This article is about criticism of, and arguments against debt.
There are many arguments against debt as an instrument and institution, on a personal, family, social, corporate and governmental level. Usually these refer to conditions under which debt should not be used as a solution, e.g. to fund consumption for survival. Consumer debt and public debt deal with some of these issues. Calls for debt relief to the developing countries have been more and more insistent since the 1980s Latin American debt crisis, and, more recently, the Argentine economic crisis. Developing countries' debt has often been qualified as an odious debt and a mean of neocolonialism, in particular by "third-worldism" (tiers-mondisme) and the more recent alter-globalization movement.
Contents |
Debt is a major source of money creation in modern economies. Some economists, especially the Austrian school believe that fractional reserve banking should not be allowed and banks should not be allowed to lend money deposited in their accounts by individuals, unless they approve so. Money creation should either be banned (Austrian school) or be a government privilege.[1]
Fluctuations in debt levels are the same as fluctuation in optimism (boom) and pessimism (bust). The middle path is to be advocated at the individual or collective level. In boom times, the debt/GDP ratio rises, this prepares tough times ahead, as sooner or later people are bound to realise that the reality does not match their irrealistic expectations, then they collectively stop to lend and borrow, bankruptcies and debt deflation follow.[2]
The Biblical books of Deuteronomy (23:20) [3] and Leviticus (25:37) [4] explicitly prohibit lending at interest, and are the source of two of the 613 mitzvot (Maimonides #534 & #535), the commands of God to the Jewish people. According to Proverbs 22:7,[5] "The rich rule over the poor, and the borrower is slave of the lender". NRSV
Christian philosophy has historically also been concerned with these very issues, and the Catholic Church prohibited lending at interest throughout most of the Middle Ages. The words for sin and debt are the same in Aramaic, and the Lord's Prayer can be read as "redeem us from our debts, as we redeem our debitors." The French philosopher Simone Weil has argued that debt is evil, because it leads us to the false belief that the past (a promise to pay later for instance) give us right to a certain future (a given money sum at a given date). God wants us to remain in the present, in His presence, so it is supposed that debt is something which moves us away from the feeling of God's instantaneous presence.
Islamic economics, concerned with the equity of distribution of these things and the potential for unrest if simple luck is permitted to cause some to starve while others prosper, simply for having held a safer debt asset through a catastrophe, has alternative instruments that do not obligate repayment in the sense of debt but instead act as a joint venture type instrument. The justification for this is a hadith which states as a rule of trade: "nothing present for that which is absent". This avoids the problems of the devaluted asset or bad debt becoming a source of unrest later on, should it be devalued or defaulted through no fault of the borrower.