…and forgive them their debts Michael Hudson (Book Review by Andrew Cornford)

Publisher : ISLET; Debt Forgiveness ed

Series: TYRANNY OF DEBT

Language: English

ISBN-10: 3981826035

ISBN-13: 978-3981826036

Book Review by Andrew Cornford

The attitude of most economists’ towards the financial and fiscal practices and institutions of ancient civilisations has until recently been characterised by tunnel vision. Consideration was largely restricted to Greece and Rome and to regions like Ionia and parts of North Africa with which these two civilisations had significant commercial and cultural relations. Even economic historians tended to limit themselves to general aspects of the subject and to fight shy of more detailed coverage.

The consequences for work on ancient monies and the regimes of which they were a part merited decades ago the critical comment by the financial analyst, scholar and journalist, Paul Einzig, in his book on ancient monies (Einzig, 1966: chapters 1-4). He views the absence of more extensive and detailed work for money in particular as having had several causes: most theoretical economists’ lack of interest in economic history; the disinterest in the subject of reviewers; and “a sort of misguided intellectual patriotism of many historians and archaeologists [who] consider any facts pointing towards the use of primitive currencies by their ancestors as a proof of the low state of cultural development of their country in its early history”.

In recent years there has been an extension and deepening of research into the history of West Asian civilisations since the third millennium B.C. With this work has come greater attention on the part of economists and other scholars to the civilisations’ economy and society. But notably this interest in earlier civilisations has still been widely accompanied by attempts to accommodate its findings into pre-existing conceptual schemas. In particular this has been true of debt, a subject still as politically sensitive in our era as it was thousands years ago.

For mainstream economists debt, like monetisation and clearly defined property rights, is viewed as an inevitable part of progress towards a market economy, which is viewed as an indispensable to economic development and modernisation. Radical commentators, on the other hand, long tended by contrast to focus on the social role of money in economic systems increasingly based on buying, selling, and regimes where property rights were decreasingly accompanied by obligations. These changes facilitated, on the one hand, the concentration of wealth and power in the hands of the rich and, on the other, what one historian of science has called a state of “chronic debt” for the poor (Bernal, 1971: 154-157). But the radical commentators’ work paid less attention to the periodic debt amnesties and to the incidence of curbs imposed on debt burdens.

The present book is the outcome of a comprehensive review of the distant historical origins of the concepts and practice of debtor-creditor relations and of the legal and customary framework in which they evolved. Hudson, trained as an economist, came to the subject when working in the 1960s as a balance-of-payments analyst for Chase Manhattan Bank. His conclusion then was that the governments of the United States and several other countries could meet their obligations only by borrowing from foreign governments, thus incurring indebtedness which they would eventually be unable to service.

His subsequent research and writing, inter alia for the United Nations Institute for Training and Development (UNITAR), led him to the conclusion (shared he says but not publicised by major banks) in the late 1970s that debt default by major developing economies was imminent. His public presentation of these conclusions brought home to him how controversial was the acknowledgement that debt which cannot be paid will not be paid, and that in consequence debt writedowns were essential to the continued healthy functioning of the economy and society. What followed in his career was a sketch of debt’s history going back to classical Greece and Rome but also eventual awareness that a proper understanding of writedowns and their context would require going still further back in time to Mesopotamian civilisation. For this purpose Hudson took advantage of the newly expanding scholarly interest in this civilisation’s history, to which his own research was to contribute.

Unsurprisingly for someone with this intellectual background Hudson has been concerned with parallels between the ancient and modern treatment of debtors. The parallels figure in two earlier books (Hudson, 2012) and (Hudson, 2015), which were largely concerned with the current global financial crises. In his research on the ancient world Hudson was especially struck by references to Jubilee Debt Cancellations which cleared the slate of outstanding agrarian debt (hence the term “Clean Slates” much used throughout Hudson’s book). These debt amnesties typically consisted of edicts proclaimed on the assumption of power by new rulers or on other select occasions such as the building of new temples. They generally applied to agrarian debts and to the liberation of bondservants pledged to creditors. They also restored land and crop rights which debtors had pledged to creditors. Debts incurred among traders and entrepreneurs were not covered.

The objectives of the Jubilees were not redistribution but restoration of the solvency of those covered, thus enabling them to pay taxes, to perform corvée labour, and to be available for military service. Underlying these objectives was a cyclical rather than a linear view of historical change. The amnesties would restore society to a state of equity – what Hudson denotes as a “timeless status quo ante”. Much of the debt subject to the amnesties consisted of arrears on tax obligations and was thus owed to governments or to temples acting as their agents. Concepts and instruments such as standardised weights and measures, monetisation, and accounting which were eventually essential to creditor-debtor relations functional in the modern sense were developed by temples and their registries.

The long and dense history in Hudson’s book begins with the third millennium BC and ends in the eleventh century AD. In the earlier history there are many debt amnesties. But there was also a gradual but widespread historical trend towards the strengthening of creditors’ power and a weakening of debt amnesties’ frequency and coverage.

This trend reflected partly the superior ability of creditors to bring pressure to bear on their rulers, and partly the increasing number and length of periods when the rulers lacked the will or were too weak – or both – to introduce measures favouring debtor’s over creditors’ interests. As is so often true of the conceptual foundations for policy which favour one social class or set of social classes at the expense of others, those for debt policy have gradually but surely tended to entrench creditor interests as the starting point for the design of laws and rules. Conflicts between creditor interests and debtors have none the less remained perennial, leading to strident opposition to the preferences accorded to the former during periods of deflation and national and international financial crises.

The earliest debt cancellation on record during the Mesopotamian civilisation was promulgated by Enmetana of the Ur-Nanshe Dynasty of Lagash in about 2400 BC. He cancelled obligations on interest-bearing grain loans and the accumulated tax arrears of many of his subjects. This restored their liberty as part of a policy apparently based on recognition that it would be futile to ask people to wage war in conditions where they were burdened with debt and which threatened the sale of their widows or children as war slaves or debt servants. Enmetana’s rule otherwise seems to have been one of prosperity and of the growth of primitive industries such as weaving workshops whose output was for export. Purely commercial claims were left untouched by his amnesty.

Restrictions on debtors’ obligations were part of the laws of Hammurabi, a ruler of the Amorite First Dynasty of Babylon during 1792-1750 BC, a period when Babylon attained the height of its power.

Hammurabi proclaimed four debt amnesties, in 1792, 1780, 1771, and 1762 BC. Outside of these amnesties Hammurabi’s laws contained fiscal rules whose guiding principle was avoidance of debt obligations which exceeded normal capacity to pay, except in cases of negligence or where punishment was warranted for other forms of abuse. In particular the laws restored the status quo ante by cancelling debts in circumstances where cultivators’ capacity to pay was affected by crop failures due to pests, storms or drought or where leased animals died owing to “an act of god”. The protection provided by Hammurabi’s laws to cultivators against aggressive creditors and tax collectors has been criticised by legal historians. But on the opposite side Hudson quotes other legal authorities who would support a stronger link between criminal punishment and restitution for its victims.

Bronze Age rules favouring debtors’ interests were gradually overridden in importance owing to the growing power of creditor oligarchies and the bureaucracies which they controlled. This was true of the Greek and Roman civilisations as well as of Judaea and Israel. In Greece the rise of creditor power was nonetheless periodically checked by reversals. Roman history was notable for continuing conflicts over debt. These were ongoing in the period when Israel was incorporated in the Roman Empire.

The second half of the seventh century BC witnessed the taking of power by popular reformers (ironically for us frequently denoted as “tyrants”) in several Greek cities. These rulers overthrew landed aristocracies, redistributed their lands and cancelled debts. Perhaps the best known reformer of this period was Solon who in 594 BC used his special powers to cancel debts and to ban debt servitude for Athenians as well as the ownership of land by foreigners. In the late third century the cancellation of debts and the associated attempt by Spartan kings to restore a free, land-tenured peasant army was overturned when Sparta was defeated by other oligarchic cities which had obtained Roman aid for the purpose.

Roman history from 500 to 450 BC was notable for popular political revolts with refusals by debtors to fight until their debts were cancelled and other measures were taken to address their needs. Thereafter conflicts over debt were a continuing feature of Roman politics until the third century AD. Debt relief in response to these conflicts was characterised more by partial amnesties and by regulations such as ceilings on interest rates than by the proclamation of comprehensive Clean Slates.

The bias of Roman law in favour of a creditor oligarchy had the effect of disenfranchising indebted citizens and of concentrating land ownership. These developments led to increased debt servitude and serfdom and eventually to depopulation. Some contemporary commentators ascribed to increased indebtedness no less than the decline of the Roman Republic.

By about the fifth century AD Roman civilisation had become increasingly vulnerable to external and internal weaknesses. These included loss of allegiance to the Roman Empire’s ideology; a breakdown of the ability of the political system to get its orders obeyed; disintegration of the social structure; economic decline; and an army increasingly reliant on barbarians rather than Roman citizens and on infantry ill suited to withstanding the charges of barbarian horsemen (Quigley, 1979: 328-331). Of these factors the last three reflected to a significant extent the draining effects of continuing struggles between debtors and creditor interests and the political alienation of the former.

Under the Byzantine Empire there were several initiatives designed to improve the position of the peasant freeholders, who were the new majority. The interests opposing these measures were a new class of magnates, typically with military backgrounds, who had replaced the old landowning oligarchs and deployed their administrative influence to gain control of rural land and labour.

The early initiatives of the Byzantine Empire in favour of the peasants included tax measures, restrictions on land transfers, and debt amnesties. Implementation was accompanied by the Byzantine system of dual emperors. Under this system each emperor selected his successor as co-ruler, who might be his son. This could have the effect that when successors assumed power, they reversed measures favouring the peasants whose introduction they had witnessed but failed to stop. Thus Leo, the son and successor of Basel I, son of a peasant soldier who ruled from 867-886 AD, reversed his father’s law which favoured existing peasant landowners through restricting the categories of buyer to which land could be sold. The potential buyers who were targets of this law were principally aristocrats.

Restrictions on the purchase of land were restored by Romanos I, another soldier’s son who ruled from 920 until 944 AD. Land purchases not in accordance with Romanos’s restrictions were reversed, and buyers were deprived of such lands which could then be restored to the original owners. Such measures fell short of the more comprehensive debt amnesties during the Mesopotamian civilisation but had similar objectives. During the longest reign of nearly fifty years of the Byzantine Empire, from 976 until 1025 AD, Basil II also aimed establishing the security of land held by soldiers and freeholders and reversing transfers to absentee buyers. But after Basil II the Byzantine imperial system gradually fell apart and in the 12^th century large landowners succeeded in enthroning emperors controlled by them.

Hudson devotes substantial space to policy towards debt in Jewish doctrine. Israel was a territory which underwent radical changes in the period BC. These changes were associated with regime shifts as a result of which, for example, Israel was at different times an independent monarchy and a Roman province. Hudson’s attention no doubt reflects the eventual importance of key Jewish texts to Christian as well as Jewish doctrine.

In the seventh century BC the Code of Deuteronomy served as the basis of the reforms of King Josiah. The Code contained text designed to protect debtors against predation by creditors and proclaimed debt forgiveness as a legitimate response. Other sacred texts and denunciations by prophets supported similar measures. Moreover the struggle between debtors and creditors is a prominent theme of the Jewish Bible. However available evidence leaves it unclear whether there was much recourse to debt amnesties in the early part of the first millennium BC.

After 722 BC Jewish lands were subject to foreign powers. Under the Roman Empire there was consolidation of the power of the creditor oligarchy. Adherence to the ancient Codes could no longer be enforced. But the creditor oligarchy was to face a formidable champion of the debtors’ cause in Jesus Christ. From his inaugural sermon onwards Jesus preached redemption from debt. This included the precept of “Love thy neighbour as thyself”, the basis of the Golden Rule that we should not do to others what we should not wish them to do to us.

In a visit to the temple in Jerusalem – where business contracts and oaths (including those sanctifying debt repayments) were sworn to the Lord – Jesus overturned the tables of moneychangers and merchants and emptied their money bags on the floor, while announcing, “My house will be a house of prayer, but you have made it ‘a den of thieves’ “. A representation by Miguel Guerra of this event constitutes the cover of Hudson’s book, which also includes in the text El Greco’s picture of the expulsion of the moneylenders from the temple. The story of the expulsion is part of the different versions of the New Testament. However, as Hudson notes, “most theological training belittles the Biblical laws of debt forgiveness as merely a utopian dream”.

Hudson’s book contains much which is capable of providing an unconventional perspective on contemporary debt problems. But his objective is not to propose solutions to current and other recent financial crises. This he has done elsewhere such as in his 2015 work whose principle focus is the current financial crisis and its aftermath (Hudson (2015)). In this book by contrast he is concerned with much earlier manifestations of “a constant dynamic of history” consisting of “the drive by financial élites to centralize control in their own hands and manage the economy in predatory, extractive ways”.

Hudson disagrees in his book with the version of distant history put forward in the work of mainstream economists and many economic historians. This version tends to demonize government and royal authority, to laud privatization of land ownership, and to treat debt amnesties and curbs on creditor power as exercises in despotism. By contrast the school of thought to which Hudson subscribes emphasises the constructive role played by government and temple institutions not only through measures designed to keep agrarian and personal debt within the capacity of debtors to pay but also in the development of money and accounting. Hudson convincingly makes the case that the second interpretation is rooted in deeper and more recent study of early practices and institutions – study less influenced by an idealistic account of the origin and evolution of capitalist practices since the civilisations of Greece and Rome.

Hudson’s book focusses principally on the treatment of the debt of large groups and not the issues arising at micro-level between individuals and enterprises. These debts are susceptible to comparisons with external debts incurred by the governments and other large institutions of contemporary history. Most discussion of these debts focusses on the relative power of creditors and debtors in determining the initial costs and other terms incurred by the latter, and on the defaults and restructuring which follow when the burden of debt service reaches levels at which it cannot be paid. The framework within which these processes take place presupposes the virtual sanctity of debt regardless of the costs which meeting the original or restructured obligations implies for the debtors and for the people that they govern or control.

A recent example of the results of such a framework is the long drawn out response of the Troika consisting the European Union, the European Central Bank and the IMF to the debt problems of Greece. This subjected the country to conditions which many would characterise as peonage. Examples of the alternative are few and far between. Perhaps the best known case is that associated with the German Currency Reform of 1948. This cancelled all debts except for wage obligations owed by businesses to their employees plus selected personal and micro-financial obligations. The principal target of the cancellation was Germany’s default due to a moratorium in 1933 (a moratorium which actually followed a series of frictions between Germany and its creditors beginning earlier). The debt-free market which resulted is generally regarded as having substantially contributed to the German Economic Miracle which followed.

Hudson’s research on the treatment of debt in the Mesopotamian and other early civilisations originally stemmed from his interest in the response of these civilizations to situations in which debts had become unpayable or payable only through the imposition of unsustainable costs on the populations affected. He clearly believes that modern civilisations can learn from the debt amnesties of these eras and from the associated acknowledgement of the setbacks to the military and labour services of subjects whose land and even wives and children have been transferred to their creditors to meet their debt obligations. Both the debt amnesties and the (no doubt often self-interested) concern of rulers with the welfare of their subjects, Hudson argues plausibly, are historical precedents meriting more attention in the treatment of contemporary debt problems. Attention to these precedents is capable of contributing to more equitable contract design for cross-border debts and to a more humane framework for the thinking which underlies approaches to creditor-debtor conflicts.

References

Bernal JD (1971), Science in History, paperback edition, Cambridge, Mass., MIT Press;

Einzig P (1966), Primitive Money in its Ethnological, Historical, and Economic Aspects, second edition, Oxford, etc., Pergamon Press;

Hudson M (2012), The Bubble and Beyond, Dresden, Islet;

Hudson M (2015), Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy, Dresden; Islet;

Quigley C (1979), The Evolution of Civilisations, Indianapolis, Liberty Press.