Credit I

Sebastian Schwecke
Credit/debt
• There is a dyadic relationship between credit and debt,
both cannot be thought of distinctly
• Mauss: Credit and debt form an “inseparable dyadic unit”
• J. Paul Getty: “If you owe the bank 100 $, that’s your
problem. If you owe the bank 100 million $, that’s the
bank’s problem.”
Definitions
• Weber: “The term ‘credit’ in the most general sense will be used to designate
any exchange of goods presently possessed against the promise of a future
transfer of disposal over utilities, no matter what they may be.” Obviously,
this does not only include goods, but also services.
• Credit/debt, accordingly, forms a method devised for a debtor to borrow
speculative resources from his/her own future and transform them into
concrete resources to be used in the present.
• Marx: Credit/debt is “people labouring to build the increment demanded by
the future in exchange for actions in the past.”
• Since credit/debt also comprises an expected return on investment for the
creditor – in whatever form – a credit transaction also includes a link
between the future and the past:
• In any ongoing credit transaction, the resources obtained in the past
(principal) necessitate future payments (instalments, interest)
Credit/debt as “movement through
space-time”
• Credit includes different space-time dimensions:

• For the debtor, credit acts as a bridge between the future and the present
(exchange of speculative future for concrete present resources), and between
the past and the future (repayment of obligations)

• For the creditor, credit denies the use of available resources in the present
in the expectation of future returns (linking present to future)

• In ongoing transactions, credit creates a link between past and future

Munn (1986): Credit/debt are related to the movement of people through

“space-time”, credit facilitates this movement, debt debilitates it.

Roitman (2005): “The productivity of debt” as in also facilitating movement

through space-time.
Peculiarities of credit markets
• Marxism characterizes markets through formulae by opposing the primary
objectives involved in terms of money (M) and commodities (C)

• Accordingly, markets are categorized as

1. C – C
2. C – M – C
3. M – C – M
4. M – M
(1) Barter as direct exchange of commodities; (2) “selling in order to buy”, the
simplest form of commodity exchange involving money (e.g. the end product C
is consumed); (3) the main form of capitalist exchange in which a return on
money remains available; (4) credit markets
The M – M market
• The fundamental problem in M – M markets is the absence of the commodity
form in the exchange.

• Money is exchanged over space and/or time (it “moves in space-time” as

anthropologists would say…)

• Since money has no use value in itself, one of the main reasons for trust in
transactions is absent in any M-based stage of the categorizations, but M –
M markets lack this trust at all stages, and by positing the return in the
future, this lack of trust is reinforced.

M – M markets are, accordingly, much more strongly centred on trust (and

obligation) as the two primary ways of exchange in societies with money.
Credit, gift, commodity
• In projecting the repayment of credit to the future, credit takes on one
fundamental aspect of the gift rather than the commodity:

• The future repayment is uncertain, the transaction accordingly is fragile (on

top of the fragility of money – if money is involved in credit)

• This uncertainty enters the transaction through the option of default.

• The repayment (interest, instalments) may be fixed in law or custom, but

this does not overcome the option of default. As long as default remains an
option, actual repayments are re-negotiable.

• The repayments of credit should accordingly be considered rather as

commensurate with the original value of the loan than as fixed in the way of
prices.
Contd.
• Graeber (2001): Both the gift and credit are transferring resources across
time but the “contract” of the gift is “silent and invisible” whereas a
commodity contract is “enunciated and visible”.

• The credit contract may be enunciated and visible (as in bank credit) yet it
still depends on its actual enforcement (cf. Nirav Modi, debt waivers, etc.)

• Cf.: “vicious debt cycles” such as in money lending. The point of the usurious
interest rate is not in its actual repayment (which is beyond the means of
the debtor) but in maintaining dependence, thereby ensuring the flow of
repayments that are constantly re-negotiated.

• M – M markets fundamentally revolve around overcoming this problem of

fragility and uncertainty. This means they are “moral” to a much larger
extent than commodity exchange.
The morality of credit/debt - 1
• Credit/debt includes two types of moral discourses:
• (1) an “external” discourse on whether credit/debt is licit
or which types of credit/debt are licit;
• (2) an “internal” discourse on the modalities of
overcoming the trust deficit based on the fragility of the
future-orientation of credit/debt and the option of
defaulting.
The morality of credit/debt - 2
• The question of whether credit is licit has been debated for centuries across
various cultural contexts.

• Christian- and Muslim-dominated societies have typically depicted credit as

broadly illicit: The central question is the permissibility of “usury” (the term
used to describe any form of “interest”). Muslim societies frequently
disallowed any form of “usury”.

• Christian societies broadly followed the maxim: “Lend to the Other, not thy
brother”, and tried to cap interest rates (typically around 4-6% p.a.). In both
contexts, this frequently resulted in the emergence of minorities specialized
on lending (e.g. Jewish and Armenian lenders)

• In the Indian context, lending was typically perceived as licit, though there
are several traditions that seek to regulate interest according to risks
involved or the accumulation of dues.
The morality of credit/debt – 3
• In “modern” Europe and North America, the social ties regulating “usury”
were attacked by the Scottish Enlightenment.

• Jeremy Bentham (1787), The Defence of Usury

• Bentham depicted the failure of “usury laws” to prevent people from taking
on debt, and argued that state intervention had artificially made credit more
expensive, while the moral imperative should be to make it cheaper.

• By the 1850s, usury laws had been abolished all over Europe (and in India).

• This “experiment” proved disastrous in many ways. Germany and Austria-

Hungary started to “formalize” lending in the 1870s, including the
introduction of cooperative banking. Britain followed in 1900.

• In the process, the term “usury” was redefined as “unconscionable” rates of

interest, with interest itself becoming morally acceptable.
The morality of credit/debt – 4
• India attempted to follow this route, though with some modifications.
• As a result, credit markets in India became bifurcated into a
“formalized” sector of “organized banking” and an extra-legal sector
of money lending, with the former serving primarily the better-off
sections of the population.
• Extra-legal finance has in the process become significantly more
exploitative than in colonial India.
• The “organized” sector, however, remains an important example for
the ways in which credit/debt is still very visibly related to moral
questions, especially within the “internal” moral discourse.
The morality of credit/debt – 5
Some questions:
• Should credit/debt be “bequeathable” across generations?
• Can credit/debt be socialized? (Should it be “bequeathable” to people
not originally part of the credit transaction?)
• Should a credit contract be “free”, i.e. can it be changed by an outside
agency, or can it be re-negotiated by the contractual parties after the
agreement?
• How can “creditworthiness” be identified? Can it be certified, and by
whom?
Credit as facilitating social ties
“There isn’t any quid pro quo. But of course a local will be more willing to do
things that would seem on the surface to be irrational … on the understanding
or on the belief that later this human being he’s trading with will remember.”
(Zaloom 2006: 100, quoting an anonymous trader)

• Economic anthropology typically follows Simmel in asserting that society is

“constituted by exchange”.

• The level and type of exchange can be used as an “index” of complex social
interaction.

• Day: Credit revolves on the relationship of time, freedom, and hierarchy.

Immediate-return societies “will often flee the compulsion of credit/debt;
they do so by constructing a world [of] abundance. [T]here is no reason to
sacrifice consumption today to better secure tomorrow. There is little reason
to engage in credit/debt relations, and their denial of these constitutes a
declaration of sovereignty.”
Barter and credit as indexes of
complexity in social relations
• While society is constituted through exchange relations, the
complexity of social relations depends on the longevity of obligations
under exchange relations.
• Barter is the refusal to enter credit/debt relations.
• Barter does not create any lasting ties, as the exchange of
goods/services depends on equivalent perceptions of use value
associated with the goods/services exchanged. By stretching
obligations into the future, credit/debt is the form of exchange most
suited to establish complex social relations.
• Hart: Barter serves as an index of the instability of social regimes.