Shadows For Sale

At the end of every seven years you shall grant a remission of debts. “This is the manner of remission: every creditor shall release what he has loaned to his neighbor; he shall not exact it of his neighbor and his brother, because the LORD’S remission has been proclaimed. -Deuteronomy 15:1-2

junk-debt-buyers-consumer-lawsuits
Debt is often portrayed like this, insurmountable garbage or an overwhelming flood. But for debt buyers, it is a valuable commodity.

A personal goal of mine in writing this blog was to do a somewhat extensive application of all of Marx’s Capital to U.S. law. That goal did not quite materialize as I got caught up in various things, but I recently started an amazing reading group through DSA’s Socialist Feminist Working Group for women and nonbinary people to read through Capital Vol. 1. Since I will be putting time into not only re-reading it but also discussing and learning from my nonbinary and sister comrades, I figure might as well apply that knowledge to the law.

So those who have read Capital know that Marx starts things off with his analysis of what a commodity is and why the nature of commodities leads to commodity fetishism. He famously (or perhaps infamously) uses the example of linen and coats for commodities. He did not pick these commodities at random: coats are a commodity that has near-universal familiarity and linen is one of its components (at least in the 19th century). They also have a clear utility: coats keep us warm and linen can be used to make clothes like coats. And they have a clear root in production through private labor: coats are tailored and linen is weaved. But this first chapter of Capital Vol. 1 is supposed to cover all commodities because of how Marx comes to his definition of the money-form.

Marx begins by describing the two values contained in commodities: use-value, the utility of a commodity in its consumption or use, and exchange value. Exchange value is derived by the relative value between two commodities, with Marx giving the example of 20 yards of linen=1 coat. Marx notes that every commodity has an extensive number of relative values, essentially as many as there are commodities in the marketplace. He explains that these other relative values are needed to really understand the value of a commodity. If, for example, whatever market fluctuations cause the exchange value of linen and coats to go up in the exact same proportion, their relative value will remain the same: 20 yards of linen=1 coat. Throw in a third commodity however and you can understand that the exchange value has gone up, i.e. 20 yards of linen=1 coat= 1 lb. of coffee > 20 yards of linen=1 coat=2 lb. of coffee.

As such, one can craft what Marx calls the general form of value by setting one commodity against all others – “the joint contribution of the whole world of commodities.” And per this relationship, society can come up with a commodity to serve as a universal equivalent. That commodity was gold. And this relationship of “direct and universal exchangeability” made gold into money. Gold’s existence as money then made its relative value towards other commodities the price form.

Now commodity fetishism is the part of this first chapter of Capital Vol. 1 that draws a lot of attention because of how present it still feels in our day-to-day lives. The deduction of money conversely seems a bit archaic: after all, we now have a fiat currency in the United States that does not rely on the gold standard. Is modern money still a commodity? Many would argue that is not: as the economist Georg Friedrich Knapp said, money is a “creature of law” rather than a commodity. It is important to recognize however, as Marxist economist Michael Roberts points out, that Marx is not writing about money throughout existence but rather money in a capitalist-commodity economy.

Roberts also notes that the state being able to create money “out of thin-air” as is done with a fiat currency is not the same thing as creating its value. He uses the example of the Great Recession to indicate that when the value of a national currency collapses that commodities’ demand increases to hoard value.

goldadjustedforexpansion
Note the spike in mid-2007 and then drop in mid-2012.

And I would argue a recent scourge of consumer protection law is also demonstrative of money’s role as a commodity and the importance of rooting the price form in relational values of exchange: the practice of buying consumer debts.

Debt buying regularly comes up in the context of so-called “zombie debt.” This “zombie debt” is debt which has been paid off but the account winds up accidentally getting bundled with a bunch of open debt accounts and sold to debt buyers. Many creditors (and we’re talking big names here like Bank of America and Discover) deal with this problem by indemnifying themselves contractually from any liability, placing the responsibility of weeding out already-paid accounts onto the debt buyers. The debt buyers in turn have little to no incentive to weed out these accounts because (1) there is literally no court in the US where default judgments are not obtained in the majority of consumer debt proceedings, and (2) the main statute protecting consumers, the Fair Debt Collection Practices Act (FDCPA), limits penalties for individual actions to $1,000. That’s less than practically any of the judgments that debt buyers stand to win from filing suit, so it is simply a matter of profit margin.

But how come companies are allowed to buy debt in the first place? People appearing in court, sued by a company they have never heard of like Portfolio Recovery or Calvary SPV, often wonder why they are dealing with some strange company rather than their original creditor. After all, the origin of our ideas of debt are mostly from Judeo-Christian concepts of morality, like the common seven year statute of limitations that can be traced back to Deuteronomy. As in prior to capitalism being the dominant economic paradigm, when the impetus of paying debts came from fearing judgment and sin. It is hard to get across to people in debt from a wide array of backgrounds that this moral system has little to no bearing on their legal proceedings. The judge probably will not, and the plaintiff will certainly not, care if someone has always “done the right thing” or made one mistake. Moral culpability is irrelevant: what matters is contractual obligation.

Debt, and its more appealing twin Credit, developed to allow for the expansion of capitalism for reasons that will be covered further into Capital Vol. 1. For the time being, it just needs to be understood that debt is a contractual money obligation by one party, the debtor, to another party, the creditor. Like any other contract, the rights it instills can generally be assigned to another party. U.C.C. 15-317. But assignment only provides a legal vehicle for the purchase of debt: what is the economic motivation? And more precisely, is debt a commodity despite being nothing other than a money obligation?

While abstracted to an extraordinary degree not even imaginable in Marx’s worst nightmares, debt is very much a commodity under modern capitalism. One element that reveals the debt’s commodity form is the difference between its use value and exchange value. Debt buyers do not purchase debts for the money owed on it. Instead, evaluating several factors (age, type of consumer transaction, attempts at collection), a price is formulated in relation to the necessary labor time needed to produce its value. This necessary labor time consists of administration, compliance, and legal collection. As such the exchange value winds up being pennies on the dollar or even less: it is literally a full-time job to track down people in debt and collect from them while complying with all the appropriate government regulations. And it should be noted that the use value of these debts is not the money owed either: debt buyers are well aware that most of these debts will settle for less than the principal and some (if people like me do their job right) may get discontinued altogether.

The example of purchasing debt shows the power of money as a concept, and particularly the price form. In any other exchange system, it would be difficult if not impossible to calculate the exchange value of a debt as a commodity with such ruthless efficiency. For starters the debt would not be for money but rather for commodities: to use an example we all can hopefully relate to, let’s say Rosa owes Lucy three tacos. Lucy decides she does not actually want the three tacos but wants to come out with something, so she tries to sell this debt to Margaret since she knows Margaret makes amazing pizza. Even assuming there was a generally recognized rate of exchange of one taco for one slice of pizza, why would Margaret risk purchasing this taco debt that she’ll then have to collect on when she could just go to someone with tacos and trade? It’s an intentionally silly example but hopefully it illustrates how complicated these relationships can be without a universal equivalent.

And of course the debt buying process is particularly interesting when we consider the debate of whether money is a commodity. Like money, debt as a contractual obligation is a “creature of law.” The obligations are not natural things but social relations. And most importantly how they relate to people (through their use value, or the collection of the debt) is different from how they relate to other commodities. The minute a price (the exchange value between money and a commodity) is placed on a debt, it relates to the entire world of commodities despite itself being an odd shadow of the very universal equivalent of money that allows this relation.

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