Debtors' Prison

Sometimes, loans simply cannot be paid.

Robert Kuttner | June 8, 2011

Economic history is filled with bouts of financial euphoria followed by painful mornings after. When nations awake saddled with debts incurred to finance wars, episodes of failed speculation, or grand projects that haven't paid off, they have two choices. Either the creditor class prevails at the expense of everyone else, or governments find ways to reduce the debt burden so that the productive power of the economy can recover.

Creditors -- the rentier class in classic usage-- are usually the wealthy and the powerful. Debtors, almost by definition, have scant resources or power. The "money issue" of 19th-century America, about whether credit would be cheap or dear, was also a battle between growth and austerity.