Yves here. Michael Hudson recaps the logic of debt jubilees and other forms of debt relief, as practiced in ancient times, when borrowers through circumstances outside their control were unable to make good. Monarchs recognized the danger of letting creditors create a permanent underclass.
This is a short, high-level treatment and makes for an easy-to-digest introduction to Hudson’s research and ideas.
By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City, and a research associate at the Levy Economics Institute of Bard College. His latest book is “and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year
Western civilization distinguishes itself from its predecessors in the way it has responded to “acts of God” disrupting the means of support and leaving debts in their wake.
The great question always has been who will lose under such conditions. Will it be debtors and renters at the bottom of the economic scale, or creditors and landlords at the top? This age-old confrontation between creditors and debtors, landlords and tenants over how to deal with the unpaid debts and back rents is at the economic heart of today’s 2020 coronavirus pandemic that has left large and small businesses, farms, restaurants and neighborhood stores – along with their employees who have been laid off – unable to pay the rents, mortgages, other debt service and taxes that have accrued.
For thousands of years ancient economies operated on credit during the crop year, with payment falling due when the harvest was in – typically on the threshing floor. Normally this cycle provided a flow of crops and corvée labor to the palace and covered the cultivator’s spending during the crop year, with interest owed only when payment was late. But bad harvests, military conflict or simply the normal hardships of life occasionally prevented this buildup of debt from being paid, threatening citizens with bondage to their creditors or loss of their land rights.
Mesopotamian palaces had to decide who would bear the loss when drought, flooding, infestation, disease or military attack disrupted economic activity and prevented the settlement of debts, rents and taxes. Recognizing that this was an unavoidable fact of life, rulers proclaimed amnesties for taxes and the various debts that were incurred during the crop year. These acts saved smallholders from having to work off their debts by personal bondage and ultimately to lose their land.
Classical antiquity, and indeed subsequent Western civilization, rejected such Clean Slates to restore social balance. Since Roman times it has become normal for creditors to use social misfortune as an opportunity to gain property and income at the expense of families falling into debt. In the absence of kings or democratic civic regimes protecting debtor rights and liberty, pro-creditor laws obliged debtors to lose their land or other means of livelihood to foreclosing creditors, sell it under distress conditions and fall into bondage to work off their debts, becoming clients or quasi-serfs to their creditors without hope of recovering their former free status.
Giving priority to creditor claims leads to widespread bankruptcy. At first glance, it seems to violate our society’s ideas of fairness and distributive justice to insist on payment of debt and rent arrears, threatening to evict debtors from their homes and forfeit whatever property they have if they cannot pay the rent arrears and other charges without revenue having come in. Bankruptcy proceedings would force businesses and farms to forfeit what they have invested. It also would force U.S. cities and states to cope with plunging sales- and income-tax revenue by slashing social services and depleting their pension funds savings to pay bondholders.
But the West’s pro-creditor legal and financial philosophy has long blocked debt relief to renters, mortgagees and other debtors. Banks, landlords and insurance companies insist that writing down of debts and rents owed to them by wage-earners and small business is unthinkable. So something has to give: either the broad economic interest of most of the population, or the interest of the Finance, Insurance and Real Estate (FIRE) sector. Banks claim that non-payment of rent would cause debt defaults and wipe out bank capital. Insurance companies claim that to make their policy holders whole would bankrupt them. So the insurance companies, banks, landlords and bondholders insist that labor, industry and the government bear the cost of arrears that have built up during the economic slowdown, not themselves.
Yet for thousands of years Near Eastern rulers restored viability for their economies by writing down debts in emergencies, and more or less regularly to relieve the normal creeping backlog of debts. These Clean Slates extended from Bronze Age Sumer and Babylonia in the 3rdmillennium BC down to classical antiquity through the Near East, including the neo-Assyrian, neo-Babylonian and Persian Empires.
Near Eastern Protection of Economic Resilience in the Face of Acts of God
For the palatial economies of Mesopotamia and its neighbors, resilience meant stabilization of fiscal revenue. Letting private creditors (often officials in the palace’s own bureaucracy) demand payment out of future production threatened to deprive rulers of crop surpluses and other taxes, and corvée labor or even service in the military. Individual creditors looked to their own advantage, not that of the overall economy.
To preserve the flow of rents, taxes and basic corvée labor duties and service in the military, Near Eastern rulers proclaimed Clean Slates that wiped out personal and agrarian debts. That restored normal economic relations – an idealized status quo ante – by rolling back the consequence of debts – bondage to creditors, and loss of land and its crop yield. From the palace’s point of view as tax collector and seller of many key goods and services, the alternative would have been for debtors to owe their crops, labor and even liberty to their creditors, not to the palace. So cancelling debts to restore normalcy was simply pragmatic, not utopian idealism as was once thought.
The pedigree for “act-of-God” rules specifying what obligations need not be paid when serious disruptions occur goes back to the laws of Hammurabi c. 1750 BC. Their aim was to restore economic normalcy after major disruptions. §48 of Hammurabi’s laws proclaim a debt and tax amnesty for cultivators if Adad the Storm God has flooded their fields, or if their crops fail as a result of pests or drought. Crops owed as rent or fiscal payments were freed from having to be paid. So were consumer debts run up during the crop year, including tabs at the local ale house and advances or loans from individual creditors. The ale woman likewise was freed from having to pay for the ale she had received from palace or temples for sale during the crop year.
Whoever leased an animal that died by an act of God was freed from liability to its owner (§266). A typical such amnesty occurred if the lamb, ox or ass was eaten by a lion, or if an epidemic broke out. Likewise, traveling merchants who were robbed while on commercial business were cleared of liability if they swore an oath that they were not responsible for the loss (§103).
It was realized that hardship was so inevitable that debts tended to accrue even under normal conditions. Every ruler of Hammurabi’s dynasty proclaimed a Clean Slate cancelling personal agrarian debts (but not normal commercial business loans) upon taking the throne, and when military or other disruptions occurred during their reign. Hammurabi did this on four occasions.
In an epoch when labor was the scarcest resource, a precondition for survival was to prevent rising indebtedness from enabling creditors to use debt leverage to obtain the labor of debtors and appropriate their land. Early communities could not afford to let bondage become chronic, or creditors to become a wealthy class rivaling the power of palace rulers and seeking gains by impoverishing their debtors.
Yet that is precisely what is occurring as today’s economy polarizes between creditors and debtors.
Lawsuits are exploding over the role of insurance companies supposed to protect business from such interruptions. See Julia Jacobs, “Arts Groups Fight Their Insurers Over Coverage on Virus Losses,” The New York Times, May 6, 2020, reports that “insurance companies have issued a torrent of denials, prompting lawsuits across the country and legislative efforts on the state and federal levels to force insurers to make payments. The insurance industry has argued that … fulfilling all of these requests would bankrupt the industry.”