Talking to My Daughter C.3 - The Marriage of Debt and Profit

What is a loan?

Something borrowed to be paid back w/interest: a thing that is borrowed, especially a sum of money that is expected to be paid back with interest.

What is interest?

The price paid for the use of credit or money

What is credit?

The ability of someone to obtain goods or services before payment, based on an agreement to pay later

What happens in loan agreements?

The debtor (the person receiving the loan) will eventually pay the creditor (the person giving the loan) something extra in addition to repayment of the loan itself -- or interest

Summarize how feudalism worked.

• Production: serfs worked the land and produced goods

• Distribution: the feudal lord forcibly extracted his share of the harvest with the help of a sheriff

• Debt-credit: the lord sold for money any goods that were left over, which allowed him to buy things, pay for services, and issue loans

What was the Great Reversal, according to Varoufakis?

Instead of the distribution of surplus coming after production, distribution began before production had even started

After the serfs had been kicked off the land and replaced with sheep, former serfs began organizing the production process like small-scale entrepreneurs. How so?

They:

• Rented land from landowners

• Hired the manual labor of other landless serfs to supervise the production of wool/crops that could be sold for profit (so that they could pay rent to the landowner and wages to the few laborers they hired)

These new small-scale entrepreneurs needed some money to begin with (to pay wages, get seeds, and pay their rent to the lord). Who lent them the money?

It was the lord himself, who then charged them interest — debt came first

How come distribution began to precede production?

Because:

• The amount of money paid to wageworkers

• The rent paid to the lord

• The sums to be paid for raw materials

  • They were all agreed upon even before production began — the distribution of the entrepreneur’s future revenues was decided before their existence

To buy new technology, very often more money had to be borrowed. With more debt came more potential for profit but also a faster route to ruin. How so?

• Competition between entrepreneurs became fiercer

• They had to pay their workers as little as possible or else they’d go bankrupt