Two Types of Debt

One of the most important underconsidered issues in economics is that of debt. While the concept of debt is simple--a good or service extended now, in return for payment later--this hides several difficult underlying problems. One of these is that, when debt is treated as the fundamental economic transaction (as it is today), it creates a growth impetus: payback on credit requires growth, whether the system is interest-based or not; otherwise lenders wouldn't have a viable business model. When this is coupled, as it is today, with debt being the money base--the way new money is made--this results in the particular growth problem I call unsustainable money. But not all debt is monetary. In fact, the most common type of debt transaction historically has been about something else: labor.

Monetary Debt

Debt realized with money--what I call monetary debt--is by far the most common type of debt in the United States. It works like this: a lender institution, or creditor, advances, or extends, a certain amount of money, called the principal, to a recipient, or debtor, in exchange for certain guarantees that this principal would be used for some productive enterprise; the value rendered from this enterprise then allows the debtor to return this principal to the creditor, with a little something extra--usually interest, but in places that equivocate the issuance of interest at all with usury, instead fees. A semi-temporal transaction, the creditor advances money under the expectation that the debtor returns it with value added.

Indenture Debt

Debt realized with labor--what I call indenture debt--is by far, historically, the most common type. It can work several ways.

1. A person can offer, or extend, his labor for a given period of time to a landlord; in exchange, the landlord guarantees the indenture's landownership after a given period of time. This is, for example, how Tidewater's indentured-servant system worked.
2. A person can offer, or extend, his labor for a given period of time to a guild, union, or master craftsman. In exchange, they guarantee training in the relevant discipline, as well as startup help and a not-insignificant bit of prestige. This is the classic apprenticeship system.
3. A person can guarantee his labor to clear debts previously extended, for example, working for a bar for a set period of time to clear a bar tab. Rarely seen in the developed world today, this particular type of debt was one of the two main types of slavery in the ancient world.

Terminology

You will note that, while the creditor/debtor duality is the most common to refer to the two sides of a debt transaction, it is really only valid for monetary debt. This is because creditor/debtor is actually a reference to power, and in monetary debt, the one with the power is the one who extends. To put it another way, there is no difference between the power relation and the temporal relation: The one who advances the principal always has the power.

This is, however, not the case in indenture debt. In fact, in most indenture debt, the power relation is exactly backwards--the one who has the upfront labor is the one without power! So to decouple power relations from temporal relations, let me introduce a second duality, that of the extendor vs. the guarantor. In this, the temporal duality, the extendor (note "o") is the one with a transaction's upfront element; the guarantor holds its delayed element. So,

1. In Tidewater indenture service's temporal relation, the laborer was the extendor, and the landowner the guarantor; however, in its power relation, the laborer was the debtor and the landowner the creditor. 
2. In an apprenticeship's temporal relation, the apprentice is the extendor and the master (guild, union, craftsman, etc.) the guarantor; similarly, the apprentice is the debtor and the master the creditor. 
3. Finally, when someone sells him/herself to pay existing debts, the laborer is the guarantor for one or more extendors. In this case, however, the extendors are the creditors; they control the debt; they can sell the debt to a new owner. But the laborer has to pay: he is the debtor.

Splitting Hairs?

Not necessarily. If using debt as a money base is one of the root causes of unsustainable money, then it follows that for money itself to be sustainable, it must be separated from debt. Since--as the apprenticeship example in particular shows--a healthy economy (even one that is not "growing" in our sense) all but requires a debt element: nearly every type of training for a skill position is a type of indenture debt. This implies the need for a debt base parallel to the money base.


The problem is that it is very difficult to envision such a system. For example, medieval guilds clearly controlled most of the indenture debt base: They were the ones that matched apprentices with their masters, and provided training, contacts, startup wherewithal, and prestige to their apprentices. But in exchange, those apprentices, upon completion of their apprenticeships, were expected to be guild members for life, to pay dues to the guild, and to rely on the guild for most of their social and financial needs (the Church and the Italians/Jews provided the rest). In this latter behavior, guilds resemble a cross between unions and modern banks; the dues system can be interpreted either as the guild facilitating a cross-subsidization network ensuring proper apprentice training, or as a form of rent extracted by the guild in exchange for their extendor services to the apprentice (i.e. the apprentice essentially sells himself to the guild). The reality is, of course, that it is a mix of both.

So the guild comes close to the system we want, but doesn't quite.

And because it doesn't, it leaves us with an open question: If, to fix unsustainable money, we need to divorce our money base from our debt base, what does our money base look like? debt base? Since they'd interact about as well as carbon monoxide and our lungs, how do we keep them separated? And in particular, since training is an integral part of the debt base, how is skill training effected? What, in short, are the necessary exchanges in a healthy, post-growth economy?

Not a Guaranteed Income, But Income Guaranteed to Cover Certain Costs

A comment I made on an Atlantic Cities article:

A minimum wage indexed to (a) local CoL and (b) inflation would (should) yield a minimum wage with equivalent local buying power, which I would argue constitutes the key "equal protection" here.

That is to say: a standard minimum wage of $10/hr buys a lot more in Alabama than California. But an indexed minimum wage should be designed such that the same amount of work-hours would be needed to buy, for example, a month of rent in Alabama as in California (and furthermore, that the amount of work-hours needed to buy a month of rent in either would be the same at any given time). That would be the equal protection a minimum wage provides.

One way of implementing this idea would be for the federal government to not set any minimum wage, but rather set a standard buying power for a minimum wage. States would have a legal obligation (mandate) so set a minimum wage equivalent to this buying power; other entities (like cities, counties, and municipalities) can augment this as they see fit, based on local buying power.

 A few comments:

1. This standard buying power would be an assertion of certain economic rights extended to all Americans. (At a certain level, this is actually a stronger assertion than a basic income, as the latter only states you have the right to make x, whereas the former states you have the right to make enough to cover the cost of x. This harks to the x-f(x) distinction in Taleb's work; it is easier to find f(x) in a system defined {x|f(x)} than x itself--that is, in very complex systems, it is often easier to to isolate a function of a variable than the variable itself. Combine this with a couple of other provisions and you have the framework for a guaranteed minimum income.) 
2. Such economic rights could be informally stated as:
1. The right to shelter
2. The right to transportation
3. The right to healthcare
4. The right to adequate nutrition
5. The right to adequate clothing
6. The right to save
3. A better formalization for (2) would be that the minimum wage standard would be such that a person making the minimum wage would be guaranteed to make enough to cover:
1. one month's studio apartment rent + basic utilities*;
2. one monthly bus pass**;
3. one month of health insurance;
4. 60,000-90,000 Calories/month***;
5. 1/36 the cost of a standard 10-day wardrobe, monthly^;
6. Σ(i=1, n=5)a(i), that is, the summation of the other costs^^.
4. The state's responsibility, then, would be to index these requirements to prevailing local costs. Once those costs are ascertained, the minimum hourly wage becomes 1/160 this cost^^^. Cost-indexing it also has the nice side effect of inflation-indexing it; the state's cost index would be required to be updated annually; a state found to be using a cost index more than three years out of date would be subject to the withholding of federal funds (and class-action suits).
5. These economic guarantees also allow for a shrinkage in the welfare-state bureaucracy, as the 90k Cal/mth guaranteed obviates the need for food stamps for any employed person, and the health insurance purchase guarantee likewise obviates the need for Medicaid for any employed person. These two programs, in particular, form one of the most insidious forms of corporate welfare: corporations paying workers below the CoL, thereby forcing them into public programs to make up for the shortfall, such that the financial benefits from such programs accrues from the government to corporations. (The housing guarantee likewise obviates the need for public housing.)
6. These guarantees are extended on the condition of employment (as is implied by their structure as a minimum wage cost index). To have truly universal economic freedoms, however, one needs to find some way of extending certain of these guarantees to the unemployed. This, then becomes the next challenge.

__________
*Gas, water, electric, (mobile, not home) phone, Internet. Yes, this implies a right to Internet access. I think it's essential for doing much of anything nowadays, don't you?
**Why? Well, (a) regardless of what zoning enforces, at this level of income, car ownership is a very expensive luxury, and we don't want to encode low cost/benefit ratio things (like car ownership giving access to jobs), and (b) our nation's bike system and bike culture are not yet developed to the point where universal bike access would be a fair formal statement of the right to transportation.
***60k Cal = 2k Cal/day * 30 days; 90k Cal = 3k Cal/day * 30 days; that is, the daily caloric intake generally needed to maintain weight for women and (slightly greater than) men, respectively.
^TBH, I have no idea how to calculate this cost, although what I have in mind is the cost of completely replacing a "professional" wardrobe, at outlet prices, every three years--hence 1/3 the cost/year, 1/12 that cost/month, 1/3*1/12=1/36.
^^Based on the budgeting principle that half of one's income should go to the aforementioned outlays; that is, the minimum wage should be tailored to the lowest feasible rate which one can keep a balanced budget.
^^^The costs being computed monthly: four weeks in a month, so 1/4 the cost weekly; 40 hours in a full-time workweek, so 1/40 the weekly cost hourly; 1/4*1/40=1/160, i.e. one works 90 hrs/mth to make ends meet, and 160 hrs/mth to make a living wage.