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The Relevance of Ancient History to Modern Economic Crises

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Today’s debt overhead is transferring land, natural resources, and infrastructure monopolies into the hands of a rentier class. This has happened before and it doesn’t end well.

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Michael Hudson has devoted his career to the study of debt.
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Introduction

The dynamics of debt, absentee land ownership, monopolization and economic polarization have overpowered societies repeatedly throughout history. The landed aristocracy undercut economic viability by overthrowing public oversight of land tenure and credit systems and “freeing” land of its historic fiscal and social obligations, destroying the basic fiscal principle of Near Eastern civilization. The liability attached to land tenure in the modern world is not part of a socially viable plan of economic growth, but obliges most land rent to be paid to mortgage bankers, not to the tax collector.

Today’s debt overhead once again is transferring land and natural resources (oil and other minerals, and forest products) and infrastructure monopolies into the hands of a rentier class of bankers, bondholders and other creditors and their clientele of landlords, natural resource owners and monopolists. The U.S. oil industry’s depletion allowance, fictitious transfer pricing and related tax breaks for mining and real estate, and tax-deductibility for interest payments represent notorious tax exemptions for rent-extractors. Matters are especially pronounced in the Global South countries, whose governments have been directed by U.S. diplomacy to provide special concessions to foreign investors. Under distress conditions, sell-offs of rent-yielding assets are used to pay foreign debts that have accumulated to a point where they create a chronic fiscal and foreign exchange crisis—a debt dynamic much like that which confronted antiquity’s indebted smallholders.

The Long Battle Between Governments and Oligarchs

Governments were not debtors in antiquity. They typically were creditors, and in the Bronze Age developed general-purpose money as a means of collecting payments on credit that they extended during the crop year and the foreign-trade cycle. Today’s budget deficits and privatizations are the price of refraining from taxing land, natural resources and monopoly rents. Most wealth takes the form of rent-yielding assets, whose holders have broken free of taxation. This drive is crowned by minimizing and often abolishing the capital-gains tax, inasmuch as most “capital gains” (that is, asset-price gains) in today’s world are from rising prices for debt-financed transfers of land, natural resources and infrastructure monopolies.

Fiscal obligations owed by landholders, above all for military service and corvée labor, have a pedigree going back at least to Sumerian times. Almost as old a phenomenon is the striving by wealthy families to avoid such obligations on the holdings that they are able to appropriate. This appropriation was done mainly by debt leverage prior to the development of a land market. The transfer of land to large property owners helped consolidate oligarchies to the point where their power was able to undercut that of centralized authority. The ensuing privatization of property rights and economic power squeezed governments fiscally and led to their economic and military collapse.

The conflict of interest between government and oligarchic power is age-old. Antiquity’s rulers were confronted by aristocratic leaders and the wealthiest families opposed to royal protection of smallholders. Mesopotamian rulers countered this dynamic of rising oligarchic power by proclaiming Clean Slates canceling debts and limiting the time period for debt bondage and the loss of property to foreclosing creditors or wealthy patrons. But this practice did not survive into Greek and Roman antiquity. Irreversible debt servitude and dependency replaced proclamations restoring economic order.

Rome became antiquity’s most extreme oligarchy. Its legal principles favoring creditors over debtors have survived to endorse the transfer of land and financial wealth to the increasingly powerful oligarchy that has characterized the Western world ever since. Today’s principles of linear economic progress and “security of contracts” that support the ideology of privatization and financialization have replaced the Bronze Age principle of “circular time” with its periodic restorations of social order to prevent economic polarization and impoverishment of the citizenry at large by a rentier class.

The Train of Consequences Stemming from Agrarian Debt and Usury

1. Interest and penalties are levied for late payment of debts. Arrears accumulate as these charges tend to exceed the borrower’s normal ability to pay, especially in times of crop failure and military disruption.


2. Debtors who cannot pay these charges lose their labor and personal liberty (and that of their wives, children and house-slaves pledged for their debts).


3. Debt bondage initially is limited in duration, but tends to become permanent, degrading the status of debtors to that of disenfranchised clients, runaways or outlaws.


4. As an alternative to personal bondage, borrowers pledge the rights to their land, starting with its crop usufruct. Where formal land rights could be transferred only within the family clan, debtors are adopted by creditors as their heirs so that the land can be bequeathed to them instead of passed on to the debtor-seller’s own children.


5. In time this charade is abbreviated by a market sale, enabling creditors to take direct possession of the land. At first society holds the land-rights of indebted smallholders to be inalienable for more than a relatively short period. The land reverts periodically to its customary holders, along with their personal liberty, through the proclamation of Clean Slates. But gradually the alienation of land and personal clientage or bondage to creditors becomes permanent.


6. At first the creditors-become-landlords leave debtors on their land to work it and perform the labor obligations attached to it. Over time, debtors become attached to the soil in a serflike relationship. This may result in sharecropping arrangements such as the Athenian “sixth-parters” (hektemoroi).


7. To maximize their income, large landlords shift land-use away from traditional food production to latifundia-type plantations and export crops such as wine and olive oil in classical antiquity.


8. Creditor-landholders gain sufficient power to become an aristocracy, able to overthrow palace rulers and destroy any central power capable of overriding their acquisitiveness. The leading families create a modern type of ruler supporting the oligarchy instead of regulating it.


9. The resulting polarization of wealth weakens the economy by creating a class of landless peasant-tenants and smallholders living on the brink of subsistence. The wealthiest landholders succeed in throwing the fiscal burden onto the community's weaker and poorer families, most notoriously onto the Late Roman curialis class.


10. Foreclosures on debtors lead to depopulation, undercutting membership in the traditional rural-based army of cultivator-infantrymen. Mercenaries are hired, with the resulting additional tax burden falling on the less wealthy classes.


11. A policy debate develops around the debt problem, bringing religion and secular philosophy to bear. Early traditions criticizing money-addiction and limiting creditor abuses, the duration of debt-bondage and the loss of hereditary subsistence lands as violations of divine law, are replaced by a new religion and moral philosophy reflecting creditor-oriented values and celebrating selfishness as the progressive mainspring of economic growth and prosperity.


12. Societies wage war to seize from foreigners the surplus that no longer can be produced at home. In classical antiquity, prisoners were captured and enslaved to work on latifundia and in the mines. The slowing of Roman warfare and slave markets led to feudal serfdom, which was created to address depopulation.


13. Modern wars and financial conquests aim at seizing rent-yielding land, natural resources and basic infrastructure monopolies, which are privatized from the public domain and duly financialized in a symbiotic relationship between the banking and financial system and the rent-extracting sectors.

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