Debt and the Credit Bubble

Part IV

We hear sad complaints sometimes of merciless creditors; whilst the acts of merciless debtors are passed over in silence. —William Frend, 1817

For the employment of money is chiefly either merchandising or purchasing, and usury waylays both. —Bacon

The passion for building is ruinous. —Marcus Crassus

"Man is happiest," writes Tilden, "in the earning of his subsistence. It is when he achieves a surplus beyond his needs for seed corn that he encounters chagrin, alarms, midnight wakefulness. For, by custom, he is now partner or a mortgagee, and with both arrive cares and fears…The mere having of things becomes, even to an inferior intelligence, a good deal of a bore; but the power to have things does not. Sweeter yet is the command over the bodies and the thoughts of other people: it is an authority which must compensate, in all but the most superior minds, for the lack of culture and self-fulfillment." So begins Tilden in his thoughtful examination of the Individual as Creditor.

What Tilden is conveying to us is really the basis of our debt-based world state, for power and acquisition, or more to the point, the lust for power and acquisitions, is what accounts for the existence and growth of debt. The insatiable desire for continually acquiring new things and of expanding one's sphere of influence is behind every step of the debt process; after all, when one desires something, he wants it all now, and the only way this can be achieved in most instances is through debt finance.

"Debt is a phenomenon of surplus," writes Tilden, and this is crux of the problem we have been examining. The basis of any economy is, of course, supply and demand, and when problems do arise within the economic sphere it is usually due to an imbalance on the supply side of the supply/demand equation. Over-supply, or surplus, then is really the cause of most of the world's economic ills and this is chiefly the result of overproduction. Tilden styles this problem the "dead hand on production," and truly it is a mortifying influence. Nothing will more quickly strangle credit and bring commerce to a halt than too much production, and the more over-production there is the worse will be the inevitable debt collapse.

A debt collapse necessarily follows an over-expansion of production since ever more goods and services must be produced and sold in order to meet the myriad debt obligations that have piled up during the course of the expansion. Obligation is piled upon obligation, debt upon debt, interest rate upon interest rate. Tilden provides an unhappy picture of the consequences of this debt buildup in describing the results of the Great Crash of 1929: "When the crash came, as it had to come, it piled up wreckage of bankrupts, impoverished widows and orphans, caused suicides. It stripped of their life-savings not only those who had ventured directly into the investment field, but those who had become depositors in institutions. It shattered confidence; it broke friendships; it dispersed families; it projected into the world a cynicism and disbelief in fidelity that will take generations to dispel." So we see that when debt-buildup becomes institutionalized and universal, everyone is eventually made to suffer, including those who had no part in the debt scheme. And, as Tilden reminds us, history has an uncanny way of repeating itself.

In further dissecting this monolithic structure of debt, Tilden examines for us the anatomy of over-production from the bottom up. Surplus, says Tilden, is largely a function of salesmanship. Before goods and services can be distributed they must be sold, but in our debt-drunken, fast-paced, have-it-all-now culture merely waiting for the buyers to appear isn't sufficient. (As an aside, we would note that it is this very phenomenon of debt that accounts for the fast pace of modern living, since the majority of all the peoples living in a given country are living under debt at any given time, they are forced to work with greater urgency than they would if they were fully debt-free. As Tilden reminds us, "The only thing that can save" the debtor from insolvency is "the ability to maintain a growth-rate of production commensurate with the growth-rate of interest."). The producers would actively seek the potential buyers, inundating them sales talk and glowing promises of what their products can do for them. In short, Tilden is describing the ubiquitous practice of marketing that pervades every aspect of our present culture.

"The stress upon salesmanship and selling—in the sense of forcing distribution to a quicker pace than would exist if buyers acted without prod and pressure—is the natural result of overstimulated production, which in turn, as we shall see, is the effect of credit-cramming and the coincident attempt to offset the weight of compound interest by large-volume operations. It is a common saying among merchants that 'goods are no longer bought; they are sold.' The old-time dealer 'kept' a stock of goods for those who might come to purchase; the ancient bagman 'visited' his clients and 'took orders' in a rather leisurely social way…Obviously, in an age of credit expansion entailing a fierce competition for the consumer's money, such methods cannot exist.

Tilden continues, "Where once the emphasis was on creating things, the greater effort must now be in selling them. It is fatal to wait for the buyer to make up his mind. His mind must be made up for him, and without delay. He must be frightened, cajoled, shamed, hurried, and pestered into buying. He must be assaulted (most advertising can be described as a technical battery), driven into a corner, and clubbed into submission. The excuse of such practice is that if goods are not sold, men will be out of work. This is true; but it is not the whole truth. Sooner or later, when overselling reaches a certain point, the machinery breaks down, and then men are out of work in good earnest."

This is a most apt description of our present predicament. What is even more frightening—beyond, perhaps, what even Tilden could have envisioned—is how credit (i.e., debt) itself is "pushed" and heavily marketed to an unsuspecting consuming public. It is an everyday occurrence to receive a letter or a phone call from banks and other credit agencies urging one to sign up for their line of credit (even to the point of offering free gifts and low starting rates of interest). Debt is practically being extended to the debtor class on a silver charger.

Perhaps Tilden best summarizes the explanation of the debt phenomenon when he writes, "Behind all the complexities of modern political economy lies the simple fact that human beings are, speaking generally, of two persuasions: the first would spend tomorrow what they earn today; the second would spend today what they hope to earn tomorrow. From this rudimentary biological fact arise all conflicts that lead to economic crises: to panics, depressions, violent and revolutionary transfers of wealth, and perhaps most wars."