It being Easter Sunday, when Christians are supposed to celebrate Christ’s defeat of death (entropy) I thought it appropriate to share an awesome 1993 study by heterodox economist Michael Hudson I discovered two weeks ago: The Lost Tradition of Biblical Debt Cancellations (the link to the pdf file is near the bottom of the page, just above "books"). In my humble opinion, this document has the potential to undo centuries of damage done to Christianity and Judaism by oligarchs and usurers.
Especially in the context of the ongoing economic and financial crises, in which it is clear that we the people are being sacrificed to save a rotten and useless financial system – bailouts for Bear Stearns and Wall Street, but not foreclosed homeowners - Hudson’s study is very powerful. So first let me set the context.
First, I want you to think of how much debt the financial system can create. Then, think of how much wealth, in terms of physical goods, the real economy can create. As Eric Zencey explained in a post on European Tribune two weeks ago, The roots of the subprime crisis, there is a fundamental mismatch: Through the magic of compound interest, the financial system can create an unlimited amount of debt. The real economy cannot do the same for physical wealth.
This simple insight is one of the fundamentals of ecological economics. From Zencey:
When you understand the thermodynamic roots of economic life, and when you understand how our financial system flouts thermodynamic law, you can see that regular crises like these are a structural requirement of our system.
Current economic wisdom treats phenomena like inflation, bankruptcy, and the failure of bond issuers to meet their obligations as economic pathologies: wouldn't it be nice to see an end to these things? Maybe with good management we can cruise along without them.
But inflation, bankruptcy, and the failure of bond issuers to meet their obligations are all forms of debt repudiation, and our system has a built-in requirement for some form of debt repudiation, because it lets debt (which is a claim on future real wealth) grow faster than real wealth.
Debt grows through the charging of interest. In the neoclassical economic paradigm, charging interest is normal, but bankruptcy, bond failures, and inflation are not. Paradox, huh?
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Debt is a claim on future wealth--a claim on real wealth, actual things, not just "monetary wealth." Frederick Soddy was the first to distinguish between these; he was a Nobel Laureate in Chemistry who wrote a series of books in the 1920s arguing that economic theory ignored physical reality--the reality described by the laws of thermodynamics. As he put it:
"Debts are subject to the laws of mathematics rather than physics. Unlike wealth, which is subject to the laws of thermodynamics, debts do not rot away with old age and are not consumed in the process of living. On the contrary, they grow at so much per cent per annum, by the well known mathematical laws of simple and compound interest."
Daly, following Soddy, explains what happens when society pits a mere convention (our practice of letting interest compound infinitely) against the physical reality of finite planet ruled by the laws of thermodynamics. Debt, he says, can theoretically grow forever, but real physical wealth cannot, "because its physical dimension is subject to the destructive forces of entropy....Since wealth cannot continually grow as fast as debt, the one-to-one relation between the two will at some point in time be broken- i.e. there must be some repudiation or cancellation of debt. The positive feedback of compound interest must be offset by counter acting forces of debt repudiation, such as inflation, bankruptcy, or confiscatory taxation" -- all of which are seen as pathological phenomena in economic systems.
So: a system that lets debt grow faster than real wealth grows is a system that needs periodic bouts of debt repudiation: bankruptcy, inflation, failed bonds, or other financial events in which claims on real wealth are wiped out.
This would all seem to be basic common sense so far, but think of how someone on Wall Street or in the futures pits of Chicago would view this. They would be horrified, because you are basically telling them that there are limits to how much debt, how much financial paper, they can create. In other words, there are limits to how much money they can make creating and selling financial paper. They will argue with you that much of that financial paper is not really debt, some of it is equity, some of it is options, some of it is only agreements to swap types of payment flows or currencies. They are correct, in a narrow sense of strict definitions as used in the financial system but they are not correct when viewed in terms of the overall dynamic of the interlinks and relationships between the economy and the financial system. It is never in the self-interest of the financial system to ever admit that there are limits to the amount of debt it can float and trade, because, quite simply, the more debt that is floated and traded, the more "profit" the financial system can "make."
In fact, almost exactly a year ago, Woody Brock, president of Strategic Economic Decisions Inc., in Deconstructing Today's Ongoing Revolution In Finance argued that
there is a theoretically optimal value of contracts that ideally "should" exist: Incredibly, it is a number millions of times larger than today's value (see below). Finally, even if there is a freeze-up and/or meltdown in the future, extinguishing millions of contracts in the process, then the volume of contracts would once again soar thereafter. . . . at least in theory, there would be infinite derivative contracts.
Brock’s article typifies what is fundamentally wrong with this age of Wall Street finance: you have elegant and sophisticated models that are mathematically true when considered on their own terms but which fail miserably because they ignore the thermodynamic realties we mortals must exist in. Any blue collar bubba during the past thirty years could have, and did, tell you that the United States was committing economic suicide by shutting so much of its manufacturing base and relocating it overseas to take advantage of "cheap" labor. The trends were hideous, and were clear to anyone who cared to look.
Now the truth of what bubba was saying all along is becoming painfully clear. The great irony, of course, is that it is going to be bubba and his family that gets dealt most of the pain, while America’s elites, who disdain bubba and his earthly wisdom, scramble to survive by turning on the tap of government bailouts. And this is a monstrous failing of national morality, which brings us to Professor Hudson’s The Lost Tradition of Biblical Debt Cancellations
THE once-glowing core body of law within the Judeo-Christian Bible has become all but ignored - indeed, rejected - by the colder temper of our times. This core provided for periodic restoration of economic order by rituals of social renewal based on freedom from debt-servitude and from the loss of one's access to self-support on the land. So central to Israelite moral values was this tradition that it framed the composition of both the Old and New Testaments.
Radical as the idea of canceling debts and restoring the population's means of subsistence seems to modern eyes, it had been a conservative tradition in Bronze Age Mesopotamia for some two millennia. What was conserved was self-sufficiency for the rural family-heads who made up the infantry as well as the productive base of Near Eastern economies. Conversely, what was radically disturbing in archaic times was the idea of unrestrained wealth-seeking. It took thousands of years for the idea of progress to become inverted, to connote freedom for the wealthy to deprive the peasantry of their lands and personal liberty.
So far has the modern idea of market efficiency and progress gone that today, although the Bible remains our civilization's defining book, it is perceived largely as a composite of stories, myth and wisdom literature best epitomized perhaps in spirituals and hymns, not economic laws. The Ten Commandments and the Golden Rule have become so dissociated from the economic legislation of Exodus, Leviticus and Deuteronomy that whoever takes these laws in earnest is considered utopian and anachronistic if looking backward nostalgically, or radical if adopting there as a guide for current activism. Yet these laws formed the take-off point for Christ upon his return to Nazareth's synagogue, and for his denunciation of the money-changers who had taken over Jerusalem's temple. As late as medieval Spain the tradition of the Jubilee Year was kept alive by Maimonides and Ibn Adret. To dismiss these laws is thus to remove much of the Bible from the context of its times, above all from its Bronze Age Near Eastern matrix.
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Bronze Age rulers had pledged themselves to serve their local sun-gods by overseeing the rhythms of nature and society, periodically "proclaiming economic order and equity." But most such rulers were unseated by classical aristocracies which used religion and its priesthoods for increasingly narrow ends. To defend popular welfare against the incursions of these aristocracies, the authors of Judaism formulated the idea of a national covenant, placing moral order in the hands of their congregations at large. This populism was the counterpart to the civil law of Athenian democracy.
Jewish populism inverted the classical hierarchies of worldly power. Although the aristocratic Pharisee element within the temples asserted its own interests throughout the Hellenistic and Roman eras, Christ sought to restore the archaic ethic by overturning the banking tables in Jerusalem's temple and preaching anew the promise of Jeremiah to proclaim equity and liberty (deror) throughout the land. Indeed, it was specifically on this principle of restoring freedom to debt-slaves and unburdening the land that Christianity elaborated its ideas of redemption. In addition to redeeming souls, early Christians redeemed their co-religionists from worldly bondage. When Handel staged the first performance of his Messiah in Dublin in 1742, it was by no coincidence that the proceeds were used to free debtors from prison. For thousands of years, redeeming men and land from debt was the primary and most concrete form of redemption.
How the Axial Age took the Bronze Age proclamations of order out of the hands of kings
As creditor claims and private property spread outside of the public temples and palaces, the policy of regularly restoring economic freedom gave way to private accumulation of wealth at odds with overall social balance. Rather than being welcomed as ushering in an epoch of economic freedom, his privatization of hitherto communal land and public industry meant a loss of freedom for much of the population.
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. . . The first five books of the Old Testament were given their final form late in the fifth century, contemporary with the high tide of Greek democracy in Athens. In 444 BC, Nehemiah, a Jewish official at Persian-dominated Babylon who had risen to the position of cupbearer under Artaxerxes, was allowed to go to Jerusalem to rebuild it. He won popular support by canceling the debts and redistributing the lands that had been forfeited to local creditors. Making a second visit to Jerusalem, he solidified the groundwork for Ezra the scribe and his associated compilers, who reworked the Holiness Code of Leviticus into the idea of nothing less than a covenant with the Lord to promote economic justice in the land.
These Biblical redactors collated the stories of Moses recoiling against Egyptian inequity and leading the Exodus, of the conquest of Canaan behind Joshua, of the transition from judges to kings, and of the latters' backslidings which led the Lord finally to throw up his hands and let Israel and Judah be conquered by the Assyrians, Babylonians and Persians. The story of Israel's divine punishment served as a parable of how it would be rewarded for following a regime of economic justice but punished for permitting the wealthy to oppress the poor. The land was to be held in trust for the common weal, not relinquished to let the economically aggressive use it as a lever to achieve patronage over domestic clients and hence secular lordship over their countrymen (as occurred most notoriously in Rome). Unlike the case with the Bronze Age rulers who would be punished by their sun-gods for failing to promote social equity, the entire Israelite nation would suffer. Only in the modern era have these stories been decoupled from the laws concerning debt, land tenure and freedom from debt bondage that they originally were designed to wrap, and their social kernel thrown away.
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Christ's title of the Redeemer reflects the idea of saving debtors from debt-bondage. If it was their souls that he ultimately was redeeming from worldly shackles, financial power over debtors presented the ultimate test of a creditor's moral goodness. The moral is that charity toward debtors and other poor calls for forgiving their debts. Lending is put forth as the characteristic test for admission to heaven, for it is the most prevalent mode of exerting either coercive power or generosity with regard to one's fellow beings. Luke 6:35 cites Jesus’ admonition to "lend, without expecting to be repaid." Centuries of commentary on this passage by medieval Churchmen elaborated how this exhortation meant that a creditor should not demand to be repaid if the debtor cannot do so without injuring himself.
Jesus drove home the conflict he felt to exist between Jewish religious values and the selfish worldliness of creditors in his famous act of overturning the banking tables in Jerusalem's temple. The story is told in all four gospels (Luke 19, Matthew 21, Mark 11 and John 2). Upon entering Jerusalem, Jesus went directly to its temple, where he overturned the benches of the moneychangers and emptied out their moneybags on the floor. He also overturned the tables of merchants selling animals, and made a scourge of cords and "drove them all out of the temple, and the sheep, and the oxen" (John 2:15). Echoing the words of Jeremiah (7:11) some four centuries earlier, he announced that "My house will be a house of prayer, but you have made it `a den of thieves."' This is the only report in the Scriptures of his using violence, and it inspired the city's leaders to plot his death.
Jesus’ citation of Jeremiah was deliberately significant, for in this passage the prophet describes the Lord as threatening the Israelites not to make their land and its temples a den of thieves by oppressing aliens, orphans and widows, that is, the most seriously afflicted debtors. To prey on the weak, to monopolize the land and wealth is to seize what belongs to the Lord and his community. The relevant commandment accordingly is the Eighth: Thou shalt not steal. The great absentee landlords were stealing the land and freedom of the Israelites, and thus their destiny. Should the people fail to recall the Lord's spirit and rectify matters, they would suffer national perdition.
The Eighth Commandment in Canon Law, Lutheranism and Calvinism
Neither Hebrew, Greek nor Latin had separate words to distinguish between "interest" and "usury. " The distinction is a product of Canon Law seeking to carve out a form of financial gain (interesse that could be taken by Christians legitimately in the face of the Biblical strictures against neshek (Hebrew), tokos (Greek) and Faenus (Latin).
These long-lost principles of debt forgiveness, economic justice, and community will have increasing importance as today’s financial and economic crises drag more and more people down into impoverishment, misery, and desperation, leading to an increasingly militant assault on the reigning school of economic thought, the radical free market neo-liberalism of Milton Friedman, Margaret Thatcher, and Ronald Reagan.
I will end by quoting Hudson’s conclusion:
The Biblical idea of "freedom and justice" connoted a concrete debt cancellation and the return of the land to its cultivators for their own self-support. For the Biblical authors, alien appropriation of the land was to be ended. The Lord provided the earth for the welfare of all, not just for the wealthy to achieve patronage power over the poor and disinherited. Israel was threatened that foreigners would take possession of its land if it veered from the path of social righteousness. Isaiah (1.7) thundered against Sodom that "Your fields are being stripped by foreigners right before you," and that (1.23) "Your rulers are rebels, companions of thieves; they all love bribes and chase after gifts."
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The Old Testament prophets would announce that the time has come to restore equity (appropriately at the turn of the Millennium).
Jesus would find in the international and domestic debt burden a moral test. of national self-centeredness vs. openheartedness.
Medieval Canon Law would find that most of today's debts have no counterpart in creating mutual gains between borrower and lender, and thus constitute parasitic usury rather than economically valid loans deserving interest.
Classical economists would draw the same distinction between productive and unproductive loans.
Only in the most recent decades have minds shut to questioning the social, moral and economic consequences of debt. What once was the core of social renewal and religious ethics has now become the Unthinkable. That is the ultimate irony which may strike future social historians looking back on our era.