Debt-Peonage and Its Interpretations

Habilitación is an economic institution that occurs in many situations and particularly across Latin America. I describe it here in the context of where I conducted fieldwork on the Ucayali River, a major tributary of the Amazon in Eastern Peru and the people I worked amongst, including AshéninkaFootnote ⁴ indigenous people and people who are locally known, and self-identify, as mestizos (people of mixed-heritage). I conducted my research chiefly in the two Ashéninka communities of Pijuayal and La Selva, the Shipibo community of Amaquaria, and the local city and regional capital of the Ucayali department, Pucallpa.Footnote ⁵

Habilitación has been the main economic system of the region at least since the first major outside economic interest in the area began at the start of the rubber epoch in the 1870s. The first Peruvian rubber barons were based in Iquitos, around 1,000 km downstream from where I conducted fieldwork, but as land concessions were given official backing and prices rose, so operations increasingly stretched farther upriver. During this expansion Asháninka people were brought into the industry first as guides and then as rubber gatherers. In the habilitación system of production and exchange, a patrón Footnote ⁶ or habilitador pays a worker in goods in advance for the commodities that the worker will extract from the forest. The patrón then keeps a record of the outstanding debt, from which the value of the returned goods is subtracted. By forming the debt before any work has been done and by enforcing his own role as commercial middleman, the patrón thus appears to gain a powerful claim over those who will deliver him the goods.

During the rubber epoch infamous men such as Carlos Fermín Fitzcarrald and Julio C. Arana are described as having kept indigenous groups in virtual slavery, inflating the prices of the commodities that they gave out and deflating the prices of the goods they were given (Santos-Granero and Barclay Reference Santos-Granero and Frederica Barclay Rey de Castro2000: 38; see also Taussig Reference Taussig1986). As well as engaging individuals as peons within the system of habilitación, they also played off internal and external tribal rivalries to get different groups to conduct slave-raids among their enemies in return for guns and other goods (Varese Reference Varese2002: 126). Through the lure of goods or the use of force such outsiders built up large workforces. The terrible labor conditions of these workers, in addition to epidemics of European diseases and outright massacres, decimated the indigenous population and intensified outsiders' search for labor (ibid.: 127). Even with the end of the rubber trade at the beginning of the twentieth century, the enslaving of indigenous groups continued and the use and trade of Asháninka slaves was reported in some regions until recent decades (Gray Reference Gray, Hierro, Hvalkof and Gray1998: 169; Weiss Reference Weiss, Santos-Granero and Barclay2005: 52). In general, however, the worst excesses ended with the collapse of the rubber market, and the physical enslavement of Asháninka people gave way to making all people more explicitly part of the economic system of habilitación.

One of the dominant themes of the existing academic literature on debt-bondage has been to emphasize its worst excesses. For example, Bauer, a noted historian of Latin American cultures, shows how writers, describing how plantation owners on the Peruvian north coast recruited laborers from the sierra in the nineteenth and early twentieth centuries, tend to insist that the system was “harsh and tyrannical,” and use evocative words such as “bleak” and “oppressive” to describe the long working days (1979: 37; see also Barham and Coomes Reference Barham and Coomes1994: 61; Taussig Reference Taussig1986).Footnote ⁷ In this view the wage or goods advanced in the sierra was “a ‘lure’ to entrap the innocent” who, once thus “hooked” “were bent to their task and mercilessly and effectively hunted down if they tried to escape” (Bauer Reference Bauer1979: 37–38). But Bauer questions whether this is a correct picture of debt bondage, arguing: “We must be very careful, first of all, to distinguish between the two terms, for there can be bondage without debt and more commonly, debt without bondage. In places where landowners wield effective police control themselves or through local political leaders, no excuse, not even the legal fiction of debt is needed to bind workers. But where landowners do not have such power, what has been called debt may also [be] seen as credit; that is, as advances of cash or goods against the promise of future work” (ibid.: 36).

He thus suggests, “To establish the presence of a functioning peonage, there must be evidence of the landowner's ability to restrict workers' mobility” (ibid.), and he argues that while there are some places where this was undoubtedly the case, in the majority it was not. Bauer proposes instead, “It now seems likely that they freely and knowingly chose to work on the coast, took advantage of competition for labor, and knew how to drive up the amount of wages that plantation agents had to advance” (ibid.: 38). This leads him to suggest, in something of a throwaway line, that while: “Obviously the entire system was weighted heavily against ordinary peons and villagers.… When considering the plight of our distant workers, it is not entirely inappropriate to ask if we ourselves are not bound by Household Finance Corporation or by the stock-sharing or retirement plans of the companies and universities we work for, which recruit us (bind us) through contributions and then threaten to withdraw their share if we try to ‘escape.’ Given the nature of our society, we willingly choose such forms of peonage” (ibid.: 41). Bauer's article, and this suggestion in particular, provoked a strong rebuttal from Brian Loveman, a political scientist, who wrote: “The suggestion that the situation of a participant in a California state retirement plan or indebtedness to Household Finance Corporation is similar to debt peonage is so far removed from reality that to characterize it as ridiculous is generous” (1979: 481, n. 6). It was this exchange, and particularly Loveman's stark denial of any similarities between the two systems, that, in part, prompted the present article and encouraged me to explore the parallels and divergences between debt-peonage and mortgage practices. It seemed of particular relevance given the manner in which since the second half of 2007 the negative consequences of debt in the United States have come into focus for so many.

As I started thinking about the issue, increasing numbers of people in the United States appeared to be resigning themselves to paying increasing percentages of their incomes to their creditors while facing the prospect of having their homes and possessions taken from them. In the common portrayals of the time, these debtors appeared as powerless in relation to their creditors, effectively unable to escape their debts and ultimately as being exploited by rapacious lenders. Lenders, in turn, were depicted as growing rich at the expense of others and as hurting not only individual debtors but also the wider communities in which both the debtors and lenders lived.

In direct contrast to Loveman's assertion that comparing the situation of mortgagors to debt-peons was beyond ridiculous, everyday media depictions of mortgagors, and in particular those in the subprime sector, seemed remarkably similar to the older depictions of the institution of debt-peonage that I have just described. It therefore seemed a pertinent time to revisit Loveman and Bauer's discussion and to scrutinize whether Loveman's rejection of any possible comparison holds. Bauer's point, and mine in the rest of this article, is not to diminish the terrible conditions under which many debt-peons and bonded laborers worked, but rather to move away, first, from a single view of what debt-peonage, and mortgages, entail and, second, from a form of exoticism that sets up such relations as unconnected from other forms of indebtedness and that portrays people at the periphery of the global economic system as victims, unable to make their own choices and without their own understandings of their situation.

I will begin by using my own research on the Ucayali to build on Bauer's observation that indebted workers have some power in their relationships with patrones, and then to compare their situation with that of current mortgagors in the United States. As I noted at the outset, while this article cannot offer comparable ethnographic detail on the situation of homeowners in the United States I believe that my own experience of general mortgage practices as well as the recent publication of relevant sources allows for a useful preliminary analysis of some of the key issues. Of particular importance is a move away from the caricatured and exaggerated depictions of debtors and lenders in both contexts that all too often dominate popular discussions. My more specific aim is to use the apparent structural similarities and differences between the two institutions of debt-peonage and mortgages, as well as the positions of debtors and creditors within them to consider questions of exploitation, to explore why debtors often voluntarily enter into relations based on debt and, finally, to analyze the social and moral connections that lenders are often called upon by debtors to recognize.

I will begin with a more detailed description of the relationships that I observed between Ashéninka people and mestizo patrones and local people's own ideas about relationships of debt.

AshÉninka Debt

From the 1940s, boosted by the opening of the Lima to Pucallpa highway in 1943, mercantile activity in the Ucayali region began to focus on the extraction of timber. This new industry was still based on relationships of debt-peonage and Ashéninka people were drawn into the industry in this manner. A few Ashéninka men that I know have tried to work timber themselves, felling it with axes and then rolling the logs to the riverside with close family or through collective labor. The majority, however, enter into relationships with outsiders, usually mestizo men from Pucallpa, who either “buy” specific trees off individual men or pay individuals for their labor in helping to remove the logs.Footnote ⁸ The standard system is that a mestizo man will come to the area during the dry season, bringing a number of desirable items including clothes, aluminum pots, mosquito nets, Wellington boots, and school supplies. He will then search for local men who are willing to show him trees and help him to extract them. Work will usually start immediately on felling the trees (with the patrón's chainsaw) and then on cutting the paths to the river down which the logs are rolled. This may take a few months. At some point the patrón will take orders for further goods that his workers want and will make a trip to Pucallpa to acquire these items as well as more food for his camp and more gasoline for his motorboats. Sometimes he will delay his return for a few weeks, usually with the expectation that his workers will complete the timber rolling in his absence. The vital thing, however, is that he returns once the rains have started and the swollen streams are able to carry the massive logs down to the main river. The patrón will then take a few of his workers with him down to the river and then on to the city to deliver the logs to sawmills where they can be sold. At this point there is a final reckoning of the men's various debts and they are either given a few final goods, or noted as needing to carry on working the following year in order to pay off outstanding debts.

Described in this way, the power in the relationship appears to lie entirely with the patrones who control both the amount paid for the timber extracted and the value of the goods given in exchange. As I have noted, these relationships undoubtedly could turn into ones of virtual slavery and exploitation, particularly during the rubber epoch. I do not believe, however, that this is a true reflection of what is going on, nor of how the people involved see their relationships. While, in the present context, Amazonian populations still find themselves at the bottom of regional political and economic networks, my argument is that it is misleading to portray them as nothing more than victims in this process.Footnote ⁹ This view stems, in part, from my own interactions with Ashéninka men and in particular from my early interactions with Jorge, the Ashéninka man in whose house I would end up living during my fieldwork.

The pertinent events started a couple of weeks after my first arrival when Jorge, the one man in the area who had been willing to let me stay in his house, came up to show me that the second hand of his watch had fallen off. He asked me if I could fix it and, in a moment of bravado, happy to have something concrete to do and anxious to show that my presence might be of some small help to him, I set about taking it to pieces. As I took it apart and some very small screws, cogs and springs started falling out I realized that my tinkerings were unlikely to make things better. Keen to avoid a catastrophe so early on in our relationship I immediately offered to lend Jorge my own watch until I had an opportunity to take his to Pucallpa to be mended properly. Jorge seemed satisfied with this remedy but then over the next few weeks he increasingly pestered me about how he wanted to buy the watch from me and kept demanding to know how much it had cost. I was reluctant to agree to this, not least because I liked the watch but also out of some deeper and, I now recognize, “Western” idea that “friends” should not be monetarily indebted to each other. He kept coming back to the subject however, so in the end I told him an approximation of the watch's real price, 150 soles (approximately six-weeks' wages), hoping that this figure would be enough to deter him.

In fact it had no such effect. When I next returned from a trip to Pucallpa and presented him with his repaired watch he refused it saying that we had “agreed” that he would buy mine from me. At this point we had a strange conversation in which we seemed mostly to be talking at odds with each other. First I tried to tell him that the watch had been a gift to me and that I was too attached to it to part with it. He rapidly dismissed this argument along with other increasingly feeble excuses I presented, such that finally I accepted that I had no choice but to acquiesce. At this point I suddenly felt terrible that he would be 150/s in debt to me and I tried to bargain the price down or even to get him to accept it as a present. Now, to my surprise, he became even more animated than before and refused to accept any change in the settlement. Instead he started to argue that he could “easily” pay such a “small” amount or even more if need be. Here I felt that we were entering into a realm of surreality as my attempts to at least bring the price down were met with statements of bravado on his part and then accusations of my treachery and lack of friendship for him. As I became more and more bewildered by his arguments and increasingly embarrassed that this man upon whose hospitality my entire enterprise depended should feel in debt to me I decided to leave the matter alone.

In fact I secretly suspected that he would never get around to paying me so I slowly started to forget about the whole incident. Jorge would still sometimes remind me of the debt, and talk of how and when he would pay me. This occurred particularly in those periods when I was preparing to make trips to the city, but I slowly forgot about the details of the debt, particularly as other debts and shared experiences grew up between us. Then suddenly, at least a year after the initial incident, the issue came up again. For the past few weeks Jorge had been working for some timbermen in the area and one day one of them finally returned from Pucallpa to pay him. I was not aware that there was any money, too used to the empty promises of patrones, and the first I knew of it was when Jorge came back to the house where I was sitting writing. He asked me to tell him exactly how much he owed me for the watch. Thinking quickly I named 100 soles and to my surprise he immediately began to count out the money from the notes that he had obviously just received, leaving himself with only around 50 soles. Again I tried to lower the price further but again this was futile and he immediately walked off.

In a manner typical of so many ethnographic encounters this event concerned me but then helped to indicate the importance and the intricacies of exchange, debt, and trade, and the relationships that they entailed for the people I was working with. The first important point was that it was Jorge who demanded to be indebted to me. I was reluctant to form such a relationship but he encouraged me into it, even by giving up the chance of taking his own repaired watch back for free. He then continued to remind me of the debt that he owed me before finally making a point of paying it back, long after I had actually given up my expectations of such repayment. As I considered this pattern of events I realized that it paralleled older ethnographic descriptions of Ashéninka trading within their ayompari system.

Bodley, who carried out fieldwork amongst the Ashéninka in the 1960s, described the indigenous ayompari trading system thus: “In what may be called the ayompari system, an individual agrees to trade on a regular basis with another individual … a man will give his ayompari a set of arrows thereby establishing a debt relationship, and ask him to give a steel knife in return. The second man will have an ayompari in another region who is perhaps in contact with White patrones or traders and from whom he can trade for a knife. Eventually the first man will get the knife he requested and the debt will be paid” (1971: 51).

The Franciscan missionary Biedma noted this form of trading system in the seventeenth century centered on the movement of salt from El Cerro de Sal (The Mountain of Salt) in the Chanchamayo valley (Reference Biedma and Antonio1989 [1682]) and its origins appear to be pre-conquest. With the arrival of Europeans iron tools were quickly incorporated into the system and Europeans themselves appear to have been integrated into the system in recent decades.

The parallels between habilitación and the ayompari system are relatively clear.Footnote ¹⁰ Both institutions are based, at least in theory, on the idea of the delayed and balanced exchange of goods. From the Ashéninka perspective both consist of receiving goods from outsiders who must eventually be repaid by other goods to which they have access, be they handmade arrows or felled timber. Whereas some previous observers—Bodley (Reference Bodley1971: 54) and Varese (Reference Varese2002: 34)—have argued that in the past non-Ashéninka were specifically excluded from the category of ayompari, my experience is that, at least on the Ucayali, timbermen have now become the preferred form of ayompari. Moreover, I would argue that Ashéninka individuals, by placing timbermen in the position of ayompari, are specifically trying to counteract the power of the patrones while still maintaining access to desired goods. In particular they are trying to emphasize their own views of how such relationships should be conducted, the moral and social obligations that they entail and the underlying equality that exists between the two individuals in the relationship.

In Varese's description of the Asháninka ayompari relationship, he talks of the importance of discussions between the two partners over their debts to each other. He argues that “because basically this is the renewal of an oath or contract, what is sought is revitalization of the consecrated word.… In these [arguments] … there are insults and accusations … the word is charged with dangerous powers that must be countered with other words, shouted more loudly in the face of the opponent and reinforced with gestures” (2002: 35). This is what had been happening during my seemingly surreal conversation with Jorge. He felt that I was questioning not only his ability to pay, and thus our essential equality, but also the very nature of our relationship and that he was defending himself and restating the bond between us. Whereas this display disconcerted me, to him it was a normal part of such a process. Varese goes on to show that at the end of the exchange “each of the traders will go on his way. There is no ill will, only the certainty of having wisely used the force of the spoken word” (ibid.). For all of my apprehension during the verbal exchange, it certainly never led to any animosity between Jorge and me.

While Jorge's eventual repayment of his debt to me may appear to have carried the danger of ending our relationship, at this point our relationship had developed much further and we were bound together by a year's worth of shared objects and experiences that meant that there was no danger, in either of our eyes, of our relationship dissolving. Rather, Jorge's payment for that initial and large gift of the watch emphasized our equality, within which we were both able to give and repay gifts of large value.Footnote ¹¹ For the Ashéninka, I contend, ayompari relations are envisaged as reciprocal relations between equals who both give and demand respect of their partners. In this view debt is a positive thing, linking people together and it carries no idea of a hierarchical differentiation between giver and receiver (cf. Durham Reference Durham1995). For an Ashéninka man a good received becomes a symbol of the bond between the giver and receiver while the receiver holds no position of inferiority. Both men are bound to continue the relationship but neither can force the other as to how and when to make repayments. As can be seen in Jorge's actions toward me, Ashéninka individuals freely choose to enter into relationships of debt with outsiders, which they do not feel put them in an inferior position nor necessarily involve exploitation. While, obviously, an Ashéninka individual's ideas about these relationships do not necessarily govern how they are played out in practice, it does explain their willingness to enter into them. It also emphasizes that local indigenous people, just as much as timbermen, have their own ideas about these relationships and actively attempt to impose this view on others.

Questions of Exploitation, Power, and Agency

Ashéninka men's wishes to be treated as equals by their mestizo patrones and their understanding that trading relationships should follow certain social and moral strictures may be regarded as somewhat naïve. Indeed, I have noted above how the history of Amazonian extractive industries has been characterized by instances of extreme exploitation. However, in the current situation on the Ucayali, such power no longer rests solely with incoming traders. This reflects certain facets of the system of habilitación as well as the current economic, social, and political reality of the Ucayali. For, even as relative power in the system of habilitación continues to lie with those who control the money, or have the best access to goods, those on the lower echelons are not powerless. At the heart of the system is the idea that individuals are actually working for themselves, extracting a natural resource to which they have access and over which they therefore have some claim as a saleable commodity. The patrón, by equipping them, is thus “facilitating” their work. In return he expects that the extracted product will be “sold” back to him.

However, instead of leading inevitably to a form of labor bondage, this set-up can actually work in the laborers' favor, particularly in a situation where other patrones are competing for the same resources and workforce. In such a situation people can play patrones off against each other. For example, in settlements that are closer to the main river and thus more accessible, people are able to bargain for better deals from a position of relative strength. Moreover, once the initial goods have been handed over, workers gain even more power over their patrones. Many of the patrones are themselves relatively poor or in debt to others in the local city, and they have often put forward a sizable proportion of their own money in financing an Ashéninka man. This means that they are anxious for this money to be returned and can become vulnerable to their workers' demands, either in light of the direct threat of the timber being sold to another patrón or when faced with demands linked to the timber's extraction. People often demand more food, axes, and machetes once work has already started, arguing that they will not be able to continue without them. Finally, workers' ultimate hold over patrones is that they can just “disappear” for a few weeks to go “hunting” or “visiting” and hold up the process indefinitely until some patrones are forced to leave in dismay. If a patrón is ever forced to leave then the Ashéninka have, of course, gained their goods for relatively little labor and might also be able to sell on any timber already worked. Hence, if Ashéninka men are keen to maintain lasting relationships with mestizos as their best means of procuring manufactured items, their patrones must also seek their loyalty and dependability.Footnote ¹²

This complex social reality means that simple analyses of exploitative relationships are inadequate. Thus, while in the older understanding of debt-peonage, the carrying over of a debt from one year to the next would be understood as a sign of a worker's servitude, on the contemporary Ucayali, it can be seen as forcing a patrón to return the following year, just as Jorge's demand and then indebtedness for my watch became a bond between us. In this view, debt is acting as the Ashéninka understand it to, connecting them to outsiders and acting as the foundation of a long-term relationship. That is, the Ashéninka's own positive view of debt, as something that binds equals together into mutually beneficial relationships, is now supported by the current social reality. Whereas in the past such a view might have encouraged them to enter into relationships of extreme exploitation with outsiders, the contemporary economic and social conditions mean that their view is now reflected in reality.

In the 1970s the anthropologist Jacques Chevalier brought a Marxist perspective to his research on the Ucayali among Ashéninka and mestizo populations. For him, Ashéninka workers should be understood as “slaves” because although people cultivate their own swidden plots and can thus provide for their subsistence needs they are not “independent working-owners as such” and thus their subsistence activities serve only to “reduce the cost of their own reproduction from the point of view of the slave-holding class” (Reference Chevalier1982: 201–2). In this view, because Ashéninka individuals are dependent on outsiders for goods that they now deem essential for their everyday needs and social and physical reproduction, they must be understood as exploited. In discussing Chevalier's work Terrence Turner notes: “The fundamental point here is that exploitation, in the Marxist sense of the term, is not merely a figment of false consciousness or class-interested ideological discourse, not just ‘one way of seeing’ the reality of the peripheral situation … but the real focus of the situation as a whole, which can be shown … to underlie both the capitalist and labor perspectives on the situation” (Reference Turner1986: 104). From this perspective, even in the contemporary situation on the Ucayali the Ashéninka must be understood as exploited, as are all people and societies producing at the lowest levels of the capitalist system.

My argument is not that individuals on the Ucayali are able to avoid the exploitative nature of the capitalist system altogether. Rather, it is that even as they have become increasingly enmeshed in the capitalist system, both as producers and consumers, the Ashéninka have retained and utilized their own understandings of the relationships in which they are engaged. They do not see themselves as exploited and, as I have shown, this view has become increasingly reflected in the reality of their economic relationships. The Asháninka have undoubtedly been faced by considerable exploitation in the past, and in the present context they still find themselves at the bottom of political and economic networks in Peru. My argument, however, is that it is misleading to portray them as nothing more than victims in this process since the uncertainty of the current situation for patrones has given Ashéninka men a degree of power in directing its outcomes.

At a more fundamental level there remains the question of whether choice is a real sign of the agency of individuals or whether they are still effectively constrained by the social and economic structures in which they live. Such questions are, of course, a central preoccupation of social theorists. On one side is the Weberian tradition that emphasizes the importance of individual choice and actions in constructing and reconstructing the world. On the other are those who, in the tradition of Durkheim, Spencer, and Simmel, emphasize the importance of cultural and social structures in governing the actions of individuals (Levine Reference Levine, Camic, Gorski and Trubek2005: 101). This is not the place for a full exploration of these debates but, in general, I follow those attempts to reach some form of reconciliation between the two positions (for example, Giddens Reference Giddens1984). My argument in the Amazonian case is that the changing form and practical foundations of the timber industry on the Ucayali have opened up new opportunities for workers to increase their scope for action, which I take to be a form of agency.

This increased power, linked to the disappearance of a clear hierarchy between patrones and laborers, creditors and debtors, becomes more apparent when we consider the position of the patrones themselves.

Mestizo Entrepreneurs, Debt, and Credit

While the timber industry can generate the fastest returns for mestizos who come from the city to the jungle, it is hard work and many are unwilling to face the hardship of spending months in camps in the jungle and then to brave the dangers and privations of time on log rafts. Another option is to set up a more permanent trading post or shop in one of the settlements along the main river. The relatively dispersed nature of Ashéninka settlements, as well as their distance from the main river, mean that permanent shops are usually situated in mestizo or Shipibo communities along the Ucayali River. For example, in one Shipibo community, Amaquaria, there were two shops run by two different mestizos. One was owned by Don Gato (Mr. Cat, a moniker based on his yellow eyes), a mestizo man who had married into the community, and the other by Doña Jacoba, a woman whose husband's family had once had a cattle ranch and large agricultural plots in the area but who had since fallen on hard times.

Both Don Gato and Jacoba regularly made the three-day round trip to Pucallpa to bring various stock for their shops. While both preferred to be paid in cash, they were also usually willing to barter their goods for the various products that people brought them, including crops of rice, beans, plantains, and maize, or pigs and chickens. Don Gato also specialized in buying fresh and salted fish from local men and acted as a “habilitador” for some, providing them with nets and other equipment. He told me that he had been forced to do this, as otherwise people did not have enough money or saleable items to make it worthwhile running his shop.

Both owners were astute business people but they were caught in the classic bind of small-scale entrepreneurs that in order to have customers they had to give credit (Hart Reference Hart2001: 154). Every so often when I visited Amaquaria I found the shops almost bare. Their owners would lament to me how they were owed lots of money and now had no cash of their own with which to replenish their stocks. For while they were careful to avoid such a situation, at certain periods of the year, and particularly during the rainy seasons when the crops were growing, the swollen rivers made fishing difficult and people had not yet been paid for their timber work, there was little money available to anyone. At such times there was the danger that perishable goods would not keep, while the shops' neighbors would grow resentful if their owners refused them any credit at all, and threaten to boycott them altogether in the future, or even expel them from the community.Footnote ¹³

As I argued for mestizo timbermen working with Ashéninka men, while mestizo traders may have relative economic power their options are still limited. Their economic success depends on the production of their clients and they also depend on their clients' social and moral sentiments to allow them to continue trading. Thus, while both timber patrones and small-scale traders have the potential to gain from their trading relationships, with a large clientele from which to turn a profit, their power is not hegemonic. Traders, patrones, and all kinds of habilitadores need their clients and must be fair and even generous with them if they are to retain the clientships upon which their survival depends. This view supports Bauer's argument that there can be debt without bondage, and that in places where employers have limited coercive powers, “debt may also [be] seen as credit; that is, as advances of cash or goods against the promise of future work” (1979: 36).

I have presented a picture of economic relations on the Ucayali that highlights the complexity of relations of power, wealth, and exploitation there. Patrones and traders may gain power from their relative wealth and connections to the economic and social world beyond the river, but indigenous people can, in turn, use their mobility, knowledge of the local environment, and ability to provide for their own subsistence needs to negotiate the economic, social, and moral terms of relationships. Relationships of debt-peonage are far from homogeneous, and follow different patterns depending on local economic, social, and environmental conditions.

So far I have emphasized one side of Bauer's argument, about the relative lack of exploitation in some cases of debt-peonage, but I now want to turn to the comparison he made between this form of debt and the use of mortgages in the West. I also want to consider why Loveman objected so strongly to this. Loveman's view appears to have been based not only on the fact that Bauer underplayed the levels of exploitation suffered by bonded-laborers but also on an apparently deeper idea that U.S. mortgage and loan companies were significantly different from the rapacious habilitadores and patrones of the Amazon. This may be based in the history of mortgages in the United States to which I now turn.

Mortgages

The key difference between money lent on mortgage, as opposed to pure debt, is that it is grounded in some object that acts as security in case of a failure to repay. In the United States this is generally a property or house that the money has been used to buy. Whereas being in debt is usually held to be a “bad” thing in Western societies, particularly for individuals, mortgage debt has customarily been seen in a more positive light, first as a means of enabling citizens to own their own homes and then, in more recent decades, as a secure way of making money in a booming property market.

The historian Niall Ferguson suggests that “the property-owning democracy was made in [North] America” (2008: 241) and specifically as part of Franklin D. Roosevelt's New Deal in the 1930s, a response to the Great Depression. He writes that “before the 1930s, little more than two fifths of [U.S.] households were owner-occupiers” and the few mortgages available tended to be only short-term and were not amortized.Footnote ¹⁴ This situation became even worse during the Great Depression as lenders refused to renew loans and many homeowners faced foreclosure (ibid.). In response to this situation and its wider repercussions for the construction industry and the U.S. economy, Roosevelt's administration, as part of larger public projects and employment initiatives, set up the Home Owners' Loan Corporation and then the Federal National Mortgage Association (Fannie Mae) to refinance mortgages on longer terms and at lower interest rates. The government also introduced federal deposit insurance, guaranteeing lenders' money (ibid.: 247). Ferguson argues that this “reinvention” of the mortgage market coupled with a general belief in the virtues of home-ownership, not only for individuals but also for society in general, led to the rapid increase in home-ownership in subsequent decades.Footnote ¹⁵

Ferguson quotes James Stewart's character, George Bailey, in Frank Capra's 1946 movie It's a Wonderful Life, to sum up the positive value that North Americans place on home-ownership. Defending his father's work at the family Savings and Loan company to the slumlord Henry F. Potter, Bailey says:

Beyond the value of a house itself, such a sentiment emphasizes that home ownership and mortgage holding is about equality between people. Whereas debtors are generally seen as being in a weaker position vis-à-vis lenders, the ideology of mortgages appears, I contend, to be based on the idea of a relatively equal relationship between a mortgagor and his or her lender. As in my descriptions of Ashéninka-mestizo relations on the Ucayali, both sides appear to be relatively satisfied with the debt relations they enter into, feeling that they are mutually gaining from the arrangement. The relationship also appears to parallel Loveman's benign view of mortgages in California and to have bolstered the meteoric rise of mortgages in the United States. This positive view of home-ownership and mortgages provided the foundation for the expansion of what came to be known as the subprime market.

At a speech at The George Washington University in October 2002, President George W. Bush started by stating, “You see, we want everybody in America to own their own home. That's what we want. This is—an ownership society is a compassionate society.”Footnote ¹⁶ He went on to outline plans to increase house-ownership among minority groups through various measures to simplify and reduce the eligibility requirements for first-time buyers.Footnote ¹⁷ This expansion was supported by the then Chairman of the Federal Reserve Alan Greenspan, who writes in his memoir The Age of Turbulence: “I was aware that the loosening of mortgage credit terms for subprime borrowers increased financial risk, and that subsidized home ownership initiatives distort market outcomes. But I believed then, as now, that the benefits of broadened home ownership are worth the risk. Protection of property rights, so critical to a market economy requires a critical mass of owners to sustain political support” (Reference Greenspan2008: 233).

Also supportive were the lending institutions, which had their own rationales. As one high-ranking Wall Street executive explained to a New York Times journalist:

Such opinions seemed to combine both the belief in a connection between homeownership and “good citizenship” in the form of the dependable repayment of debts and faith in the ever-increasing value of real estate itself. It can be argued that it was this latter positive belief in the reliability of house prices that is the most important to explaining financial institutions' increasing inclination to lend to subprime borrowers, both directly through their expansion into these sectors and indirectly through their willingness to take on credit default swaps based on these types of loan.Footnote ¹⁸ Beyond this ideological confidence in the mortgage market, the executive also notes that the subprime sector was seen as particularly profitable because of the high interest rates that could be charged to those with low credit scores. This institutional desire to lend more money in the subprime sector appears to have driven practices in this market that again have interesting parallels to the Amazonian case.

Relationships in Mortgage Deals

Andrews' account of the role of the subprime sector in the financial crisis interweaves analysis of the financial institutions and interviews with important U.S. economic figures with his personal experience of having subprime mortgages. In one important episode he describes the moment when he felt “compelled” to buy a new $400,000 house for himself and his new wife in Washington, D.C.: “I couldn't afford it, but that didn't mean I couldn't buy it. I pulled out my cell phone and called the only person I knew who could point me in the right direction—Susan Kilborn, a close friend who was a real estate agent. She gave me the name and number of a mortgage loan officer at American Home Mortgage Corporation named Bob Andrews [no relation].… ‘Bob can be very helpful,’ Susan said. ‘He specializes in unusual situations’” (2009: 9). Andrews' actions point to an apparently common aspect of subprime lending: it often relied more on personal relationships and recommendations than did transactions in the general mortgage sector. In fact this was a deliberate ploy on the part of many companies working in the sector. As Andrews notes, “To speed up their geographic expansions, the go-go lenders recruited armies of independent mortgage brokers around the country.… The independent brokers often had roots in local communities, giving them entrée to clusters of immigrants and ethnic minorities who had been ignored by mainstream banks” (ibid.: 32).

In interviewing one Hispanic couple that had gotten into problems repaying the $720,000 mortgage they had taken out, Andrews asked them why they had thought they could take on such debt: “‘If someone speaks the same language as you, you feel you can trust them,’ Miguel answered. The real estate agent had been so confident, assuring them they could easily trade up from their first house to a palace. It had been easy too. She had sold their first house for a good price, and her husband, a mortgage broker, had quickly lined up their loan. And since they had all come from Central America, the Delgados didn't delve into the details” (ibid.: 185).

Other banks reportedly targeted African-American churches and their leaders, believing that they would then convince congregants to take out subprime loans. They even hired African Americans into specially created “affinity group marketing sections” to instigate these connections.Footnote ¹⁹ As Andrews suggests, “For a well-positioned subprime mortgage broker with ties to the local community, there was almost no competition” (ibid.: 191).

We now have a clearer view of the various ideological, financial, and practical factors that propelled the exponential increase in subprime mortgages from around 9 percent of new mortgages in 2001 to 40 percent in 2006, according to one estimate.Footnote ²⁰ Clearly, individual homeowners had ultimate responsibility for taking on mortgages that at least some of them must have been fully aware that they could not afford (ibid.: xii). However, my analysis of the wider context in which they were making these decisions emphasizes that they were part of a much more general set of beliefs, structures, and practices. It was only with the unraveling of this market that its flaws and underlying inequalities became so readily apparent.

The Credit Crunch

In a climate of growing economies and, most importantly, rising house prices, the logic behind mortgages seemed to work. Money was borrowed to finance the purchase of a property and, while interest was paid, the rise of the house's price itself gave the owner a considerable profit. The emphasis was thus on putting the money borrowed to use and making money with it, fitting with the logic of “productive credit,” while the lending institutions appeared to be covered because of the surety of the house itself. In a climate of rising house prices and high employment, the power of the relationship appears to lie with the mortgagor who is able to make the regular repayments and, ultimately, can choose to sell the house at any point and thus repay the debt. As Joseph Stiglitz has recently emphasized, however, “all of this borrowing was predicated on the risky assumption that housing prices would continue to go up, or at least not fall” (2010: 2).

In the first part of this article I argued that the Ashéninkas' positive views of ayompari relationships were important in their acceptance of the system of habilitación and their involvement with timbermen. In a similar way, I believe that generally positive views of mortgage holding in the United States, together with an economic situation that appeared to support these views and the practices of lending institutions themselves worked to encourage people to take on larger amounts of debt.

With the change in the global financial situation, these underlying positive views began to look naïve, particularly for people whose houses started to lose value, especially when the value went below the total amount they owed.Footnote ²¹ In such situations the mortgagor starts to lose any semblance of control in the relationship. While the ultimate option of defaulting on the mortgage exists, its consequences to the borrower in terms of their credit rating, not to mention the loss of the house itself and any money and time already invested in it, mean that the majority of borrowers are loathe to consider this.Footnote ²² To return to Bauer's original argument, debt without bondage has now become debt with bondage, for it is extremely difficult for the mortgagor to break free of the lender. As Ferguson notes, “The trouble is that property, no matter how much you own, is a security only to the person who lends you money.… By contrast, the borrower's sole security against the loss of his property to such creditors is his income” (2008: 235).

The house, which if all goes well the mortgagor will fully own by the end of the mortgage period, becomes the very thing that ties them to the bank and demands they pay a continuous income stream to the bank. Thus, while the intended relationship and outcome of a mortgage might appear markedly different from that of debt-peonage, from the point of view of the individual in negative equity, their position can seem very similar to that of a debt-peon. Both the mortgagor and the debt-peon owe a stream of labor, or the income derived from their labor, to a lender who facilitated their purchase of a desired object.Footnote ²³

The idea that mortgagors should feel locked in to an exploitative relationship with a powerful and unforgiving lender may have seemed like a distant danger in 1970s California, and is by no means an inevitable consequence of taking out a mortgage, any more than, as I argued earlier, unbounded exploitation is necessarily the outcome of debt-peonage. Yet, that it is a possible outcome indicates that Loveman's refusal to countenance the comparability of mortgages and debt-peonage was too strong, and highlights the constructed nature of recent, Western positive views of debt held through mortgages.

The Role of the State

The argument that the positive view of mortgages has a cultural basis is strengthened when one considers the role played by the state and legal institutions in backing different forms of debt. Here it would seem that the pertinent difference between debt-peonage and mortgages is that the former tends to occur in relatively “lawless” societies far from centers of political and legal bureaucracy, while the latter are underwritten by institutions backed and controlled by national governments. Loveman and Bauer also touched on this in their discussion, debating the relative institutionalization of debt-peonage. Specifically, Loveman suggested that part of Bauer's willingness to see debt-peonage as relatively benign rested on his view that it was an “informal institution” (1979: 482, discussing Bauer Reference Bauer1979: 35). He writes: “If by informal is meant ‘extralegal,’ Bauer is clearly incorrect. Hereditary debt and debt peonage were recognized in Spanish courts and by the close of the seventeenth century debt peonage was well established in New Spain.… Far from an informal institution, debt peonage was a legally recognized form of labor coercion. Enforcement depended upon the action of government officials in cooperation with private entrepreneurs” (ibid.: 482). The argument here centered around the idea that the legal backing of debt-peonage made its excesses that much worse since it backed up the claims of the patrones.

This argument raises an interesting point regarding both my comparison of current labor practices on the Ucayali with contemporary mortgages in the West and Loveman's view that such a comparison downplays the levels of exploitation inherent in debt-peonage. In line with Loveman's argument, the Peruvian legal system would undoubtedly support the claims of a patrón and the realities of local social hierarchies would mean that an indigenous worker would not likely gain a fair hearing in any judicial situation. In practice, however, that these transactions take place far from urban centers means that, in the majority of cases, they cannot be seen as supported by the national legal system. In contrast, Western mortgage transactions are entirely dependent on legal systems to guarantee both ownership of property and both parties' adherence to the contract drawn up between them. While the state's backing of mortgages might be seen as ensuring the fairness of the transaction and that due process was followed, the belief that this will ensure a good outcome for the mortgagor assumes a relative equality between them and the lender. But in fact, and in line with Loveman's assessment of the relative power of patrones in Latin America, the U.S. judicial system is more likely to support lenders than debtors.

While national governments in the United States and United Kingdom, and their respective judicial systems, institute and enforce basic provisions for mortgage agreements, this does not necessarily work in favor of the mortgagor, particularly in cases of negative equity or where mortgagors cannot afford to meet their repayments. Moreover, Keith Hart observes: “Most people probably imagine that … banks lend amounts that are covered by assets such as gold and property or at least by cash deposits. In fact, over 95% of the money in circulation is issued by banks whenever they make a loan. The ‘fractional reserve system’ traditionally constrained them to lend no more than nine times the value of deposits with the central bank, but this ratio has since increased and in some cases no longer exists” (Reference Hart2007: 12: see also Pettifor Reference Pettifor2006: 56–83).

Albert Schrauwers shows that this condition has been present since the early beginnings of banks in North America. In his work on money and debt in nineteenth-century Canada he demonstrates how the Bank of Upper Canada, whose shareholders were protected by limited liability, were able to issue banknotes not backed to their full value by assets. As he notes, these banknotes were in themselves a debt, “a promise to pay the bearer,” but in this system it was the individual that took the note who was bound to pay interest to the bank:

As Schrauwers points out, banks had an important role to play in the regional economy but from the start their lending practices were based on a distinct inequality that allowed them to lend out more money than they physically held. This inequality has continued into the present period and has arguably become worse as banks have increased in size and the fractional reserve system has been loosened since the 1970s and 1980s (Pettifor Reference Pettifor2006: 9).

As I have shown, government backing was also important in the expansion of the subprime sector. The U.S. government's position as the “lender of last resort” was also key since it ultimately supported the massive increase in lending that occurred. Meanwhile, the institutions themselves, driven on by their shareholders' demands for ever-increasing turnover and profits, had little incentive to consider the situations of their customers or their future abilities to repay their loans, and thus led them into situations of serious debt. However, like Schrauwers described for the nineteenth-century Bank of Upper Canada, banks are still susceptible if they are called on to honor a large proportion of their debts in a short time, a danger that came into focus toward the end of 2007.

Banks and Communities

One generally accepted symbol of the start of the financial crisis was the run that occurred on the U.K.-based bank Northern Rock. On 14 September 2007 images circulated through the global media of long lines of people trying to take their money out of Northern Rock after it was reported that it had received emergency funding from the Bank of England.Footnote ²⁴ Northern Rock's problems stemmed mainly from its rapid increase in mortgage lending over the previous few years. It had funded this expansion by borrowing from other banks the money it was lending. As potential problems were becoming apparent in the mortgage markets, particularly in the subprime sector, banks were less willing to lend money to underwrite such lending, and were either refusing credit or raising their inter-bank lending rates. Faced with such tightening conditions, Northern Rock faced a liquidity problem that caused it to go to the Bank of England for a loan.Footnote ²⁵ News of this panicked Northern Rock account holders who worried that if it went bankrupt they would lose their deposits. This first run on a British bank in over a century was a very public symbol of the interconnections that existed both between different banks and between banks and the general communities in which they worked. As the crisis unfolded these interconnections became clearer and underscored that the banks were not immune to the situations of their customers.

While the run on Northern Rock was not due to problems with its own mortgages, nor with securitizing the loans of others, it was nevertheless precipitated by wider issues in the U.S. subprime market. Later, the problems of other, larger, international banks would be more directly related to the subprime sector itself. Stiglitz writes that according to one estimate 2.3 million Americans lost their homes in 2008 alone, and argues, “Ultimately, the financial instruments that banks and lenders used to exploit the poor were also their undoing” (2010: 79).

As the author Margaret Atwood recently noted for the contemporary United States, “Those drowning in debt have a resource that wasn't always available in the past: they can declare personal bankruptcy and more or less walk away from the whole mess” (Reference Atwood2008: 132). If too many people do “mail in their keys,” then the widespread collapse in house prices becomes the problem of not just individual owners but also of the banks themselves. In such a situation it is in the banks' interests to encourage people to persist in paying their mortgages, thus ensuring the banks' continued incomes rather than their acquisition of near-worthless housing stock. But in breaking down the relationship between borrowers and lenders as a long-term relationship based on trust banks now faced a reality that many mortgagors no longer felt compelled to continue their repayments. The Wall Street executive's belief, quoted from Andrews above, that mortgagors would always repay their mortgages first was misplaced in part because people no longer felt they had any moral connection to the banks. Andrews' personal opinion seems to have been widely held: “Yes, you might have bought a house you knew in your gut you couldn't afford… Take a cue from the bank or Wall Street firm that is now trying to foreclose on your house. Don't apologize. They knew what they were getting into far better than you did. They knew they were in a giant Ponzi scheme, and they certainly should have known it would lead to disaster. They knew the housing bubble was a mirage. They knew their loans were absurd. They knew the triple-A ratings were bogus. They knew, they knew, they knew. They deserve whatever losses come their way” (2009: xv).

Such attitudes were also often founded on the fact that many mortgagors, unable to re-mortgage to a new deal, were dealt interest rate hikes on their plans that they had no way of realistically paying. Faced with a choice between paying the bank and paying for everyday necessities for themselves and their families, they fell behind with their mortgage payments. This resulting crisis hit banks, financial institutions, and ultimately national governments and economies.

The manner in which the financial crisis spread and brought down even the largest and most prestigious of financial institutions highlights the interconnections between all levels of economic activity. Financial institutions themselves were quick to realize this. First, many attempted to take measures to retain customers and business through coming to voluntary repayment agreements with mortgagors and discounting their fees in order to attract new business. As with Don Gato and Doña Jacoba in Amaquaria, the institutions seemed to need to give credit to customers in order to keep their businesses going. More significantly, as financial institutions had to turn to their national governments as the guarantor of last resort, so discourse, both their own and that of governments, turned to emphasizing the institutions' wider connections to the societies in which they operated. Such portrayals linked back to the social role that credit and credit-giving institutions could play in society, as a means of helping individuals and families to buy houses and goods, lead more prosperous lives, and be “better citizens.” At least one chairman specifically talked about the ethics and morality that banking institutions should uphold.Footnote ²⁶

As in the Amazonian case both borrowers and lenders seemed to have recognized the interconnections between their economic and social activities and their interdependence. Mortgagors feeling exploited by banks felt little moral obligation to keep making repayments but also, both as a larger collective and as taxpayers, began to have a sense that they should have some say in the actions of the banks. Financial institutions, in turn, recognized the large-scale problems they were facing and so looked for wider political and economic support.

While the explicit recognition of these connections would seem to suggest the possible transformation of the system, as has been the case on the Ucayali, as I finish writing this article in the first half of 2010 this appears to remain a distant prospect. In contrast to the Ashéninka on the Ucayali who have been relatively successful at integrating timbermen into their own moral as well as monetary economy, mortgagors and financial institutions in the United States have continued to move in the opposite direction. Even as politicians, academics, and the general public call for changes in the structure and regulation of financial institutions, little appears to have altered as they return to reporting large profitsFootnote ²⁷ and awarding bonuses,Footnote ²⁸ even as they fail to meet some of the lending targets that were set as conditions for the financial aid they received from governments.Footnote ²⁹ Arguably, this is occurring precisely because governments have given these institutions financial support and continued to act as their guarantor of last resort, while there continues to be a market for their lending products. In an apparently “post-crisis” atmosphere the banks have reverted to their seeming position of power, as politicians appear unable to force change on them.