Dear Cde Castro, I am very glad that you have noticed this article of Michael Hudson's.
I did post it to the Communist University and YCL forums on 3 December 2011. It did not draw any comments from anyone at that time. I put it up on that day together with another, even sharper article from the same edition of Counterpunch, by Mike Whitney. I think you are one of the few people in South Africa, Cde Castro, who has a sense of urgency together with a realisation that these matters are not confined to Europe but will affect us here, and therefore we that must engage with these questions. I wish there could be an exchange of messages around this question, so that we could get a sense of the level of consciousness, and of where we agree and disagree about these matters. Counterpunch is a good source, currently. Best, VC On 23 December 2011 08:43, Castro Ngobese <[email protected]> wrote: > *This copy is for your personal, non-commercial use only.* > > WEEKEND EDITION DECEMBER 2-4, 2011 > Hammurabi Knew Better > Debt Slavery – Why It Destroyed Rome, Why It Will Destroy Us Unless It’s > Stopped > by MICHAEL HUDSON > > Book V of Aristotle’s *Politics* describes the eternal transition of > oligarchies making themselves into hereditary aristocracies – which end up > being overthrown by tyrants or develop internal rivalries as some families > decide to “take the multitude into their camp” and usher in democracy, > within which an oligarchy emerges once again, followed by aristocracy, > democracy, and so on throughout history. > > Debt has been the main dynamic driving these shifts – always with new > twists and turns. It polarizes wealth to create a creditor class, whose > oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win > popular support by cancelling the debts and redistributing property or > taking its usufruct for the state. > > Since the Renaissance, however, bankers have shifted their political > support to democracies. This did not reflect egalitarian or liberal > political convictions as such, but rather a desire for better security for > their loans. 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. > > By giving taxpayers this voice in government, the Dutch and British > democracies provided creditors with much safer claims for payment than did > kings and princes whose debts died with them. But the recent debt protests > from Iceland to Greece and Spain suggest that creditors are shifting their > support away from democracies. They are demanding fiscal austerity and even > privatization sell-offs. > > This is turning international finance into a new mode of warfare. Its > objective is the same as military conquest in times past: to appropriate > land and mineral resources, also communal infrastructure and extract > tribute. In response, democracies are demanding referendums over whether to > pay creditors by selling off the public domain and raising taxes to impose > unemployment, falling wages and economic depression. The alternative is to > write down debts or even annul them, and to re-assert regulatory control > over the financial sector. > > *Near Eastern rulers proclaimed clean slates for debtors to preserve > economic balance* > > **Charging interest on advances of goods or money was not originally > intended to polarize economies. 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 houses. > > As the practice was privatized by royal collectors of user fees and rents, > “divine kingship” protected agrarian debtors. 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. > > The logic was clear enough. Ancient societies needed to field armies to > defend their land, and this required liberating indebted citizens from > bondage. Hammurabi’s laws protected charioteers and other fighters from > being reduced to debt bondage, and blocked creditors from taking the crops > of tenants on royal and other public lands and on communal land that owed > manpower and military service to the palace. > > In Egypt, the pharaoh Bakenranef (c. 720-715 BC, “Bocchoris” in Greek) > proclaimed a debt amnesty and abolished debt-servitude when faced with a > military threat from Ethiopia. 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 bodies of > citizens should belong to the state, to the end that it might avail itself > of the services which its citizens owed it, in times of both war and peace. > For he felt that it would be absurd for a soldier … to be haled to prison > by his creditor for an unpaid loan, and that the greed of private citizens > should in this way endanger the safety of all.” > > 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 “add house to house and join field to field till no space is > left and you live alone in the land.” > > 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 7thcentury > 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. > > But oligarchies re-emerged and called in Rome when Sparta’s kings Agis, > Cleomenes and their successor Nabis sought to cancel debts late in the > third century BC. They were killed and their supporters driven out. 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. > > When the Gracchi brothers and their followers tried to reform the credit > laws in 133 BC, the dominant Senatorial class acted with violence, killing > them and inaugurating a century of Social War, resolved by the ascension of > Augustus as emperor in 29 BC. > > *Rome’s creditor oligarchy wins the Social War, enslaves the population > and brings on a Dark Age* > > **Matters were more bloody abroad. 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. > > Among Rome’s leading historians, Livy, Plutarch and Diodorus blamed the > fall of the Republic on creditor intransigence in waging the century-long > Social War marked by political murder from 133 to 29 BC. Populist leaders > sought to gain a following by advocating debt cancellations (*e.g*., the > Catiline conspiracy in 63-62 BC). They were killed. 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. > > *Creditors find a legalistic reason to support parliamentary democracy* > > **When banking recovered after the Crusades looted Byzantium and infused > silver and gold to review Western European commerce, Christian opposition > to charging interest was overcome by the combination of prestigious lenders > (the Knights Templars and Hospitallers providing credit during the > Crusades) and their major clients – kings, at first to pay the Church and > increasingly to wage war. 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. > > Matters changed with the Dutch democracy, seeking to win and secure its > liberty from Habsburg Spain. 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 “was accordingly their most powerful > weapon in the struggle for their freedom,” Richard Ehrenberg wrote in his > *Capital and Finance in the Age of the Renaissance* (1928): “Anyone who > gave credit to a prince knew that the repayment of the debt depended only > on his debtor’s capacity and will to pay. The case was very different for > the cities, which had power as overlords, but were also corporations, > associations of individuals held in common bond. According to the generally > accepted law each individual burgher was liable for the debts of the city > both with his person and his property.” > > 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 war making, credit and parliamentary democracy which has > lasted to this day. > > At this time “the legal position of the King *qua *borrower was obscure, > and it was still doubtful whether his creditors had any remedy against him > in case of default.” (Charles Wilson, *England’s Apprenticeship: 1603-1763 > *: 1965.) 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 “without credit, and > consequently without much debt,” 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. > > *Finance accommodates itself to democracy, but then pushes for oligarchy* > > **While the nineteenth century’s democratic reforms reduced the power of > landed aristocracies to control parliaments, bankers moved flexibly to > achieve a symbiotic relationship with nearly every form of government. 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: > “I intend to make all the national industries of China into a Great Trust > owned by the Chinese people, and financed with international capital for > mutual benefit.” > > 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. > > A similar creditor-oriented austerity is now being imposed on Europe by > the European Central Bank (ECB) and EU bureaucracy. 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. > > *Shifting planning away from elected public representatives to bankers* > > **Every economy is planned. 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. > > This is why relinquishing policy control to a creditor class rarely has > gone together with economic growth and rising living standards. The > tendency for debts to grow faster than the population’s ability to pay has > been a basic constant throughout all recorded history. Debts mount up > exponentially, absorbing the surplus and reducing much of the population to > the equivalent of debt peonage. To restore economic balance, antiquity’s > cry for debt cancellation sought what the Bronze Age Near East achieved by > royal fiat: to cancel the overgrowth of debts. > > 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. > > *Finance vs. government; oligarchy vs. democracy* > > **Democracy involves subordinating financial dynamics to serve economic > balance and growth – and taxing rentier income or keeping basic monopolies > in the public domain. Untaxing or privatizing property income “frees” it to > be pledged to the banks, to be capitalized into larger loans. Financed by > debt leveraging, asset-price inflation increases *rentier* wealth while > indebting the economy at large. The economy shrinks, falling into negative > equity. > > The financial sector has gained sufficient influence to use such > emergencies as an opportunity to convince governments that that the economy > will collapse they it do not “save the banks.” 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 resulting conflict is pitting financial interests against national > self-determination. The idea of an independent central bank being “the > hallmark of democracy” is a euphemism for relinquishing the most important > policy decision – the ability to create money and credit – to the financial > sector. Rather than leaving the policy choice to popular referendums, the > rescue of banks organized by the EU and ECB now represents the largest > category of rising national debt. 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 trillion of > Federal Reserve “cash-for-trash” swaps). > > This is being dictated by financial proxies euphemized as technocrats. > Designated by creditor lobbyists, their role is to calculate just how much > unemployment and depression is needed to squeeze out a surplus to pay > creditors for debts now on the books. What makes this calculation > self-defeating is the fact that economic shrinkage – debt deflation – makes > the debt burden even more unpayable. > > Neither banks nor public authorities (or mainstream academics, for that > matter) calculated the economy’s realistic ability to pay – that is, to pay > without shrinking the economy. 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 wealth. > > To put matters bluntly, the result has been junk economics. Its aim is to > disable public checks and balances, shifting planning power into the hands > of high finance on the claim that this is more efficient than public > regulation. 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 onto taxpayers. > > The failure to take the wishes of voters into consideration leaves the > resulting national debts on shaky ground politically and even legally. > 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. > > At the very least, they may seek to pay by re-introducing progressive > taxation of wealth and income, shifting the fiscal burden onto *rentier* > wealth > and property. Re-regulation of banking and providing a public option for > credit and banking services would renew the social democratic program that > seemed well underway a century ago. > > Iceland and Argentina are most recent examples, but one may look back to > the moratorium on Inter-Ally arms debts and German reparations in 1931.A > basic mathematical as well as political principle is at work: Debts that > can’t be paid, won’t be. > > *This article appears in the Frankfurter Algemeine Zeitung on December 5, > 2011.* > > *MICHAEL HUDSON is a former Wall Street economist. A Distinguished > Research Professor at University of Missouri, Kansas City (UMKC), he is the > author of many books, including Super Imperialism: The Economic Strategy > of American > Empire<http://www.amazon.com/exec/obidos/ASIN/0745319890/counterpunchmaga> > (new > ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A > History of Theories of Polarization v. Convergence in the World > Economy<http://www.amazon.com/exec/obidos/ASIN/3980846695/counterpunchmaga>. > He can be reached via his website, <[email protected]> > [email protected]* > > > > > > > > > > Castro's iPad > > -- > You are subscribed. This footer can help you. > Please POST your comments to [email protected] or reply to > this message. > You can visit the group WEB SITE at > http://groups.google.com/group/yclsa-eom-forum for different delivery > options, pages, files and membership. > To UNSUBSCRIBE, please email [email protected]. > You don't have to put anything in the "Subject:" field. You don't have to > put anything in the message part. 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