The structure of debt relations and the dependencies or bondages they have created defy social progress, without much upside. Prior to the Covid crisis, debt levels had reached a point where piling on more no longer translated into new investments. Excessive reliance on debt, no matter how cheap, makes even less sense at a time when our future is becoming more uncertain because of the Covid pandemic, climate change, and the inherent instability of debt-driven finance.

And yet, debt has been treated once more as the cure-all for the economic downturn the Covid pandemic has triggered. When we emerge from this crisis, governments and firms will likely have even more debt on their balance sheets than prior to the crisis, and households will buckle under unpaid bills. To finance the repayment of existing debt, even more debt will have to be taken on—a strategy that Hyman Minsky accurately labeled “ponzi finance”. Ponzi schemes always crash, the only question is when.

But we can no longer afford to gamble on crashes: we need a financial system that is more sustainable, resilient, and inclusive.

I hope that this group will craft strategies for alternatives to our debt-ridden system, even if such an alternative will necessarily be a moving target. Any treatment has to start with a diagnosis. From my vantage point as a legal academic who has studied legal and financial systems historically and comparatively, I offer the following.

Credit is (next to property rights and the corporation) one of a handful of legal institutions that is at the core of the capitalist system. Credit is the flip side of debt: what is someone’s debt is somebody else’s credit. Debt and credit have existed for millennia. They have been ingrained in the daily operations of societies as their members make promises to or borrow from others based on a shared understanding that the survival of the group depends on these relationships and exchanges.

Modern legal systems have socially distanced relations of debt and dependency, often making them more—not less—binding. They have made individuals less dependent on group support because they can rely on formal legal institutions to settle disputes with group members and outsiders. On the upside, this has allowed social systems to scale and for minorities to find justice outside of the groups that suppressed them.on the downside, it has enabled behavior that disregards how it might affect others, and on the system that enables this behavior.

For a while, legal restrictions (regulation, anti-wager laws) have kept this system in check. But over the past several decades debt has exploded globally. New legal coding techniques and deregulation have dis-embedded debt relations from legal and regulatory systems that used to constrain them. Debt relations are no longer centered primarily around specifically authorized financial intermediaries, such as banks with long(er) term customers; they span chains of decentered claims that can turn virtually any promise to pay into an investable asset that is sold off to dispersed investors. Every node in this chain carries only a fraction of the risk associated with the debt, even as every debtor remains fully accountable for the debt she owes.This makes the issuance of debt seemingly riskless for issuers, and debtors have piled on debt, often as a substitute for increasing wages or profitability. If and when some debtors default, hardly anyone will notice. If, however, the creditors face a liquidity crunch because too many of their debtors defer or default on payments, central banks will come to the rescue as lenders or dealers of last resort. Failing to do so might well bring down the entire system; and yet by rescuing it, central banks both protect and further entrench it.

Can this system can be reformed without pushing it into the abyss? This, I think, is the most pressing question. I dread its collapse and would much prefer reforms, if only because I fear the fallout from such a crisis. My first inclination is therefore to find niches where alternatives to the current system can flourish that are protected from encroachment by the dominant system and yet might be scalable. New forms of cooperative money that harness digital technology might be a good way to start. The digitization of finance is, of course, already progressing at a rapid pace with new Big Tech companies leading the challenge against legacy institutions, including banks and central banks, but they are unlikely to offer a real alternative. Stopping them will be almost impossible; but it may not be too late yet to build meaningful alternatives.