The Debtor’s Revolt

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Ben Hoffman describes the transition from a old world order to a debtor-aristocracy world order.

Consider a standard microeconomics model, where profits are good and debts represent some loss of that profit in interest; individual actions are taken based on whether they will be return more than they cost (and the return is above the best publicly available return). People lend gold to governments to get gold in return, and that gold is valuable across the world regardless of government policy.

Consider also a debt-based model, where there are more winner-takes-all dynamics. There might be some new (economic) land opened up, and a competition to see who gets it; if money can be turned into increased ability to win that competition, then more access to debt means more chance of win. (Think Uber vs. Lyft.)

With the debt-based model, there’s also more coalitional dynamics at play, as debt ties together borrower and lender; with the rest of their stake at risk, lenders are more likely to throw ‘good money after bad’, and with access to capital as a kingmaker, lenders may be more interested in propping up those that share their interests.

Of course, the main event is the transition from the gold-based economy with weaker states, to the cash-based economy with stronger states, and the main psychological event is the transition from an expectation of ‘being in the clear’ to an expectation of being heavily indebted. People used to talk about taking unsavory jobs to ‘pay the mortgage’, and now many talk about that to ‘pay their student loan debt’.