RESOLVENCY

The ERC-funded project RESOLVENCY explores possibilities of rethinking debt as a more sustainable social medium for the democratic deliberation of corporate, consumer and sovereign debt relations. To this end, RESOLVENCY proposes to govern debt from its limits. Through this shift from an “insolvency” to a “re-solvency” paradigm, the project aims to reveal the regulatory potential of insolvency law as a structure for collective action.

Where We Start | Debt as a primary economic medium

If money makes the world go 'round, then debt speeds it up. But what is debt? Debt and credit are social bonds that enable extended reciprocity over time, forming a logical pair of formalized exchanges. A creditor gives something to a debtor, who owes the creditor and promises to give something back later. Essentially, debt gives the debtor time—normally calculated in money—to pay back what they owe. With regular interest rates, debt buys time.

Legally, both parties (creditor and debtor) enter into a binding contract. If the object of the contract is money, then the bond is called debt. From an analytical point of view, all time-delayed transactions are credits or debts. Money is the central medium for exchanging, measuring, and recording debt and transactions. Money itself is a form of credit, promising collective and public acceptance in the future. Stock markets, cryptocurrencies, and decentralized finance add private collective credit systems. Debt-based reconstructions apply to all forms of capital circulation, such as investing in land, material resources, or funds in an economic endeavor to generate future profits. In capitalism, the primary economic medium is debt, which operates under the binary code of "to pay or not to pay." The term "liquidity" then enters to classify different types of debt, money, and capital. One of the project's subliminal objectives is to outline the basic legal mechanisms that constitute collective credit systems.

 Credits serve as investments in growth for all economic actors, including firms, consumers, and states. Current growth is financed by debt, which is repaid based on future growth. Debt is a core element of perpetual growth, which threatens sustainable development. Debt bubbles cause financial and economic instability, as evidenced by the global financial crisis of 2008. The natural limits to growth on our planet, such as climate change, are not reflected in the economic sphere. Nor are the rising distributional inequalities around the globe and within nearly every national society. Democratic governance and actors’ autonomy both suffer from the structural power of heavy economic debt. In short, an unlimited, reductionist financial conception of debt drives economic, ecological, cultural, and political unsustainability. Decoupled financial markets (e.g., derivative trading), imperialistic debt politics, and massive public and private debt (e.g., in response to a pandemic-driven recession) further perpetuate the global debt cycle.