Cartoon shows King George III and Queen Charlotte standing before the Treasury, moneybags under their arms, their pockets overflowing and bursting with coins  from the Treasury to cover Royal debts. Photo courtesy LOC and wikicommons

One of the many insights contained in David Graeber’s masterful work, Debt: The First 5000 Years (2011) is that once a society has institutionalized the debtor-creditor relationship, it has destroyed the basis for equality. This poses the question of how, given our monetary system, is inequality institutionalized?

Money in our society is lent into existence by privately-owned banks. This debt- or credit-money must work to reproduce itself and the interest and/or dividend that its repayment represents. One consequence of this system of debt-money is that the economy must perpetually grow at an exponential rate to generate the interest on the debt and/or the dividend on investments.

For the banks, of course, someone’s debt is their asset. Consequently for banks to maintain a growth rate consistent with the growth in the economy, the amount of debt must increase exponentially. Presently, in the US, there is almost 60 trillion dollars of debt, up from approximately 11 trillion in 1990, distributed among federal, state and local governments, businesses, households, students and financial institutions (see Table 1).

Table 1: US Total Debt by Sector (January 1, 2012)

Debt Type

Debt Amount (Trillion)

Debt Per Person

Federal Government Sector



State and Local Government Sector



Household Sector



Business Sector



Financial Sector






Sum of all government and private sector debt



The question, of course, is to whom is all this money owed? Economists will sometimes point out that it is of little concern, since we owe it to ourselves. That is not quite correct. Rather, it is owed to the wealthiest among us. Debt represents a regressive tax in which money trickles up rather than down.

In Occupy Money (2012), Magrit Kennedy notes how a system of debt-money divides the population into net debtors—those who pay out more in interest and fees than they receive—and net creditors—those who receive more in interest and dividends than they pay out. Interest is paid out in virtually all economic transactions, since prices and rents include interest that sellers and entrepreneurs must pay as a price of money. Interest and or dividends are realized from bank deposits, loans, and investments. Based on studies done in Germany and Norway, some 90% or more of the population count as net debtors, while 10% or less are net creditors (see Figure 2).

It should not be surprising, given the massive increase in debt over the past two decades, that the gap between rich and poor is greater than any time in almost 100 years and that the bottom 30% of US families have seen their median income fall by 29% since 1979. As Joseph E Stiglitz notes in his recent New York Times article, “Inequality is a Choice,” 8% of humanity takes home 50% of global income, while the top 1% alone takes home 15%. And since debtor-creditor relations encompass nations as well as individuals, developing countries are paying back $13 for every dollar they borrowed. In sum, inequality is a structural feature of our monetary system and is continually growing.

If our financial system functioned as it should, the debt would create more and more economic activity, creating more money for everyone, including more jobs, more entrepreneurial activity, and so on. But that doesn’t seem to be happening. Rather, money is becoming relatively scarcer because of the tightening of credit, the calls by politicians for debt reduction, and the implementation of so-called austerity programs. Why this clamor for austerity? The answer lies in the contradictory functions of our money.

Cartoon shows King George III and Queen Charlotte standing before the Treasury, moneybags under their arms, their pockets overflowing and bursting with coins (funds from the Treasury to cover Royal debts), Image courtesy LOC and wikicommons

Cartoon shows King George III and Queen Charlotte standing before the Treasury, moneybags under their arms, their pockets overflowing and bursting with coins from the Treasury to cover Royal debts. Image courtesy LOC and wikicommons

Faidra Papavasiliou notes in an article on alternative currencies that, on the one hand, our money serves as a store of value; it is something we can save and use at some future date. On the other hand, it also serves as a means of exchange, something that we can use to get other things. The problem is that for one group—creditors—the storing of value is paramount, while for another group—debtors—the means of exchange is more important. Creditors jealously ensure that money maintains its value and that inflation doesn’t eat into their assets. To ensure its value, it must, as with any other commodity, remain scarce. Too much money in circulation reduces its value. Debtors, on the other hand, benefit when more money circulates quickly to encourage economic activity; more money moving quickly reduces the value of money, and, not only allows more to flow into the hands of net debtors, but also encourages inflation that makes it easier for debtors to repay creditors.

Clearly, in the present state of things, creditors control the system. They do so by control of financial and multilateral institutions and central banks charged with protecting money as a store of value, and by ensuring that creditors receive their return on capital (eg, by bank bailouts, structural adjustment programs and ad hoc actions such as seizing portions of Cypriot bank accounts to repay debts owed to European banks). And creditors control nation-states whose legislatures are pressured to reduce taxes on creditors (eg, capital gains taxes) and support programs that force people (eg, students) to accept more debt. Central banks have a single mandate—control inflation. Alone among all central banks, the United States Federal Reserve has a dual mandate; to control inflation—a prime goal of creditors—and to create employment—a necessary goal for debtors. However, historically, the Federal Reserve has acted primarily to control inflation.

Consequently, so-called austerity programs mean austerity for net debtors and increased wealth for net creditors by ensuring that creditors receive their return on capital. Austerity programs (essentially structural adjustment programs for wealthy countries) may be better termed opulence programs for creditors.

In sum, our monetary system is constructed in a way that ensures a growing division of wealth and income; a division that, like the economy, must grow exponentially.

There are means, of course, to modify this continued growth in inequality, ranging from a biblical jubilee in which all debt is forgiven, to more progressive tax systems that slow the upward velocity of wealth and income. Other suggestions for mitigating growing inequality include increasing government employment, universalizing pre-school, eliminating student debt, and providing open access to universities. We can pass legislation that revitalizes the labor movement. We can restore regulations on Wall Street and institute a Tobin Tax on spot conversions of currency, using that money to eliminate existing debt or funding other progressive initiatives. We can create publically owned banks (the Bank of North Dakota is the only public bank in the US), and encourage the creation of local currencies issued on bases other than debt. And there are other measures available.

However, in addition to the usual objections to such measures, there is an additional problem: the wealthier an economy becomes, the more difficult it is to grow. That is, paradoxically, the wealthier a country is, the more difficult it is for debtors to repay their debts or creditors to realize a return on capital. Essentially, more people are struggling to repay debts with a relatively shrinking pool of money. For example, assuming an average of 7% interest and term length of 10 years on all existing debt in the US, the economy must grow at approximately a 15% rate for all the debt to be repaid. And for that to happen, taxes on the wealthy would have to be lowered further, education further commodified, regulations on investors removed, and so on, all measure that accelerate, rather than reduce inequality.

The question then is what can possibly be done to counter the accelerating gaps in income and wealth, not only among individuals, but among countries as well? Clearly violent revolution is untenable; changes through the electoral system are highly unlikely given the control of voting systems by creditors, while grass-roots action, while effective in publicizing grievances, is less effective in stimulating legislative overhaul.

However, there is a solution to this dilemma, and we owe it to Republican members of Congress for showing it to us. They are modeling for debtors, the sole power that they have left to truly influence the monetary system and put a break on accelerating inequality. By threatening to withhold US debt payments to attain otherwise unattainable legislative goals, they have turned the debt strike into a legitimate political weapon. Let me explain.

While we have great inequality, the wealth of creditors is largely in the pockets of debtors, where, as loans and investments, it is supposed to generate more wealth and the necessary return on capital. However, by threatening to withhold debt payments, and withholding the wealth of creditors, debtors can apply the same sorts of pressure being attempted by Republican members of congress to enact legislation protective of creditors. Furthermore it takes virtually no effort to apply the pressure and there is nothing illegal about missing a debt payment. And, if at least 20% of debtors will begin the debt action, there is little that creditors can do to retaliate; you can’t declare a large segment of the population as debt-risks when debt is the prime means by which creditors generate income. I have outlined elsewhere the moral justifications for a debt action and the means by which it can be implemented.

Of course a debtor’s strike is not without its dangers. If the strike succeeds and there is a refusal to implement financial reform, the economy will collapse in a credit crisis, as it may when debt is used as a weapon by creditors. A debt strike, in that regard, is no different than a labor strike. As in a labor strike, all parties have a vested interest in changing a situation that threatens the firm with collapse. However without some form of monetary reform, we remain in a world in which ephemeral economic gain can occur only by abandoning visions of free societies thriving in hospitable economic, social and natural environments.

Richard Robbins is distinguished teaching professor at SUNY at Plattsburgh. More on the relationship of economic growth, debt and global problems is included Global Problems and the Culture of Capitalism (6th edition, 2013). He is currently working on alternative food systems. He can be contacted by email at

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