No work of British sociology has been as widely discussed as the Affluent Worker Study. In a recent issue of Capital & Class I revisited this study—and the mid-twentieth-century debate over working-class “embourgeoisement” it engaged—with an eye to highlighting something that social theorists have never quite known how to handle: the class-dependent nature, composition, and consequences of household debt.
The conventional “ECON 101” story is that household savings provide the available stock of investment capital and credit. This portrait of household savings and financial investment may have once been a reliable guide to how things work, but it fails to make sense of the world that emerged shortly after the Second World War. Over the past 60 years or so, credit lines have mostly become a matter of banks lending against already existing assets – above all, residential and commercial properties. In other words, even high-income households have become sites of debt rather than credit—and this has all sorts of downstream consequences.
Borrow to Live and Live to Work
If we are addressing residential-mortgage debt, for example, what appears as a financial liability on one side of the household balance sheet shows up on the other side as a time-sensitive, but still historically productive, financial asset. Given that 70-80% of household leverage on either side of the North Atlantic takes the form of a residential mortgage, this means that wealth and debt tend to be positively correlated in advanced capitalist economies.
Since wealth is now largely a matter of appreciating real estate prices, Lisa Adkins, Melinda Cooper, and Martijn Konings have argued that contemporary capitalism:
involves the structural reconfiguration of patterns of inequality in a context that has seen the rise of home ownership and the growth of asset ownership across numerous layers of the population. This opens up the possibility of a closer connection to the issue of class, one that is sensitive to the fact that the spread of asset ownership has created new, complex dynamics of stratification.
For this reason, social scientists increasingly need some kind of debt-based account of class dynamics to supplement the existing employment-based, consumption-based and asset-based schemes. What makes any of this relevant for a Marxist is that the social reproduction of labor now often depends upon various forms of working-class indebtedness. Or, to echo Marx himself, the monetary value of a day’s work is often insufficient for securing a working family’s daily provisions.
Consider the negative correlation between household liabilities in the form of “payday loans” and income:
- A 2010 British study concluded that nearly 70% of the households that carried this form of unsecured debt were from the bottom two income quintiles and typically borrowed in order to pay routine domestic expenses like utility bills or the rent.
- The story was roughly the same in the United States: the lowest and second quintiles accounted for 80% of all payday loans. Moreover, the vast majority of these funds were used to either cover exogenous financial “shocks” (e.g., emergency medical bills) or address basic needs (e.g., groceries).
Simply put, the available evidence suggests that the Anglophone working classes must now labor and borrow to gather the means of their own subsistence.
Household Debt and “Buffer-less” Resilience
The Capital & Class piece concludes by noting how indebtedness injects an additional measure of labor discipline into our lives. One might even say that, much as the World Bank has used sovereign debt to achieve capital-friendly “structural adjustments” outside the home, unsecured household debttends to produce a variety of capital-friendly “structural adjustments” within the home. These outcomes include, but are not limited to, things like the wearied willingness of men and women to take on additional work and “side gigs”—something the sentries of the moneyed classes view as a historic “opportunity.”
This is why—on the way out the door, as it were—I wondered whether we should think about debt as a multivalent source of both long-term financial instability (á la Hyman Minksy) and short-term social stability inasmuch as it perpetuates working-class dependence upon capital. In the space remaining, I would like to speculate about how the Covid-19 pandemic has likely amplified some of these trends.
When American businesses first began to shutter in early March 2020, I began thinking about a singular data point. The Fed’s Board of Governors concluded in a 2019 study that 40% of households would struggle to come up with enough money to cover a big-but-not-massive unexpected expense:
When faced with a hypothetical expense of $400, 61 percent of adults in 2018 say they would cover it, using cash, savings, or a credit card paid off at the next statement (referred to, altogether, as ‘cash or its equivalent’). Among the remaining 4 in 10 adults who would have more difficulty covering such an expense, the most common approaches include carrying a balance on credit cards and borrowing from friends or family. Twelve percent of adults would be unable to pay the expense by any means.
In finance-speak this means that, in the event of a sudden loss of income, millions of American households would lack sufficient liquid-asset “buffers”to fund present consumption and service existing financial commitments. Given that the Covid-19 unemployment and inactivity shock was likely to be most consequential in sectors like hospitality, retail, and tourism—where low- and middle-income households represent the bulk of the labor force—this implied that somewhere around 83.7 million men and women could probably piece something together for a month or two by surviving off debt. However, these “low-resilient” households could not go much further without some kind of liquidity injection.
I fast-forwarded to the stories of renter-landlord and debtor-creditor stand-offs that might appear throughout the country by June or July. I imagined the chaos that would follow as the first wave of evictions washed upon the shore in August or September. It promised to be a long, hot summer on a rapidly warming planet.
The helicopter money released by the Coronavirus Aid, Relief, and Economic Security (CARES) Act secured some breathing room for working families—as did the Federal moratorium on evictions through July 24—but exactly how much remained unclear. Mid-summer gossip regarding another round of “stimulus” payments was probably always empty, but Congress did manage to extend the freeze on evictions through December 31.
Where do things stand now? Almost everything remains relentlessly murky in the United States. It is therefore impossible to do anything more substantive than offer a few broad-brushstroke observations.
- After peaking at 8 million in May, the number of workers unemployed or inactive for Covid-related reasons fell to an estimated 19.4 million in September. Yet, an unexpected increase in new jobless claims during the first full week of October — 898,000, the highest since late August—undermined the fragile confidence that the heaviest economic weather was behind us.
- Thanks in no small part to a Department of Education decision to report loans eligible for CARES Act forbearances, the percentage of student loan balances 90+ days past due dramatically declined in the first quarter. However, the percentage of delinquent credit card balances spiked.
- The various moratoria on evictions have prevented twenty-first century versions of “Hoovervilles” from forming, but an estimated $21.5 million in uncollected rent is a Damoclean sword hanging over the least resilient American households. The rentier class appears to be losing patience with this arrangement, though.
To borrow a line from Wolfgang Streeck, American capitalism appears to have bought itself some time with an ad hoc mélange of counter-cyclical deficit spending, historically low interest rates, and stop-gap housing protections. What happens next is anyone’s guess.
A full year before the Panic of 1857 began, Marx discerned the signs of a gathering economic catastrophe. Although the bankers and traders have found ways to delay the day of reckoning, he judged in 1856:
That collapse is none the less sure from this postponement; indeed, the chronic character assumed by the existing financial crisis only forebodes for it a more violent and destructive end. The longer the crisis lasts the worse the ultimate reckoning. Europe is now like a man on the verge of bankruptcy, forced to continue at once all the enterprises which have ruined him, and all the desperate expedients by which he hopes to put off and to prevent the last dread crash.
The Panic of 1857 was the first genuinely global financial crisis, but it was not as cataclysmic as Marx predicted or desired. Thus, by August 1858, he was glumly noting that “the world has grown damned optimistic again”. The post-capitalist order would have to wait a bit longer.
It remains to be seen whether, as some have argued, we are presently entering a post-capitalist era. History teaches us that capitalism has a matchless talent for “un-painting” itself out of corners. Nevertheless, my advice is to keep an eye out for data regarding unpaid rent and evictions in the coming year.
The 2007-08 subprime-mortgage debacle was one version of a “housing crisis.” The next one—the stand-off presently brewing between renters and landlords—could resemble the kind of violent struggle between capitalists and workers that Marx envisioned more than a century-and-a-half ago.
Matthew Day teaches at Florida State University.
This article draws upon his recent piece, “The Short Happy Life of the Affluent Working Class: Consumption, Debt, and Embourgeoisement in the Age of Credit.” Capital & Class 44(3): 305–24.