Debt - Vital Government Service and Tool of the Devil

Debt still strikes a discordant note with Americans. This aversion to debt is a big reason for the Tea Party's popularity but debt is not just an essential part of the modern economy; it is an important government service. Paul, though, clearly warned against it in his letter to the Romans. It's fair to say that Americans are conflicted about debt.

The Venetians invented the bond market between the 12th and 14th centuries. Rather than tax their wealthy, they raised money through a forced loan. The wealthy got a return of 5%. Within a century or two, these claims on interest (what we now call bonds) could be sold, which made them even better investments. 

The Dutch were the next to turn trading profits into financial innovations. The Dutch held off the much larger Spanish Empire for eighty years, largely through very different approaches to debt. On five different occasions Spain defaulted. The Netherlands, by contrast, honored their debt and accumulated a lot of it. It was not just the king who bought bonds; huge swaths of the population purchased these bonds that helped to finance their country and independence. In spite of having a much smaller population than Castile, Holland carried triple the per capita debt; matching Spain's spending helped it to eventually win its war. By the conclusion of the war, “The Netherlands had transformed themselves into an independent and extraordinarily wealthy republic. Spain, however, was in precipitous decline, and many Spaniards agreed that ‘the war in the Netherlands has been the total ruin of this Monarchy.’”[1]

What first the Dutch and then the British learned was that financing debt could enable the operation of a government and provide a safe investment. Bonds are like a gateway drug for capitalism, creating the habits of investment, the expectation of payment, and a baseline against which other investments can be measured. As control over nation-states shifted from monarchs to Parliaments, government debt became safer. Monarchs obliged to pay back a debt would default when they could, eager to get out from under debt obligation. Parliament that voted to pay interest on debt were often among the chief holders of government bonds; among the many reasons that democracies eclipsed monarchies is that they are safer investments, creating environs more conducive to capitalism and able to run their governments for considerably less money.

We will never be rid of government debt for this simple reason: it is a good and (probably) necessary part of the financial system. 

But the Tea Party gets excited about it for numerous reasons. One is residual from a Biblical controversy about a century old. Debt, like homosexuality, not only seemed distasteful but there was scripture that banned it.

In his book Financing the American Dream, Lendol Calder captures the extent to which public opinion resisted the concept of consumer credit. The argument against credit wasn’t just the modern indictment that people who went into debt were “mortgaging the future." [2] Debt, its detractors claimed, threatened salvation. [3]

Debt seemed to be a tool of the devil, leading people to buy what they could not afford and to fail to appreciate the true value of things. Consumer credit, of course, encouraged people to seize now what propriety suggested they should wait for and was evidence of discontent and greed. Those who preached against debt—and many of the most influential preachers of the late nineteenth and early twentieth centuries did—even had a verse clearly advising against it. In Romans 13:8, Paul writes, “Owe no man anything, but to love one another.” Self-denial was key to Christianity[4]: borrowing to buy the latest gadget was the antithesis of that.

These preachers were not particularly sympathetic to the goals of the capitalists, eager to sell their goods.  “Credit is the latest ally of the devil. It is the great tempter. It is responsible for half the extravagance of modern life. The two words ‘charge it’ have done more harm than any others in the language. They have led to a vast amount of unnecessary buying.” [5]

Arguments about how defaulting on debt could lead to economic woe, a contraction of the economy, of course rest on the naive notion that Tea Party members care about - or even trust in - prosperity. Consumption - like cocaine or heroin - feels good now but perhaps for that very reason should be mistrusted.

---

[1] McDonald, A Free Nation Deep in Debt, 151.

[2] Lendol Calder, Financing the American Dream: A Cultural History of Consumer Credit (Princeton, N.J.: Princeton University Press, 1999), 221.

[3] Calder, Financing the American Dream, 224.

[4] Calder, Financing the American Dream, 95.

[5] Calder, Financing the American Dream, 215.

---