Debt Slavery – Why It Destroyed Rome, Why It Will Destroy Us Unless It’s Stopped

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 7^th 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.

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./

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