Towards an understanding of the role of debt
Given our focus on investment into residential real estate, an essential dimension is understanding how housing fits more broadly within the financialized economy of the UK (and the Netherlands and France). An important but under engaged within urban studies part of this is the role of debt. However, this lack of research in urban research is changing and there is much to be learnt from other disciplines, especially from political economists working more broadly on the role of debt finance in economic growth. Within that body of work, Dr. Johnna Montgomerie’s ‘Should we abolish household debt’ is a vital introductory contribution.
Montgomerie’s succinct book gets to heart of the debt problem in the UK (and more broadly Anglo-American countries) and forcefully argues for the abolishment of debt. Structured around five chapters, she shows the arguments for, the flaws in arguments against and crucially the mechanisms by which abolishment can be achieved. To do so Montgomerie calls for the ‘hacking’ of the financial system to cut through the Gordian knot of debt – rather than try to untangle the mess of financial tools and loans caught up in the current debt-fuelled growth system, she suggests instead removing those debts which pre-date 2008 and those which bear the heaviest weight on society (student loans, mortgages for primary residents).
Montgomerie continually utilises the 2008 bailout throughout the book, using the ways in which the state supported the banks – the ultimate beneficiaries of the current debt based system – to argue that there is a moral imperative to do the same for citizens. This gets to the heart of the book’s argument: debt is currently fuelling a very particular form of economic growth in the UK (and beyond) which is undeniably linked to the huge, growing levels of inequality experienced. Removing the worst types of debt frees citizens in a number of ways – it releases them from the problems of navigating their debt on a daily basis, allows them to participate more in the economy and finally, most relevant for this project, it creates stability and security in homeownership.
This book taught or helped clarify three key, simple arguments around finance:
- Banks don’t just move money, they make money – so when talking about debt, it’s not that savers’ money is lent to others and therefore savers will not ‘loose out’ in debt is cancelled
- When debts become too much for people to pay back debtors sell on that debt at a hugely discounted price and yet the buyers still try to claim back the full amount (Montgomerie likens this to getting a hugely discounted jumper and demanding a refund of the original price)
- There have been a number of successful debt cancellation schemes
The role of debt more broadly is being addressed at a UCL event next term hosted by the Institute of Advanced Studies – we look forward to attending and hearing more about the excellent work scholars across disciplines have been doing on the role of debt-fuelled growth and its consequences.
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