Graeber, chapter 3
If one were looking for the ethos for an individualistic society such as our own, one way to do it might well be to say: we all owe an infinite debt to humanity, society, nature, or the cosmos (however one prefers to frame it), but no one else could possibly tell us how we are to pay it.
By definition, an infinite debt cannot be repaid. Even if you could pay half of it, the unpaid debt would still be infinite.
Graeber, chapter 3:
One could in fact interpret this list as a subtle way of saying that the only way of "freeing oneself" from the debt was not literally repaying debts, but rather showing that these debts do not exist because one is not in fact separate to begin with, and hence that the very notion of canceling the debt, and achieving a separate, autonomous existence, was ridiculous from the start. Or even that the very presumption of positing oneself as separate from humanity or the cosmos, so much so that one can enter into one-to-one dealings with it, is itself the crime that can be answered only by death. Our guilt is not due to the fact that we cannot repay our debt to the universe. Our guilt is our presumption in thinking of ourselves as being in any sense an equivalent to Everything Else that Exists or Has Ever Existed, so as to be able to conceive of such a debt in the first place.
Graeber, chapter 3:
If you start from the barter theory of money, you have to resolve the problem of how and why you would come to select one commodity to measure just how much you want each of the other ones.
David Graeber, from chapter 3:
Why were cattle so often used as money ? The German historian Bernard Laum long ago pointed out that in Homer, when people measure the value of a ship or suit of armor, they always measure it in oxen-even though when they actually exchange things, they never pay for anything in oxen . It is hard to escape the conclusion that this was because an ox was what one offered the gods in sacrifice. Hence they represented absolute value. From Sumer to Classical Greece, silver and gold were dedicated as offerings in temples. Everywhere, money seems to have emerged from the thing most appropriate for giving to the gods.It is strangely fascinating, but it is not economics.
On 4 January I said
I'm thinking of new-use-of-credit as extra money spent into the economy. And I'm thinking of cost-of-interest as a reduction of money available for current spending.
Scott Sumner would say it is not true that the cost-of-interest is a reduction of money available for current spending. I remember an exchange of comments at his blog Money Illusion. Here, Sumner's reply to an earlier comment by Woj:
Woj, You said;
“As the aggregate amount of debt and interest rises, the percentage of income used to pay interest costs or pay down debt also rises, lowering the amount available for consumption/investment.”
This is simply factually wrong. Every debt payment is money received by someone else.
Even if what Sumner said is true, it still misses the point.
If I use a dollar of income to pay a debt, I can't use that dollar to buy something else. And as the aggregate amount of debt and interest rises, there are more and more dollars that can't be used to buy something else.
Meanwhile, the dollars used for debt and interest payments are money received by someone in finance. As debt and interest costs rise, money moves increasingly out of the general economy and into the financial sector. And money in finance tends to stay in finance.
Oh, you can borrow it, maybe, but you'll have to return it. And you'll have to pay a little something extra. As debt and interest costs rise, and even just as time passes, money moves more and more into finance. As it does so, it moves out of the "nonfinancial" economy where people live and where goods and services (other than monetary services) are created.
As money moves out of the nonfinancial economy, we are forced to increase our reliance on credit. As our reliance on credit increases, money increasingly moves out of the nonfinancial economy. This is the new "circular flow".
If it continues, civilization will not.
You've seen the GDP equation Y = C + I + G + NX where
C and I and G represent the three major domestic sectors of the economy, and NX covers trade with other nations.
Okay,
I want to look at interest cost, not GDP. But I want to look at
interest cost in our whole economy. So again there are the three major
domestic sectors. In place of Net Exports we could have interest paid by
"rest of the world" but I don't want to count that: I want to count the
interest paid by us -- by US households and businesses and governments.
And I want to count that interest, no matter who received the payment.
So I have C and I and G but I don't need Net Exports.
To count all of G it is necessary to count two parts: the federal component, and the state-and-local component. So to count all interest cost, I count interest paid by C + I + F + SL.
I could use FRED's "Monetary Interest Paid" dataset, but that only goes back to 1960. C and I and SL go back to 1946, and F goes back to 1929. Evidently, FRED doesn't combine those datasets, probably because they are incompatible.
I'm going to combine them anyway, to get a rough idea of what the interest cost might have looked like all the way back to 1946.
Here is the combined data:
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| Graph #1: The orange data continues out to 2020. This graph stops at 1975. |
The blue line is my estimate of interest paid during the 1946-1959 period. It includes payments by households, businesses, the federal government, and state and local governments.
The orange line begins in 1960 and shows the FRED data for the total Monetary Interest Paid.
That was more work than I expected, considering the simple thing I want to do with the resulting data: I just want to compare the cost of interest to the new use of credit each year.
I'm thinking of new-use-of-credit as extra money spent into the economy. And I'm thinking of cost-of-interest as a reduction of money available for current spending. I think the "extra money" will have to be greater than the "reduction of money", or the economy will get no boost from the use of credit.
My purpose in this post is to evaluate the flow of credit into the economy, and the flow of payment-for-that-credit out of the economy, or (more precisely) out of the producing-and-consuming sector and into the financial accumulation sector. My task is an attempt to see how useful credit is as a tool for expanding aggregate demand in the producing-and-consuming sector.
My gut says it is no longer useful, because the accumulation of debt is so big that the interest we pay -- even at low rates -- is more than our new uses of credit. I figure it is the financial accumulation sector that benefits most by our use of credit.
The graph below shows for
each year the total amount borrowed by all sectors of the US economy,
minus the amount we paid as interest on our debt. Where the plotted line
is above zero, it shows a boost to the economy from our borrowing and
spending. Where the line is below zero, it indicates a drag on the
economy arising from interest costs that exceed the amount of our
borrowing. Where the line is at zero, there is no boost and no drag.
Note: The values shown on the graph are annual, not cumulative:
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| Graph #2: That tall spike on the right is the covid-related borrowing of 2020 |
Until around 1978, the plotted line runs near zero. It says there was no net gain from our use of credit, but no net loss either.
After 1978 the plotted line is almost entirely below zero. Net loss almost all the time, except in the financial accumulation sector. This could explain the relatively poor performance of our economy for the last 40 years and more.
Below is a close-up of the early years, from 1946 to 1982:
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| Graph #3 |
It runs at or slightly above the zero level until around 1966; then at or increasingly below the zero level. In other words, there was a very slight boost to the economy from credit use, early on. But after 1966 the use of credit did more harm than good, as the interest cost was generally more than the boost we got from credit use.
That drag on the economy continued after 1982, as graph #2 shows. That graph can explain the slowing of the US economy since 1966. Thus one argument -- the growth of finance -- explains the long-term slowing of economic growth.
The Excel file at DropBox: Monetary Interest Paid datasets 3 Jan 2022 ArtS.xls
