Before there was money, there was debt. Before there was an American republic, there was America's national debt. Over the last three decades, the neoliberal reordering of political economy produced a “debtor nation,” a “republic of debtors,” and an “American way of debt” resting on a hypertrophied financial system. Pushed beyond the frontiers of sustainability, this “empire of debt” induced a global financial meltdown. The subsequent cost of the public rescue of the financial industry in the *3 United States alone stands at 7.77 trillion dollars, and the credit worthiness of the United States has been put into question. The meltdown-induced Great Recession sharply increased income and wealth inequality and has hit the working classes and racial minorities particularly hard. The number of those living in poverty in America stands at 46.2 million, and many cannot even afford a burial and are choosing cremation instead. The financial crisis metastasized into pervasive fiscal crises, prompting declarations of “financial martial law” and renewed assaults on the working *4 classes. Lower incomes and increased poverty have rendered the 2000s a “lost decade.” A sluggish economy with high unemployment is the “new normal,” with prospects of a steep and lasting drop in wages. The search for culprits has turned into a rush to round up the usual suspects. Personal greed, corrupt financiers, imprudent investors, and unworthy homeowners are the favored targets. There is scant recognition that the current financial crisis is a symptom of the structural crisis of capitalism and that we stand at “a transformative moment in global economic history *5 whose ultimate resolution will likely reshape politics and economics for at least a generation.” Pressing systemic and structural questions confront us: Why, when, and how did a debt-driven financialized economy come about? What changes in the labor markets induced the working classes to turn to debt? How were the working and marginalized classes incorporated into the circuits of credit? What was the impact of this incorporation? This article explores these questions by bringing into relief the production of a debt-fueled financialized economy and the laws and public policies that made this possible.

This article argues that neoliberalism, a reorganization of capitalism to secure hegemony of finance capital, is a project of the wealth-owning classes to reverse the setbacks they had suffered during the era of Keynesian welfare. This transformation entailed a rollback of the welfare state, an attack on the power of organized labor, precarization of labor markets, financialization of the economy, and exponential expansion of debt. In this ensemble, debt sustained aggregate demand, fueled liquidity to lubricate financialization, and facilitated assemblage of entrepreneurial subjects responsible for their own economic security. Public welfare was replaced by self-care and working classes were constrained to fund their private welfare through private debt, while calibrating their conduct with the demands of precarious labor markets. Debt, no longer a private choice but a structural imperative, became an instrument of control and discipline. Subprime mortgages that engulfed dispossessed communities are emblematic of the symbiosis of debt and discipline forged by public policies and the market working in concert. This neoliberal concord between debt and discipline underscores that economics is always entwined with politics, with the law as a primary suture between the two.

In order to substantiate these arguments, this article first outlines a conceptual framework suitable to explore the relationship between debt and discipline. It then focuses on the transition from Keynesian to neoliberal response to the chronic demand-deficit problem of capitalism: while Keynesianism prescribed full-employment and raising wages, neoliberalism relies on consumer debt induced by wage-compression and contraction of public welfare. The article then recounts the genesis of *6 neoliberalism by focusing on the radical use of monetary policy to trigger the transition from Keynesian welfare to the hegemony of finance, break the power of organized labor, and put downward pressure on wages. It then focuses on the role of law and public policy in forging a link between financialization of the economy and entrapment of the working classes in relationships of debt including subprime mortgages. Next, it brings into relief the increasingly precarious labor markets that add to the pressure on the working classes to turn to debt. Finally, it explores the role of debt in the assemblage of compliant subjects disciplined to conform to the logic of precarious labor markets.