops, land, jewellery, homes, and family members: ‘A frequent practice was for debtors to pay interest by pledging their family members as bondservants to work for their creditors. This tragedy typifies the way in which usury operated as a social instrument for about two millennia.
* In ancient times (Mesopotamia), the typical agricultural debtors did not go into debt because they chose to consume beyond their means. Rather, they were forced to turn to the usurers, by bad harvests (‘the earth’), damage done by marauders, or the raising of taxes (‘the king’s tribute’)
* One might say that the institution of usury is what allowed kings to extract tribute, excused them from having to give aid to farmers suffering bad harvests, released them from the obligation to protect farmers from marauders, and so on, without facing the threat of revolution. The system only worked insofar as debt jubilees, ‘Clean Slates’, were regularly declared by incoming rulers, out of fear that unbearable debts would otherwise provoke revolution and destroy the social order. Thus if history shows that the institution of usury was socially necessary, it also shows that its periodic abolition was equally necessary. Put differently, the ancient system of usury survived only when rulers would declare periodic debt jubilees.
* Distinguish two possible sources of interest payments/ways to 'make' money (although the second is not about making but about moving around):
	+ Productive: an increase in real production that the loan helps to bring about → a net increase in the volume of goods produced.
	+ Extractive: from no new production at all but rather extracted from the savings, the labour, and even the families of the debtor → the profit ‘made’ by the creditor is transferred from the debtor’s existing wealth rather than funded from a new income stream generated by the debt.
* Extractive lending has the very opposite effect of productive usury. It transfers wealth from those who have the best uses for it – who need it the most – to those who need it less – who are wealthy already
* It is always a moral question whether, when extractive lending occurs, this is the fault of the debtor, the creditor, both, or neither. But it is a purely historical question how often extractive lending occurs, and the evidence indicates that it occurs very often
* Interest accumulates whether or not there is corresponding production by ‘natural forces’. It accumulates at the rate that is set, not at the rate at which the soil and other sources of real production are able to work.
* If debts accumulate faster than production, debtors can end up owing interest that they can’t produce enough surplus to pay. If this happens frequently enough, goods and then slaves will be concentrated more and more into the hands of creditors.
* When the Romans took over the Greek institution of debt, they stopped making the periodic debt annulments that kept the accumulation of debts within the capacity of natural production. The result was a total collapse of their socio-economic order
* What history shows is that the (debt) institution can begin by serving a certain purpose yet can at times tend towards a different result or even opposing purpose
* Lenders must keep finding new opportunities to lend. If they run out of productive opportunities, they turn to extractive ones. If such opportunities don’t exist, they can use their wealth and influence to create them. As a crude example, they might bribe the rulers into ceasing to provide a vital service for free.
* One might, along the latter lines, propose that the institution of usury can be justifi ed insofar as lending is generally restricted to productive investment
* One characteristic feature of feudalism is the restriction of entry into industry to a privileged group (guild, a royally guaranteed monopoly etc)
* The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own.’
* On Turgot's account, debt contracts must be enforced, lest creditors be discouraged from making them in the future; creditors ought not to be discouraged, since such contracts are on the whole of great social benefit
* The proper question is not whether such contracts ought to be allowed but rather why they must be honoured.
* According to Bentham, rates of interest are set proportionately to the perceived risk of the debtor’s defaulting
* Bentham’s defence of usury, no less than that of Turgot, highlights the net economic benefit that comes from it. Neither thinker binds himself exclusively to the argument that people have the right to make and have enforced whatever contracts they like.After all, the existence of a contract (e.g. slavery) does not justify its enforcement
* Again, from the fact that an institution generally defined is good it does not follow that every characteristic permutation of that institution is good.
* Distinguish voluntary from involuntary - the kinds of debts referred to in the Bible were usually forced debts, debts that people had to take on due to events beyond their control.
* In these cases the options for the debtors were to take on debt at whatever rate of interest offered or to face starvation. Clearly the interest rates decided upon in such circumstances would have nothing to do with the risk of default. The lender, if unburdened by conscience, could readily charge a rate much higher than the helpless debtor could hope to pay and thus acquire not only all the debtor’s possessions but also perhaps a whole family of debt slaves
* Bentham's argument that the poor would starve otherwise (so either accept high interest rates or die) assumes that there is no other option for helping the poor than to force them into loans that will, in the long run, only end up impoverishing them further. It also overlooks the possibility that if it weren’t for the stopgap option of lending moral pressure might force those in power to take more direct measures for the relief of extreme poverty.
* Unlike misfortunes, forced debt can also originate in tax (i.e. people taking out loans to pay tax): It was common for the interest charged on sovereign debts to outrun the productive capacity of the taxpaying citizenry to service it, especially since wars tended to destroy more productive capacity than they produced. Thus, high taxes were common for the sovereign to pay the interest on national war debt.
* The war debts of Britain not only arose from non-productive lending (lending for war rather than production); they also made it more difficult to secure productive lending. Finding it harder to secure productive investment, merchants experienced a fall in income, which made it more difficult for them to pay the taxes the government levied to pay its debt
* The tax burden imposed upon people to service the public debt forced them to go into private debt to meet their daily expenses!
* Debt as a total institution could hardly be said to be unambiguously of net social benefit
* Saint-Simon, for his part, advocated that public debt always supplied suffi cient productive capacity to generate a means of paying it (i.e. credit as productive)
* The equity financer takes all the risk if a venture fails and requires a high rate of interest to compensate for that risk. Banks as agents can make sure that creditors get repaid even when ventures go bad, mostly by using their large-scale profi t margins and range of credit lines to absorb the risks
* One could argue that Marx’s ‘subordination of interest-bearing capital to the conditions and requirements of the capitalist mode of production’ has not lasted. In the United Kingdom only a very small percentage of bank lending supports new production. Lord Adair Turner estimates that ‘no more than 15% of lending by the UK banking system is funding the “new investment projects” [i.e. investment in new production] on which theoretical descriptions of banking systems still tend to concentrate’.
* Very little of the trillion pounds [of debt] that banks created between 2000–2007 went to businesses outside of the financial sector (31% went to residential property, 20% went into commercial real estate such as office building, 32% went to the financial sector, 8% to businesses outside finance, 8% to credit cards and personal loans)
* The age of industrial credit, in which credit is directed in order to maximise increases in productive capacity, is coming to an end
* Thus, the concept of usury we commonly use views credit as lending of idle money to those who have *good* uses for it
* There are better things to do with one’s savings than to let them lie idle. But there are also worse things to do with them. The intuitive appeal of the Hume–Anscombe argument lies in the obvious truth that it is better for something to be borrowed and used than it is for it to go to waste. But this is only half the story. Things are better used than wasted, but they are better wasted than abused
* The historical evidence suggests that the same institution that allows genuine debt – usury – usually also allows also for false debt and fraudulent conveyance. We cannot simply cite the virtues of usury and then use them to justify an institution that can also permit abusury

### Money

* Distinguish between the essential function of money – that without which it would not be money – and such functions as it has in virtue of being money but which are not what make it to be money
* Is it the ability to facilitate exchange that makes money what it is? Or is possessing this ability merely a property typical of money – part of its nominal essence (rather than its real essence)?
* Facilitating exchange, we must conclude, is something that money can do in virtue of being money but not what makes it to be money as such. It is part of money’s nominal essence, not its real essence.
* However deep we dig, we won’t find anything besides facts about people’s beliefs concerning other people’s beliefs – about what they will accept. The reason I want money is because I realize that many other people want it, and hence it is readily exchangeable for other things I want. Its wide acceptability depends, paradoxically, upon its wide acceptability
* Money has all its value in exchange and none of it in use
* It is structurally similar to just about the only viable theory of how words have their meanings
* In the Smith–Menger story, societies begin with barter and then use money as a medium of exchange to overcome inconveniences, primarily the double coincidence problem (i.e. finding someone who hand wants my fish and who at the same time sells eggs)
* As soon as we enquire into the origins and not the persistence of an institution (be it money, language, or something else) we cannot presuppose the existence of what we are to explain; in the case of money, it is therefore inadmissible to posit an explanation which states that people use money because everybody else uses it.
* A theory that explains what some existing thing is (money) should not be accepted at all if it entails that the thing could not have possibly come about
* There is no evidence whatsoever that a barter society, in which goods are primarily distributed by instantaneous spot-exchanges, has ever existed. While barter has not been entirely unknown in non-monetary societies, it has never been a quantitatively important or dominant model of transaction in any past or present economic system about which we have hard information. The most common cases of barter occur where people who were used to using money are deprived of it, as in periods of hyperinflation or prisoner of war camps.
* Moreover, there are known ways to overcome the double coincidence problem without selecting a commodity to serve as money (e.g. in the ‘gift economies’)
* It seems likely that those who suppose the origins of money to lie in the selection of a single commodity to function as a medium of exchange and a unit of account are making the mistake of imagining what they would do without money and then supposing that this must be what communities without money do
* Rather than commodity money being the original money, and credit just a means of spending it in advance of actual physical possession of it, credit itself appears to have been the original form of money. Credit on its own is sufficient to solve the problem of the double coincidence of wants.
* Primitive currencies’ of this sort are only rarely used to buy and sell things, and even when they are, never primarily to buy and sell everyday items such as chickens or eggs or shoes or potatoes. Rather than being employed to acquire things, they are mainly used to rearrange relations between people.
* It is in the legal codes of various societies where we find the earliest records of relative prices
* When the King would call in all the coins for re-minting, commerce went on because commerce was conducted through credit, with coins as the accounting unit in which debts were measured rather than as the concrete medium of exchange.
* The medium of exchange is not a special commodity. It consists of the IOUs of various debtors, denominated in an agreed unit of account.
* Money is not and never has been a commodity, nor is it based on a commodity. Instead money is a social construct – a social relationship based primarily and ultimately on trust
* Anyone can create money; the problem is to get it accepted. If there are as many types of money as there are debtors, and if one type of money dominates all the others, then one debtor must dominate all the others
* What matters is one’s ability to get it accepted. The government has an extraordinary ability to do so, since it can impose a tax payable only in the IOUs it issues. But the private banks clearly have an ability exceeding that of other private agents: bank deposits are used as means of payment to a vast extent – to a much greater extent,
* A government produces nothing for sale, and owns little or no property; of what value, then, are these tallies to the creditors of the government? The government by law obliges certain selected persons to become its debtors by paying taxes. The government buys things on credit, issuing its credit notices in exchange for real goods. The credit notices are passed around in further exchanges until they end up with somebody who owes the government money in taxes, which the government simply demands on pain of punishment. When this person presents the government’s IOU back to the government, its debt, represented on the IOU, and her debt (arrears on taxes) simply cancel each other out.
* The value of the government’s IOUs are limited only by its ability to impose a tax debt upon citizens by force.
* A liability is a promise to pay some value in the future, but (after the breakdown of the Gold standard) the Bank of England is not required to give anything of value to holders of bank notes. Thus, the reality is that Bank of England notes – cash – are ultimately backed by the government’s ability to tax, rather than by a commodity like gold
* While anyone can create money by issuing IOUs, the government can guarantee the acceptance of its own IOUs by demanding them back for tax payments (i.e. the government has special power to create opposing tax debts). The state can also ensure that people will want to take its money, by demanding that same money back for tax payments. Even those upon whom the tax burden does not directly fall will desire the money, since they know it will be accepted in payment by those who do need it for their taxes.
* We should not let the historically contingent convention of precious metal coinage in the Western world mislead us into supposing that money’s value derives from the value of its medium rather than from the debt obligation it represents and its corresponding power to settle opposing debts.
* It is a peculiarity of financial assets in general, not just of government currency, that they can possess value simply in virtue of their being accepted to cancel opposing liabilities.
* We need to do whatever the government requires us to do in exchange for those IOUs, and we need to accept whatever the government provides in redemption for those IOUs. A private bank works somewhat like a government that cannot coerce its tax payments.
* Whenever a bank issues an IOU, creating a deposit, it also receives an IOU from the borrower. When the car company borrows from the bank, the bank issues a new deposit listed as a liability, a debt, on its balance sheet. But the car company also issues an IOU, a promise to pay back the bank, which is recorded as an asset, a credit, on the bank’s balance sheet.
* Gold-backed paper money is accepted for payments even if nobody redeems the notes for gold, since the notes themselves are required to settle tax debts. Similarly, currency-backed bank deposits are accepted as payment even if nobody converts them to cash, since the deposits themselves are required by the bank’s debtors, in order to pay down their debt. Like the government, the banks guarantee acceptability for their IOUs, records of debt from themselves to others by accepting them as means of settling debts to themselves from others. It is in this sense that banks can create money. They cannot create currency – the IOUs of the government. But they can create what is known sometimes as ‘inside money’, which has a similar structure to government IOUs.
* Most people’s wages are paid in bank deposits; most people make their purchases using bank deposits; many private debts are settled using bank deposits
* Money is something that comes in degrees: an IOU is money to the degree that its issuer can get it accepted
* Banks have a wide variety of credit lines upon which they can draw in order to honour their liabilities to other banks and depositors. They can temporarily borrow reserves from other banks on the interbank market. They can borrow directly from the central bank (though at a penalty rate). Banks also maintain equity buffers whose value they can run down in order to protect themselves from insolvency if necessary. Yet the greatest protection for the banks is sheer scale. The scale of their profi table lending operations is so vast that they can always cover small losses from loans going bad using their own capital or through short-term loans.
* Money is made up of bank deposits – which are essentially IOUs from commercial banks to households and companies – and currency –mostly IOUs from the central bank. Of the two types of broad money, bank deposits make up the vast majority – 97% of the amount currently in circulation
* What makes the banks special is not that they can create money; it is rather how widely accepted their money is.
* The capacity to absorb losses from defaults and bankruptcies is what allowed the Eastern banks, and eventually all the major banks, to issue IOUs of such universal acceptability as to be indistinguishable from currency as a means of payment
* Another advantage to the banks is their access to a single payments system. Today anyone can pay with one’s own bank deposits, into any account at any bank, for instance by paying with a debit card. This is largely because the banks jointly administer a single payments system, going into debt with each other as necessary to clear payments
* People would pay with notes of their own bank and deposit into their own bank notes they received from clients of other banks. As a result, banks would build up reserves of other banks’ notes and would have to arrange to swap the notes back. This was an expensive and risky process, and the expense was passed on to the banks’ customers
* For something to function as a currency it must avoid becoming a target for speculation. Bank deposits manage to achieve this by being anchored to currency, although in this respect they are no different from any other IOU denominated in the social unit of account, i.e., currency (ordinary bonds, for instance)
* The government can consistently issue more IOUs than it claims back in taxes. This is known as the government’s ‘deficit’. Banks cannot do this for long. The reason for this is simple: banks run a fixed exchange-rate system for their own IOUs.
* The banks, we have seen, are limited in their issuance of deposits, or at least dependent on the central bank, because of their fixed exchange rate system. They peg their own IOUs to currency, which they do not issue, at par.
* The Hong Kong government pegs its currency to a foreign currency – the US Dollar. Thus it is constrained in how much currency it can issue by how many USD it has and how much it can depend on the United States to lend it dollars if necessary. The countries of the Eurozone are effectively on a fixed exchange rate system with the European Central Bank. But the governments of the United States, the United Kingdom, Japan, and any other country that operates a fl oating foreign exchange rate system are entirely unconstrained in the volume of currency they can issue.
* The government cannot become insolvent. It cannot go bankrupt. It cannot run out of whatever it promises to honour its IOUs, for it promises nothing besides more IOUs.
* To apply the term ‘debt’ to the issuance of IOUs by a government that operates a floating exchange rate system is to stretch the sense very far indeed.
* Governments with a sovereign currency cannot become insolvent or run out of money. A bank can run out of currency, and it is required by law to deliver currency in exchange for its deposits on request. A state can promise to deliver something for its currency, and it can bind itself by law to this effect. But in the end, it makes the laws and can repeal them whenever it wants. It can enter into international agreements to peg its currency. But it can also exit those agreements. That is what sovereignty means, and every sovereign government possesses a degree of currency sovereignty, whether it chooses to exercise it or not
* In summary, the two dominant forms of IOUs that function almost exclusively as money in the modern system are, we have seen, currency (government IOUs, or central bank IOUs that are really ultimately government IOUs) and bank deposits (private bank IOUs). We have also seen that the latter depend very much on the former, to which their value is pegged.

### Political Economy

* Money is important as more than just a medium of exchange and, second, that it is important precisely because it supplies a motive to the capitalist producer besides that of mere consumption.
* What Keynes called a monetary theory of production; a theory of this kind was also sought in the work of Marx and Thorstein Veblen, among others. Such a theory proposes to explain production in terms of the desire of capitalists to accumulate money
* As Veblen puts: The production of goods and services is carried on for gain, and the output of goods is controlled by business men with a view to gain. Commonly, in ordinary routine business, the gains come from this output of goods and services. By sale of the output the business man in industry ‘realizes’ his gains. To ‘realize’ means to convert saleable goods into money values...The vital point of production with him is the vendability of the output, its convertability into money values, and not its serviceability for the needs of mankind. → The capitalist may well be forced by a competitive market to produce goods that serve the needs of humankind. But she undertakes production to make money, not to serve humanity.
* Capitalists will not produce anything unless there is money to be made by doing so. What determines whether production is undertaken at all is the availability of money for accumulation, not the needs of society, and not the availability of resources for the provision for those needs
* **If governments and banks fail to issue a growing number of IOUs – if, that is, they fail to emit new debt – then net accumulation is impossible and production will not expand. Again, this is not to deny that markets and the other mechanisms examined by economists determine what gets produced. But it is debt that allows anything new to be produced. Debt is the motor; markets, bargaining, and government action are the steer**
* If the emission of debt is required in order to make people produce what we need, again without violent coercion, then there is an obligation both to honour debts, so that the emission of debt continues to work as it should, and also to emit the debt in the first place
* If productive capitalists, on the whole, accumulate IOUs, then it is necessary for the system as a whole to be capable of emitting more IOUs than it redeems.
* If due to some exogenous shock the affordability of debt is reduced, a form of debt deflation occurs: the diversion of the monetary surplus into debt service creates a domino effect of falling incomes and reduced production. If the dominos loop back to the debtor herself she may find her own debt-to-income ratio even worse than it was before she started paying down the debt. The ultimate result of this is that lending becomes extractive rather than productive (because I will have to skip my meals to pay back the loan - the restaurant makes less profit)
* The loss then also falls on the government (the restaurant now pays less income taxes). If many loans go bad at once, many businesses and households will lose income at once, and the total income tax revenue of the government will fall. At the same time, the government will be limited in how much it can reduce its spending. New spending will be necessary as people are laid off and those unable to immediately find new work begin claiming unemployment benefits. Those who used to pay more for privately provided services may be driven by a loss of income to increase their claims on government services
* For instance, by the end of fiscal 2007, pre-crisis, the US federal deficit was around 1.1%; shortly after the crisis it had risen to close to 9.8%, largely as a result of a fall in tax revenues and an increase in non-discretionary spending (spending that the government cannot avoid without significantly changing the laws)!!
* When a banking crisis drives down incomes in the way described above, there will be plenty of demand for government IOUs, even at zero interest
* When a government deficit spends, it simply issues money; it instructs its central bank to electronically credit the account of the recipient of the spending by a certain amount – also crediting the reserves of the recipient’s bank. It then auctions off interest-paying bonds worth the same as the newly created money. The government has not net borrowed anything; it has issued one sort of IOU – currency – and then swapped it for another interest-bearing IOU – the bond. To pay currency for a government bond is only to ‘lend’ back to the government its own IOU and take another IOU to replace it.
* When the government sells a bond, it spends the money the bondholder paid to buy the bond. This is why we say that the bondholder has ‘loaned the government money’. But the bondholder retains the power to spend the money in the bond. Thus the case is nothing like where I borrow a hammer from a neighbour. The IOU I leave with the neighbour cannot itself be used as a hammer. But when the government ‘borrows’ the bondholder’s money, it leaves her with a bond that is itself money in every important respect – another government IOU just as currency is. → **in doing what we call ‘borrowing’ money, the government has actually created money: the money paid for the bond is still there, and the bond, money in its own right, has been created and handed to the bondholder**
* A U.S. Treasury security is nothing more than a savings account (i.e. not a current account which you can debit on demand) at the Fed. When the U.S. government does what’s called “borrowing money,” all it does is move funds from checking accounts at the Fed to savings accounts
* The question remains why the government should sell bonds to offset its deficit spending instead of just issuing new currency. The answer is that central banks are required to maintain a target interest rate. If the government simply issued new reserves into private bank accounts to pay for its spending this would effectively reduce the private banks’ demand for savings and thus drive down the interest rates they paid on those savings. Thus government bonds must be sold, draining out the excess reserves into what are, we have seen, effectively interest-bearing savings accounts. The interest rate on bonds then becomes the benchmark with which the banks have to compete when offering their own savings vehicles. And in order to afford these interest payments, the banks must in turn charge a higher rate of interest to their debtors. In this way the central bank can maintain interest rates where it wants them.
* One of the genuine concerns about government deficit is that since the demand for government IOUs is ultimately based on their necessity for tax payments, if the government runs a deficit too big for the savings desires and debt-repayment needs of the population, then the demand for the government’s currency will fall (i.e. inflation)
* The explanation for the value of currency: it is generally desired, hence accepted in payment, because it is required for tax payments to the very body that issues it
* The inflationist government imposes a future cost on its citizens – either a future tax to control the inflation or an indirect cost through the fall in value of their savings or growth in the value of their debts.
* If the government continues spending more than it taxes, issuing more bonds to pay interest on its outstanding bonds, and if the interest rate rises above the central bank’s chosen target, then the central bank will issue reserves to buy bonds off the market until the rate returns to the desired level.
* The risks that accrue to continued deficit spending thus include neither default nor out-of-control interest rates, so long as the central bank pursues a consistent policy. → The main real risk is that if the government increases the amount of money it issues without increasing the amount it taxes, or at a faster rate than it increases the latter, then the value of the currency may fall, and this must impose a cost upon users of that currency in the future.
* Yet issuing new money does not, although some would have us forget this, always cause inflation. Again, we must remember the monetary theory of production. Production is driven by the desire of capitalists to accumulate money. If the government’s deficit – the net amount of IOUs it issues per period – simply supplies what capitalists wish to accumulate by selling their product, the result will not be inflation. Thus the effect of a government deficit on prices is not straightforward. As ever, it depends in part on whether the spending is usurious or abusurious; whether it leads to higher production and thus to greater accumulation (we have seen that the two are linked), or whether it leads merely to more money being spent on the same volume of production and thus to inflation.
* According to the monetary theory of production, production occurs only when capitalists believe it possible to accumulate money. This is possible when the banking sector is steadily issuing new IOUs and not claiming them back in repayment. But we have seen that banks need eventually to claim back all the IOUs they have issued, otherwise they become insolvent: this is because they operate a fixed exchange rate with the government’s currency, and it makes them unlike the government itself unless the latter chooses to operate a fixed exchange rate of its own. If capitalist accumulation is driven by banks issuing more IOUs than they reclaim, the eventual result will be a banking crisis: many banks will find themselves insolvent
* This means that instead of causing inflation by being used to bid up prices of goods, new money issued by the government would be mostly used to pay down debts, to buy up otherwise unsold inventories, to utilise otherwise unutilised resources, to hire otherwise unemployed workers, and so on. None of this will cause inflation; the government, by creating money, is simply filling the hole in society’s spending power left by the banks when they slowed down their productive lending
* Political journalists, politicians, economists, and other pundits continue to speak as if the size of a government’s deficit were itself to be feared. Yet if a government is running a large deficit and prices are not going up, this can only mean that the excess of currency issued by the government and not claimed back in taxes is being accumulated and held by private citizens. If they did not want to hold those savings, they would spend them, and we would know that this was happening from the increase in prices thus brought about. If prices are not increasing, the government’s deficit is simply supplying the desired savings of private citizens. Pundits will speak of the government being cripplingly indebted, but to whom is it indebted? The citizens who hold its IOUs are legally owed nothing but more of its IOUs. If they decide to spend those IOUs, these will circulate and bid up prices; all the government then needs to do to stabilise prices is claim back the excess IOUs by raising taxes or issue fewer IOUs by reducing spending.
* The government can issue debt – that is, issue money. It can claim back its debt by calling in tax debts to itself. We can even speak of the government being ‘in debt’ – the degree to which it is in debt corresponds perfectly to the amount of money the population keeps after paying its taxes.
* It is the necessity of currency for tax payments that upholds its value.
* A general price increase will not meet a certain technical definition of ‘inflation’ unless new money is issued in order to pay these prices; i.e. price increases not accompanied by an increase in money do not count as inflation. However, not only the state can increase the quantity of money: banks can effectively force the central bank to issue more reserves by increasing their lending en masse.
* For the government to react to this sort of inflation (cartels, monopolies, trade unions manipulating the market price) by raising taxes, or by failing to issue enough money to make it possible for firms to sell everything they produce, for willing workers to be hired, and for debts to be paid down, seems to punish the wrong people. By raising taxes or interest rates by a sufficient increment, the government or central bank can probably always bring the average price level down regardless of what pushed it up in the first place. But usually this will work by driving wages down. A significant rise in interest rates will reduce investment; firms will look to cut costs, and workers will have to accept lower wages to keep their jobs. A sharp increase in tax rates will have much the same effect, curtailing consumption and investment, with the costs of reduced activity inevitably finding their way to low-wage workers in the most precarious positions
* While there can be short-term structural unemployment, and there may be other sources of long-term unemployment, sustained high levels of unemployment usually indicate a simple undersupply of money (high unemployment is a sure sign that the economy’s demand for money outruns supply.)
* The fact is that the government, in choosing the size of its deficit, must balance risks on both sides. If it issues too much money, relative to a given rate of desired accumulation, it will cause inflation and depreciation of its currency. If it issues too little, it will choke production off from the desired level. The effect may be obscured if the private banks temporarily supply monetary accumulation by overextending themselves: lending out more IOUs than they collect and thus setting up the conditions for a financial crisis. But again: they cannot consistently issue more IOUs than they reclaim in repayments without becoming insolvent. They run a fixed exchange rate system. Their IOUs are pegged to reserves. These they can borrow but not create.
* There is never any shortage of trust in a currency that people know they need for tax payments.
* The source of the misunderstanding is, I think, a deep-seated intuition, developed in the context of close-to-home cases, that overlending is a moral evil for which recession is the just punishment. But overlending is not a moral evil. Capitalism cannot produce without profits and accumulation, and these must be supplied by an agent issuing more IOUs than it claims back. I argue that the agent who does this should be the one that can do so without creating a financial crisis in the process.
* The government ought to issue more IOUs than it reclaims, if people wish to accumulate government IOUs rather than redeeming them. After all, if people want to e.g. frame the government cheques on the wall (i.e. accumulate), why should the government deprive them of the chance to do so by refusing to write more than it can cash? And if people are willing to undertake valuable productive activities in order to earn those framed trophies, why should the government deprive everybody of the benefit of those productive activities by begrudging them the trophies? If the government leaves its IOUs in short supply, people will resort to any manner of financial fraud to try to extract them from each other. This, by the way, is why the standard narrative that the recent financial crisis was caused by governments running deficits that were too large tells the very opposite of the truth.
* Government ‘borrowing’ money from a fixed supply of loanable funds. It is the government spending more than it takes back in taxes, which means issuing more money than it claims back. A government that issues money can hold up profits as it chooses (this is why government deficits can be inflationary)
* Fascism sprung up in Germany against a background of tremendous unemployment, and maintained itself in power through securing full employment while capitalist democracy failed to do so. The fight of the progressive forces for full employment is at the same time a way of preventing the recurrence of fascism

### Conclusion

* The Hume–Anscombe argument hangs on the premises that (i) honouring one’s debts is vital (generically if not in each specific case) for supporting the institution of debt, and (ii) the institution of debt is necessary for attaining the goods of common life. Premise (i) is plausibly applied to our modern system of debt; if borrowers did not generally pay back loans, creditors would not lend. A clear exception applies to the government, however, which can purchase real goods and services with IOUs that promise nothing at all, only because it demands those same IOUs back in tax payments
* Productive capitalism depends on the possibility of capitalists accumulating IOUs. And only governments are institutionally capable of running floating exchange rate systems and thus of consistently issuing more IOUs than they collect
* But if governments cannot be guaranteed to run productive deficits, this does not mean that the free market should be left to itself. It means that capitalism will not work
* Ensuring that government deficits come as needed is not all that must be done to make the institution of debt work for general social benefit. Private finance must be guaranteed to function in such a way as to minimise extractive lending and to maximise productive lending.
* No private bank can run a continued deficit without becoming insolvent. As long as the government taxes in its own currency, people will demand settlement in that currency, and so all private banks will have to peg their currency – deposits – to the government’s currency
* Without a currency sovereign, free to unpeg its currency and willing to run continued deficits, there is no possibility of sustainable monetary accumulation
* Why is this not more widely recognised? It is because the common concept of debt is so confused. Much of the confusion arises from the attempt to stretch our intuitions from close-to-home cases to far-from-home cases
* Debt is not always the same as duty. What one owes is not necessarily what one ought to pay. If a debt exceeds all reasonable hope of payment we might say the debtor ought to pay some portion of it, but then the amount that she ought to pay differs from the amount that she is recorded as owing. Thus debt is not straightforwardly equivalent to duty, although a debt in canonical cases generates an obligation. Some debts, such as government debts, ought not to be repaid in many cases; the IOUs should simply be left outstanding, in the hands of those who wish to hold them.
* Debt is not always usurious; it can also be abusurious. The best argument that debts ought to be repaid grounds the obligation upon the importance of maintaining faith – credit – in an institution that works for the common good. This argument is incomplete until some guarantee can be given that the institution will primarily facilitate sufficient lending of the productive kind and control lending of the extractive kind. This is why there was no injustice in the periodic debt cancellations of the Ancient World. If, as in the United States recently, the government refuses to punish and prevent systematic fraud within the banking sector, then the institution of debt has become extractive and to this extent the obligation to repay debts should vanish. Nobody is obliged to support an institution that has been allowed to become primarily abusive.
* When we ask why people should pay back their debts, we must ask the broader questions of how far this is necessary to support the institution of debt and how valuable this institution is.
* Capitalists accumulate money, not profit
* You cannot deduce social utility from economic utility
* The optimal Douglas pay-back-your-debt (i.e. usury) situation:
	+ If the system of debt is justified (i.e. debt is productive, there is an obligation to pay back)
	+ The government has the responsibility to fine-tune productivity and debt (i.e. no more debt than )
	+ Tax as a core feature of the debt system

## Public credit

* There was a broad significance of public credit for European state development:
* The ability to borrow was critical in medieval and early modern Europe because it allowed states to participate in wars, either defensive or offensive.
* The financial advantage of city-states depended on features of their representative institutions
* With the beginning of the Hundred Years War military spending increased dramatically such that for autonomous cities we have direct and extensive evidence that military spending constituted the most important item in budgets
* Much of the transition from obligatory military service to paid soldiers is attributable to technical developments
* For both territorial states and autonomous cities, the shift to paid military service led to fiscal changes designed to increase the funds available to public authorities.
* Autonomous cities developed a wide variety of taxes to finance their military spending, and while they sometimes did so by imposing direct taxes on their citizens, a common view is that indirect taxation of trade and common consumption goods was the most prominent source of revenue
* Given the difficulties in meeting extraordinary war needs with extraordinary taxation, all states had a very clear incentive to seek access to credit. Successful borrowing could raise large sums rapidly. Assuming loans would actually be repaid, war expenditures would ultimately need to be financed by taxation in the long run, but this could be achieved with less of a sharp, immediate, and painful increase in taxation for citizens than would otherwise be the case, and in a time frame that was administratively feasible.
* Ultimately, because borrowing was crucial in meeting the financial demands of war, it also had implications for the ability of different states to survive.
* The mercenary system was nowhere more fully developed than in the cities.
* Self-governing cities, on average, created long-term public debts earlier than territorial states.
* The French monarchy’s decision in 1522 to issue rentes via the municipality of Paris is traditionally seen as the founding date for France’s national debt.
* For the majority of city-states there is a record of long-term borrowing prior to 1400. For territorial states, we see that only Castile created a long-term debt before 1500, but after this point territorial states moved to create debts in rapid succession
* While Italian city-states like Genoa, Venice, and Florence are commonly seen as forerunners with regard to public debt, it was actually the system of municipal debt developed in northern Europe that would set the model for long-term government borrowing in Europe until the end of the nineteenth century
* During the thirteenth century Italian city-states converged on the use of forced loans as their primary financing instrument
* The ability of states to establish them at an early date and to obtain finance at relatively low cost depended on the perceived creditworthiness of these city-state governments
* The sixteenth century was a period of intensified warfare associated with the Habsburg attempt to establish supremacy in Europe. Governments therefore had an increased need for debt finance. The Habsburgs themselves established a public debt that, at least in absolute terms, was unprecedented in size, and Habsburg demand for war finance also stimulated innovation in public borrowing in dependent territories as far afield as the Kingdom of Naples and the Low Countries.
* Public credit was not only determined by state demand for it. The ability of governments to borrow also depended on supply considerations involving the presence of a pool of potential investors seeking the sort of fixed income stream provided by a perpetual or life annuity
* The fact that merchants held wealth that tended to be more liquid than that of landowners meant that when a government sought to borrow, merchants could shift wealth into an asset like public annuities more quickly
* Merchants who made their initial fortunes in risky activities like long-distance trade had an incentive, once established, to become rentiers—shifting part of their wealth into assets like public or private annuities that would provide a more regular source of income.
* The financial advantage of city-states depended on the structure of their representative institutions, but more fundamentally on the fact that these polities were small, and they tended to be dominated by merchants.
* Within city-states, representative bodies met frequently, they played a direct role in controlling government finance, and, crucially, they were often controlled by individuals who themselves invested in government annuities
* It was rare for assemblies in territorial states to meet frequently, and when they did meet, there is little evidence that state creditors enjoyed a prominent position within them. In some cases, representative assemblies were even an obstacle to a government’s efforts to obtain credit
* Historical accounts of representative assemblies in medieval Europe emphasize two causal mechanisms that led to the emergence of these bodies.
	+ The first involved spontaneous action by social groups seeking recognition from a prince. In a number of German principalities, nobles and leaders of towns formed confederations, or einungen, to protest against princely abuses of power. This led subsequently to the development of more regularized assemblies.
	+ The second involved efforts by princes to establish assemblies as a means of securing finance and obtaining support for foreign policy. Princes consented to have representative assemblies, and to hold them more frequently, when they were in a weak financial position, because they could best obtain new tax revenues with the support of a representative assembly
* The relatively closed group of merchants who controlled politics in many medieval city-states has often been referred as a “patriciate” by historians
* While those who owned public annuities benefited from knowing the state of public finances, information about levels of indebtedness (and the future tax burdens that it implied) could raise protests from broader social groups. These groups paid the taxes on common consumption goods, which were often the primary basis for servicing annuity obligations. When members of the broader population within city-states sought to acquire greater representation in municipal government, they often also demanded greater publicity regarding the state of municipal finances
* There is a long-standing historical argument that city-states tended to be dominated by mercantile interests while territorial states tended to be dominated by landed interests
* The constitutions of city-states often gave a fixed number of seats on the city council to merchants or patricians with remaining seats granted to representatives of craft guilds. Within city-states, in areas like Germany, the Low Countries, and Catalonia this was a subject of frequent contestation, as representatives of the craft guilds demanded greater representation on city councils that had previously been dominated by patrician elites
* In territorial states, representatives were either directly nominated by a monarch, or they were elected by a group of constituents.
* For city-states one can see a decline in average representation for merchants that corresponds to the period of the “democratic revolution.” However, the most salient feature here is the very large and persistent difference between the extent of merchant representation in city-states as opposed to that in territorial states.
* Members of representative assemblies were themselves prominent investors in public debt
* In the city of Dordrecht at the time of the Dutch revolt makes a similar point, finding that 34% of town magistrates and their family members were registered as public annuity purchasers → i.e. a relationship between political representation and debt ownership
* Merchants were frequently consulted by town councils even when they were not members.
* The disparity between frequent meetings of city-state assemblies and infrequent meetings of territorial states assemblies is strongly suggestive of an effect of geographic scale
* Interest payments became a sort of dividend payment (p. 118 "In 1339"). City-states were very good at taxing (e.g. consumption tax) - and taxes are directed at people who are not politically represented (i.e. the poor). The collateral for the oligarchs was their control rights over future taxing policy.
* The conclusion might be: if you make a state more representative, it becomes incapable of effective monitoring and thus less likely to get credit
* What does low interest rates represent: abundance of savings, a lot of trust/creditworthiness, low monitoring/information cost, low risk, low opportunities for profit, i.e. either a depression (collapse of trade & profitibality) or an extremely stable environment

## Behavioral economics

### Rationality

* Rational: people have preferences and base their choices on these preferences. When several options exist, a rational consumer will make a choice by considering the pros and cons of every option and then choosing the one that best reflects their preferences; a description of the process that people go through in order to make a choice. In this sense rational is not a judgement of the quality of the decision made; a rationally-chosen option does not have to be a ‘sensible’ or ‘good’ choice. A ‘bad’ choice, for example an investment decision that goes awry, can also be the result of a rational decision-making process.
* A rational decision-making process makes considerable demands on the time, attention, and cognitive abilities of the consumer.
* In its most basic form, Rational Choice Theory simply means that people have preferences and base their choices on these preferences. RTC does require the assumption, that people’s preferences are ‘stable’, that is to say, independent of the context within which a choice is made or of the way in which options are presented. Another assumption is that people are motivated to invest time and trouble into collecting and studying information on different options.

* A rational consumer is held to: a) pass through every step and omit none, b) pass through these steps in the correct order, and c) devote adequate time and attention to each step in order to arrive at the choice of product or service that is most appropriate to his or her preferences
* Our preferences are not stable, but strongly influenced by the way the different options are described, or by the presentation of a given choice as being a profit or a loss.
* Although it is a logical (and intuitive!) reaction to want to turn consumers into more rational, thoughtful decision-makers, behavioural scientists agree that this is not a realistic option in the short term.
* Moreover, the fact that we deviate from the rational choice path and instead make decisions on the basis of intuition is not, apparently, the result of the absence of a benchmark or standard. And by the same token, the provision of a benchmark will not turn consumers into more rational, thoughtful decision-makers
* In many real-world situations the amount of information and the number of choice options available exceed the motivation levels and cognitive capacities of people
* Herbert Simon's bounded rationality: Because there is a limit to the amount of information we can take in (the input), the choices we make (our output) are not always the right ones → we do our best, but the results do not always reflect this. Moreover, there are inter-individual differences. No-one makes perfectly rational choices, but some people make more rational choices than others
* Maximizing and satisficing are not two clearly demarcated categories, but rather, the ends of a single scale. People vary in the degree to which they tend towards one or other end of the scale. Although there is a clear difference in these two decision-making processes, it is unclear which of these two approaches delivers the ‘best’ choices; this is because the costs of searching for more options are not always outweighed by marginal advantages in the final choice
* 4 financial decision-making styles:
	+ self-controlled: the maximizer (look for lots of information, many alternatives, seek the best one)
	+ ambitious
	+ advice-dependent
	+ convenience-seeking
* Sometimes we are not rational because we make a conscious choice not to follow that path, but often because psychological factors influence us to stray from this path without realizing it.
* The central characteristic of agents is not that they reason poorly but that they often act intuitively. And the behaviour of these agents is not guided by what they are able to compute, but by what they happen to see at a given moment
* If heuristics systematically lead to incorrect appraisals or non-rational decisions, we speak of a bias
* Loss aversion helps to explain why house-owners are not keen to accept their losses when house prices are falling, even if the sale fully covers any outstanding mortgage. In the investment context, loss aversion is known because of the so-called disposition effect: people’s tendency to sell profitable shares too quickly and retain loss-making ones in the portfolio too long, in the hope of later making good the loss
* In assessing alternatives to the product we already possess (the status quo), we regard alternatives either as a loss (a worse product) or as a profit (a better product). Because the potential losses weigh more heavily on our minds than do the potential advantages, we are inclined to simply do nothing and to stick to what we already have. Behavioural scientists call this the status quo bias
* People turn out to be very susceptible to options that are presented as the default, and will often stick to these. A default here is a choice or setting that applies to you unless you take action to modify it
* Participation levels in a pension plan are significantly higher when participation is the default and action is required to not participate. For the same reason, many people stick to default contribution levels and stockholding choices
* People are often inert, they may perceive the default as an implicit recommendation
* Simply introducing a standardized product is not enough to make it the default. Whether or not an option is seen as the default depends largely on the presentation of the various option (i.e. look at the position that the standardized product occupies within the whole of the product supply)
	+ Is the standardized product always the first product shown during a comparison?
	+ Are the other products then described as a departure from the standard?
	+ Do consumers perceive the standardized product as an implicit or explicit recommendation?
	+ Is an advisor obliged to explain why he is recommending not the standard product, but another?
	+ Or are consumers obliged to buy a product, and do they get the standardized product unless they actively choose another?
* Anchor: use a reference point (which, however, may be entirely irrelevant to the choice). Interestingly, it may be unimportant whether a person is a maximizer or a satisficer: all the test subjects might be influenced by the anchors
* Present bias: over-discount the value of future reward and underestimate future costs.
* Consumers faced with too many alternatives suffer from so-called choice overload; they may make suboptimal choices, or they may give up altogether and make no choice at all
* With regard to investment decisions, for instance, many people turned out to feel overwhelmed if they had a great many options. This applied only to people with above-average financial knowledge; people with little financial knowledge always felt overwhelmed, no matter how many options were available
* People having a given expertise turn out to be less susceptible to the anchor effect, but only in their own professional area
* Overoptimism: people tend to underestimate the possibility that something unpleasant will happen to them. If people tend to underestimate the possibility that something unpleasant will happen to them (e.g. damage to their house, or disability), they will naturally be less inclined to insure themselves against the possibility. Unfortunately, those whose skills are the most limited are also the most susceptible to self-overestimation. Not only do they make bad decisions, they also lack the metacognitive abilities to realize it
* Social validation can also play a role in product underconsumption: if no-one in your environment is saving up for their old age, you may well come to the erroneous conclusion that you do not need to either.
* Confirmation bias: People have a preference for information that confirms their existing inclinations and expectations. Confirmation bias plays a role in seeking, assessing and remembering information. In collecting information we look automatically for that which confirms our expectations. The same applies to our assessment of this information: we need little evidence to feel that our existing preferences and expectations have been confirmed, but we need a lot of evidence before we are willing to change our minds about something. The stronger one’s preferences or expectations, the greater the strength of confirmation bias
* People also underestimate the effect of cumulative interest on their debts and savings
* Occasionally financial decisions concern subjects that many people would rather not think about at all, like disability and old age.
* The intertemporal aspect of many financial decisions is a complicating factor: people are being asked to do something now that costs money, and to accept that the benefits will come later, if at all
* With regard to financial products, learning from the past is limited: Most people sign a mortgage contract once or perhaps twice in their lives. The same applies to many other financial products, such as the decision to save or invest extra money towards a pension
* Investors hardly ever shop around (i.e. consider only one provider)
* The status quo bias makes people reluctant to make any changes at all. With regard to mortgages, this can mean that consumers stay with their existing mortgage lender for a new fixed-interest period, without making a conscious choice in the matter
* Putting off a (beneficial) choice/purchase or abandoning it altogether can have many reasons: choice overload, overoptimism, lack of trust towards the providers, dissatisfaction with the products, unfortunate social validation, lack of income
* The problem is that the same biases and heuristics that make these techniques so valuable also make us less inclined to acknowledge or admit that we might need a little help
* The fact that humans deviate from the rational choice path and instead take decisions in an intuitive way would not appear to be the result of the lack of a benchmark
* ‘Modifying the choice architecture’: of changing not the decision-maker, but the environment within which decision-makers make their choices.
* The proven effect of defaults in all kinds of practical contexts has made them one of the most powerful ways in which decision architecture can be modified. Although a default does not, in theory, restrict a consumer’s freedom of choice (since it is always possible to deviate from the default), in practice it has considerable steering power
* Since there is no truly neutral way to present a choice, a certain degree of steering is always present. They therefore also regard the absence of a default as a form of steering, because consumers then base their choices on other factors that may be less important or altogether irrelevant
* Providing not one, but several defaults, chosen on the basis of a consumer’s personal characteristics. Think of asset allocation based on your age, or a disability insurance based on your occupational group
* Sometimes it is preferable not to make consumers more rational but to make sure the outcomes are good. Put differently, regard the outcome as being more important than a conscious decision-making process and perfect product appropriateness.

## Democratic crisis of capitalism

### From Legitimation Crisis to Fiscal Crisis

* Focus on trends rather than events: the dynamic-historical nature of the capitalist political economy
* What is most revealing for social science is not states of affairs but processes – or states of affairs as they are connected with and within processes. For everything social takes place in time, unfolds over time, becomes more self-same in and over time. The time that counts is not only chronological but also historical. Social-scientific knowledge really comes about only when it has been provided with a time and space index.
* Social trends of development repeatedly come up against counteracting factors that may slow them down or divert, modify or halt them.12 Societies observe the trends at work in them and react to them
* Capitalism as a global system, driven by endogenous evolutionary pressures and shaped by complex interdependencies between its local manifestations
* Three parallel and intertwined historical narratives, all of which start in the 1970s: a crisis sequence that began after the end of postwar growth. Mass allegiance to the neoliberal project was created through
	+ Inflation: From inflation to government debt, from there to private debt, and from private to central bank debt
	+ Accumulation of public debt: The transformation of the tax state into a debt state, and of the debt state into a consolidation state
	+ Lavish credit to private households: The re-transformation of European integration as an engine of political-economic liberalization
* The economic and social order of the wealthy democracies is still a capitalist order
* The crisis theory of the ‘Frankfurt School’ heuristically assumed a relationship of tension between social life and an economy ruled by the imperatives of capital valorization and capital growth – a tension which, in the postwar formation of democratic capitalism, was mediated by government policy. In keeping with the tradition of political economy, the ‘economy of society’ was understood as a social system (not simply a technical system, or one determined by laws of nature), which consisted of powerbacked interactions between parties with different interests
* The historical context will put into perspective many of the national differences among democratic capitalist societies that have been identified by cross-sectional studies in the social sciences and held to indicate distinctive models or ‘varieties of capitalism’. The parallels and interactions among capitalist countries far outweigh their institutional and economic differences. The underlying dynamic, allowing for local variations, is the same
* Money, the most mysterious institution of capitalist modernity, served to defuse potentially destabilizing social conflicts, at first by means of inflation, then through increased government borrowing, next through the expansion of private loan markets, and finally (today) through central bank purchases of public debt and bank liabilities
* Within a long developmental sequence, that is, what may have repeatedly looked in the short run like the end of the crisis – and hence a refutation of the prevailing version of crisis theory – may turn out to be merely a change in the outward manifestation of the underlying conflicts and integration deficits. Ostensible solutions never took more than a decade to become problems – or rather, the old problem in a new form. Each victory over the crisis sooner or later became the prelude to a new crisis, through complex and unpredictable shifts that, each for a time, concealed the fact that all stabilization mechanisms can only be provisional, as long as the expansion of capitalism – the ‘land-grabbing’ by the market – clashes with the logic of the social lifeworld.
* We can no longer say where non-Marxism ends and Marxism begins.
* Context and sequence occupy centre stage, with individual events more to the side; rough commonalities overshadow subtle distinctions; particular cases receive less attention than the links between them; synthesis trumps analysis; and boundaries between disciplines are continually disregarded.
* Institutional economics trace the rise of public debt since the 1970s to a surfeit of democracy
* The crisis weighing capitalism down at the beginning of the twenty-first century – a crisis of its economy as well as its politics – can be understood only as the climax of a development which began in the mid-1970s
* Late Capitalism theorists (e.g. Habermas): What appeared critical to them was not the technical governability of modern capitalism but its social and cultural legitimation. Underestimating capital as a political actor and a strategic social force, while at the same time overestimating the capacity of government policy to plan and to act, they thus replaced economic theory with theories of the state and democracy; the penalty they paid was to forgo a key part of Marx’s legacy.
* Already the 1970s saw a high and fast-spreading cultural acceptance of market-adjusted and market-driven ways of life, as expressed in particular in the eager demand of women for ‘alienated’ wage-labour or in the growth of the consumer society beyond all expectations
* Use a historical narrative of capitalist development since the 1970s that links what I consider the revolt of capital against the postwar mixed economy with the broad popularity of expanding labour and consumer goods markets after the end of the short 1970s,
* Regard the ‘unleashing’ of global capitalism in the last third of the twentieth century as a successful resistance on the part of those who own and dispose of capital – the ‘profit-dependent’ class – against the multiple constraints that post-1945 capitalism had had to endure in order to become politically acceptable again under the conditions of system competition
* Explain this success and the wholly unexpected revitalization of the capitalist system as a market economy, by reference inter alia to government policies that bought time for the existing economic and social order. This they achieved by generating mass allegiance to the neoliberal social project dressed up as a consumption project, first through inflation of the money supply, then through an accumulation of public debt, and finally through lavish credit to private households
* Accumulation crises posed dangers for the legitimation of the system with its democratically empowered populations
* Dangers for the legitimation of capitalism were overcome by continued economic liberalization and the immunization of policy against pressure from below, so as to win back the confidence of ‘the markets’ in the system.
* The old fundamental tension between capitalism and democracy – a gradual process that broke up the forced marriage arranged between the two after the Second World War. In so far as the legitimation problems of democratic capitalism turned into accumulation problems (since teh democratically more legitimate Keynesian capitalism put a brake on accumulation), their solution called for a progressive emancipation of the capitalist economy from democratic intervention
* In the context of an insulation of the economy from mass democracy, we saw a shift from the sphere of politics to the market: a transformation of the Keynesian political-economic institutional system of postwar capitalism into a neo-Hayekian economic regime
* **The clock is ticking for democracy as we have come to know it, as it is about to be sterilized as redistributive mass democracy and reduced to a combination of the rule of law and public entertainment. This splitting of democracy from capitalism through the splitting of the economy from democracy – a process of de-democratization of capitalism through the de-economization of democracy – has come a long way since the crisis of 2008**
* In contemporary theories, the economy as mechanism replaced capital as class; ‘technology and science as ideology’19 occupied a space previously reserved for power and interests.
* The belief was widespread among sociologists & economists that the economy had become essentially a technical matter
* The reinterpretation of modern capitalism as a system of technocratic economic administration
* Pollock’s thesis of a new kind of domination that was once more purely political, no longer mediated by economics, offered … Horkheimer and Adorno the political-economic justification to regard political economy as no longer a top priority
* In the Frankfurt crisis theory, the capitalist line of fracture, however, was no longer its economy but its polity and society: located in the field of democracy rather than the economy, of labour rather than capital, of social integration rather than system integration.
* Rather than the production of surplus-value – its ‘contradictions’, it was thought, had become controllable – the problem was the legitimacy of capitalism as a social system - the impending crisis of capitalism was one not of production but of legitimation.
* Both Daniel Bell and the Frankfurt theorists, however, believed that capitalist societies would become increasingly unmanageable: either because people were, so to speak, outgrowing them; or because they had lost their minds and needed to be brought back within the bounds of the possible - what was seen to be coming was an overstretching of the democratic state, and this either had to be parried through institutional reforms
* The empirical research of the Frankfurt School in those years therefore concentrated mainly on the political consciousness of students and workers and on the potential of trade unions to become more than wage-machines. Markets, capital and capitalists hardly figured, however, and democratic theory and communication theory took the place of political economy
* The empirical research of the Frankfurt School in those years therefore concentrated mainly on the political consciousness of students and workers and on the potential of trade unions to become more than wage-machines. Markets, capital and capitalists hardly figured, however, and democratic theory and communication theory took the place of political economy
* Whereas the struggle against ‘consumption terror’ still had some resonance among students in 1968, the great majority of the generation that had fought the marketization of life under capitalism actively took part in the unprecedented wave of consumerism and commercialism that began shortly afterwards
* Overwhelmed by the force with which reality sped away from the ascetic imagery of Critical Theory, sociologists generally stopped referring to ‘false needs’ or ‘false consciousness’ – concepts that had been highly popular a short time before.
* Ever faster process and product innovations, made possible by the rapid spread of microelectronics, shortened the life-cycle of more and more consumer goods and allowed them to be geared to ever more narrowly defined groups of customers
* At the same time, the money economy tirelessly conquered new spheres of social existence that had previously been reserves of unpaid activity, opening them up for the production and absorption of surplus-value. One example among many was sport, which in the 1980s became a global industry worth billions of dollars.
* Beginning in the 1970s, women throughout the Western world poured into labour markets, and what had been branded shortly before as historically obsolete wage-slavery was now experienced as liberation from unpaid household drudgery
* Paid employment became the main vehicle of social integration and recognition for women as well. To be a ‘housewife’ is today a stigma, and colloquially the word ‘work’ has become synonymous with full-time employment paid market rates.
* Wohlgefühl in der Entfremdung (a product of the culture industry) for women as they combined Kinder und Karriere
* Neo-Protestantism, whose adherents are proud of their lives of constant exhaustion minutely structured around ‘the compatibility of job and family’, and the human capital capitalism of self-commodification in contemporary labour markets, with its internalization of returns-to-education calculations in the life plans of whole generations, apparently have put an end to the ‘crisis of wage-labour’ and of the achievement principle, as has the ‘new spirit of capitalism’. This new spirit, by drawing on newly created spaces of creativity and autonomy at the workplace, has deepened corporate integration and served as a vehicle for personal identification with the aims of profit extraction.
* The Frankfurt crisis theories of the 1970s was that they did not think capital capable of any strategic purpose, because they treated it as an apparatus rather than an agency, as means of production rather than a class
* Capital proved to be a player instead of a plaything, a predator instead of a working animal, with an urgent need to break free from the cage-like institutional framework of the post-1945 ‘social market economy’.
* **The history of capitalism after the 1970s, including the subsequent economic crises, is a history of capital’s escape from the system of social regulation imposed on it against its will after 1945.**
* Liberalization, as control technology, relief of government from social responsibilities and liberation of capital at the same time, in fact progressed only slowly, especially so long as memories of 1968 remained alive
* Expectations in relation to which the political-economic system must legitimate itself exist not only among the population but also on the side of capital-as-actor (no longer just as machinery) – or, more precisely, among the profit-dependent owners and managers of capital. In fact, since this is a capitalist system, their expectations ought to be more important for its stability than those of the capital-dependent population; only if the former are satisfied can the latter too be satisfied, while the reverse is not necessarily true.
* A legitimation crisis theory that starts with capital treats firms and their owners and managers as advantage-seeking profit maximizers rather than as prosperity machines, or functionaries obediently carrying out government economic policy. ‘Capital’ will appear in it as a self-willed and self-interested collective actor, strategic and capable of communication but only to a limited extent predictable, which may be dissatisfied and express itself accordingly.
* **Who or what belongs to capital may be determined by its main form of income** Capital interests result from income dependence on returns on invested capital; capital income is residual income that owners or managers of capital obtain by seeking to maximize the yield from the invested capital at their disposal. In this sense, ‘profit-dependent’ interests stand face to face with the interests of the ‘wage-dependent’ who, disposing of labour-power rather than capital, supply it to owners of the latter at a contractually agreed price. That price – of labour-power as a commodity – is independent of the profit that may or may not be obtained from its deployment.
* Distribution conflicts arise from the fact that, other things being equal, higher residual income for the profit-dependent entails lower wages for the wage-dependent, and vice versa
* **For a theory of political economy in which capital is an actor and not just machinery, the seemingly technical ‘functioning’ of the ‘economy’ – above all, growth and full employment – is in reality a political matter**
* Both growth and full employment depend on the willingness of capital owners to invest, and that in turn depends on their aspirations for an ‘adequate’ rate of return, as well as on their general assessment of the security and stability of the capitalist economic order. The absence of economic crises means that capital is content, while crises signal its discontent.
* Exactly what return on investment capital owners and managers demand is not set in stone; it varies with time and place. Investors may become more modest if they have no alternatives, or more demanding if their profits no longer seem enough in comparison with what they can obtain elsewhere. Above all, if they see their social environment as hostile and inclined to impose exaggerated obligations on them, they may ‘lose confidence’ and withhold their capital – for example, by developing a ‘liquidity preference’ – until conditions improve
* Economic crises in capitalism result from crises of confidence on the part of capital ('investment strikes')
* Stimulating economic growth, then, involves negotiating something like an equilibrium between, on the one hand, the profit expectations of capital owners and the demands they make on society and, on the other hand, the wage and employment expectations of wage-earners – a compromise that capital has to find sufficiently reasonable for it to keep engaging in the generation of prosperity
* If investment is low, another legitimation crisis erupts: the wage-dependants for whom the technical functioning of the system, especially its provision of growth and full employment, is the necessary condition for them to be at peace with it. New demands are not required for this, only non-fulfilment of the old ones.
* In the late 1960s, capital, for its part, had to fear a ‘revolution of rising expectations’ that it would no longer be able to satisfy, except at the price of a further decline in profitability and a conversion of the private economy, under political-electoral pressure, into a highly regulated and planned semi-public infrastructure.
* Kalecki’s starting point was to ask what the employers of his time actually found objectionable in Keynesian economic policy, given that it promised to provide for constant growth of their businesses without cyclical fluctuations. His answer was that permanent full employment brought the danger that workers would become over-demanding once they had forgotten the insecurity and deprivation associated with unemployment.
* To employers and governments under democratic capitalism, the global wave of wildcat strikes in 1968 and 1969 appeared to be the result of a long period of crisis-free growth and secure full employment that had fuelled excessive expectations on the part of a labour force spoiled by affluence and the welfare state. As we shall see, mainstream economic theory also blames exaggerated demands among the masses for the high level of public debt in later decades – an explanation ideally suited to make people forget the dramatically more unequal distribution of generated wealth.
* Capital's response to the protests: Its response was to begin with preparations to withdraw from the postwar social contract, overcoming its passivity, restoring its capacity for action and organization, and extricating itself from democratic political efforts to plan its activity and use it for other objectives than its own
* Around the middle of the seventies, the owners and mangers of capital opened a long struggle for a fundamental restructuring of the political economy of postwar capitalism.
* Capital markets were transformed into markets for corporate control, which made of ‘shareholder value’ the supreme maxim of good management.
* The burgeoning arts of marketing, ensured ever wider loyalty for the commercialization of social life and stabilized the motivation for work and performance among the general population
* The various rhetorical efforts of employers and politicians to obscure the distinction between freely chosen and forced mobility, between self-employed and precarious work, between giving notice and being given the sack, were by no means unproductive in a generation taught from an early age to view the world as meritocratic and the labour market as a sporting challenge, rather like mountain biking or a marathon race → the cultural tolerance of market uncertainty grew against all expectations in the last two decades of the twentieth century
* Following the strike wave around 1968, the inflationary monetary policy of the 1970s safeguarded social peace in a rapidly developing consumer society by compensating for inadequate economic growth and ensuring the continuation of full employment
* Governments that sought social peace by means of inflation, introducing not yet existing resources into the capitalist distributional conflict, were able to draw on the magic of modern ‘fiat money’, the amount of which, politics commanding public power, may increase ad libitum. With the onset of stagflation – of stagnation despite accelerating inflation – in the second half of the 1970s, however, the replacement of real with nominal growth lost its charm; central banks, under the leadership of the Federal Reserve, resorted to drastic stabilization measures, including in the American case interest rates above 20 per cent that soon brought an end to inflation that has lasted to the present day
* This was the beginning of the public debt era.
* Like inflation, public debt enables a government to commit financial resources to the calming of social conflicts, resources which in reality are not yet available, in the sense that citizens still have to generate them and the state has to acquire that money through tax.
* The end of inflation had also curbed the devaluation of existing public debt, so that debt burdens rose in proportion to the national product. Since tax increases would have been as politically risky as faster erosion of the social state, governments turned to debt as a way out. In the case of the United States, Krippner has shown that Reagan already began with the first liberalization of financial markets, which was supposed to raise the necessary capital, both domestically and from overseas, enabling banks to multiply credit faster and more often than in the past and thereby to cover the state’s growing borrowing requirement.
* Here (increase private debt) too there are parallels between countries usually classified under different, or even opposing, ‘varieties’ of capitalism. For example, it was not only in the USA and Britain but also in Sweden (and elsewhere in Scandinavia) that household debt increased sharply from the 1990s on, not only offsetting the decline in public debt due to consolidation policies but also raising a country’s total indebtedness even where it had previously remained constant
* Borrowing became a means to privatize public services \* In the measures taken by governments and central banks to save the private banking system, the distinction between public and private money has become increasingly irrelevant, and finally, with the takeover of bad loans, it became clear how seamlessly the one passed into the other. **Today it is virtually impossible to tell where the state ends and the market begins, and whether governments have been nationalizing banks, or banks have been privatizing the state.**
* In the USA, inflation shot up in the early 1970s and, after sharp fluctuations, stood close to 14 per cent by the end of the decade. This marked the first turning-point, as inflation was suppressed and gave way to a rapid rise in public debt until 1993. Clinton’s policy of budgetary consolidation then brought a fall in the government debt ratio of more than 10 percentage points in the space of a few years, but this was offset by a sharp increase in private debt. Shortly before the collapse of the finance industry private households began to experience a debt reduction, mainly as a result of insolvency and accompanied with a new increase in government debt and a fall in the rate of inflation towards zero
* The three monetary methods of generating illusions of growth and prosperity – inflation, public debt, private debt – functioned successively for a limited period and then had to be abandoned, as they began to hinder the accumulation process more than they supported it.
* The ordinary citizen's influence in the conflict over distribution, her capacity to influence it politically: that is, it gradually shifted from the annual wage struggle at enterprise level towards parliamentary elections, from there to private loan and insurance markets, and then to a realm of international financial diplomacy completely remote from everyday life
* To continue along the road followed for the last forty years is to attempt to free the capitalist economy and its markets once and for all – not from governments on which they still depend in many ways, but from the kind of mass democracy that was part of the regime of postwar democratic capitalism. Today, the means to tame legitimation crises by generating illusions of growth seem to have been exhausted
* The utopian ideal of present-day crisis management is to complete, with political means, the already far-advanced depoliticization of the economy; anchored in reorganized nation-states under the control of international governmental and financial diplomacy insulated from democratic participation, with a population that would have learned, over years of hegemonic re-education, to regard the distributional outcomes of free markets as fair, or at least as without alternative.
* Three crises
	+ Banking crisis: banks extended too much credit to public and private entities. Since no bank can be sure that the bank with which it does business will not collapse overnight, banks are no longer willing to lend to one another
	+ Fiscal crisis: the result of budget deficits and rising levels of government debt as well as the borrowing required since 2008 to save both the finance industry (through the recapitalization of financial institutions and the acquisition of worthless debt securities) and the real economy (through fiscal stimuli). The increased risk of government insolvency in a number of countries is reflected in the higher costs of old and new debt. To regain the ‘confidence’ of ‘the markets’, governments impose harsh austerity measures
	+ Crisis of the real economy: high unemployment & stagnation - firms and consumers do not obtain loans from the risk-averse banks
* The banking and fiscal crises are connected trough money; the banking and the real-economy crisis are connected through credit; and the fiscal crisis and the real-economy crisis are connected through government spending and revenue
* The left became unconcerned with Marxist analysis of the economy. After all, there were two decades of rapid and nearly uninterrupted growth – and, as far as Germany was concerned, the overcoming in 1966 of what could scarcely be called a crisis, by means of the modern, anti-cyclical economic policy of the Christian Democrat (CDU)/Social Democrat (SPD) ‘Great Coalition’. The Bundesrepublik had then finally moved beyond its ‘ordoliberal’ misconceptions and joined the ‘mixed economies’ of the capitalist West, with their public enterprises, planning authorities, industrial branch councils, regional development boards, negotiated incomes policy,
* The tax state:
	+ The ‘debt state’ as an actual institutional formation, which replaced the classical tax state at the latest in the 1980s
	+ There is a relationship between the debt state and the class structure or distribution of life chances in society

### Neoliberal Reform: From Tax State to Debt State

* The many different variants of the story of the ‘tragedy of the commons’ boil down to the idea that if a resource is not individually owned and freely available to all the members of a community, it will soon be exhausted through overgrazing, overfishing, and so on. In this way of thinking, public finances are the commons and democracy is a licence for citizens to exploit it at will
* For mainstream economics, the crisis of public finances is due to unclear property relations, and thus unclear responsibilities. Consequently, if the fiscal crisis is to be overcome, public finances must be shielded from democratically generated demands and the social commons resting upon taxation must ultimately be trimmed to size.
* Greater freedom for the money industry was supposed, first, to correct the chronic balance-of-payments shortfall by attracting capital imports and to secure the living standards of the population; and, second, to make it possible for the government to finance its own deficits.
* The budget surpluses briefly recorded around the turn of the millennium were due inter alia to sharp cuts in social spending. Financial deregulation made it possible to plug the gaps resulting from deficit reduction, by means of a rapid extension of loan facilities for private households at a time when falling or stagnant wages and transfer incomes, combined with rising costs of ‘responsible self-provision’, might otherwise have jeopardized support for the policy of economic liberalization. Credit expansion to replace collective provision and compensate for stagnant household incomes
* Joblessness served to legitimate radical labour-market reforms
* The most visible expression of the sweeping success of the neoliberal revolution is the ever greater inequality of income and property in the countries of democratic capitalism. Had the rise in public debt been due to the rising power of mass democracy, it would be impossible to explain how prosperity and opportunities for prosperity could have been so radically redistributed from the bottom to the top of society
* There is a negative correlation between union bargaining power and income inequality
* IF household income rose at all, it was only because longer hours and increased female participation in the workforce meant that families were devoting more and more time to the labour market
* No less than 93 per cent of the additional US income created in 2010 – $288 billion – had gone to the top 1 per cent of taxpayers, and 37 per cent to the top 0.1 per cent, raising their income by 22 per cent. 81.7 per cent of the asset increase in the United States between 1983 and 2009 went to the top 5 per cent, while the bottom 60 per cent lost the equivalent of 7.5 per cent of the total asset increase.
* The extent to which neoliberalized capitalism is displacing the democratic welfare-state capitalism of the 1960s and 1970s can be gauged from the fact that electoral participation is in constant and often dramatic decline, especially among those who should have the greatest interest in social benefits and in redistribution from the top to the bottom of society
* A strong negative correlation between electoral participation and regional unemployment or welfare dependence. Declining electoral participation in the capitalist democracies is a sign not of contentment but of resignation. The losers from the neoliberal turn cannot see what they might get from a change of government
* Neoliberalism needs a strong state to suppress demands from society, and especially from trade unions, for intervention in the free play of market forces.
* Neoliberalism is incompatible with a democratic state, in so far as democracy involves a regime which, in the name of its citizens, deploys public authority to modify the distribution of economic goods resulting from market forces – a regime regarded critically also by the ‘common pool’ theory of fiscal government failure.
* Two competing principles of distribution were institutionalized in the political economy of postwar democratic capitalism: what I shall call market justice on the one hand and social justice on the other. By market justice, I mean distribution of the output of production according to the market evaluation of individual performance, expressed in relative prices
* Social justice, on the other hand, is determined by cultural norms and is based on status rather than contract. It follows collective ideas of fairness, correctness and reciprocity, concedes demands for a minimum livelihood irrespective of economic performance or productivity, and recognizes civil and human rights to such things as health, social security, participation in the life of the community, employment protection and trade union organization. ...with social justice, whose substance is ‘socially constructed’ and therefore subject to cultural – political discourse as well as historical change. What is just in market terms is decided by the market and expressed in prices; what is socially just is decided in a political process where power and mobilization enter the balance, and finds its expression in formal and informal institutions
* From the point of view of market justice there is a constant danger that ideas of social justice will usurp the public power through the formation of a democratic majority and then regularly distort the operation of the market
* Politics, to the extent that it is driven by demands for social justice, therefore confuses the market process, muddies its outcomes, creates false incentives and ‘moral hazards’, undermines the performance principle and is generally alien to the ‘business world’
* Crises develop if those who control essential means of production fear they will not eventually be rewarded in accordance with their ideas of market justice; their ‘confidence’ then sinks below the minimum level necessary for investment. Holders and handlers of capital may transfer it abroad or park it somewhere in the money economy, withdrawing it forever or temporarily from circulation in the economy of a polity in which they no longer trust. The result is unemployment and low growth – more than ever under today’s conditions of unfettered capital markets
* The ‘psychological’ trust of capital in political conditions is the main technical prerequisite for the functioning of a capitalist economy sets narrow limits to the correction of market justice by democratically empowered social justice
* The demands of ‘capital’ for an adequate return operate in effect as empirical preconditions for the functioning of the whole system
* The market could be made immune from democratic correctives either through the neoliberal re-education of citizens or through the elimination of democracy on the model of 1970s Chile; the first involves an attempt to indoctrinate the public in standard economic theory, while the second is not available as things stand at present. A strategy to dispel the tension between capitalism and democracy, and to establish the long-term primacy of the market over politics, must therefore centre on incremental ‘reforms’ of political-economic institutions:29 the move towards a rule bound economic policy, independent central banks and a fiscal policy safe from electoral outcomes; the transfer of economic policy decisions to regulatory bodies and ‘committees of experts’; and debt ceilings enshrined in the constitution that are legally binding on governments for decades to come, if not forever. In the course of this, the states of advanced capitalism are to be constructed in such a way that they earn the enduring trust of the owners and movers of capital, by giving credible guarantees at the level of policy and institutions that they will not intervene in ‘the economy’ – or that, if they do, it will only be to protect and enforce market justice in the shape of suitable returns on capital investments. A precondition for this is the neutralization of democracy, in the sense of the social democracy of postwar capitalism, and the successful completion of a programme of Hayekian liberalization.
* Social justice is denounced as 'political' (equating it with particularist and therefore corrupt and dirty)
* Capitalist PR experts tirelessly hawk around the view that, whereas markets distribute according to general rules, politics does so with an eye to power and connections. The fact that markets, in assessing efficiency and allocating rewards, disregard the initial endowment that participants bring to them can be ignored more easily than redistributive policies, which must be publicly debated and actively implemented
* The growth of public debt correlates with the neoliberal turn and the downward trend in political participation, and not with a democratic mass mobilization
* Not high spending but low receipts are the cause of government debt
* Social policy has the character of investment when it promotes the willingness of wage-earners to remain in dependent employment and to act in accordance with the corresponding expectations. Capitalism cannot function if employees behave in ways permitted to, and even expected of, their employers: that is, in radical and unconditional pursuit of utility maximization
* The so-called “law” of the development of state activities for civilized countries: the law of the increasing scale of “public” or state activities among advancing civilized nations’
* Bring the relations of production into line with the mode of production
* The fiscal crisis of the state predicted by O’Connor and Bell is situated on the revenue rather than the expenditure side – so that it is defined à la Goldscheid and Schumpeter as a crisis of the tax state
* Two developments that no one foresaw: transformation of the tax state into a debt state – that is, a state which covers a large, possibly rising, part of its expenditure through borrowing rather than taxation, thereby accumulating a debt mountain that it has to finance with an ever greater share of its revenue
* Routine funding of public debt first required the construction of an efficient finance sector and the ‘financialization’ of capitalism through the deregulation of finance markets. Moreover, finance markets had to be integrated internationally in order to satisfy the huge credit needs of rich industrial countries, especially the United States.
* Understand the debt state as retarding the crisis of the tax state and as the rise of a new political formation with its own laws.
* A countervailing force (to the expansion of the debt state) which, in the neoliberal reform movement of the 1990s and 2000S, sought to consolidate government finances by privatizing services that had accrued to the state in the course of the twentieth century. This was the other historical development that the crisis theories of the 1970s had not yet been able to foresee: the total or partial return of an increasing number of state functions – from retirement provision through health care and education to responsibility for the level of employment – to society and the market economy → the easiest way of achieving this was by simultaneously improving the access of private households to credit.
* The elimination of postwar social rights through marketization ran parallel to the development of a new form of democracy (what Crouch calls ‘post-democracy’), in which political participation was redefined as popular entertainment and disconnected from policy, especially in the sphere of the economy
* In summary, the fiscal crisis of the state is not due to an excess of democracy having enabled the mass of the population to extract too much from the public purse; rather, those who have profited most from the capitalist economy have been paying too little, and increasingly little, into the public purse. If an ‘explosion of demands’ has caused a structural deficit of public finances, then it has occurred among the upper classes; it is their income and their assets that have multiplied rapidly over the past twenty years, not least thanks to tax cuts, while wages and social services at the bottom end of society have stagnated or fallen – a development masked, and for a time legitimated, by money illusions supported by inflation, public debt and ‘credit capitalism’.
* Democracy and democratic politics failed to recognize and oppose the counter-revolution against postwar social capitalism for what it was; when they neglected to regulate the mushrooming financial sector amid the illusory boom of the 1990s; when they gave credence to the talk of ‘hard’ government giving way to a ‘soft’ governance friendly to democracy;when they refrained from making the beneficiaries of capitalist economic growth pay the social costs of their gains;and when they not only accepted growing inequality between those at the top and those at the bottom of society, but promoted it by tax and welfare reforms to provide greater incentives for capitalist progress.
* The greater international mobility of industrial and finance capital has raised the dependence of states upon the confidence of international investors.
* The political link between public debt and wealth distribution only reveals itself if the debt-financing of governments in the period of the neoliberal turn is understood as the result of low taxation of the property-owning classes of society.
* The less is taken for the collective from high-earners and their families, the more unequal is the distribution of wealth – which is expressed inter alia in a high savings-rate at the upper end of society. For those whom fiscal policy allows to form private surplus capital, this creates the problem of finding opportunities for investment; the Keynesian rentier, who was supposed to have been wiped out by political euthanasia, thus makes a powerful comeback.
* Higher taxes to bring down public debt would also put to rest the tawdry rhetoric according to which we’ should not live at the expense of ‘our children’ – when the real problem is that the ‘better-off’ live at everyone else’s expense by largely avoiding the social costs involved in the upkeep of their hunting grounds. An appropriate minimum wage for private services would in the same way reduce savings rates among the middle and upper classes and therefore help to overcome their investment problem, with a positive effect (as Keynes showed) on both consumption and growth.
* **So long as the state’s capacity to repay its creditors can be relied upon, the long-term debt-financing of government activity is definitely in the interests of financial asset-holders**
* They need a state that will not only leave them their money as private property but borrow it and keep it safe, pay interest on it and, last but not least, let them pass it on to their children – by virtue of inheritance taxes that have long been inconsequential. → **In this way, the state as debt state serves to perpetuate extant patterns of social stratification and the social inequality built into them. At the same time, it subjects itself and its activity to the control of creditors in the shape of ‘markets’.**
* The post-2008 crisis has raised the indebtedness of the rich democracies to a level at which creditors can no longer be sure that governments will be able and willing in the future to meet their payment obligations. As a result lenders seek far more than in the past to protect their claims by exerting influence on government policies. In the debt state, therefore, a second category of stakeholders appears alongside the citizens who, in the democratic tax state and established political theory, constituted the only reference group of the modern state.
* The rise of creditors: they became the second ‘constituency’ → Democratic debt states must manoeuvre between their two categories of stakeholders, keeping them both at least sufficiently happy that they do not withdraw their loyalty or, as the case may be, their confidence. For this, states must not allow themselves to be monopolized by either side, since that might trigger a crisis in their relations with the other side. A democratic debt state can satisfy its creditors only if its citizens continue to cooperate with it; should they come to regard the state as an extended arm of its creditors, it will be in danger of losing their allegiance. At the same time, such a state can claim legitimacy in the eyes of its citizens – especially those who, despite internationalization, continue to pay taxes – only if its creditors are willing to finance and refinance its debt on terms that are tolerable. This willingness, however, will decline or disappear if a government pays too much heed to its citizens’ wishes and in doing so ties up resources that might later be required for debt service. Which of the two sides commands greater attention from a debt state’s government will depend on their relative strength. This in turn depends on how likely a threatened withdrawal of confidence or loyalty, respectively, appears to be, and on how much pain it would cause to the country and its government.
* Like the boards of publicly listed companies in relation to the new ‘markets for corporate control’, the governments of today’s debt states in their relationship with the ‘financial markets’ are forced to serve a further set of interests whose claims have suddenly increased because of their greater capacity to assert themselves in more liquid financial markets.
* It all boils down to a distribution conflict: in companies, over whether surpluses should be allocated to shareholders rather than the workforce, or retained to strengthen the hand of management; in debt states, over the preservation of what might be called the ‘bondholder value’ of government securities. Much as an increase in shareholder value requires management to hold down the workforce or – better still – to lock it into common efforts to boost the share price, so does the trust of creditors require that governments persuade or compel their citizens to moderate their claims on the public purse in favour of the ‘financial markets

* The democratic state, ruled and (qua tax state) resourced by its citizens, becomes a democratic debt state as soon as its subsistence depends not only on the financial contributions of its citizens but, to a significant degree, on the confidence of creditors. In contrast to the Staatsvolk of the tax state, the Marktvolk of the debt state is transnationally integrated. They are bound to national states purely by contractual ties, as investors rather than citizens. Their rights vis-à-vis the state are of a private rather than public character, deriving not from a constitution but from the civil law.
* As creditors, they cannot vote out a government that is not to their liking; they can, however, sell off their existing bonds or refrain from participating in a new auction of public debt. The interest rates that are determined at these sales – which correspond to the investors’ assessment of the risk that they will not get back all or some of their money – are the ‘public opinion’ of the Marktvolk, expressed in quantitative terms and therefore much more precise and easy to read than the public opinion of the Staatsvolk
* Whereas the debt state can expect a duty of loyalty from its citizens, it must in relation to its Marktvolk take care to gain and preserve its confidence, by conscientiously servicing the debt it owes them and making it appear credible that it can and will do so in the future as well
* Every government offers bonds for sale several times a year, mainly to refinance existing debt; this means that at virtually every moment a public sale is taking place somewhere in the world
* There is no international anti-trust legislation banning agreements between market leaders or the public signalling of plans to buy or not to buy; unlike price-fixing among producers of cement or underwear, it would not be a punishable offence if the world’s leading investment funds agreed in a teleconference to stay out of the next auction of, say, French government bonds.
* There is much to be said for the view that the emergence of finance capital as a second people – a Marktvolk rivalling the Staatsvolk – marks a new stage in the relationship between capitalism and democracy, in which capital exercises its political influence not only indirectly (by investing or not investing in national economies) but also directly (by financing or not financing the state itself ).
* Democracy at national level presupposes nation-state sovereignty, but this is less and less available to debt states because of their dependence on financial markets
* The organizational advantage that globally integrated financial markets have over nationally organized societies, and the political power resulting from it, first became dramatically clear in September 1992, when the financier George Soros was able to assemble so much money that he could successfully speculate against the Bank of England and blow apart the European monetary system of the day. His profits from the operation have been estimated at $1 billion
* **The main aim of lenders to governments in their conflict with a state’s citizens must be to ensure that, in the event of a crisis, their claims take precedence over those of the Staatsvolk – in other words, that debt service gets priority over public services. They can best achieve this by means of institutions such as a ‘debt ceiling’, ideally enshrined in the constitution, which limit the sovereignty of voters and future governments over public finances.**
* **Thus, this is a key issue in the legal implication of bankruptcy, projected onto government financial policy: that is, which claims have priority over other claims? As far as the creditors are concerned, they need to ensure that any future ‘haircut’ will affect not them but, for example, pensioners and clients of national health care systems – in other words, that governments exercise sovereignty only over their Staatsvolk, not their Marktvolk**
* In the struggle for ‘market confidence’, debt states must make visible efforts to show that they are always ready to fulfil their civil law contractual obligations. In times of crisis, confidence-building of this kind is most successful with resolute austerity measures against the national population, preferably involving the opposition parties and by legally enshrining permanent limits on spending. So long as voters are still able to remove a government serving the capital markets, the Marktvolk can never be entirely sure of its position
* The best debt state, then, is one governed by a Grand Coalition, at least in financial and fiscal policy, with tried-and-tested techniques to exclude deviant positions from the common constitutional home
* How to solve the crisis of public finances: while some concentrate on the supply side – that is, on tax cuts and a cutback on government activity to revive the private sector – others call for a boost to public and private demand as a precondition for new investment in the real economy.
* Further complications result from the fact that an ever larger part of the Marktvolk also belongs to the Staatsvolk, so that their interests include not only the reliable servicing of public debt but also, and perhaps even more, the maintenance of intact public services.
* Governments, for their part, can introduce regulatory measures that force ‘the markets’ to invest in public debt – for example, by raising the risk-cover requirement for banks and insurance companies → In combination with low interest rates, capital controls and high inflation, this may add up to a public debt reduction strategy. The technical name for it is ‘financial repression’
* Since a suspension of payments is damaging to a country’s future creditworthiness, governments resort to it only if they can see no other way out. In principle, however, unilateral debt reduction can be a powerful weapon for governments defending their citizens’ claims on public services. So long as they can threaten with some credibility to use it, creditors of a debt state may feel compelled to exercise restraint in enforcing their interests (restraint, for example, in increasing risk premiums on government bonds. It seems generally agreed that, beyond an interest rate of approximately 7 per cent, governments are no longer able to service their debt.)
* The charging of international ‘governance’ with the fiscal supervision and regulation of national governments threatens to end the conflict between capitalism and democracy for a long time to come, if not forever: that is, to settle it in favour of capitalism, by expropriating the means of political production from the citizenry of nation-states
* Respect for claims to national sovereignty is made dependent on a country’s good behaviour vis-àvis the global financial markets and international organizations and its observance of the rules of conduct that they prescribe.
* In the rhetoric of international debt politics, nations appear as homogeneous moral individuals with joint liability; no attention is paid to

internal relations of class and domination. This clears the way for discursive distinctions between ‘nations that keep their house in order’ and others that, having neglected to do their homework, cannot complain if other countries take over as their government.

* The first priority for the international community of debt states is that all members, including the weakest, maintain the fullest possible servicing of their existing debt
* The real point of 'solidarity'-talk is not to rescue countries but to save creditors’ portfolios, thereby stabilizing the global market for national debt, it does not matter whether the per capita income of a donor country is lower than that of the recipient country
* It is no contradiction if the financial support never arrives in the country that is allegedly supported but goes directly to its foreign creditors
* International solidarity, which in practice amounts to a punitive austerity policy ordered from abroad and above, holds the citizens of an insolvent debt state jointly liable for their past governments. The justification is supposed to be that they democratically elected them. Democracy thus serves to construct an identity between citizens and government, between the electorate as principal and the government as agent, which is sufficiently deep to require that citizens repay out of their own pockets the loans contracted in their name – regardless of whom they voted for and whether any of the borrowed money ever found its way to them.
* Whereas neonationalist public discourse blames excessive national debt levels on the easy life that one country’s citizens made for themselves at the expense of another country’s citizens – which then justifies affording them solidarity-as-punishment – debt states actually incurred their debts to make up for taxes that they had failed to raise from their citizens (especially the richest) or that they had been unable or unwilling to impose for fear of breaking the social peace or of losing investment.

### The politics of the consolidation state

* The confidence of investors … recovers much sooner after a spending-based adjustment than after a tax-based one’. In public discourse, consolidation is anyway almost invariably equated with cuts as if this were self-evident.
* All in all, spending cuts and reduced levels of government activity will reinforce the market as the chief mechanism for the distribution of life chances, extending and completing the neoliberal programme for the recasting and dismantling of the postwar welfare state.
* ‘Public deficits generate accumulating public debt, which in turn gives rise to pressures for fiscal consolidation. In the absence of an increase in taxation, consolidation must be achieved by cuts in expenditure. Inevitably, these will affect discretionary more than mandatory spending.
* A shrinking scope for political choice, combined with declining possibilities for government to address new problems and provide for the future of society and its citizens, will then cause public expectations to decline as well, which will negatively affect political participation.
* In practice, governments that have committed themselves to a ‘debt ceiling’ are forced to find and use new types of advance financing that will not appear in their budgets, especially for public investment projects. Thus, in consolidation states one can expect there to be a wide market for public – private partnerships (PPPs), whereby private firms instead of the government take on loans for public construction projects which the state or its citizens have to pay off as users over years or decades.
* The expectation of growth as a proven cure for democratic-capitalist distribution conflicts
* In the brief heyday of the euro, Greece and Portugal in particular were able to use cheap loans almost at will to make up for the decline in transfer payments from Brussels
* Deregulation as a program for growth has the considerable political advantage that no one can seriously expect it to work miracles in the short term – and that, if miracles do not appear in the long term either, it can always be argued in a less than perfect world that the dose was not large enough.

## Money & the €

* Means of exchange view: Adam Smith
* Anthropological view: Wergeld as the payment of compensation for the killing of a man and other injuries: money as a penalty/fine to prevent retaliation
* Cartalist school: money as a token, but there has to be some authority/power/government that issues the currency - the value of money is disconnected form the intrinsic value of the bearing commodity (i.e. money must be backed up)
* Money as credit: money as created by private institutions; money as a social technology (set of ideas and practices which organize what we produce and consume; the social technology of transferable credit)
* The use and value of money is essentially based on the power of the issuing authority.
* Sound money requires two things
	+ Acceptance by the people of the sovereign
	+ Sustainable credit creation
* The € creates an integrated European capital market, which makes borrowing cheaper for both companies and households
* The argument was that a single market needed a single currency
* The € was meant to prevent German political superiority - if Germany was in the €-zone they were obliged to use part of their economic power/wealth to sustain the monetary union.
* The € has benefited German exporters but not consumers
* Acceptance of the € means acceptance of the European sovereign
* Monetary policy (exchange rate autonomy & interest rate setting) was lost by countries in the €-zone
* If you don't have monetary autonomy, shocks have to be absorbed by a transfer/budgetary union
* Austrian school perspective: **savings are created among others by credit creation!!**
* If the market interest rate is to far away from the natural interest rate, crashes will follow (although this can be delayed)
* If I need money, the bank credits me. I then have a loan and savings that I spend. The house seller receives my money and now has a saving
* Once the credit is created, the money has to be created as well
* Over-optimistic investors invest in riskier projects, banks lend against overrated assets
* Golden rule: if interest rates on government bonds equals nominal economic growth (=productivity growth + population growth + inflation), then the interest rate is right
* If you want to have a currency union, you need solidarity
* The € caused an interest rate shock. Before the €, there were large cross-national differences in interest rates. As soon as it became clear that these countries would join the €, the interest rates converged. Germany basically dictated the natural interest rate in the €-zone.

## Epistemic virtues

* Theory of virtue not about the character or the institutions but about the means-end relation
* Virtue as an acquired trait to go for the right action and the right balance between two extremes
* 3 ways to look at ethics:
	+ Maximizing welfare/utility/consequentalist
	+ Deontological: look for the sources of goodness/intentions (i.e. do it for the right reason)
	+ Aristotle/Aquinas: goodness as a feature of character
* Traditionally, virtue theory is about morality. Bruin: this can also be about knowing (i.e. epistemology), and there are kinds of virtues connected to knowing
* RCT: Agents make probabilistic judgments about the means at disposition to achieve the preferred ends
* Bruin: for RCT to obtain you need some dispositions (i.e. the epistemic virtues) to hold
* If you are in the realm of instrumental rationality, we are not going to argue whether these ends are worthwhile if people are going to be goal-directed, they’re going to need some virtues to reach those goals
* An acquired skill that leads action to the sweet spot, and once it becomes habitual it is a second-order trait (you build on existing potentially problematic traits)
* According to Bruin we had the financial crisis because of incompetence (lack of epistemic virtues: people lack a motivation to acquire financial literacy)
* De Bruin: reform the system along the lines of competence and you got a fine system
* Levy & Peart: the participants all assumed the system was rigged (although in their favor)
* Bruin is not talking about re-framing thing
* Outsourcing epistemic responsibility is something that regulators should be reluctant to do
* Three functions of credit-rating agencies:
	+ Estimations of credit risk, which captures the risk that the issuer of a security (e.g., the corporation borrowing money) will fail to pay interest and/or repay the loan. It excludes such things as the risk that markets will turn unfavourable (market risk) or that no one will want to buy or sell the securities (liquidity risk). In the case of government debt, credit rating agencies also incorporate an estimation of the willingness to pay because, unlike companies, countries may decide not to pay back their loans when they think this will prevent social or political unrest.
	+ A second role is that of monitoring the issuers. Credit rating agencies attempt to influence corporate or political decision making and they do this, not by participating in the issuer’s decision making process, but by verbal means only: their ratings.
* The correlation between credit ratings and default rate referred to above can also be obtained by looking at publicly available information about bond spreads, which is roughly the difference between what one gets from the bond and what one gets from a ‘risk-free’ benchmark such as US treasury bonds or Libor
* Ratings are assertions of creditworthiness; rating agencies provide directives of management; the agencies issue directives of investment.
* Normative theory is about finding some principles by which we can evaluate the necessity of XYZ
* Bruin assumes a do-no-harm principle, he assumes that some social institutions are good (although he says that malfunction is bad)
* Bruin says that the argument for deregulation to work, you need competence (he offers an internal critique of someone else's argument)
* Bruin makes an integrity requirement: If you sell something to society, you should ensure that it works! You can have all the right premises and follow them, and it still doesn't work because you have the wrong incentives in place (you need due diligence)
* Instrumental rationality: for things to function properly, the means and ends need to be aligned
* Bruin: the financial crisis was a policy failure in that epistemic trust was outsourced into a institution that cannot handle this (credit ratings have a monopoly)
* Bruin has a tremendous status quo bias - let's make the system run better as it is (i.e. a conservative stance)
* For Bruin, we can have multiple motivation (intrinsic to be a good doctor as well as extrinsic to get a good salary), i.e. virtues and incentives go together.

## Supervision

* Distinguish the legal entities from their ownership structures and the purpose to which the legal entity's invest the money/deposits

## Graeber

### Ch 1-6

* Debt presupposes a social/political background in which there is (among those that count) equality, who have become unequal - and this new inequality is temporary - i.e. a temporal dimension
* Debt as bringing consumption from the future into the present; debt as creating a possible world where something has to be repaid (+interest); the very structure of debt presupposes a return to equality (whatever that might be)
* Debt is not in itself the source of (temporary) inequality but a consequence of this temporary inequality --> **debt is always an effect of this deviation from the norm of equality**
* It also generates further and further inequality - but in its
* During the duration of this temporary debt, a new relationship is created (and it is constituent for this relationship that it is hierarchical). So you might say that debt = a deviation from the norm of equality that, in virtue of being debt, creates hierarchy (intended to be temporary); it establishes and entrenches hierarchy and creates new norms
* Hierarchy (as the effect) is intrinsically transient - not meant to be a resting place/final effect
* Inequality becomes perpetuated into hierarchy by means of debt
* Debt is just an exchange that has not come to completion
* You can always ask two questions about hierarchy
	+ Which debt generated it
	+ What can be done to return to this norm of equality
* The very institution of debt calls for questioning forms of hierarchy implicated in it
* From one perspective the two have to be equal - in status, under the law, in recognizing each other as members of the tribe; in another respect, if there was perfect equality, there wouldn't be a need for debt
* Debt is strictly a creature of reciprocity and has little to do with other sorts of morality
* Slaves cannot enter into debt contract because they are de facto debt
* Douglas: if debt/credit is governed by duties (Douglas account), it is the obligation that creates hierarchy
* Graeber: what creates the hierarchy is the absence of reciprocity
* In the absence of reciprocity, we have an obligation
* Owing sth. then gets translated into the language of obligation
* For Graeber, obligation as a consequence of hierarchy
* Virtual money as a bookkeeping
* Graeber & Holmstrom disagree: for Graeber collateral is optional, for Holmstrom it's constitutive
* Commercial exchange does not only imply equality but also distinctness and separation; you don't have debt with intimates
* You get debt in a context of a norm of equality among strangers
* The institution of debt is meant to restore short- to medium term equality, while creating inequality in the long-run (but this is an unintended consequence although entirely foreseeable)
* A corporation is a product of a legal system (namely a mix of overlapping contracts), with a state that is powerful enough to enforce contracts
* The history of the corporation is the history of legalized violence (slaves working for the Dutch East India)
* What's Graeber's moral approach:
* Some remarkable commonalities-fundamental moral principles that appear to exist everywhere, and that will always tend to be invoked, wherever people transfer objects back and forth or argue about what other people owe them; all human relations are based on some variation on reciprocity.
* He things of institutions - if not corrupted by violence etc. - as a shared moral sensibility - a (universal) sense of justice that precedes institutions - the morality that is presupposed by debt is justice (reciprocity presupposes that you have some form of gauging symmetry)
* Commercial exchange (and justice) are a subset of this more general conception
* For Graeber, many debt institutions are institutions of violence. Debt is a consequence of this sense of morality and in a way corrupts it
* Violence creates the conditions under which this normal sense of justice becomes corrupted
* The institution of debt presupposes quantification, and for Graeber, the logic of quantification is the logic of strangers
* What's characteristic of everyday communism for Graeber? Accepting that we are not independent beings, but need others to survive, and tracking payments hinders the sociality
* Baseline communism might be considered the raw material of sociality, a recognition of our ultimate interdependence that is the ultimate substance of social peace
* Graeber doesn't believe that there are natural, spontaneous markets but that there are spontaneous everyday communism where state institutions are absent
* This last point can't be overemphasized because it brings home another truth regularly overlooked: that the logic of identity is, always and everywhere, entangled in the logic of hierarchy --> when you have the account of accounting

### Ch 7-9

* Massively organized violence is the precondition for markets
* The notion of property we use today, is the concept of slave-owners
* Human rights etc. cannot be dissociated from this history of violence
* Meaningful change (as opposed to apparent change) has wide-ranging effects
* Changes in war-making technology changed the whole way of organizing society, and the ways of organizing society went into the war-making technologies/structures
* The way war is made stays the same until something fundamental changes
* The crucial claim in chapter 9: at some point, ideologues/rulers figure out that you can reduce the complexity of human motivation/sense-making to a notion of interest/profit/utility (an instrumental rationality)
* The result, during the Axial Age, was a new way of thinking about human motivation, a radical simplification of motives that made it possible to begin speaking of concepts like "profit" and " advantage"-and imagining that this is what people are really pursuing, in every aspect of existence, as if the violence of war or the impersonality of the marketplace has simply allowed them to drop the pretense that they ever cared about anything else → 'homo oeconomicus'/rational-choice as ignoring that bureaucratization of war and the market as an instrument of state power
* One kind of knowing becomes the universal template for ways of knowing, i.e. Graeber makes two claims: one about human nature and one about epistemology → and the two are connected
* Military-slavery-coinage complex, coinage makes paying soldiers easy (even far away) and makes relying on slaves important
* Dialectical opposition: by strongly saying A, you are also affirming the significance of B
* Honor as the leverage over you community; as a quantification of status; something that others ascribe to you
* Honor as something worth dying for, as something existential
* Honor is a zero-sum game form of capital
* The more honor you have the more you are insulated from exclusion
* Honor as relational power
* Systems of honor are fragile (violence has to be activated almost continuously) because it always has to be defended
* Forms of money have been used precisely as measures of honor and degradation (measure of the status of the relation in the hierarchy)
* The value of money was, ultimately, the value of the power to turn others into money (wage-labor & slavery)
* Slavery is endemic and gets regularly abolished, then reappears
* Money allows you the commodification of others (for honor business) - and you get a vast expansion of the system of slavery
* Telling people how awful the past was doesn't motivate to rethink current institutions
* Interpreting the present by insisting how similar it is to the awful past
* Commercial life as furthering existing and creating new hierarchies
* Even the morally unproblematic aspects of liberalism are features creating hierarchy - middle positions are delusional, ordinary features of commerce create structures
* Religions as a response to the moral crises (and unable to resolve them, because they take status quo/aristocracy and commerce/war-making for granted)
* The (economic) concepts we have are an expression of the
* Treat ethical thinking as - Graeber is not a cynic (ethical thinking is only another tool of domination)
* Graeber is not a relativist (as many ethnographers are) - he recognizes that there are different ways of settling things etc. - but that we have a shared sense of justice (and sociality), although this can be differentially manifested (content-wise it is not universal)

### Ch 9-11

* Calvin was to reject the blanket ban on usury entirely, and by 1650, almost all Protestant denominations had come to agree with his position that a reasonable rate (i.e. there are unreasonable rates) of interest (usually five percent - an interest rate that is manageable for one generation) was not sinful, provided the lenders act in good conscience (Douglas' due diligence approach), do not make lending their exclusive business, and do not exploit the poor (i.e. allowed to exploit the rich)
* "The law of capitalism": an interest rate around 3%
* Douglas indirectly allows for high interest, yes, as long as it is productive but this occurs rarely because most often it is very speculative
* Graeber's view on the Middle Ages: people are unwilling to go to court because they were so severe that everybody found them unreasonable
* 3 claims about the rise of capitalism
	+ it destroys sociality/small community/basic communism (under feudalism normal people are left alone and enjoy each other's company despite patriarchy etc.)
	+ in small communities, virtual credit communities (everyone owed to everyone) but where interest is not allowed to charge because interest would criminalize debt and displace virtual money with coins (where being in debt is seen as bad)
	+ For the new regime law had to be reformed because it was so severe that no one wanted to held anyone in debt
* Graeber has a holistic view where for one part of society to change other parts have to reform as well

## Big themes of the course

* Debt seems to be a universal that is manifested in different way
* Talking about debt in moral language is also a universal
* There are lots of ways in which debt is normative and it has all kinds of obligation and evaluative commitments connected to it.
* The way you structure debt has real social effects
* Institution don't only structure society, they also reflect and change (the power dynamics of) society
* Debt is disequilibriating (because of compounded interest) and can never be in an equilibrium
* Debt as a moral conversation between creditors and debtors
* Debt is the easiest way to trade paper and you just roll over until it comes to a halt
* To Holmstrom, debt markets are not price discovery markets but liquidity providing markets
* If you have information insensitivity, then being able to provide liquidity is very attractive
* Debt is the best collateral for other debt
* The institution of debt is an excellent means of oppression, even of generating and preserving hierarchy (but under what institutional arrangement is this not the case)
* Douglas agrees to Graeber that is hierarchy-generating but we can put constraints on this and avoid disequilibrium
* The functionality of debt
* Cognitive biases influence how we regulate debt
* Is the institution of debt shaping these cognitive biases?
* Nietzsche says that these biases are not endogenous but a product of social breeding
* Debt is used to price people and assign value to things and unintentionally sometimes undermines what we value
* Pistor: all financial are first and foremost constituted by contracts and law
* Rather than thinking of markets as separate from law and state they are actually constituted by it because contracts assume that there is a mechanism that enforces the contract → if debt requires contracts and society requires debt → society requires contracts
* Power and law are inseparable and those who are in power set the rule