The principles of debt

Published: Thu, 07/21/22

What eventually brings a great power to its knees? The same process which Charles Dickens described in his famous 1849 novel David Copperfield.
“Annual income twenty pounds, annual expenditure nineteen nineteen and six , result happiness.
Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery”
Remember the principle of principles is that principles are simple, universal, and fractal.
Dickens expresses the principle of finance perfectly. There is income, there is expenditure, and there are the outcomes from income exceeding expenditure compared with expenditure exceeding income. In the first case the result is happiness with money for discretionary spending, freedom, and autonomy. In the second the result will be debt, which at the very least means loss of full control and autonomy over one’s life.
Unless of course the debtor simply decides not to pay the debt at all. Beatrix Potter was another famous 19th century writer, and illustrator. One of her stories features a cat called Ginger and a terrier called Pickles who run a village shop. There is another shop in the village run by a cat who rejoices in the name of Tabatha Twitchet, her son Tom Kitten is a favourite Potter character. There is a big difference between the two establishments. Ginger and Pickles give unlimited credit and do a roaring trade, especially in confectionery. The author explains that ‘giving credit’ means letting customers take goods out of the shop without actually paying for it at the time. No one is willing to actually pay what they owe and this means that there is no money in the till to pay for anything else. Eventually Ginger and Pickles have to shut up shop and find other ways to make a living. By contrast Mrs Twitchet does not give credit
and ‘The Tale of Tom Kitten’ indicates that she is quite well to do by the standards of her rural community. In the absence of competition the Twitchet establishment promptly puts up its prices by a half-penny causing great consternation in the community and boosting profits still further.
Although Beatrix Potter might have been writing children’s stories about talking animals her tales are based on close observation of rural village life in the late 19th and early 20th century.
My cousin qualified as a solicitor about 40 years ago and began work in a solicitors office in a small market town. He told me that one of his first jobs was sending out letters for businesses demanding settlement of overdue bills. The letters would be sent outlining dire threats of further action unless the debts were settled in a timely manner. My cousin would then call up the client when the deadline had passed and ask if payment had been received. If the answer was a negative he would then offer to begin court proceedings to recover the money using bankruptcy legislation if necessary. The response from the client would frequently be. ‘No, you must do no such thing, they are our best customer’ I would imagine that the impecunious customer found the money to pay the previous bill when they were next in need of their creditor’s goods or services and would promise prompt settlement the next time.
Whenever I take on a new customer I will do a small job for them first. If the first bill is promptly settled I will be happy to undertake larger projects for them. If there is any problem or delay settling the initial account I will almost certainly not do work for them again. Many years ago my father warned me that you can do all the business you could possibly want to do, if you don’t mind not getting paid for it. He was right, and anyone needing a primer on the principles of retail business would do well to read and reflect on the Potter tale of Ginger and Pickles.
As you may have guessed Iduna has a collection of Beatrix Potter stories and we read them regularly. She has learned various useful lessons from them. Don’t get caught stealing vegetables (Peter Rabbit). Don’t trust foxes (Jemima Puddleduck), and be careful who you give credit to if you want to stay in business. She is not even three and she already knows the essential principles of business. So, if such lessons have been so perfectly expressed for well over 100 years by writers such as Dickens and Miss Potter why is America over 30 trillion dollars in debt and has added 4 trillion in the past couple of years? China is facing mass defaults in its mortgage market by property buyers who have simply decided to stop paying their mortgages. Sri Lanka has effectively become a failed state because the country’s credit card was maxed out. Europe, especially Germany is facing a massive energy crisis because the Russians want to be paid
for their gas in their own currency Rubles. The 2008 financial crash was triggered by sub-prime mortgages. Sub-prime being a euphemism for borrowers who are never going to pay off the debt, just like the customers Ginger and Pickles were so generous towards.
The world has a debt problem which is going to be hugely messy to resolve. It is very tempting to argue that these matters of international finance and corporate business are very complicated and impossible for the ordinary person to understand. The situation is complicated in that lots of misleading terminology is used and big business structures are tangled webs of opaque relationships and buried responsibilities. However, the basic principles of business and finance are right there in a Beatrix Potter story and the trillion dollar financial problems which threaten our future are nothing but a violation of those same principles. We are either helpless little pawns manipulated and exploited by the ‘gods and giants’ of international trade, finance, and politics. Or we take responsibility for understanding the principles of how things actually work. Then we can put principles to work in our own lives. We can also judge those who
take care of finance on our behalf according to their application or violation of basic principles. We can also be ready to rebuild a better world when the whole edifice comes crashing down around us.
Do you want the power to take control of your life, hold the ‘powerful’ to account, and be ready for a better future? Just get to grips with the simple, universal, and fractal nature of true principles and you have all the foundation you need to start learning, understanding, and building systems that will actually work.
PS The Tory leadership contest which, incidentally will also select the next UK prime minister is currently between Rishi Sunak and Liz Truss. Who will win the vote of the party members? Sunak is an international banker put into British politics to ensure that the government borrows plenty of money and pays the interest that accrues. He fulfilled this function successfully as Chancellor of the Exchequer. As prime minister he would take Britain’s debts to a whole new level. This means that Ms Truss can not be allowed to win.
My prediction is that she will step down from the contest long before the actual vote making Mr Sunak prime minister with no contest. We shall see.
PPS Here are the figures for USA debt
Graham Butcher
21 Beaver Road
Beverley East Yorkshire HU17 0QN

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