The Politics of Debt in America

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This essay will appear in the next issue of Jacobin
and appears at

Shakespeare’s Polonius offered this classic advice to his
son: “neither a borrower nor a lender be.” Many of our nation’s Founding Fathers
emphatically saw it otherwise. They often lived by the maxim: always a
borrower, never a lender be. As tobacco and rice planters, slave traders, and
merchants, as well as land and currency speculators, they depended upon long
lines of credit to finance their livelihoods and splendid ways of life. So,
too, in those days, did shopkeepers, tradesmen, artisans, and farmers, as well
as casual laborers and sailors. Without debt, the seedlings of a commercial
economy could never have grown to maturity.

Ben Franklin, however, was wary on the subject. “Rather
go to bed supperless than rise in debt” was his warning, and even now his
cautionary words carry great moral weight. We worry about debt, yet we can’t
live without it.

Debt remains, as it long has been, the Dr. Jekyll and Mr.
Hyde of capitalism. For a small minority, it’s a blessing; for others a curse.
For some the moral burden of carrying debt is a heavy one, and no one lets them
forget it. For privileged others, debt bears no moral baggage at all, presents
itself as an opportunity to prosper, and if things go wrong can be dumped
without a qualm.

Those who view debt with a smiley face as
the royal road to wealth accumulation and tend to be forgiven if their default
is large enough almost invariably come from the top rungs of the economic
hierarchy. Then there are the rest of us, who get scolded for our impecunious
ways, foreclosed upon and dispossessed, leaving behind scars that never fade
away and wounds that disable our futures.

Think of this upstairs-downstairs class calculus as the
politics of debt. British economist John Maynard Keynes put it like this: “If I
owe you a pound, I have a problem; but if I owe you a million, the problem is

After months of an impending “debtpocalypse,” the dreaded “debt ceiling,” and the “fiscal
cliff,” Americans remain preoccupied with debt, public and private. Austerity
is what we’re promised for our sins. Millions are drowning, or have already
drowned, in a sea of debt — mortgages gone bad, student loans that may
never be paid off, spiraling credit card bills, car loans, payday loans, and a
menagerie of new-fangled financial mechanisms cooked up by the country’s
“financial engineers” to milk what’s left of the American standard of living.

The world economy almost came apart in 2007-2008, and
still may do so under the whale-sized carcass of debt left behind by financial
plunderers who found in debt the leverage to get ever richer. Most of them
still live in their mansions and McMansions, while other debtors live outdoors,
or in cars or shelters, or doubled-up with relatives and friends — or even in
debtor’s prison. Believe it or not, a version of debtor’s prison, that relic of early American commercial
barbarism, is back.

In 2013, you can’t actually be jailed for not paying your
bills, but ingenious corporations, collection agencies, cops, courts,
and lawyers have devised ways to insure that debt “delinquents” will end up in
jail anyway. With one-third of the states now allowing the jailing of debtors
(without necessarily calling it that), it looks ever more like a trend in the making.

Will Americans tolerate this, or might there emerge a
politics of resistance to debt, as has happened more than once in a past that
shouldn’t be forgotten?

The World of Debtor’s Prisons

Imprisonment for debt was a commonplace in colonial America and the early republic, and
wasn’t abolished in most states until the 1830s or 1840s, in some cases not
until after the Civil War. Today, we think of it as a peculiar and heartless
way of punishing the poor — and it was. But it was more than that.

Some of the richest, most esteemed members of society
also ended up there, men like Robert Morris, who helped finance the American
Revolution and ran the Treasury under the Articles of Confederation; John
Pintard, a stock-broker, state legislator, and founder of the New York
Historical Society; William Duer, graduate of Eton, powerful merchant and
speculator, assistant secretary in the Treasury Department of the new federal
government, and master of a Hudson River manse; a Pennsylvania Supreme Court
judge; army generals; and other notables.

Whether rich or poor, you were there for a long stretch,
even for life, unless you could figure out some way of discharging your debts.
That, however, is where the similarity between wealthy and impoverished debtors

Whether in the famous Marshalsea in London where Charles
Dickens had Little Dorritt’s father incarcerated (and where Dickens’s father
had actually languished when the author was 12), or in the New Gaol in New York
City, where men like Duer and Morris did their time, debtors prisons were
segregated by class. If your debts were large enough and your social
connections weighty enough (the two tended to go together) you lived
comfortably. You were supplied with good food and well-appointed living
quarters, as well as books and other pleasures, including on occasion
manicurists and prostitutes.

Robert Morris entertained George Washington for dinner in
his “cell.” Once released, he resumed his career as the new nation’s richest
man. Before John Pintard moved to New Gaol, he redecorated his cell, had it
repainted and upholstered, and shipped in two mahogany writing desks.

Meanwhile, the mass of petty debtors housed in the same
institution survived, if at all, amid squalor, filth, and disease. They were
often shackled, and lacked heat, clean water, adequate food, or often food of
any kind. (You usually had to have the money to buy your own food, clothing,
and fuel.) Debtors in these prisons frequently found themselves quite literally
dying of debt. And you could end up in such circumstances for trivial sums. Of
the 1,162 jailed debtors in New York
City in 1787, 716 owed less than twenty shillings or
one pound. A third of Philadelphia’s
inmates in 1817 were there for owing less than $5, and debtors in the city’s
prisons outnumbered violent criminals by 5:1. In Boston, 15% of them were women. Shaming was
more the point of punishment than anything else.

Scenes of public pathos were commonplace. Inmates at the
New Gaol, if housed on its upper floors, would lower shoes out the window on
strings to collect alms for their release. Other prisons installed “beggar
gates” through which those jailed in cellar dungeons could stretch out their
palms for the odd coins from passersby.

Poor and rich alike wanted out. Pamphleteering against the
institution of debtor’s prison began in the 1750s. An Anglican minister in South Carolina denounced the jails, noting that “a person
would be in a better situation in the French King’s Gallies, or the Prisons of
Turkey or Barbary than in this dismal place.”
Discontent grew. A mass escape from New Gaol of 40 prisoners armed with pistols
and clubs was prompted by extreme hunger.

In the 1820s and 1830s, as artisans, journeymen, sailors,
longshoremen, and other workers organized the early trade union movement as
well as workingmen’s political parties, one principal demand was for the
abolition of imprisonment for debt. Inheritors of a radical political culture,
their complaints echoed that Biblical tradition of Jubilee mentioned in Leviticus, which
called for a cancellation of debts, the restoration of lost houses and land,
and the freeing of slaves and bond servants every 50 years.

Falling into debt was a particularly ruinous affliction
for those who aspired to modest independence as shopkeepers, handicraftsmen, or
farmers. As markets for their goods expanded but became ever less predictable,
they found themselves taking out credit to survive and sometimes going into
arrears, often followed by a stint in debtor’s prison that ended their dreams

However much the poor organized and protested, it was the
rich who got debt relief first. Today, we assume that debts can be discharged
through bankruptcy (although even now that option is either severely restricted
or denied to certain classes of less favored debt delinquents like college students). Although the newly adopted U.S.
Constitution opened the door to a national bankruptcy law, Congress didn’t walk
through it until 1800, even though many, including the well-off, had been
lobbying for it.

Enough of the old moral faith that frowned on debt as
sinful lingered. The United
States has always been an uncharitable place
when it comes to debt, a curious attitude for a society largely settled by
absconding debtors and indentured servants (a form of time-bound debt peonage).
Indeed, the state of Georgia
was founded as a debtor’s haven at a time when England’s jails were overflowing
with debtors.

When Congress finally passed the Bankruptcy Act, those in
the privileged quarters at New Gaol threw a party. Down below, however, life
continued in its squalid way, since the new law only applied to people who had
sizable debts. If you owed too little, you stayed in jail.

Debt and the Birth of a Nation

Nowadays, the conservative media inundate us with
warnings about debt from the Founding Fathers, and it’s true that some of them
like Jefferson — himself an inveterate, often near-bankrupt debtor — did
moralize on the subject. However, Alexander Hamilton, an idol of the
conservative movement, was the architect of the country’s first national debt,
insisting that “if it is not excessive, [it] will be to us a national

As the first Secretary of the Treasury, Hamilton’s goal was to transform the former 13 colonies,
which today we would call an underdeveloped land, into a country that someday
would rival Great Britain.
This, he knew, required liquid capital (resources not tied up in land or other
less mobile forms of wealth), which could then be invested in sometimes highly
speculative and risky enterprises. Floating a national debt, he felt sure,
would attract capital from well-positioned merchants at home and abroad,
especially in England.

However, for most ordinary people living under the new
government, debt aroused anger. To begin with, there were all those veterans of
the Revolutionary War and all the farmers who had supplied the revolutionary
army with food and been paid in notoriously worthless “continentals” — the
currency issued by the Continental Congress — or equally valueless state

As rumors of the formation of a new national government
spread, speculators roamed the countryside buying up this paper money at a
penny on the dollar, on the assumption that the debts they represented would be
redeemed at face value. In fact, that is just what Hamilton’s national debt would do, making
these “sunshine patriots” quite rich, while leaving the yeomanry impoverished.

Outrage echoed across the country even before Hamilton’s plan got
adopted. Jefferson denounced the currency
speculators as loathsome creatures and had this to say about debt in general:
“The modern theory of the perpetuation of debt has drenched the earth with
blood and crushed its inhabitants under burdens ever accumulating.” He and
others denounced the speculators as squadrons of counter-revolutionary
“moneycrats” who would use their power and wealth to undo the democratic
accomplishments of the revolution.

In contrast, Hamilton
saw them as a disinterested monied elite upon whom the country’s economic
well-being depended, while dismissing the criticisms of the Jeffersonians as
the ravings of Jacobin levelers. Soon enough, political warfare over the debt
turned founding fathers into fratricidal brothers.

Hamilton’s plan worked — sometimes too well. Wealthy speculators in land like
Robert Morris, or in the building of docks, wharves, and other projects tied to
trade, or in the national debt itself — something William Duer and grandees
like him specialized in — seized the moment. Often enough, however, they
over-reached and found themselves, like the yeomen farmers and soldiers, in
default to their creditors.

Duer’s attempts to corner the market in the bonds issued by
the new federal government and in the stock of the country’s first National
Bank represented one of the earliest instances of insider trading. They also
proved a lurid example of how speculation could go disastrously wrong. When the
scheme collapsed, it caused the country’s first Wall Street panic and a local
depression that spread through New England, ruining “shopkeepers, widows, orphans, butchers…
gardeners, market women, and even the noted Bawd Mrs. McCarty.”

A mob chased Duer through the streets of New York and might have
hanged or disemboweled him had he not been rescued by the city sheriff, who
sent him to the safety of debtor’s prison. John Pintard, part of the same
scheme, fled to Newark, New Jersey, before being caught and jailed
as well.

Sending the Duers and Pintards of the new republic off to
debtors’ prison was not, however, quite what Hamilton had in mind. And leaving them
rotting there was hardly going to foster the “enterprising spirit” that would,
in the treasury secretary’s estimation, turn the country into the Great Britain
of the next century. Bankruptcy, on the other hand, ensured that the
overextended could start again and keep the machinery of commercial
transactions lubricated. Hence, the Bankruptcy Act of 1800.

If, however, you were not a major player, debt functioned
differently. Shouldered by the hoi polloi, it functioned as a mechanism for
funneling wealth into the mercantile-financial hothouses where American
capitalism was being incubated.

No wonder debt excited such violent political emotions.
Even before the Constitution was adopted, farmers in western Massachusetts,
indebted to Boston
bankers and merchants and in danger of losing their ancestral homes in the
economic hard times of the 1780s, rose in armed rebellion. In those years, the
number of lawsuits for unpaid debt doubled and tripled, farms were seized, and
their owners sent off to jail. Incensed, farmers led by a former revolutionary
soldier, Daniel Shays, closed local courts by force and liberated debtors from
prisons. Similar but smaller uprisings erupted in Maine,
Connecticut, New York,
and Pennsylvania, while in New
Hampshire and Vermont
irate farmers surrounded government offices.

Shays’ Rebellion of 1786 alarmed the country’s elites.
They depicted the unruly yeomen as “brutes” and their houses as “sties.” They
were frightened as well by state governments like Rhode Island’s that were more open to
popular influence, declared debt moratoria, and issued paper currencies to help
farmers and others pay off their debts. These developments signaled the need
for a stronger central government fully capable of suppressing future debtor

Federal authority established at the Constitutional
Convention allowed for that, but the unrest continued. Shays’ Rebellion was but
part one of a trilogy of uprisings that continued into the 1790s. The Whiskey
Rebellion of 1794 was the most serious. An excise tax (“whiskey tax”) meant to
generate revenue to back up the national debt threatened the livelihoods of
farmers in western Pennsylvania
who used whiskey as a “currency” in a barter economy. President Washington sent
in troops, many of them Revolutionary War veterans, with Hamilton at their head to put down the

Debt Servitude and Primitive Accumulation

Debt would continue to play a vital role in national and
local political affairs throughout the nineteenth century, functioning as a form
of capital accumulation in the financial sector, and often sinking
pre-capitalist forms of life in the process.

Before and during the time that capitalists were fully
assuming the prerogatives of running the production process in field and
factory, finance was building up its own resources from the outside. Meanwhile,
the mechanisms of public and private debt made the lives of farmers, craftsmen,
shopkeepers, and others increasingly insupportable.

This parasitic economic metabolism helped account for the
riotous nature of Gilded Age politics. Much of the high drama of late
nineteenth-century political life circled around “greenbacks,” “free silver,”
and “the gold standard.” These issues may strike us as arcane today,
but they were incendiary then, threatening what some called a “second Civil
War.” In one way or another, they were centrally about debt, especially a
system of indebtedness that was driving the independent farmer to extinction.

All the highways of global capitalism found their way
into the trackless vastness of rural America. Farmers there were not in
dire straits because of their backwoods isolation. On the contrary, it was
because they turned out to be living at Ground Zero, where the explosive energies of
financial and commercial modernity detonated. A toxic combination of railroads,
grain-elevator operators, farm-machinery manufacturers, commodity-exchange
speculators, local merchants, and above all the banking establishment had the
farmer at their mercy. His helplessness was only aggravated when the
nineteenth-century version of globalization left his crops in desperate
competition with those from the steppes of Canada
and Russia, as well as the
outbacks of Australia and South America.

To survive this mercantile onslaught, farmers hooked
themselves up to long lines of credit that stretched back to the financial
centers of the East. These lifelines allowed them to buy the seed, fertilizer,
and machines needed to farm, pay the storage and freight charges that went with
selling their crops, and keep house and home together while the plants ripened
and the hogs fattened. When market day finally arrived, the farmer found out
just what all his backbreaking work was really worth. If the news was bad, then
those credit lines were shut off and he found himself dispossessed.

The family farm and the network of small town life that
went with it were being washed into the rivers of capital heading for
metropolitan America.
On the “sod house” frontier, poverty was a “badge of honor which decorated
all.” In his Devil’s Dictionary, the acid-tongued humorist
Ambrose Bierce defined the dilemma this way: “Debt. n. An ingenious substitute
for the chain and whip of the slave-driver.”

Across the Great Plains
and the cotton South, discontented farmers spread the blame for their
predicament far and wide. Anger, however, tended to pool around the
strangulating system of currency and credit run out of the banking centers of
the northeast. Beginning in the 1870s with the emergence of the Greenback Party
and Greenback-Labor Party and culminating in the 1890s with the People’s or
Populist Party, independent farmers, tenant farmers, sharecroppers, small
businessmen, and skilled workers directed ever more intense hostility at “the
money power.”

That “power” might appear locally in the homeliest of
disguises. At coal mines and other industrial sites, among “coolies” working to
build the railroads or imported immigrant gang laborers and convicts leased to private concerns, workers were typically
compelled to buy what they needed in company scrip at company stores at prices
that left them perpetually in debt. Proletarians were so precariously
positioned that going into debt — whether to pawnshops or employers, landlords
or loan sharks — was unavoidable. Often they were paid in kind: wood chips,
thread, hemp, scraps of canvas, cordage: nothing, that is, that was of any use
in paying off accumulated debts. In effect, they were, as they called
themselves, “debt slaves.”

In the South, hard-pressed growers found themselves
embroiled in a crop-lien system, dependent on the local “furnishing agent” to
supply everything needed, from seed to clothing to machinery, to get through
the growing season. In such situations, no money changed hands, just a note
scribbled in the merchant’s ledger, with payment due at “settling up” time.
This granted the lender a lien, or title, to the crop, a lien that never went

In this fashion, the South became “a great pawn shop,”
with farmers perpetually in debt at interest rates exceeding 100% per year. In Alabama, Georgia,
and Mississippi,
90% of farmers lived on credit. The first lien you signed was essentially a
life sentence. Either that or you became a tenant farmer, or you simply left
your land, something so commonplace that everyone knew what the letters
“G.T.T.” on an abandoned farmhouse meant: “Gone to Texas.” (One hundred
thousand people a year were doing that in the 1870s.)

The merchant’s exaction was so steep that
African-Americans and immigrants in particular were regularly reduced to
peonage — forced, that is, to work to pay off their debt, an illegal but not
uncommon practice. And that neighborhood furnishing agent was often tied to the
banks up north for his own lines of credit. In this way, the sucking sound of
money leaving for the great metropolises reverberated from region to region.

Facing dispossession, farmers formed alliances to set up
cooperatives to extend credit to one another and market crops themselves. As
one Populist editorialist remarked, this was the way “mortgage-burdened farmers
can assert their freedom from the tyranny of organized capital.” But when they
found that these groupings couldn’t survive the competitive pressure of the
banking establishment, politics beckoned.

From one presidential election to the next and in state
contests throughout the South and West, irate grain and cotton growers demanded
that the government expand the paper currency supply, those “greenbacks,” also
known as “the people’s money,” or that it monetize silver, again to enlarge the
money supply, or that it set up public institutions to finance farmers during
the growing season. With a passion hard for us to imagine, they railed against
the “gold standard” which, in Democratic Partypresidential candidate
William Jennings Bryan’s famous cry, should no longer be allowed to “crucify
mankind on a cross of gold.”

Should that cross of gold stay fixed in place, one Alabama physician
prophesied, it would “reduce the American yeomanry to menials and paupers, to
be driven by monopolies like cattle and swine.” As Election Day approached,
populist editors and speakers warned of an approaching war with “the money
power,” and they meant it. “The fight will come and let it come!”

The idea was to force the government to deliberately
inflate the currency and so raise farm prices. And the reason for doing that?
To get out from under the sea of debt in which they were submerged. It was a
cry from the heart and it echoed and re-echoed across the heartland, coming
nearer to upsetting the established order than any American political upheaval
before or since.

The passion of those populist farmers and laborers was
matched by that of their enemies, men at the top of the economy and government
for whom debt had long been a road to riches rather than destitution. They
dismissed their foes as “cranks” and “calamity howlers.” And in the election of
1896, they won. Bryan
went down to defeat, gold continued its pitiless process of crucifixion, and a
whole human ecology was set on a path to extinction.

The Return of Debt Servitude

When populism died, debt — as a spark for national
political confrontation — died, too. The great reform eras that followed —
Progessivism, the New Deal, and the Great Society — were preoccupied with
inequality, economic collapse, exploitation in the workplace, and the outsized
nature of corporate power in a consolidated industrial capitalist system.

Rumblings about debt servitude could certainly still be
heard. Foreclosed farmers during the Great Depression mobilized, held “penny
auctions” to restore farms to families, hanged judges in effigy, and forced
Prudential Insurance Company, the largest land creditor in Iowa, to suspend foreclosures on 37,000
farms (which persuaded Metropolitan Life Insurance Company to do likewise). A Kansas City realtor was
shot in the act of foreclosing on a family farm, a country sheriff kidnapped
while trying to evict a farm widow and dumped 10 miles out of town, and so on.

Urban renters and homeowners facing eviction formed
neighborhood groups to stop the local sheriff or police from throwing families
out of their houses or apartments. Furniture tossed into the street in eviction
proceedings would be restored by neighbors, who would also turn the gas and
electricity back on. New Deal farm and housing finance legislation bailed out
banks and homeowners alike. Right-wing populists like the Catholic priest
Father Charles Coughlin carried on the war against the gold standard in tirades
tinged with anti-Semitism. Signs like one in Nebraska — “The Jew System of Banking”
(illustrated with a giant rattlesnake) — showed up too often.

But the age of primitive accumulation in which debt and
the financial sector had played such a strategic role was drawing to a close.

Today, we have entered a new phase. What might be called capitalist underdevelopment and once again debt has emerged
as both the central mode of capital accumulation and a principal mechanism of
servitude. Warren Buffett (of all people) has predicted
that, in the coming decades, the United States is more likely to
turn into a “sharecropper society” than an “ownership society.”

In our time, the financial sector has enriched itself by devouring the productive wherewithal of industrial America through
debt, starving the public sector of resources, and saddling ordinary working people with every conceivable
form of consumer debt.

Household debt, which in 1952 was at 36% of total
personal income, had by 2006 hit 127%. Even financing poverty became a lucrative
enterprise. Taking advantage of the low credit ratings of poor people and their
need for cash to pay monthly bills or simply feed themselves, some
check-cashing outlets, payday lenders, tax preparers, and others levy interest
of 200% to 300% and more. As recently as the 1970s, a good part of this would
have been considered illegal under usury laws that no longer exist. And these
poverty creditors are often tied to the largest financiers, including Citibank,
Bank of America, and American Express.

Credit has come to function as a “plastic safety net” in a world of
job insecurity, declining state support, and slow-motion economic growth,
especially among the elderly, young adults, and low-income families. More than
half the pre-tax income of these three groups goes to servicing debt. Nowadays,
however, the “company store” is headquartered on Wall Street.

Debt is driving this system of auto-cannibalism which, by
every measure of social wellbeing, is relentlessly turning a developed country
into an underdeveloped one.

Dr. Jekyll and Mr. Hyde are back. Is a political
resistance to debt servitude once again imaginable?

Steve Fraser is a historian, writer, and editor-at-large
New Labor Forum, co-founder of the American Empire
, and TomDispatch regular. He is, most recently, the
author of
Wall Street: America’s Dream Palace. He teaches at Columbia University. This essay will appear in
the next issue of
Jacobin magazine.

Copyright 2013 Steve Fraser

“Famous whiskey
insurrection in Pennsylvania,”
depicting the 1794 Whiskey Rebellion (R.M.
, 1880).

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