It may seem a long way off, but the day will come when household debts must be forgiven, for the simple reason that they cannot be repaid.
The most reckless financial experiment in history has been unravelling in front of our eyes over the last decade, as a tsunami of created debt was hosed into the world financial system to save the casino banks from their inevitable demise. The result was a massive transfer of wealth to the financial, insurance and real estate (or FIRE) sector.
In South Africa, finance contributes 23% to GDP (in the US it is 85%). It makes little contribution to the economy as it involves the re-trading of already-existing assets at ever-inflated prices. Precious little of this money is invested in new production.
Remove this distortion from the GDP figures and the world economy has been in depression for the last ten years, argues economist Michael Hudson in his book ‘… and forgive them their debts: Lending, Foreclosure and Redemption From Bronze Age Finance to the Jubilee Year’.
For a glimpse into the future, look at what is happening on the streets of France or Chile, where demonstrators complain that they are being asked to – wait for it – “tighten their belts” while living from one month-end loan to the next.
In SA, about four out of ten of the roughly 20 million who qualify for credit are in financial distress, meaning they are two or more months in arrears on at least one account. How long before they take to the streets?
Hudson has been banging this drum for the best part of a decade, arguing that in 2008, rather than bail out the big banks, authorities should have given the money to the citizens so they could pay off their debts.
The result, based on historical evidence, would have been a boom of almost unimaginable strength.
Instead they rescued the banks with trillions of dollars in quantitative easing, which went straight into the stock and real estate markets. In other words, straight to the rich.
This can’t, and won’t, last.
The social order is fraying and debt – not climate change – is the real curse of our age.
In his book, Hudson delves into the storied history of debt jubilees (or forgiveness) through history, from Sumer to Babylon, Greece, Sparta and Rome. Judaism took the practice of debt forgiveness and placed it at the centre of Mosaic Law. All this was done in the interests of social peace. The ancient battle between debtors and creditors courses through the Bible and the Quran, from the economic proclamations of Moses to the gospel of Luke, when Jesus announces the coming of the Jubilee year when debts were to be forgiven.
Ancient history makes better sense once you start to view it through the lens of creditors versus debtors.
Wars are always an asset grab clothed in the fineries of impugned rights. Creditors fought the jubilees every inch of the way, waging war where necessary to collect their dues. Roman creditors fought and won a century-long ‘Social War’ that was ultimately catastrophic to the empire, creating a caste system of grotesque inequality.
Livy, Plutarch and other Roman historians saw creditors as a pestilence that destroyed classical antiquity, by using interest-bearing debt to impoverish and disenfranchise the population. The Barbarian invasions of Rome and elsewhere succeeded only when societies were sufficiently weakened from within by debt.
Chronic indebtedness ‘normal, desirable’
Most economists today recoil from any suggestion that debt write-offs are needed. Hudson takes them head on: lacking any historical understanding of debt and the inevitable servitude it imposes, they see chronic indebtedness as normal, even desirable.
However, debt cancellation was far from radical in ancient times, and far more humane than current practices. For example, it was illegal to waive one’s rights to debt forgiveness in ancient Sumeria, Babylon and Israel. Today, banks require borrowers to waive their rights in favour of the courts – and that has put ten million Americans out of their houses since 2008.
There were usually sound, practical reasons for debt forgiveness: it prevented creditors from accumulating too much power at the expense of local sultans, allowed rulers to recruit soldiers or workers from those recently freed from debt peonage, and enabled overindebted farmers to resume payment of taxes.
The idea was to create a fair and equitable society and provide citizens with the basic minimum standard needed to be self-sustaining. Populist leaders in 7th Century Greece paved the way for the economic take-off of Sparta, Corinth and Aegina by cancelling debts and redistributing lands monopolised by their cities’ aristocracies.
It didn’t always go the way of the debt cancellers. There were creditor-sponsored counter-revolutions in the Western Roman Empire and then Byzantium.
The word ‘tyrant’ is today loaded with invective, but only because the original ‘Tyrants’ who sought to liberate Greek populations from debt bondage lost their war against creditors. It turns out the Tyrants were the good guys.
Today’s legal system is based on the Roman philosophy of upholding the sanctity of debt rather than its cancellation.
“Instead of protecting debtors from losing their property and status, the main concern is with saving creditors from loss, as if this is a prerequisite for economic stability,” writes Hudson.
“Moral blame is placed on debtors, as if their arrears are a personal choice rather than stemming from economic strains that compel them to turn to debt simply to survive.”
In pre-Christian Babylon, debts that could not be repaid as a result of misfortune were written off. Hudson points out that most household debt today – as in ancient times – is for consumption, and therefore cannot and will not ever be repaid.
The long game with any debt cult is asset forfeiture. “Concentration of land ownership and polarisation between creditors and debtors is traditionally a formula for economic shrinkage and depopulation,” writes Hudson.
Lending to farmers was used as a lever to privatise land. The Sumerians invented usury (lending at interest) but mitigated its effects through periodic royal edicts forgiving debts, particularly those related to crops and fees owed to public collectors. The meaning of ‘usury’ has changed through the ages to mean lending at excessive interest.
The concept of legal title to land is a relatively modern concept and, once tethered to debt, is the most efficient method of foreclosure and stripping the poor of their customary rights.
The absence of formal property rights in Africa has actually protected the poor from the dispossession and eviction that follows debt peonage.
The modern concept of economic liberty exalts title deeds and the transferability of land as an act of empowerment, yet ten million Americans and an estimated 100 000 South Africans have been stripped of their properties in the last decade or so through foreclosure.
Property ownership is vital to economic prosperity but is under constant attack by the creditor class. Title deeds were one of the principal tools of dispossession used by colonisers in Africa, subverting the traditional system of communal property. The Bafokeng in North West Province had to buy back the land they had occupied for centuries because some ‘smart’ 19th Century property speculators proved by means of a title deed that they were the new owners.
Hudson also challenges the notion that money originated out of primitive barter economies. The origins of money, he suggests, lay in fiscal arrangements with the palaces, where dues had to be settled in silver.
To insist that all debts must be paid ignores thousands of years of contrary practice in the Near East and the economic flowering that followed this humane practice.
Hudson says he wrote the book as the time is now ripe to re-introduce the concept of debt Jubilees into public consciousness. It will allow an instant and orderly economic recovery rather than decades of slow atrophy and social disorder, as banks continue to make claim on debts and interest that can never be repaid.