The other day in class I explained to students how debt, including student debt, works.
First, banks make loads of money extending credit to individuals (and, of course, other corporations)—money begets, through interest, more money. Second, sellers of commodities (including institutions of higher education) can charge higher prices, because the buyers (e.g., students and their families but also, of course, car- and home-buyers) can, through debt, purchase more than their current incomes allow. Finally, those who have gone into debt (again, including students) are forced to have the freedom to sell their ability to work in order to receive an income to repay the debt (remember, student debt can never be cancelled)—and, much to the consternation of at least some students, not pursue other dreams that don’t promise some kind of steady income.
A real teaching moment, for them and for me, since it required that I look at my own teaching position in a new light.
Just as it did for Andrew Ross [ht: ke]:
The burden of debt has become the lens through which I see my workplace, and it is rapidly altering my view of my profession. I can no longer fulfill my classroom duties without wondering if the ultimate price, for many of my students, is a form of indenture. This is not an extreme way of putting it. After all, the indentured have to go into debt in order to find work, and their wages are then used to pay off the debts. I have concluded that it is immoral to expect young people to privately debt-finance a basic social good like education, especially if we are telling them that a college degree is their passport to a livelihood that is increasingly thin on the ground.
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A small pedagogical point (which doesn’t affect my agreement with your real point, and Andrew Ross’s, about the way students enter into debt peonage in order to be credentialized):
You write:
“…banks make loads of money extending credit …—money begets, through interest, more money.”
I know that you are invoking M – M’ (the financial version of M – C – M’) and by “more money” you really mean “a profit return on money *capital*” (a share of the surplus).
But when you put it the way you put it in the context of bank lending, it seems to verify one of the most frequent foolish mistakes students make about “money,” to wit that “money” is created by paying interest. Then I/you/professor has to stop and explain that “no, interest is just a flow of existing “money,” it’s not the creation of “more money” in the macro accounting sense.
I know you know this, but I have to watch myself all the time to make sure that I don’t unthinkingly phrase something in a way that reinforces the mystification of money, which is everywhere!
You’re absolutely right, Bruce.
What I like about the phrase “money begets more money,” is that it reminds students that banks are also capitalist enterprises, especially given all the nonsense they hear from neoclassical economists about the role of banks in bringing together savers and borrowers and creating an efficient allocation of resources. No, the point of capitalist enterprises is to deploy money as capital and, thus, to use money to make more money—through the appropriation of surplus-value in the case of industrial capitalist enterprises, through the unequal exchange of money in the case of finance capital.
I also think we need to distinguish between bank lending to industrial capitalists (which allows them to make a claim on the surplus) and bank lending to others (such as students and their families, which creates a claim on their present and future incomes, which are already being squeezed in lots of other ways).