‘Debts that can’t be paid won’t be paid’

by
01 February 2019

An ancient solution to debt could restore economic vitality, Michael Hudson tells Simon Radford

Reuters

One of the thousands of homes in the US sold at a loss during the 2008-9 subprime scandal

One of the thousands of homes in the US sold at a loss during the 2008-9 subprime scandal

IN HIS essay “Economic Possibilities for our Grandchildren”, published in 1930, John Maynard Keynes wrote of his hope that, in the future, people would need pay no attention to the “dismal science” of his field. The study of economics would reach such maturity that ordinary people would live in luxury, able to contemplate the more important things in life, “free . . . to return to some of the most sure and certain principles of religion and traditional virtue — that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable”.

It is easy to think that the great recession of 2008 served as a harsh refutation of this Utopian prediction. The wave of economic destruction which broke more than a decade ago threw up a political backlash that was felt the world over.

Rather than there being a widespread moral awakening to matters of economics and money, however, it has been left to the Archbishop of Canterbury to give warnings about “epidemic levels” of personal debt, and court controversy by entering into debates about predatory lending and economic justice (News, 23 March 2018).

Meanwhile, faith communities have tried to mop up amid the economic devastation by tending foodbanks and providing debt counselling to those trapped in penury.

While debate rages about how involved Christians should be in matters of economic justice, a new book by the maverick economist Professor Michael Hudson argues that to fail to do so would be to ignore the central concern of Jesus’s ministry: to overturn an economic system that empowered creditors and ground down those without the means to dig themselves out of economic subjugation. “The Bible is preoccupied with debt, not sin,” advance publicity declared.

 

CHOSEN as one of the Financial Times’s best books of 2018, . . . And Forgive Them Their Debts has garnered attention not just for the author’s evocation of Christ as an advocate of political and economic reform, but because of Professor Hudson’s past prescience.

Many economists and financial commentators claimed to have predicted the Great Recession before it happened. The Dutch economist Dr Dirk Bezemer, however, identified only 11 who had predicted events with the right cause and with an appropriate timescale. Professor Hudson was among them, focusing his analysis — outlined in a now infamous 2016 article in Harpers — on debt and the interaction between financial assets and the real economy.

ALAMY/First Run Features / courtesy Everett CollectionProfessor Michael Hudson in The Lost Village, a 2018 documentary about gentrification and student debt in Greenwich Village, New York

A veteran of Wall Street who now serves as Distinguished Research Professor of Economics at the University of Missouri, Kansas City, Professor Hudson has an intriguing CV that entails working with bodies ranging from the White House to the Vatican.

. . . And Forgive Them Their Debts has had a long gestation: he has been writing a history of debt since 1980. More recently, he has been inspired by his concern that, in the wake of 2008, “any lessons were forgotten pretty quickly.”

“It was obvious to me that, if you are going to avoid a massive fore­closure movement, and if you are going to avoid imposing austerity on debtor countries, you have to write down the debts, and most people — especially on the Left — said ‘Well, this is impossible’,” Professor Hudson tells me from his office in New York. “I began to look through history . . . at how different societies have handled their debt problem, and how they have written down the debts.’”

Studying the Bronze Age, he discovered that “for thousands of years in Sumer and Babylonia, and all the rest of the Near East, every new ruler taking the throne would write down the debts, and, instead of creating a crisis, it prevented a crisis from happening and preserved stability.”

This history has been neglected, he says. Today, our leaders believe that “stability is making everybody pay the debts that they promised to pay, regardless of their ability to do so.”

 

THE cover picture on Professor Hudson’s book shows Jesus throwing the money-lenders from the temple. It is his view that Christ was crucified because of his economic views.

He points to Luke 4 and Christ’s very first sermon, “unrolling the scroll of Isaiah, saying that he had come to proclaim the Year of the Lord, meaning the debt cancellation. . . . He said that the Pharisees and the rabbinical school of Hillel had hijacked Judaism and made it into a creditor-orientated religion.”

Professor Hudson echoes academic work by theologians such as Dr Lyndon Drakeb, who argues that Jesus’s use of the word “debt” in “forgive us our debts” would have been jarring to his contemporaries if he had meant only “sins” (as it is often translated), and that Jesus directly argued against the so-called prosbul clause which was used to avoid the Torah’s call for periodic debt-forgiveness.

“Jesus wanted to restore the original law, and Luke says that, after he gave his sermon and announced that he had come to promote this debt cancellation, people got very angry at him, and the Pharisees decided they had to kill him, just as creditors were killing debtor advocates all over the ancient world at his time.”

Many people today “don’t understand the linguistics of debt and sin”, he says. “Again and again, Jesus denounces the creditors: they were the sinners, not the debtors. That’s the most important message that he had.”

 

JESUS’s debt advocacy was presaged in the Old Testament, Professor Hudson argues.

“The prophets, especially Isaiah, warned that if you let the creditors foreclose on the land of debtors, you are going to have large land-ownings created, and . . . if you can’t pay debt and have to serve as a bond servant, there are going to be runaways and capital flight and depopulation.”

He sees the prophets as scolding the kings of the Old Testament who chose the path of taxation, conscription, and debt enforcement over debt forgiveness, self-sustaining economies, and volunteer soldiers.

Similar political battles — between debtors and the powerful — were played out throughout the ancient world: “tyrants” (the economic populists of their day) took on oligarchies with concentrated wealth in a few families, Professor Hudson explains.

Politicians who advocated land reform or debt forgiveness, such as the Gracchi brothers, in Rome, often led successful popular uprisings, but were murdered by the incumbent powers.

“The creditors called any reformer a tyrant, saying any reformer trying to get popular power is going to interfere with liberty — meaning our liberty to insist that debts be repaid; and so the whole concept of liberty was changed,” he says. “The Americans’ Liberty Bell has a quotation from Leviticus: ‘Proclaim freedom in all the lands.’ But the freedom was deror [the word for the Jubilee Year]: the freedom was from debt, not the freedom for creditors to foreclose.”

The widespread nature of this conflict, and its repeated occurrence, was not just due to the fissiparous political mood of the time, but the result of the logic of compound interest and mathematical laws, Professor Hudson says. He believes that the models used in ancient history are superior to many taught today: “The Babylonians . . . knew that the debts couldn’t be paid. . . This is almost an eternal phenomenon.”

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IN THE light of his research, Professor Hudson urges us to reform our financial system radically, and prise our political system away from enforcing the economic status quo.

We do not have to look back to the ancient world to find an example of debt cancellation in practice, he says. “The great clean slate in modern times was the German clean slate of 1947 and ’48. . .

“The problem today is that the debts are not owed to the Nazis: they are owed to the banks, and the richest layer of the population. And the question today in the case of consumer debts and mortgage debts is: is it worth having the economy so debt-ridden that more and more of its income has to be paid in debt service? So that you have to pay labour such a high wage in order to pay its mortgage debt? . . . [which means] that it can’t afford to compete with other countries?”

History, mathematics, and economic logic point in the same direction, he argues: it is only a clean slate that can restore economic vitality and stave off a new series of political battles between creditors and the tyrants who all claim to represent the people.

Accusations of mismanagement should be laid at the door of creditors, not debtors, he argues. “That certainly is what led up to 2008 and the crash: the creditors’ making loans without any regard for the debtors’ ability to pay.”

His personal prescription is nationalisation: debt and credit as a public utility. “If you leave it in private hands, you will end up in the same way that Rome ended up,” he argues. “You will end up with a concentrated property ownership and the kind of society that is utterly transformed from what people consider to be a free market.”

 

UNTIL we reach that world of abundance, economics will not be a value-free discipline, separate from the worlds of politics, morality, or theology. Archbishop Welby can no more leave economics to the economists than economists can leave questions of value and values to the theologians. Questions of wealth, power, and religion are inevitably and ineluctably bound up with each other.

While a book on the detailed nature and practices of ancient societies’ debt-forgiveness might seem dry to many, it contains one central, explosive truth. As Professor Hudson puts it: “Debts that can’t be paid won’t be paid.”

It is Professor Hudson’s argument, uncomfortable to many, that, as a consequence of that painful economic law, Jesus instead paid the ultimate price — even if we are yet to heed his lesson.

 

. . . And Forgive Them Their Debts: Lending, foreclosure and redemption from Bronze Age finance to the Jubilee Year is published by ISLET.

Dr Simon Radford received his Ph.D. at the University of Southern California, and works as an investment consultant. He writes in a personal capacity.

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