A Modern Debt Jubilee
The global debt crisis is not a new problem. An economist explains how the solutions were known and used in ancient times and why modern society has forgotten them.
Introduction
The modern world is buckling under a debt crisis that echoes the struggles of ancient civilizations. The solution is not new; it’s an ancient concept forgotten by modern economics. A careful study of history shows that economic stability requires a system that prevents debt from suffocating the real economy. This is a story of how we traded ancient wisdom for a system that benefits a few at the expense of everyone else.
Economist Michael Hudson’s work reveals a stark truth: the economic policies crippling the modern world are not new problems, but the result of a deliberate rejection of ancient wisdom. While today's financial systems are praised for their sophistication, they are, in fact, built on a foundation of historical failures. By examining the economic practices of ancient Babylonia and contrasting them with the philosophies of Greece and Rome, Hudson argues that our current debt-driven society is a path to instability. He contends that the financial class has deliberately obscured the lessons of history to maintain its power, leading to a world where debt grows faster than the ability to pay it. The consequences of this choice are now visible in the form of economic austerity, de-industrialization, and a growing gap between the rich and the poor.
The Bronze Age Jubilee: An Economic Model for Survival
The Bronze Age Near East, particularly Babylonia, operated under a sophisticated economic model designed to prevent social and economic collapse. Rulers understood that debt grows at compound interest faster than the real economy can grow to pay it. A study of Babylonian training texts for scribes reveals that they used mathematical models to teach students that debt would double in five years, quadruple in ten, and grow exponentially from there. This was a clear mathematical fact, not a theory.
To counteract this inevitable polarization, every new king would declare a "clean slate." This act was a debt cancellation for the agrarian population, freeing debt-bonded servants and redistributing land. The king's purpose was strategic: to prevent the rise of a creditor oligarchy. If a few wealthy individuals accumulated too much wealth and land by seizing it from debtors, they would become more powerful than the king. The king needed a free population to serve in the army and work on public infrastructure projects. A population in debt bondage served their creditors, not the state. The choice for these ancient rulers was clear: cancel debts to ensure stability and state power, or face rebellion and invasion from rivals who promised debt forgiveness to a fleeing population. This economic model was so effective it became a central tenet of the Mosaic law in the form of the Jubilee year.
The Collapse of Antiquity and the Rise of the Oligarchy
The Bronze Age ended around 1200 BC, leading to a dark age. When a new society emerged in Greece and Rome, they inherited the Near Eastern concepts of contracts, interest, and credit but abandoned the clean slate principle. They lacked a central authority with the power to cancel debts. This vacuum allowed for the rise of a landowning creditor oligarchy.
These mafia-like states in Greece and Italy reduced the population to debt bondage, seizing their land and labor. Roman kings initially tried to prevent this by attracting citizens with land, but by the sixth century BC, an aristocracy overthrew them. Rome became a violent oligarchy, and this creditor-oriented, property-focused law became the foundation for all future Western societies. This created a profound split between the economies of the Near East, which sought balance and stability, and the economies of the West, which were built on polarization and the exploitation of debtors.
This tradition of creditor-centric law is the problem we face today. It has been passed down through centuries, leading directly to feudalism and shaping the legal framework of modern capitalism. The fundamental difference lies in the moral and economic philosophy: the Near East believed in an economy that served the people and the state, while the West embraced a system that allowed private fortunes to be built at the expense of the public.
The De-industrialization of the West
The classical economists of the 19th century, such as Adam Smith and John Stuart Mill, understood the danger of unearned income, which they called economic rent. They argued that this was the excess of market price over the actual cost of production. They identified land rent, monopoly rent, and predatory bank lending as the primary forms of economic rent. Their goal was to tax away this rent to fund government services and lower the cost of living for workers, thereby promoting industrial growth. They wanted a strong government to prevent a rontier class—a class of rent-seekers—from gaining control.
However, a fierce counter-reaction, led by financial and real estate interests, successfully dismantled this classical economic framework. They created a new ideology that claimed economic rent was not a problem and that all income was earned. Figures like Henry George, while advocating for a land tax, ultimately supported the banking monopoly, which he saw as a technological advancement. This ideology paved the way for the financialization of Western economies. Banks became the primary beneficiaries of land rent, as they issued mortgages that captured the value of rising real estate prices.
Today, Western economies are de-industrializing because it is easier to make money through financial means and speculation than through productive industry. The largest element of bank loans is to real estate, with banks benefiting from inflated housing prices. This creates a high-cost economy where workers and businesses are squeezed by the costs of housing, monopolies, and financial fees. These costs crowd out investment in new factories, research, and development. The result is a system of economic austerity, where taxes on labor and industry are high, while economic rent is given special tax breaks.
The New Cold War: Rent-Seekers vs. The Global Majority
The current geopolitical landscape can be understood as a new cold war between the rent-seeking economies of the West and the anti-rent stance of the Global Majority (Russia, China, and the Global South). The West's financial system, built on the dollar, is a tool for imposing austerity on debtor nations, forcing them to privatize public infrastructure and sell it off to foreign investors. This predatory system is what de-dollarization seeks to escape.
Europe has committed economic suicide by aligning its interests with the United States and its neoliberal agenda. The European Union and NATO are essentially an extension of the US defense and financial establishment. This has led to European leaders adopting policies that weaken their own economies, often in opposition to the will of their voters. They have been co-opted to serve American interests rather than their own.
Australia is a prime example of a nation weakened by financialization. Its economy is largely controlled by banks, which have fueled a real estate bubble by lending more and more money against properties. This has created an oppressive, high-cost economy where the primary source of wealth for many is the hope that property prices will continue to rise. This system benefits the banks, many of which are foreign-owned, and makes the country uncompetitive on the global stage.
Conclusion
The path we are on is one of slow, accelerating collapse. The exponential growth of debt, a fundamental mathematical law that ancient rulers understood, is now choking the productive capacity of our economies. More and more income from workers and industrial firms is being siphoned off to pay for rent, monopolies, and financial overhead, leaving less and less for investment and consumption.
What is at stake is the very future of our societies. If we continue on this trajectory, we will see a complete de-industrialization of the West, a permanent state of austerity, and a further consolidation of wealth and power in the hands of a financial oligarchy. The hope lies in reintroducing the principles of classical economics that were discarded a century ago. We must challenge the flawed logic of modern economics and begin to measure and tax economic rent as an unproductive overhead, not as part of our national product.
The solution is not simple, but it is clear. We must nationalize or heavily regulate key sectors like banking and natural monopolies. The tax system must be reformed to tax land rent and other forms of unearned income, rather than labor and industrial profits. This will require a political movement strong enough to overcome the entrenched interests of the rontier class. While this may seem like a monumental task, the alternative is a continued march toward a new dark age, where the lessons of history are ignored until it is too late.
Takeaways
Debt grows faster than the real economy, leading to inevitable economic polarization.
Ancient rulers prevented this by declaring debt jubilees to restore economic balance and prevent the rise of an oligarchy.
The West's creditor-oriented legal tradition, inherited from Greece and Rome, is a historical anomaly that has led to our current predicament.
Classical economists warned against economic rent, or unearned income, and wanted to tax it to fund government and promote industry.
Modern economics was created to obscure these truths, allowing financial and real estate interests to thrive at the expense of the productive economy.
The global majority is challenging this system through de-dollarization, seeking to free their economies from Western financial dominance.
The solution requires a return to classical economic principles: tax economic rent and make banking and credit public services, not private monopolies.
Source
Shepheared-Walwyn | From Babylon to Wall Street: How Bankers Make You Poor | Michael Hudson & Jonathan Brown