In debt we trust

Today’s news has been dominated by student tuition fees – both the vote in favour of raising fees to up to £9,000 a year, and the protests against them. I’ve posted some thoughts on my politics blog today, but in this post I wanted to look at a different, more “ethical” aspect.

The whole concept of tuition fees depends on regarding debt as a fundamental part of life in the modern world. It is now to be perfectly natural to embark upon one’s adult life with debts of £27,000 or more to your name before you’ve even got off the starting-grid. Yes, the debt will be on highly favourable terms compared with a bank loan – but it still demonstrates a significant change in our cultural attitudes towards both debt and education.

In his book Mere Christianity, C.S. Lewis in one chapter discusses “social morality”: that is, what would a society guided by Christian principles look like? One of the points he makes relates to this question of debt:

There is one bit of advice given to us by the ancient heathen Greeks, and by the Jews in the Old Testament, and by the great Christian teachers of the Middle Ages, which the modern economic system has completely disobeyed. All these people told us not to lend money at interest: and lending money at interest – what we call investment – is the basis of our whole system.

Now it may not absolutely follow that we are wrong. Some people say that when Moses and Aristotle and the Christians agreed in forbidding interest (or “usury” as they called it), they could not foresee the joint stock company, and were only thinking of the private moneylender, and that, therefore, we need not bother about what they said.

That is a question I cannot decide on. I am not an economist and I simply do not know whether the investment system is responsible for the state we are in or not. This is where we want the Christian economist. But I should not have been honest if I had not told you that three great civilisations had agreed (or so it seems at first sight) in condemning the very thing on which we have based our whole life.

And we can make that at least four great civilisations, given that Islam has been (and largely remains) equally hostile to usury.

Now, as Lewis himself points out in the above passage, “it may not absolutely follow that we are wrong”. However, it does highlight that what to us seems a perfectly natural and normal state of affairs is in fact one which is highly unusual on a historical scale. As I’ve observed before, making the unusual and contingent seem natural, timeless and unquestionable is a function of ideology. Tuition fees and student loans are thus yet another incremental advance for capitalist ideology.

Writing in 2003, Michael Gove (now education secretary) thought it so natural to weigh up the cost of a £21,000 loan against the alleged £400,000 lifetime benefits of a university education that, in his view, anyone who might be put off from studying by such a debt “doesn’t deserve to be at any university in the first place”. Four “great civilisations” stretching back 3,000 or more years would say otherwise. Who’s right?

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9 Responses to In debt we trust

  1. Pingback: Student debt: Lewis vs Gove « The Wandering Hedgehog

  2. Josh S says:

    Lewis is incorrectly conflating Aristotle with all of ancient Greece. Aristotle did not speak for his entire civilization, which did indeed practice lending at interest. He is also incorrect with conflating “Christianity” with “medieval Europe.” Banking was practiced in the Byzantine Empire, which non-coincidentally was much more prosperous and secure than the West. The East forbade lending at interest by clergymen, but not laity. It appears that they did not see interest itself as immoral, but rather wanted clergy to be models of charity rather than commerce. Another thing most of those civilizations had in common that ours is lacking is an embrace of slavery, conquest, and autocracy.

    I tend to be unimpressed with appeals to the consensus of medieval morality. I think it is intrinsically tied up with feudalism and the papacy. Having no moral respect for either institution, the mere fact that medieval philosophers agreed on something means little to me. Many do in fact argue that the stagnant poverty of the Middle Ages was in no small part tied to the social prohibition of banking. Part of the evidence of this was that the rise of Italian banking and the end of the medieval era coincided.

  3. “Yes, the debt will be on highly favourable terms compared with a bank loan – but it still demonstrates a significant change in our cultural attitudes towards both debt and education.”

    I was having this discussion with friends on Sunday. I don’t think a student loan is really a loan in anything like the sense that we tend to use the word. For all sorts of reasons, it is more like money that you owe the taxman, and I’m not certain that Lewis’ description really applies to a tax liability.

  4. John H says:

    Phil: well, that is one argument the Lib Dems tried to float: “most people will never actually pay off this loan, so really it’s a graduate tax”. Seriously.

    What we don’t really know yet is the psychological and social effects of this new debt culture. You don’t have to go back to the middle ages to find a culture, at least in Britain, in which that level of personal debt would have been regarded as shocking, even immoral: forty years or so would do it.

    If young people have been told that the only way to make a start in life is to get into debt, how will that affect their attitudes towards money in the future? Will it make some reckless about incurring yet more debt, free from any remaining taboos about doing so? Will it make others excessively cautious, paralysed by what feels like a millstone around their necks? How will affect their attitude towards public finances (“but I thought debt was good, yes?”)?

    Put it this way: I would not be doing the job I do today if the current regime had been in place back then. There is no way I would have signed up for a further five-figure sum loan to do my post-graduate legal studies on top of £30,000 of debts from my undergraduate course – actually probably more like £40,000 or £50,000 once living expenses were added in.

    Josh: I too would rather live under capitalism than feudalism. My point was that this is a novel, even weird, way to run a society. Yes, plenty of previous societies have had banks and loans and interest and all the rest of it, but how many have made it an expectation that a large proportion – 40% or more – of young people will start their lives by accumulating debts that many of them will never be able to pay off in full?

  5. Yes, I saw that article. His argument was certainly… ingenious. 🙂

    But I don’t think it’s being silly to point out that ordinary debts can be defaulted on, that there are consequences for failing to keep up with the payments, or that the student loan expires after thirty year or at death. It’s not like a graduate tax in that it is limited in scale and at least in principle you can pay it off, but it is not like a mortgage or a credit card in almost every respect. And that’s a problem with people’s understanding of how university finance works, rather than with university finance per se.

  6. Josh S says:

    John, I don’t know if you’ve been reading my blog, but I’ve been writing about the education bubble in the USA for a long, long time, where we have similar issues with student debt. How *we* (Americans) got to our massive debt culture is a naive believe that the government can create prosperity by artificially depressing interest rates, so that formerly-uncreditworthy people can borrow massive sums of money. That’s done a bang-up job in the housing industry, as you well know.

    And the government is doing the same thing to student loans. No one in their right mind would loan $40,000 to someone pursuing a bachelor’s degree in Nutrition from a second-rate college. So what the government did is promise the banks that if they loan this money at a low interest rate, the government will pay back the loan if the student can’t. The results were predictable: Far too many people borrow far too much money, and all that cash flooding into the education industry has resulted in bloated administrative budgets, posh dormitories, world-class athletic facilities, and a lot of other nonsense that has nothing to do with education. And at the end of this golden road, there’s a pile of debt that no one can pay back.

    Think about your last statement: What do you think happens to a lending industry based on loaning money to people who will by and large never pay it back? That’s an absurd, self-bankrupting business model. Let me guess: In the UK, student loans are a government program.

  7. John H says:

    Josh: all those are yet more excellent reasons why I think tuition fees are a terrible idea.

  8. Josh S says:

    Get rid of fees, and the school shuts down. No one at any university I know of is willing to do their job as part of their free time.

    But I suspect that’s not what you mean. I’ll bet what you mean is that the government should simply pay the fees. But that hardly solves the problem of bloated budgets–government agencies are not known for their thriftiness. And spreading the debt around the entire nation doesn’t solve the debt problem, either, any more than spreading the food around your plate makes it go away.

  9. Josh S says:

    I should also add that the United States didn’t have this problem before the government started subsidizing debt. I don’t believe in the logic that says when the government partially nationalizes and industry, the ensuing chaos and destruction prove that it should go ahead and nationalize all of it. That’s a bit like concluding that since a couple shots of whiskey got you tipsy, the only way to sober up is to down the whole bottle.

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