Attempts to eliminate debts in traditional societies were often associated with customary means of doing so. While they were not always personal, for example, debts to the priesthood described by John A. Wilson in his book, The Burden of Egypt, University of Chicago Press, (1951), debtors could appeal to various officials for relief. Thorkild Jacobson reproduces letters
concerning debts and debtors in early Akkadian letters (before 2,000
B.C.E.) in his book, Letters from Mesopotamia, University of Chicago
Press, 1967.
Where such means fail, as in the development of complex societies
like ours and that of Rome, for an ancient example, they become the
basis for bitter social conflict. Italian historian Guglielmo Ferrero
(his two best know books in English are Greatness and Decline of Rome
in 5 volumes, 1909 and Characters and Events in Roman History which
resulted from a series of lectures he gave in the USA at the invitation
of President Theodore Roosevelt), argued that the rising debts in Rome
due partly to the Punic Wars and the destruction of Italy at the hands
of Hannibal, left the average Roman peasant destitute. Debts mounted
and the vast lands conquered by the wars were controlled by the rich
and rising Knight class of investors and bankers. With no state money
allocated to rebuild the countryside moneylenders gained control of
great tracts of land.
Land redistribution laws and debt relief were proposed by a number
of Tribunes, all were assassinated by the Senatorial Optima party to
preserve the riches accumulated during and after the wars. Livius
Drusus in 91 B.C.E. proposed a new law to abolish all debts,
redistribute lands and spread the vote to all Italians. He too was
assassinated and this murder led to increasing unrest and eventually to
the great Social War two years later. At the end of this terrible war,
laws passed during the consulship of Marius abolished three quarters of
all debts and gave the vote to most Italians. These concessions and
promises of reform led to the war's end but soon afterward the kinds of
swindles that led to the problem returned.
We should see that debt destabilizes social relations and undermines
economic planning and creates uncertainty. Credit can be an effective
means of promoting development of products and normal needs of capital
improvements and distribution, but our current situation is built not
of this kind of debt but of debt constructed from unrealistic
projections of earnings and through financing unsustainable lifestyles.
As Ferrero shows, rising inequality produces the conditions for
unsustainable debt where a nation's wealth is mismanaged to the benefit
of a few at the detriment of the future of the commonwealth. While we
may not imagine a horrific consequence as the Roman Social War, we are
certainly aware of a rising feeling of unrest that shows we have
approached a meridian of instability that cannot be contained.
Debt is difficult to erase, but it
can be done. We have seen, as the FT reports on page one of its
December 31, 2011 issue, a loss of 6.3 trillion dollars wiped off
markets in 2011. The economic system did not collapse as a result. If
the same amount was to be erased from world debt in the form of an
Argentine-like debt restructuring of the 1990s, we could exit our immediate
problem. This could be done by the IMF issuing new bonds that would be
paid for by an international transaction tax on all financial
transfers. EU debt, from Greek debt to Portugal would be simply repackaged. We should keep in mind that Britain's WWI debt is yet to be paid off, it was repackaged with no maturity debt in the 1930s. Britain did not go broke as a result. It is unlikely that the "shadow banking" system (see FT
article by Tracy Alloway, 29 December 2011) could avoid such a tax if
pursued by the technology allowed under America's Patriot Act and
instituting such control would greatly stabilize the world economic
system.
A new banking holiday and credit action as FDR accomplished is unlikely to day due to current attitudes concerning bankers and banking, even though it is the only way to eliminate the “too big to fail” banks and the threat they pose to national economies. We fear bankers because of their magical power over the economy and their ability to transfer wealth over distances including time, geography and from one form into another. They are modern alchemists, shaman and priests wrapped in the guise of salesmen and math wizards. They view the future in movements of capital in housing and the stock market and they can project a loan of a small sum into grand profits by the spiritual transformation of amortization. They are truly the anointed ones and within the temples of finance, that serve as the most prominent buildings of modern society, they store the prestige of power that can transform a community from poverty to prosperity. The challenge of finance in the 21st century will be the transformation of banking into a more transparent and rational system. If that can be done, will we lose the “magic?” See my article on the Social Science Research Network, " The Theory of Banking: Why Banks Exist and Why We Fear Them" which can be downloaded free at: http://papers.ssrn.com/....