Graeber indicates that credit, and thus debt, has been part of human interaction about as far back as one can look. As soon as wealth began to be accumulated unevenly a system of creditors and debtors emerged. Kuttner provides this quote from Graeber:
Kuttner provides this summary of the main issues to be discussed with relation to debt.
The basic business transaction of lending resources should be quite simple. The debtor assumes a risk in borrowing resources that he might not be able to repay. The creditor assumes the risk that his resources might not be returned and charges a fee appropriate to the risk being taken. In an ideal world there is a balance of risks and both creditors and debtors lose occasionally.
However, we are not in an ideal world and creditors, being the wealthy, have easily balanced the scales in their favor. One approach utilized by the wealthy was to turn a pure economic transaction into a moral obligation.
Thus the debtor who was unfortunate in business was also a sinner and morally culpable. This imbalance in favor of creditors has been an integral part of history and has provided creditors with a range of options for punishing debtors for their sins.
One of the mechanisms that served as both punishment and encouragement for debtors to find payment "somewhere" was the system of debtor prisons. This ineffective and rather counterintuitive approach began to break down when economies became more complicated and economic swings became more severe. When the economy runs on credit and there is an economic collapse, no one can pay their debts. It is awkward for a society to come to the conclusion that all its merchants should be thrown in jail. When economics conflicts with morality, it is usually economics that wins.
Not surprisingly, it was decided that economics was a matter for debtors "of significance." Morals were to continue to be the issue for poorer debtors.
This difference in approach to the wealthy and the non-wealthy persists to this day. When corporations do dumb things and acquire more debt than they can deal with they are allowed to declare bankruptcy, renege on debts, and then go back in business. When banks do dumb things, their mistakes are covered by the tax payers if the banks are big enough.
The term "moral hazard" usually comes up when a non-wealthy person gets into financial trouble. Any attempt to bail the poor out runs the risk of encouraging them to continue to do dumb things.
While individuals of any economic standing now have access to debt relief through bankruptcy proceedings, individuals experience more restrictions than corporations.
The system of debt peonage that Graeber referred to persists.
Kruttner is particularly outraged by the application of "moral hazard" to nations.
He points out that there is a long history of debt relief for nations, and that some of the countries that benefited the most in the past are now the loudest moralizers when it comes to considering the sins of others.
"Germany, today’s enforcer of Euro-austerity, was the beneficiary of one of history’s most magnanimous acts of debt amnesty in 1948. The Allies in the 1920s made the catastrophic error of helping to destroy Germany’s economy with reparations and debt collection policies. In the 1940s, after a brief flirtation with World War I–style reparations, the occupying powers agreed to behave differently: they wrote off 93 percent of the Nazi-era debt and postponed collection of other debts for nearly half a century. So Germany, whose debt-to-GDP ratio in 1939 was 675 percent, had a debt load of about 12 percent in the early 1950s—far less than that of the victorious Allies—helping to produce postwar Germany’s economic miracle. Almost every German can cite the Marshall Plan, but this larger act of macroeconomic mercy has disappeared from the political consciousness of Germany’s current austerity police. Whatever fiscal sins the Greeks committed, the Nazis did worse."
The continued ascendency of creditors (banks) and the determination to conflate moral issues with economic issues has been unwise.
Kuttner provides this summary statement: