Friday, November 07, 2008

Nature of Debt and Depression

Debt and Justice

By John Taylor; 2008 Nov 07, 04 Qudrat 165 BE

Last time we talked about "Mom bucks" and "Dad points," the two rival financial systems that have arisen in our home. We named seven ways of making money. Since the first draft of that essay, now that the stock market and financial world are in collapse, I realize that I forgot that there is an eighth way to make money. Dollars, like bacteria, can be bred. You "breed" money by lending at interest. The basis of this money making scheme is the faith that it will come back with interest. Before Baha'u'llah revealed the Aqdas, holy books called this practice usury, and forbade it. Now the practice can be called credit. Just as a farmer plants seeds so as to exchange the harvest for more cash than he put in, lenders seed their funds, using borrowers as a field. The harvest of the credit system is interest.

Even today, though, extreme interest rates are still called usury. There is a balance where credit, the "lifeblood of commerce," becomes exploitation, making the disadvantaged into bond slaves. Economic liberals, worshipping the god of greed, hold that the end result of avarice still tends toward the general good. "A high tide raises all boats." Religion smashes such idolatry. Although Baha'u'llah allows credit and interest, He still holds, like all Prophets before Him, that attachment to money is the root of all evil. In the Hidden Words, God gives us the fatherly advice to draw a firm line between human folly and divine wisdom in economics,

"O Son of Man! Thou dost wish for gold and I desire thy freedom from it. Thou thinkest thyself rich in its possession, and I recognize thy wealth in thy sanctity therefrom. By My life! This is My knowledge, and that is thy fancy; how can My way accord with thine?"

Canadian novelist Margaret Atwood has perfect, almost prophetic timing in the release of her new book. She saw the financial crisis coming years ago and is talking about debt just as the perfect storm hits Wall Street. In the New York Times she explains how deep the roots of debt go down. Credit, she says, is a direct result of the human ability to grasp justice and reciprocity over time. Human beings are obsessed with justice and debts. We talk of little else from the earliest age.

"Children begin saying, That's not fair! long before they start figuring out money; they exchange favors, toys and punches early in life, setting their own exchange rates. Almost every human interaction involves debts incurred -- debts that are either paid, in which case balance is restored, or else not, in which case people feel angry. A simple example: You are in your car, and you let someone else go ahead of you, and the driver does not nod, wave or honk. How do you feel?" (A Matter of Life and Debt, New York Times, October 21, 2008,

Atwood points out that we very frequently use the words "thank you" as a symbolic way to repay small obligations with strangers that are unlikely to be repaid in kind. With larger favors, we are pulled by our sense of right and wrong to even out the imbalance. We seek, with friends and acquaintances to do an equivalent, reciprocal favor later on. We rarely do favors simultaneously, except at Christmas morning around the tree. Usually one friend does another a good turn in the often unconscious expectation that the other will balance the scales later -- if only by praying for our souls after we die. If a recipient brazenly ignores a moral debt, he or she is rightly accused of being ungrateful.

Atwood says that the present financial collapse runs deeper than we think, deep down into our moral fibre. Any debt incurred is -- in divine language -- a real sin, a wound that must be "healed." To heal the swing of the balance, Atwood says, we feel that we,

"must repair the broken moral balance that let this chaos loose. Debt -- who owes what to whom, or to what, and how that debt gets paid -- is a subject much larger than money. It has to do with our basic sense of fairness, a sense that is embedded in all of our exchanges with our fellow human beings."

As a child she noticed that the Lord's Prayer said, "Forgive us our debts as we forgive our debtors." She later found out that "sin" and "debt" are the same word in the Aramaic language spoken by Jesus. "... although many people assume that debts in these contexts refer to spiritual debts or trespasses, debts are also considered sins. If you do not pay back what is owed, you cause harm to others." I think this makes sense. Like most people, I dread it when a friend or family member borrows a small amount of money, not because of the expense, or even the inconvenience of having to remember, but mostly because of the stress involved. You have to remember the debt, ask for the money back, consider "forgiving" the debt, and even if you forgive it, the mental burden is hardly alleviated. As the Hidden Word says, "I desire your freedom from it..." Injustice results from failure to free ourselves of the impurity inherent to money, credit and debt.

"We are social creatures who must interact for mutual benefit and -- the negative version -- who harbor grudges when we feel we have been treated unfairly. Without a sense of fairness and also a level of trust, without a system of reciprocal altruism and tit-for-tat, one good turn deserves another -- and so does one bad turn -- no one would ever lend anything, as there would be no expectation of being paid back. And people would lie, cheat and steal with abandon, as there would be no punishments for such behavior."

Surely most prejudice, crime, war and violence can be seen as ways of paying debts in negative ways. Injustices are understood by their perpetrators as ways of assuaging anger at a perceived tipping of the scales of justice. You are different or inferior, so I hate you. Hate hurts me, it is against my deepest nature. So, in return for my pain, I owe it to you to right the balance. By your vulnerability you are a standing threat, an infuriating insult. I can back at you by hurting you, or taking from you what I can.

The relationship between debtor and borrower is fundamental. It allows faith in one another. Credit is a sense of equity, that everybody is doing right and done right by. This will always be the basis of prosperity. But now the situation is far more complex.

The cause of the Great Meltdown, Atwood suspects, is that we have allowed machines to intervene in the relationship between borrowers and debtors. Bad as personal crimes are, systemic injustices are vastly worse. But our widespread use of computers as intermediaries obscures where the fault, if any, lies.

"But at some point we stopped seeing debt as a simple personal relationship. The human factor became diminished. Maybe it had something to do with the sheer volume of transactions that computers have enabled. But what we seem to have forgotten is that the debtor is only one twin in a joined-at-the-hip pair, the other twin being the creditor. The whole edifice rests on a few fundamental principles that are inherent in us."

If debt is impersonal, its pain is widespread too. We do not feel the wrongs being done. Who is forgiving what debts? Who knows? Computers, like any tool, can be used to concentrate wealth or to distribute it more fairly and broadly among the population; they intensify justice or injustice, as we choose.

Without justice, without reciprocal human bonds of brotherhood, money automatically accumulates into the hands of a few. The rich grow richer, feel worse spiritually, and try to compensate by accumulating more wealth. They retaliate against their victims by blaming them. They worship the god of the market, an economic liberalism which teaches that the markets are always right, and that their Darwinian selection has the force of divine truth. Evolution sorts the rich out as the fittest, and the unfit are eliminated by nature itself. Thus both God and government are kept out of the economic equation. As a result, the economy becomes more and more top heavy, unbalanced and delicate. A crash becomes inevitable.

The greatest stock crash in history took place in 1929, and it was followed by the worst economic doldrums, the Great Depression of the 1930's. The shockwave of a limited explosion, a stockmarket crash, took the economy into a full blown depression. How this happened was a matter of debate, until John Kenneth Galbraith answered it in his classic "The Great Crash." He held that the heart of the problem was just what we have been discussing, over-centralization. He discerned five factors causing the stumble,

(1) The bad distribution of income.

(2) The bad corporate structure.

(3) The bad banking structure

(4) The dubious state of the foreign balance.

(5) The poor state of economic intelligence. (The Great Crash: 1929, John Kenneth Galbraith, 1955, 197-202,

We now have experience with crashes and are aided by sophisticated computer-aided countermeasures. These mitigate factors two to five. However, nobody doubts that the past decade has seen history's most massive concentration of wealth into fewer hands than ever before. It pays then, to look at what Galbraith has to say about factor one. He writes,

"The collapse in securities values affected in the first instance the wealthy and well-to-do. But ... in the world of 1929 this was a vital group. The members disposed of a large proportion of consumer income; they were the source of a lion's share of personal saving and investment. Anything that struck at the spending or investment by this group would of necessity have broad effects on expenditure and income in the economy at large. Precisely such a blow was struck by the stock market crash." (The Great Crash: 1929, 203)

With his characteristic dry humor, Galbraith compares this fragile top-heaviness to a greenhouse being subjected to a hailstorm. Who do you blame, the designer of the greenhouse or the hailstones?

" in 1929 was not sound; on the contrary it was exceedingly fragile. It was vulnerable to the kind of blow it received from Wall Street. Those who have emphasized this vulnerability are obviously on strong ground. Yet when a greenhouse succumbs to a hailstorm something more than a purely passive role is normally attributed to the storm. One must accord similar significance to the typhoon which blew out of lower Manhattan in October 1929." (The Great Crash: 1929, John Kenneth Galbraith, 1955, 204)

The old Biblical expression, "to reap the whirlwind" is thus literally true, both in the economy and, as we are seeing, with the increased force of hurricanes under global warming. There is always an underlying ethical cause behind economic effects. Franklin D. Roosevelt, whose New Deal finally took America out of the Depression, pointed out in his second inaugural address that,

"We have always known that heedless self-interest was bad morals; we know now that it is bad economics."

Blind market forces and belief in selfishness do not always select for the fittest, or even the most adaptable. Like any destructive force, like the whirlwind, they are far more likely to cause chaos than order. The only way to create order is to accept a single authority, the more universal the better. As long as national governments remain corrupt and partisan, this will be impossible, as one commentator pointed out:

"If you start thinking about our faulty perceptions, the first thing you realize is that markets are not perfectly efficient, people are not always good guardians of their own self-interest and there might be limited circumstances when government could usefully slant the decision-making architecture... But the second thing you realize is that government officials are probably going to be even worse perceivers of reality than private business types. Their information feedback mechanism is more limited, and, being deeply politicized, they are even more likely to filter inconvenient facts." (

Human beings have an inherent inability to see the forest of long term best interest for the trees of short term, selfish good. This is nothing new. Galbraith recognized that neither government nor business lack an instinct for self preservation, but it is always easier to gloss imbalances over, to tell lies and cover them over rather than expose and address them early.

"... But now, as throughout history, financial capacity and political perspicacity are inversely correlated. Long-run salvation by men of business has never been highly regarded if it means disturbance of orderly life and convenience in the present. So inaction will be advocated in the present even though it means deep trouble in the future. Here, at least equally with communism, lies the threat to capitalism. It is what causes men who know that things are going quite wrong to say that things are fundamentally sound." (The Great Crash, Chapter 10,

Debt, then, all boils down to justice. Justice to the future as well as the present. Baha'u'llah said that "The purpose of justice is unity." If we do not value unity, justice and debt seem like just another automatic income stream fattening the wealthy, rather than redounding to the glory of God. It is easy to lose our moral bearings and forget that we were created to be our brother's keeper. Thus, to neglect morality and economic justice is to fall short of our reason for being: to know and love of the One True God, who says,

"Blessed and happy is he that ariseth to promote the best interests of the peoples and kindreds of the earth." (Tablets, 167)

John Taylor



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