The role of rural indebtedness in the evolution of capitalism

Abstract

Few studies have attempted to systematize the broader consequences of ordinary indebtedness – the inevitable other side of credit. My purpose here is to suggest four preliminary theses on the role of indebtedness in the evolution of capitalism, with special reference to the rural sphere. I argue that across time and space, credit/debt relations have not only been a key factor behind social differentiation through the control of land, labour and capital (Thesis I). They have also fostered market discipline by forcing the borrower – whether a poor peasant or a company manager – to calculate, pay, trade, work, intensify (Thesis II). Interest-bearing and guarantee-based loans have thus generated pressures for economic growth, short-termism and innovations, but have also undermined traditional community bonds and environmental conditions (Thesis III). Through its remarkable reward-or-punish nature, the credit/debt couple represents a powerful mechanism of social selection that has, in the long run, crucially shaped the evolution of capitalism (Thesis IV).

Keywords:

• debt
• credit
• property
• social differentiation
• economic evolution
• early modern Europe
• developing countries
• capitalism

I thank Rolf Steppacher and Stephen Marglin for our numerous discussions, as well as Amit Bhaduri, Tom Brass, David Graeber, Shivani Kaul and Joan Martínez-Alier. All remaining mistakes are mine. Four anonymous reviewers and the support of the Swiss National Science Foundation are also acknowledged.

Notes

¹ However, it is interesting to note that two of the most influential sociologists and anthropologists – Pierre Bourdieu (et al. 1963) and Clifford Geertz (1962) – started their career by working on credit issues.

² I have done so elsewhere (Gerber 2013).

³ Due to space constraints, I had to limit the bibliography to some of the most relevant works.

⁴ In a similar albeit more general vein, Roemer (1982) argued that credit markets function on the basis of surplus value extraction no less than labour markets.

⁵ It is interesting to note that Sumerian and later Babylonian kings, faced with the uncontrolled consequences of rural indebtedness, periodically announced general amnesties cancelling all outstanding consumer debt (commercial debts were not affected), giving back all lands to their original owners, and allowing all debt-peons to return to their families (Hudson 2002). Similar policies were also promoted by the early Judaeo-Christian tradition and are currently witnessing a revival among anti-debt activists.

⁶ Drawing on the Latin-American context, Knight (1986, 46) identified three subcategories of debt-based labour recruitment. First, there is free wage labour linked to cash advances. This is the classic example of ‘debt-peonage’ and serves to attract labour (voluntarily) from the subsistence to the commercial sector. Second, there is ‘traditional peonage’ characterized by workers linked to a single hacienda and residing on it for most of their lives. They do so for lack of a better alternative rather than because of extra-economic coercion, and debt functions more ‘as a perk rather than a bond’ (46). And, third, there is ‘debt servitude’, which reproduces aspects of chattel slavery despite the formal abolition thereof. For obvious reasons, debt servitude is the least studied form of labour trafficking today, yet it is the most widely used method of enslaving people (Kara 2009).

⁷ The possibility to alienate land is an historical and cultural oddity that spread with the advance of capitalism.

⁸ The practice of charging interest for debts appears to have been invented in third-millennium-BC Mesopotamia, and to have spread quite slowly (Hudson 2002). It does not appear to have ever been practiced in Pharaonic Egypt, for instance, and Tacitus claims the Germans of his day were still unaware of the institution (first century AD). It is hardly universal.

⁹ Modern banknotes are anonymous property titles (see Heinsohn and Steiger 1996, 2003, for further discussions). Before banknotes were invented, debts frequently circulated as an early form of paper money. Today, most of the money in use is debt-bearing money created by commercial banks (Lietaer et al. 2012).

¹⁰ It is striking that many researchers seem unaware of these specificities of capitalist property. They indiscriminately speak of ‘property’ whether they refer to a tribal community or a capitalist firm. It is in order to clarify this aspect that Heinsohn and Steiger (1996, 2003) have called any systems that do not present these characteristics possession-based regimes – as opposed to such property-based regimes.

¹¹ In the same vein, Atack and Bateman (1987, 271, quoted in Post 2011, 90) wrote that ‘Before the Civil War, [ … ] our evidence indicates [that family-farmers] deliberately sought to produce for the market and to move away from the generalists’ life of self-sufficiency toward specialisation. Debts incurred to establish and maintain a farm often forced that choice upon them’.

¹² As Brass (2010, 78) showed, the claim that indebted peasants-workers are ‘inefficient’ misses the point: ‘a labourer who is unfree works as hard as (or harder than) one who is free’ for fear of the possible punishments. This theme is forcefully present in many cultural texts situated in rural India, for instance in the classic movie Mother India (1957), or the novel Godaan (1936) by Premchand.

¹³ In these conditions, a market becomes necessary. Heinsohn (2008, 251) suggested that the (Mesopotamian) origin of the market can be traced back to the phenomenon of debt: ‘It is indebted proprietors that constitute the [primordial] market’. [Italics in the original].

¹⁴ Today, rural creditors use training methods to build a ‘credit culture’. One typical technique (widely used in microfinance) is to increase loan sizes according to repayment performances.

¹⁵ This analogy should not cause alarm. I do not intend to suggest an overarching mono-causal ‘law of change’: even in modern biology, natural selection is far from explaining everything.

Additional information

Julien-François Gerber is a Fellow at the Jawaharlal Nehru Institute of Advanced Study, Jawaharlal Nehru University, New Delhi, India. Prior to that, he was visiting scholar at Harvard University's Department of Economics for two years. He is interested in the integration of the anthropology of development, heterodox economics and human ecology, as well as in the relationship between science and activism. He has done fieldwork in Cameroon, Ecuador and Indonesia.