Insofar as an economic downturn has traceable causes, the present recession seems to have origins in the behavior of at least three groups of people: reckless lenders, who encouraged people to spend their money irresponsibly; reckless borrowers, who took their advice and spent well outside the limits of need and the ability to repay; and a government which at times encouraged such behavior through organizations such as Fannie Mae and Freddie Mac.
This is old news to the astute observer and the regular reader of TCS. What they may not know is how vividly, and how long ago, great philosophers warned us just how dangerously our society was using money. The great philosophers understood that economics operates on a moral plane, indeed a spiritual plane; that economic problems are often moral problems; and that financial markets are corrupted as much by bad behavior as by bad economic theory. The antiquity of their advice only serves to belie its strikingly acute contemporary relevance.
Read along from an excerpt of Plato's Republic (Book VIII, 550d-566), and see if any of it sounds familiar. It's the tragic tale of a declining republic, a tale of war, money, and politics all gone wrong through a combination of bad judgment and disordered cravings. We begin with moneylenders who have a nasty habit of lending money to people they know will use it irresponsibly, especially to youths whom they encourage to fritter it away on useless luxuries. They prefer that their money be wasted on frivolities; the more of it is wasted today, the more they can charge in interest tomorrow.
But their clients are just as bad, if not worse. By spending others' money on frivolities, they fail to take responsibility for themselves. A group of people recklessly spending other people's money soon becomes a leech on society: a class of those who have ruined themselves burning through borrowed money.
The class of bitter, bankrupt borrowers finds it has a friend—or what looks and talks like a friend—in a group of politicians who promises them honey, served in a silver bowl at the expense of the moneylenders who got them into trouble in the first place. Their alliance only lasts until one of the honey-tongued politicians stirs up the bankrupted class, whips them into a frenzied mob, and makes war against the wealthy class, seizing their money by force. This politician emerges as a tyrant, and the old republic has died.
Republic is a complex and profound morality tale in which we can see, if darkly, the reflection of our own republic. Its story is not exactly ours, but we have a lot in common with this once-beautiful city. Specifically, we have the same moneylenders and borrowers. The eeriest similarity to Plato's moneylenders is the agressive marketing of credit cards to college students. However, the reckless use of home loans on the part of both lender and borrower has proven more devastating.
We have been blessedly spared from the final stage of the societal destruction portrayed in Republic, wherein a redistribution of wealth proceeds by way of a violent coup to tyranny. The American republic is stable enough that for the foreseeable future we need not fear such madness.
But the same disease can also kill a republic slowly. Cicero, the great Roman statesman and philosopher who was also a great reader of Plato, warns that redistributing wealth by taking it from lenders and giving it to borrowers is among the worst things a leader can do because it wreaks havoc on a credit system (On Duties, Book II, chapters 83-85). This in turn can cripple an economy and lead to the same awful result: the death of the republic. Since credit is a function of the credibility a borrower has in the eyes of a lender, nothing can damage it more than if lenders expect to be repaid with their own taxes. While we can be grateful we haven't seen more of this, we should keep a hawk's eye on the new Congress for any signs of this sort of redistribution.
After all, we would only be deceiving ourselves if we thought that our republic by virtue of its size, technology, hefty GDP, or anything else is somehow immune to what destroyed other republics. Human nature destroyed ancient republics, and it could destroy ours.