December 2-4, 2011
from CounterPunch Website
As James Steuart explained in 1767, royal
borrowings remained private affairs rather than truly public debts. For a
sovereign’s debts to become binding upon the entire nation, elected
representatives had to enact the taxes to pay their interest charges.
They are demanding fiscal austerity and even
The alternative is to write down debts or even
annul them, and to re-assert regulatory control over the financial sector.
...proclaimed clean slates for debtors to preserve
First administered early in the third millennium
BC as a contractual arrangement by Sumer’s temples and palaces with
merchants and entrepreneurs who typically worked in the royal bureaucracy,
interest at 20 per cent (doubling the principal in five years) was supposed
to approximate a fair share of the returns from long-distance trade or
leasing land and other public assets such as workshops, boats and ale
Hammurabi’s laws (c. 1750 BC) cancelled their debts in times of flood or drought. All the rulers of his Babylonian dynasty began their first full year on the throne by cancelling agrarian debts so as to clear out payment arrears by proclaiming a clean slate. Bondservants, land or crop rights and other pledges were returned to the debtors to “restore order” in an idealized “original” condition of balance.
This practice survived in the Jubilee Year of
Mosaic Law in Leviticus 25.
According to Diodorus of Sicily (I, 79, writing in 40-30 BC), he ruled that if a debtor contested the claim, the debt was nullified if the creditor could not back up his claim by producing a written contract. (It seems that creditors always have been prone to exaggerate the balances due.)
The pharaoh reasoned that,
The fact that the main Near Eastern creditors were the palace, temples and their collectors made it politically easy to cancel the debts.
It always is easy to annul debts owed to oneself. Even Roman emperors burned the tax records to prevent a crisis. But it was much harder to cancel debts owed to private creditors as the practice of charging interest spread westward to Mediterranean chiefdoms after about 750 BC. Instead of enabling families to bridge gaps between income and outgo, debt became the major lever of land expropriation, polarizing communities between creditor oligarchies and indebted clients.
In Judah, the prophet Isaiah (5:8-9) decried foreclosing creditors who,
Creditor power and stable growth rarely have gone together.
Most personal debts in this classical period were the product of small amounts of money lent to individuals living on the edge of subsistence and who could not make ends meet. Forfeiture of land and assets - and personal liberty - forced debtors into bondage that became irreversible.
By the 7th century BC, “tyrants”
(popular leaders) emerged to overthrow the aristocracies in Corinth and
other wealthy Greek cities, gaining support by cancelling the debts. In a
less tyrannical manner, Solon founded the Athenian democracy in 594 BC by
banning debt bondage.
It has been a political constant of history
since antiquity that creditor interests opposed both popular democracy and
royal power able to limit the financial conquest of society - a conquest
aimed at attaching interest-bearing debt claims for payment on as much of
the economic surplus as possible.
...wins the Social War, enslaves the population and
brings on a Dark Age
Aristotle did not mention empire building as part of his political schema, but foreign conquest always has been a major factor in imposing debts, and war debts have been the major cause of public debt in modern times. Antiquity’s harshest debt levy was by Rome, whose creditors spread out to plague Asia Minor, its most prosperous province.
The rule of law all but disappeared when publican creditor “knights” arrived.
Mithridates of Pontus led three popular revolts, and local populations in Ephesus and other cities rose up and killed a reported 80,000 Romans in 88 BC. The Roman army retaliated, and Sulla imposed war tribute of 20,000 talents in 84 BC.
Charges for back interest multiplied this sum
six-fold by 70 BC.
By the second century AD about a quarter of the population was reduced to bondage.
By the fifth century Rome’s economy collapsed,
stripped of money. Subsistence life reverted to the countryside.
But royal debts went bad when kings died. The
Bardi and Peruzzi went bankrupt in 1345 when Edward III repudiated his war
debts. Banking families lost more on loans to the Habsburg and Bourbon
despots on the thrones of Spain, Austria and France.
The fact that their parliament was to contract permanent public debts on behalf of the state enabled the Low Countries to raise loans to employ mercenaries in an epoch when money and credit were the sinews of war.
Access to credit,
The financial achievement of parliamentary government was thus to establish debts that were not merely the personal obligations of princes, but were truly public and binding regardless of who occupied the throne.
This is why the first two democratic nations, the Netherlands and Britain after its 1688 revolution, developed the most active capital markets and proceeded to become leading military powers.
What is ironic is that it was the need for war financing that promoted democracy, forming a symbiotic trinity between
...which has lasted to this day.
The more despotic Spain, Austria and France became, the greater the difficulty they found in financing their military adventures.
By the end of the eighteenth century Austria was left,
...the least credit-worthy and worst armed
country in Europe, fully dependent on British subsidies and loan guarantees
by the time of the Napoleonic Wars.
...but then pushes for oligarchy
In France, followers of Saint-Simon promoted the idea of banks acting like mutual funds, extending credit against equity shares in profit. The German state made an alliance with large banking and heavy industry. Marx wrote optimistically about how socialism would make finance productive rather than parasitic. In the United States, regulation of public utilities went hand in hand with guaranteed returns.
In China, Sun-Yat-Sen wrote in 1922:
World War I saw the United States replace Britain as the major creditor nation, and by the end of World War II it had cornered some 80 per cent of the world’s monetary gold.
Its diplomats shaped
the IMF and
World Bank along creditor-oriented lines
that financed trade dependency, mainly on the United States. Loans to
finance trade and payments deficits were subject to “conditionalities” that
shifted economic planning to client oligarchies and military dictatorships.
The democratic response to resulting austerity plans squeezing out debt
service was unable to go much beyond “IMF riots,” until Argentina rejected
its foreign debt.
Ostensibly social democratic governments have been directed to save the banks rather than reviving economic growth and employment. Losses on bad bank loans and speculations are taken onto the public balance sheet while scaling back public spending and even selling off infrastructure.
The response of taxpayers stuck with the
resulting debt has been to mount
popular protests starting in Iceland and
Latvia in January 2009, and more widespread demonstrations in Greece and
Spain this autumn to protest their governments’ refusal to hold referendums
on these fateful bailouts of foreign bondholders.
This traditionally has been the function of government. Relinquishing this role under the slogan of “free markets” leaves it in the hands of banks. Yet the planning privilege of credit creation and allocation turns out to be even more centralized than that of elected public officials. And to make matters worse, the financial time frame is short-term hit-and-run, ending up as asset stripping.
By seeking their own gains, the banks tend to destroy the economy.
The surplus ends up being consumed by interest
and other financial charges, leaving no revenue for new capital investment
or basic social spending.
To restore economic balance, antiquity’s cry for debt cancellation sought what the Bronze Age Near East achieved by royal fiat:
In more modern times, democracies have urged a strong state to tax rentier income and wealth, and when called for, to write down debts. This is done most readily when the state itself creates money and credit.
It is done least easily when banks translate their gains into political power.
When banks are permitted to be self-regulating and given veto power over government regulators, the economy is distorted to permit creditors to indulge in the speculative gambles and outright fraud that have marked the past decade.
The fall of the Roman Empire demonstrates what
happens when creditor demands are unchecked. Under these conditions the
alternative to government planning and regulation of the financial sector
becomes a road to debt peonage.
Financed by debt leveraging, asset-price
inflation increases rentier wealth while indebting the economy at large. The
economy shrinks, falling into negative equity.
In practice this means consolidating their
control over policy, which they use in ways that further polarize economies.
The basic model is what occurred in ancient Rome, moving from democracy to
oligarchy. In fact, giving priority to bankers and leaving economic planning
to be dictated by the EU, ECB and IMF threatens to strip the nation-state of
the power to coin or print money and levy taxes.
The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations.
The same is true for America’s $13 trillion
added since September 2008 (including $5.3 trillion in Fannie Mae and
Freddie Mac bad mortgages taken onto the government’s balance sheet, and $2
Federal Reserve “cash-for-trash” swaps).
Through their media and think tanks, they have
convinced populations that the way to get rich most rapidly is to borrow
money to buy real estate, stocks and bonds rising in price - being inflated
by bank credit - and to reverse the past century’s progressive taxation of
Government planning and taxation is accused of
being “the road to serfdom,” as if “free markets” controlled by bankers
given leeway to act recklessly is not planned by special interests in ways
that are oligarchic, not democratic. Governments are told to pay bailout
debts taken on not to defend countries in military warfare as in times past,
but to benefit the wealthiest layer of the population by shifting its losses
Debts imposed by fiat, by governments or foreign financial agencies in the face of strong popular opposition may be as tenuous as those of the Habsburgs and other despots in past epochs. Lacking popular validation, they may die with the regime that contracted them.
New governments may act democratically to
subordinate the banking and financial sector to serve the economy, not the
other way around.
A basic mathematical as well as political principle is at work: