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A Bust From Ancient Sumeria. Photo by Rob Koopman.
It’s amazing how long debt has been a feature of both civilization and wars. Michael Hudson has done a lot of digging (almost literally) into ancient Sumerian and Babylonian records and recently was interviewed. His recent interview is at Renegade Economists radio show, transcript at his site. In this interview he notes that debt was…
… first documented clearly in around 2400BC when the Sumerian city of Lagash went to war with Umma and it is said that Umma had to pay reparations at the going interest rate, which was one shekel per mina per month, which works out at 20% per year. The calculation ran into the millions of bushels of grain that Umma owed, and so Sumer erected a stone on the boundary between Lagash and Umma saying “You owe us this much money, and if you do not pay it we are going to go to war.” So the first compound interest on record was money owed by a city as war reparations to the victor.
The features of debt and war reparations rings a bell with many fans of 20th century history, where the debt burden caused by First World War reparations were instrumental in the rise of Nazism. Hudson notes also that:
…no economy in history has ever grown as fast as its debts have grown. And that is why business cycles slow down – as debts grow faster than outputs, more and more money is diverted away from spending on goods and services, there is less direct investment, less new hiring and increased vacancies, and people have to pay more to the financial sector and that turns out to be a means of stifling growth.
The financialization of the economy, where finance capital captures rents from debt as an increasing share of productive capcity (usually measured by GDP), crowds out the productive uses of debt and leads to increased inequality and the pauperization of the people.
When foreclosure and the morality of “all debts must be paid” is enforced by the society, or in our case the world political economy, then we have the debt downward spiral. The need to service debt payments leads to austerity, austerity leads to lower output, lower output leads to lower tax revenues to pay down debt and the debt crisis deepens, the deepening debt crisis leads to new calls by the creditor class to more austerity, seizures of real assets such as the national or personal treasures, foreclosure.
There is an alternative: debt forgiveness, Jubilees, debt write-off, it is just disagreeable to to the creditors and they are the banks and their managers who are profiting wildly from the growth in inequality. The calls for foreclosure, ‘market clearing,’ austerity, cutting of government spending for the people, will increase.
The calls for austerity will continue until the apotheosis of debt is reached. In some countries that may lead to civil unrest on a scale not seen for many years. My opinion is that we will see police and army called out against citizens, at first responding to orders to fire on the co-members of the 99% and later refusing the order to fire. When the police and army refuse to quell riots against debt imposed by creditor friendly political structures, those political structures will collapse. Parts of this scenario are already being reached in Europe, e.g. Greece.
This summer will be long and hot.
Cross-posted at www.petraitis.us
4 Comments
I am a creditor. My son 24 owes me and his mother 1.2K not a big deal, but we decided because of other events leading up to this small debt it was time he learned what it was like to have to pay back a debt. We are not however charging him any % and gave him a pretty long time to pay it back at a fixed rate a mos. We have forgiven other debts he’s owed us in the past, but he never really got it. My pt. is that the whole issue is not as easy and as straight forward as many on the left think. I agree, that many people were seduced into taking out Mortgages and other loans under less then honest circumstances, but they signed anyway because THEY wanted that home or car or camera or whatever and if they’re adults , who ultimately is responsible? Unless out and out fraud in the inducement can be proven these people are on the hook.
Are you familiar with David Graeber’s work? Seems that, contrary to Adam Smith and all the folks who mindlessly copied his words, “the barter system” did not precede money. Debt preceded money, and in fact helped lead to the creation of money. Barter on a large scale only occurs in situations where one is operating outside of a typical societal framework (such as when a group separates itself from the world in the manner of various religious or utopian groups), or where there is a breakdown of society.
Excellent to see you mention David Graeber PW. I heard him in an interview a few weeks ago. Really interesting and really parallels when MMTers have been saying.
Its easy to call for debt writeoff when you aren’t the one loaning money. Do this: technically you’ve paid into social security for some time now probably. You could think of it as a debt the government owes you when you retire. Now imagine that the govt decides you should write off this debt in the interest of spending it on something else. How do you feel then?