Do mortgage debtors, credit card debtors, and student loan borrowers have a moral obligation to pay back their debts? Is it unethical for debtor nations to default on their loans?

Most folks, thinking themselves to be honorable people, feel a strong moral obligation to “make good” on their debts, to honor their debts, to follow through on what looks very much like a promise to repay.

Today, however, a burgeoning debt resistance movement draws from the realization that many of these debts are not fair. Most obviously unfair are loans involving illegal or deceptive practices—the kind that were rampant in the lead-up to the 2008 financial crisis. From sneaky balloon interest hikes on mortgages, to loans deliberately made to unqualified borrowers, to incomprehensible financial products peddled to local governments kept ignorant of the risks, these practices resulted in billions of dollars of extra costs for citizens and public institutions alike.

A movement is arising to challenge these debts. In Europe, the International Citizen debt Audit Network (ICAN) promotes “citizen debt audits,” in which activists examine the books of municipalities and other public institutions to determine which debts were incurred through fraudulent, unjust, or illegal means. They then try to persuade the government or institution to contest or renegotiate those debts. In the United States, meanwhile, the city of Baltimore filed a class-action lawsuit to recover losses incurred through the Libor rate-fixing scandal, losses that could amount to billions of dollars.

And Libor is just the tip of the iceberg. In a time of rampant financial lawbreaking, who knows what citizen audits might uncover? Furthermore, when the law itself is so subject to manipulation by financial interests, why should resistance be limited to debts that involved outright lawbreaking? After all, the 2008 crash resulted from a deep systemic corruption in which financial institutions created risky derivative products that – because of government and Federal Reserve bailouts that amounted to a de facto guarantee – turned out to be risk-free for their perpetrators.

The creators of these “financial instruments of mass destruction” (as Warren Buffett labeled them) were rewarded while homeowners, other borrowers, and taxpayers were left with collapsed asset values and higher debts.

This is part of a much broader context of unjust economic, political, and social conditions. When that injustice is pervasive, aren’t most debts illegitimate? In many countries, declining real wages and reduced public services virtually compel citizens to go into debt just to maintain their standard of living. Is debt legitimate when it is systemically foisted on the vast majority of people and nations? If it isn’t, then resistance to illegitimate debt has profound political consequences.

Challenges to these debts cannot be based on appeals to the letter of the law alone, since the laws are biased in favor of creditors. There is, however, a legal principle for challenging otherwise legal debts: the principle of “odious debt.” Originally signifying debt incurred on behalf of a nation by its leaders that does not actually benefit the nation, the concept can be extended into a powerful tool for systemic change.

What debts are “odious”? Some examples are obvious, such as loans to build the infamous Bataan Nuclear Power Plant in the Philippines (from which Westinghouse and Marcos cronies profited enormously but which never produced any electricity), or the military expenditures of juntas in El Salvador and Greece.

But what about the huge amount of debt that financed large-scale, centralized development projects? Neoliberal ideology says those are to the great benefit of a nation, but now it is becoming apparent that the main beneficiaries were corporations from the same nations that were doing the lending. Moreover, the bulk of this development is geared toward enabling the recipient to generate foreign exchange by opening up its petroleum, mineral, timber, or other resources to exploitation, or by converting subsistence agriculture to commodity agribusiness, or by making its labor force available to global capital. The foreign exchange generated is required to make loan payments, but the people don’t necessarily benefit. Might we not say, then, that most debt owed by the “developing” world is odious, born of colonial and imperial relationships?

The same might be said for municipal, household, and personal debt. Tax laws, financial deregulation, and economic globalization have siphoned money into the hands of corporations and the very rich, forcing almost everyone else to borrow in order to meet basic needs. Municipalities and regional governments now must borrow to provide the services that tax revenues once funded, before industry fled to the places of least regulation and lowest wages in the global “race to the bottom.” Students now must borrow to attend even state universities that were once heavily subsidized by government.

Stagnant wages force many families to borrow just to live. This rising tide of debt cannot be explained by a rising tide of laziness or irresponsibility. The debt is systemic and inescapable. It isn’t fair, and people know it. As the concept of illegitimate debts spreads, the moral compulsion to repay these debts will wane, and new forms of debt resistance will emerge. Indeed, they already are in places most affected by the economic crisis, such as Spain, where a strong anti-eviction movement has challenged the legitimacy of mortgage debt and got an activist elected mayor of Barcelona.

As the recent drama in Greece shows, though, isolated acts of resistance are easily crushed. Standing alone, Greece faced a stark choice: either capitulate to the European institutions and enact austerity measures even more punishing than those its people rejected in the referendum, or suffer the sudden destruction of its banks. Since the latter would entail a humanitarian catastrophe, the Syriza government chose to capitulate. Nonetheless, Greece rendered the world an important service by making the fact of debt slavery plain, as well as revealing the power of undemocratic institutions such as the European Central Bank to dictate domestic economic policy.

Besides direct resistance, people are finding ways to live outside the conventional financial system and, in the process, prefigure what might replace it. Complementary currencies, time banks, direct-to-consumer farm cooperatives, legal aid cooperatives, gift economy networks, tool libraries, medical cooperatives, child care cooperatives, and other forms of economic cooperation are proliferating in Greece and Spain, in many cases recalling traditional forms of communalism that still exist in societies that aren’t fully modernized.

Debt is a potent rallying issue because of its ubiquity and its psychological gravity. Unlike climate change, which is easy to relegate to theoretical importance – after all, the supermarkets are still full of food and the air conditioner is still running – debt affects the lives of growing numbers of people directly and undeniably: it is a yoke, a burden, a constant constraint on their freedom.

Today, three-quarters of Americans carry some form of debt. Student debt stands at more than $1.3 trillion in the United States and averages more than $33,000 per graduating student. Municipalities around the country are cutting services to the bone, laying off employees, and slashing pensions. Why? To make payments on their debts. The same is true of entire nations, as creditors—and the financial markets that drive them—tighten their death grip on southern Europe, Latin America, Africa, and the rest of the world. Most people need little persuading that debt has become a tyrant over their lives.

What is harder for them to see, though, is that they could ever be free of their debts. That is why even the most modest challenges to debt legitimacy, such as the aforementioned citizen audits, have revolutionary implications. They cast into question the certainty of debt. If one debt can be nullified, maybe all of them can—not only for nations but for municipalities, school districts, hospitals, and people too. That’s why the European authorities made such a humiliating example of Greece—they needed to maintain the principle of inviolability of debt. That’s also why hundreds of billions of dollars were used to bail out the creditors who made bad loans in the run-up to the 2008 financial crisis, but not a penny was spent bailing out the debtors.

Debt has the potential to be a rallying point of near-universal appeal. “Won’t pay” is a form of protest easily accessible to the atomized digital citizen who has been sundered from most forms of political association; arguably, it is the only form of digital action that has much real-world impact. No street protests or confrontations with riot police are necessary to stop payment on a credit card or student loan: the financial system is vulnerable to a few million mouse clicks.

What should be the ultimate goal of the debt resistance movement? The systemic nature of the debt problem implies that none of the policy proposals that are “realistic” or reachable in the present political environment are worth pursuing. Reducing rates on student loans, offering mortgage relief, reining in payday lending, or reducing debt in the Global South might be politically feasible, but by mitigating the worst abuses of the system, they make that system slightly more tolerable and imply that the problem is not the system—we just need to fix these abuses.

The aforementioned policy proposals have a further defect as well: they are so moderate that they have little potential to inspire a mass popular movement. Reduced interest rates or other incremental reforms are not going to arouse an apathetic and disillusioned citizenry. But recall the Nuclear Freeze movement of the 1980s: widely decried as naïve and unrealistic by establishment liberals, it generated a vocal and committed movement that contributed to the climate of opinion behind the START agreements of the Reagan era. The economic reform movements need something equally simple, graspable, and appealing. What about the cancellation of all student debt? What about a jubilee, a fresh start for mortgage debtors, student debtors, and debtor nations?

The problem is that canceling these debts means erasing the assets upon which our entire financial system depends. These assets are at the basis of your pension fund, the solvency of your bank and grandma’s savings account. Indeed, a savings account is nothing other than a debt owed you by your bank. To prevent chaos, some entity has to buy the debts for cash, and then cancel those debts (in full or in part, or perhaps just reduce the interest rate to zero).

Fortunately, there are deeper and more elegant alternatives. I’ll mention two of the most promising: “positive money” and negative-interest currency. Both of these entail a fundamental change in the way money is created. Positive money refers to money that is created directly without debt by the government; the money can be given directly to debtors for debt repayment or used to purchase debts from creditors and then cancel them. Negative-interest currency (which I describe in depth in Sacred Economics) entails a liquidity fee on bank reserves, essentially taxing wealth at its source. It enables zero-interest lending, reduces wealth concentration, and allows a financial system to function in the absence of growth.

Radical proposals such as these bear in common the recognition that money, like property and debt, is a sociopolitical construct. It is a social agreement mediated by symbols: numbers on slips of paper, bits in computers. It is not an immutable feature of reality to which we all must adapt. The agreements that we call money and debt can be changed. To do so, however, will require a movement that contests the immutability of the current system and explores alternatives to it.

This blog is based on an article that first appeared in Yes! Magazine (August 20, 2015). Charles Eisenstein and Helena Norberg-Hodge will be doing a webinar on Debt and Speculation in the Global Economy, on March 30, 2016.  More details here.

Image by Mike Fleshman, from Wikipedia