Five Ways To Get Out Of Debt: Lessons From The Ancient World

The world has a debt problem.

Let’s put this in perspective. Our little blue planet has a Gross Domestic Product of about seventy trillion dollars. That’s a seven with thirteen noughts after it.

The world’s debt meanwhile is at least three times that, an estimated $223 trillion.

‘At least’ being a very guarded phrase as estimates of the total exposure of derivatives, those infamous financial ‘weapons of mass destruction', runs to two or three times that level.

The bank JP Morgan alone has derivative liabilities of $90 trillion, or more than the world's GNP. Given that they effectively hold the world to ransom you may or may not be relived to know that they have one Anthony Charles Lynton Blair working for them and that they were recently fined nearly a billion dollars for illegal trading.

It seems we bailed out the banks, but totally failed to reform the system.

We have however been here before. Debt has been with us one way or another for 5000 years or more, and in that time different ways have been found to deal with it.

So here we are, the ancient world's solution to the debt crisis.

1) More debt

The hair of the dog approach, which has never worked for my hangovers. This tactic probably goes back a long way, probably to the day when Paul was repaid at the expense of Peter.

It was the ancient Sumerians who wrote the book on debt.

Hammurabi is a name I actually remember from school history. Under his reign the first recorded laws were inscribed in stone. They covered all aspects of life from getting married to buying a house to having children to committing adultery and finally getting divorced.

There were also rules for dealing with cowboy builders (by killing them), and an awful lot about debt.

One Babylonian solution to debt is to sell someone else into slavery to pay it off. If you want to know how that feels, ask a modern Greek.

Debt though kept the wheels or the Babylonian economy turning, and turn pretty rapidly they did too.

However it couldn't last forever, and it didn't.

2) Growth

Like sex when you're sixteen, growth today is that mysterious something that everyone talks about but nobody seems to know how to get.

For the Neoliberals it will come back once we cut taxes and public spending. For the Keynesians it will return if we increase debt and don't cut public spending. Standing the sidelines, shaking their heads and muttering about Peak Oil, are the environmentalists.

Not that there were too many of them 5000 years ago when credit fuelled growth made the Fertile Crescent the economic powerhouse of the Known World. But it didn't last. The clue to what went wrong is in the name. Seen any pictures of Iraq recently? Doesn't look very fertile, does it?

The Tigris and Euphrates delta may have been the birthplace of Western Civilisation, and for a while home to a very advanced system of agriculture, but it was also a very fragile eco-system.

Deforestation led to soil erosion and irrigation led to salinisation. Eventually the land that had fed the armies of Hammurabi and Darius the Great was mostly barren salt flats. Their economy weakened and in 330BC the Barbarians overran the frontiers in the form of Alexander the Great.

The problem is, whilst there is no practical limit to how much debt you can create, an economy is firmly based in the real world which has definite limits. As the economist, and peace activist, Kenneth Boulding said "anyone who believes you can have infinite exponential growth on a finite planet is either a madman or an economist". 

It is now more than 40 years since the book Limits to Growth started to map out the ecological limitations of our economy. Since then conventional oil has peaked and just about every other measure of economic activity has declined too. Those early computer models have been widely derided ever since, but the scenario of ecological overshoot and economic collapse in the second half of this century looks rather more convincing today.

3) Inflation

So if you can't grow your economy, why not just grow your money?

It seems rather obvious really. If you lower the interest rates people are more likely to spend than save, so if you could reduce the interest rate to effectively less than zero people would have no motivation at all to keep their money in the bank so they go out an spend it.

There are a few tiny, weeny problems. We sort of got away with this in the seventies as, with full employment and strong Trade Unions, wages more or less kept pace. Today it's more likely that prices would shoot up whilst your pay cheque stays grounded. Economist Max Keiser thinks this will be the next trick our leaders pull, but then he is barking mad.

Inflation first became an economic problem in the fourth century BC. Then, as now, we can blame the Greeks.

When Alexander the Great conquered the Persian Empire, he found truly staggering quantities of gold and silver stored under the mattress. To put some numbers on this, a rich Greek city like Athens might take in about 400 talents of silver a year in tax, which is about 10 tons. In the vaults of Persepolis the Macedonians found over 3000 tons of the shiny stuff.

And then they started to spend it. The resulting price hikes effectively halved the value of the shekel in the pocket of the ordinary Babylonian. Add to that the market uncertainty caused by Alexander's death and you had a Classical Credit Crunch.

4) Wipe the slate clean

But it wasn't the first one.

Life in indebted Babylon could be hard if you were at the bottom of the social ladder. As no ancient civilisation could survive without peasants or infantry it was important to make sure debt didn't completely destroy the social fabric of the nation.

Every few decades, it seems, they hit the reset button and 'wiped the slate clean', a phrase that has passed into the world’s vernacular. Between 2400BCE and 1400BCE some thirty odd instances of debt cancellations have been found in Mesopotamia.

The idea seems to have been picked up by the Israelites, who had a sojourn in Babylon in the sixth century, and the Old Testament tells how the ancient Israelites held land in common and had a Jubilee Year every half century in which debts were cancelled and slaves freed.

Today, only Iceland has tried such a tactic, and so far things are looking good for the Vikings – if not for their banks. What would happen if one of Europe’s debtor nations tried this could be interesting. Probably bad news for the banks, and anyone with savings, but potentially good news for the real economy. 

5) Do nothing

So what happened to Babylon after 1400BC when they stopped cancelling the debts?

Inequality increased, more and more peasants were sold into debt slavery, economic migrants fled and caused a nuisance as far afield as Egypt and Mesopotamia entered a period known as the "Dark Ages".

I wonder if we might be following suit?


Bibliography
Lost Traditions of Biblical Debt Cancellations by Michael Hudson 
Debt: The First 5000 Years by David Graeber