Years ago, this country did away with debtors prisons.  The nation in general, and poor people in particular, would be well served to bring them back.

    The harm to business from unpaid debt, and the reduced productivity and even business failure unpaid debt can bring, is obvious.  Businesses or individuals who are not repaid the money they loaned or who are not paid for the goods or services they produced and sold on credit are prevented from accumulating needed and even expected capital for expansion, and they are frequently thrown into serious financial constraints making it hard to pay their own creditors and employees.  This not only can theoretically choke the gross national product, many recessions and even the Great Depression have been in fact brought on at least partly by unpaid debt.

    But debt relief measures, either in the form of actual debt forgiveness or in the form of relaxed procedures to collect debt (including the abolition of debtors prisons), are generally thought to help the poor.  The idea that once again forcing poor people into involuntary servitude to pay for meager food and shelter is certainly a tough sell.  But here goes.

    A return to debtors prisons would help poor people in at least five ways: 1) increasing workforce participation; 2) increasing personal responsibility; 3) making it easier for the poor to climb the economic ladder through entrepreneurship; 4) reintroduction of the virtues which have proven the only reliable way of the poor to leave poverty; 5) making credit more readily available.

    1) increasing workforce participation: It is almost axiomatic that if faced with the prospect of debtors prison, more debtors would either find jobs or find second jobs (or work more hours in their first job) instead of relying upon whatever assistance might be available to allow them to continue a hand to mount existence without working and paying their bills.  And it is simply beyond argument that a person's opportunity to ever get a good paying job is improved by taking a job in the first place.
    Even for those who would refuse to voluntarily get jobs to pay their bills, debtors prisons could introduce them to work.
    After building a track record of showing up for work on a regular basis, or after acquiring a skill, even if acquired working inside a debtors prison, it would also be easier to find meaningful employment at an attractive wage.
    So long as society gives to the non-productive some type of minimal handout, whether through well-meaning charity or through the governmental social welfare programs intended to redistribute wealth in a manner to buy votes for legislators, many people will be content to live at the subsistence level, without ever personally experiencing the benefits work might offer them.  These people are precisely the ones most likely to benefit from being required to work when they otherwise are unable to pay their debts.  The compulsory work for many would be their first true exposure to the work-a-day world.

    2) increasing personal responsibility:  For those who believe that poverty is the result of random chance, or is the result of the immutable condition of the individual, and that the individual bears no or at least very limited responsibility for their financial status, it may be incomprehensible that a person should actually be compelled to pay their own debts, even if the full force of the state is required to bring this about.  But for those who recognize poverty is to a very large degree the result of willfully chosen behavior (fn1), it should be apparent that actually requiring a person to pay his or her debts, even if it means forcing the person to get a job that allows wage garnishment, or putting the debtor in a debtors prison to work off the debt, the idea should not be shocking.
    By forcing debtors to become fully responsible for their debts, and by not allowing them to avoid payment of a debt by remaining idle or remaining poor, we would very likely bring more responsible behavior to other areas of their lives.
    Because responsible behavior in inextricably linked to personal success, productivity, and both wealth creation and wealth accumulation, increasing the personal responsibility of an individual is likely to be to their benefit, regardless how much they might grouse about it in the short run.

    3) making it easier for the poor to climb the economic ladder through entrepreneurship:  Poor people who become entrepreneurs are most likely to do business with other poor or poor businesses.  The poor woman who scrimps on her food budget to buy a sewing machine to make clothes of her own design in her home is most likely to begin selling them to her neighbors, not initially to Ivanna Trump.  The same is true of the person who buys a machine to shampoo carpets, or who begins a small neighborhood grocery.  The poor person who struggles to reach the first rung of the economic ladder by starting a business seldom does business with those so much higher on the ladder that debt collection is fairly certain, they instead are most likely to do business with those who have not even reached the first rung of the ladder.
    If such struggling business people are unable to effectively collect outstanding debts owed by those with whom they do business, they are likely to be limited to doing a cash only business and as a result to grow far more slowly than if they extended credit, or they are likely to end up with tremendous cash-flow problems coming from debts that can not be collected from able-bodied people willing to live in a manner effectively making them judgement-proof.
    Debtors prisons would allow the poor person beginning a business to have a better chance of success.

    4) reintroduction of the virtues which have proven the only reliable way for the poor to leave poverty.  As author David Frum eloquently pointed out in his excellent 1994 book Dead Right, we simply can not expect a continuation of the virtues which developed as a result of the hard-felt realities of life when we remove or ease the pressures which produced the virtues.
    People who have to pay their bills are more likely to find jobs and to keep them.  They are more likely to maintain sobriety and to come home to go to sleep before 4am so they can get up in the morning to keep that job.
    People who have to pay their bills are more likely to practice thrift and more likely to invest their scarce dollars into increasing their productivity and earnings to make it easier to pay the bills.
    People who have to pay their bills are more likely to remain in the same place and develop some degree of stability instead of renting a home they never intend to pay for and then moving out once they get behind in the rent, knowing the landlord can never collect anything from them.
    People who have to pay their bills are more likely to delay their urges for consumption until they can afford satisfying their tastes.
    Other than by winning the lottery, sacrifice and investment and other virtues are the only way the poor leave poverty.  And the prospect of debtors prison would do wonders to reimpose those hard-felt realities of life which once produced the virtues society so sorely misses.

    5) making credit more readily available.  If creditors know they have a good prospect of getting repaid, and if there is less risk of debtors being allowed to thumb their noses at their creditors by dropping out of the workforce, creditors are going to be far more willing to extend credit. (fn2)  This will make credit available to many now considered uncreditworthy, and will reduce interest rates on credit offered to the rest of us, for the simple reason that creditors will know they are likely to be fully paid. (fn3)
    Easy credit and low interest rates on credit are generally more important to the poor than to the wealthy.  A poor person lacks the resources needed to pay cash for anything but the smallest of purchases, will end up paying a higher percentage of disposable income in interest if interest rates are high, and will generally be unable to take advantage of distress discounts or other bargains often available on big ticket merchandise.  The wealthy will be able to pay cash for such items, or can secure credit, but the poor person is seldom able to either gather the cash or secure the credit to take advantage of a temporary low price.
    Apart from the benefit debtors prisons would have on making it easier for the poor to succeed in business by allowing them to collect from their debtors, more readily available credit would also make it easier for the poor to start businesses or to otherwise make meaningful investments.  Starting a business is generally capital intensive.  Before a business ever opens its doors, money is needed to buy supplies and market the product or service and to pay for whatever equipment that might be required, and then for several months if not years more capital is needed to pay rent and salaries and for further supplies needed to keep the doors open before profitability is reached.
    If credit is available to them, the poor can create their own jobs and their own wealth by starting their own business.  If credit is unavailable business and investment opportunities are available only to the wealthy.

    Coming from a libertarian, the idea of debtors prisons or involuntary servitude for deadbeat debtors might seem anomalous.  But the idea of maximizing personal liberty and limiting government is still perfectly consistent with rigid and aggressive enforcement of private contractual obligations.  The fact that it would both help the economy generally and the poor in particular is merely a desirable side-effect.
    The truth is that a return to debtors prisons should not be undertaken for the social engineering reasons set forth above.  No true libertarian would support forcing anyone to do anything in order to help the object of force. (fn4)
    We should instead revive debtors prisons merely as a means of getting those who have incurred debts to pay their bills. (fn5)  A person who contracts to sell their goods or services should be entitled to a reasonable certainty that their bill for the goods or services is paid.

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Footnote 1: This is not to say that the poor consciously decide they want to have no money, but merely that they freely make decisions which relegate themselves to poverty, or at least that they fail to make decisions and take the measures needed to remove themselves from poverty.  We largely control or own destinies, and a failure to invest in our own future often assures we will have a very short future with a decidedly unpleasant end.
    What you can earn at any given time depends heavily on what you have invested in yourself in the form of education and/or training and/or job experience.  "Help" to the poor in the form of debt relief, instead of forcing them to work, even at a menial or low-paying a job, means many of those taking the "help" instead of taking a job will never have job options markedly more attractive than the minimal value of the debt relief.

Footnote 2: This is not simply abstract economic theory, my own experience practicing law, frequently has me dealing with poor people who desire a service -- legal representation -- for which they have a great need, but for which they are unable to pay at the time they want it.  As with any businessman, I must evaluate each person's creditworthiness, and determine whether to provide my services in exchange for the promise of payment later.  Because I am painfully aware of the limitations presently available for collecting a judgement debt from a poor person, this often means those who need representation are simply unable to get it.  In many cases this leaves the poor person unable to afford legal representation needed to deal in court with well financed businesses.  It is interesting that the main justification liberals offer for government funding of the Legal Services Corporation -- the need to make lawyers available to poor people in court conflicts with business -- exists to a large extent because liberals have restricted collection measures available to collect judgement debts.  If my prospective clients faced the prospect of debtors prison if they refused to pay their bill, I would seldom refuse clients simply because they were unable to pay my bill when they walked in the door.

Footnote 3: This is the real reason loan sharks are often willing to extend credit to those legitimate businesses will not touch.  The loan shark's "collection procedures" of broken bones and bodily injury assure repayment even from debtors who would never pay a legitimate creditor.  As a result, those needing money they can not find from anyone listed in the phone book, can often get it from a loan shark.  And anyone thinking they are "helping" a person by forcing them to turn to a loan shark simply is not thinking.  Debtors prisons would put an end to loan sharks.

Footnote 4: Barry Goldwater forcefully advanced this idea in addressing the debate over civil rights legislation, saying "social and cultural change, however desirable, should not be effected by the engines of social power."  Barry Goldwater, The Conscience of a Conservative, Regenery Gateway, 1990, p31.

Footnote 5: One might ask what could be done with the corporate debtor.  After all, a corporation is a legal fiction and could not be put in a debtors prison.  This is largely a fool's argument because a corporation's creditors can forcibly liquidate corporate assets, but for those concerned about the "equity" of allowing the poor individual to be put in debtors prison while not allowing the same for a corporation, there is no reason a corporate executive could not be subject to the same prospect of debtors prison for failing to pay debts.  For those concerned that such a prospect would force corporations to become so cautious as to restrain economic growth and a desirable level of risk-taking, a primer on the infinite flexibility of contracts might be in order: a corporation could by contract limit the liability its corporate executives might face and thereby avoid the prospect of debtors prison.  Individual debtors, including poor debtors, could also do the same.

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