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Karl: Welcome to the Renegade Economists with your host, Karl Fitzgerald. This week we’re stepping back in time, way back some 10,000 years BC into the world of archaeology, Egyptology and Assyriology. Yes, it’s time for another special with Professor Michael Hudson. That’s right, Michael Hudson back on the show, he’s got a new book called Labor in the Ancient World and I asked him to give us a bit of a précis on the background to his very interesting process. Hang on for another riveting conversation here on 3CR’s Renegade Economists.

Michael Hudson: It’s a symposium of a group put together at Harvard University of the leading Assyriologists and Egyptologists and Mycenaean Greek specialists as well as archaeologists on how early societies mobilised the labour force, especially for large public building projects such as temples, city walls and other infrastructure.

Karl: And this is published through whom?

Michael: It’ll be published by ISLET, the Institute for the Study of Long-term Economic Trends. We just finished the type setting actually today and we’re sending it to Amazon to be put on their list, it’ll probably be available in about two weeks.

Karl: “Labor in the Ancient World.”

Michael: Yes.

Karl: And does that have some sort of Harvard connection?

Michael: We founded this project over 20 years ago at the Peabody Museum, which is their archaeology and anthropology department. We wanted to do a series of books on how modern economies and practices began. Our first colloquium was in 1994 on Privatization in the Ancient Near East and Classical Antiquity; our second volume was on Urbanization and Landownership in the Ancient Near East, about how cities were created and how landownership and real estate patterns developed into a market for real estate. The third volume was on Economic Renewal in the Ancient Near East, about how debt cancellations restored the land to its citizen-cultivators to provide a means of self-support for the free citizenry.

These colloquia grew so popular that we added a fourth volume, Creating Economic Order: Record-Keeping, Standardization and the Development of Accounting in the Ancient Near East, on the origins of money and account keeping from Mesopotamia to Mycenaean Greece and Egypt. And then ten years ago we had our fifth colloquium on Labor in the Ancient World. There have been so many revolutions in archaeology and Assyriology and even Egyptology in the last ten years that we’re only publishing this volume now, to be completely up-to-date.

Karl: So the Ancient Near East, how many thousand years ago was it? Just put us in the picture.

Michael: We begin the volume in 10,000 BC in Göbekli Tepe in Turkey where you have very large city-like ceremonial sites, larger than Stonehenge, huge sites that took hundreds of years to build with huge stone megaliths, even in the pre-pottery Neolithic. They didn’t yet have metal to carve these stones. They didn’t even have pottery. But they had in Göbekli all sorts of huge carvings in a seasonal site where people would come together on ceremonial occasions, like midsummer. We researched from Turkey in 10,000 BC to Sumer in the third millennium BC, Babylonia in the second millennium BC, the building of the pyramids, and we have the actual bills and accounting statements for what’s paid to labour to build the pyramids.

We found they were not built by slaves. They were built by well-paid skilled labour. The problem in these early periods was how to get labour to work at hard tasks, if not willingly? For 10,000 years there was a labour shortage. If people didn’t want to work hard, they could just move somewhere else. The labour that built temples and big ceremonial sites had to be at least quasi-voluntary even in the Bronze Age c. 2000 BC. Otherwise, people wouldn’t have gone there.

Karl: Michael, how did you actually track this? What were you reading to get this information?

Michael: Everybody who comes to the colloquium is a specialist in their period. For instance, Carl Lamberg-Karlovsky is the archaeologist dealing with Göbekli Tepe in Turkey. My co-editor for this volume, Piotr Steinkeller, is Babylonian specialist in cuneiform. We have two Egyptian specialists in hieroglyphics, and two Mycenaean Greek specialists for Linear B. Each scholar throughout all of these five volumes was a specialist in each time period and each geographical area on which we’re concentrating.

Karl: Were you reading clay tablets, cuneiform?

Michael: They read the clay tablets if they’re from Mesopotamia. They read the notations and carvings in the Egyptian pyramids on the inside of the big rock blocks that made the pyramids. Teams would carve or write the home town they came from. We also have royal inscriptions.

We found that one reason why people were willing to do building work with hard manual labour was the beer parties. There were huge expenditures on beer. If you’re going to have a lot of people come voluntarily to do something like city building or constructing their own kind of national identity of a palace and walls you’ve got to have plenty of beer. You also need plenty of meat, many animals being sacrificed. Archaeologists have found their bones and reconstructed the diets with fair accuracy.

What they found is that the people doing the manual labour on the pyramids, the Mesopotamian temples and city walls and other sites were given a good high protein diet. There were plenty of festivals. The way of integrating these people was by public feasts. This was like creating a peer group to participate in a ceremonial creation of national identity.

Karl: Back in those times, how would they have realised when this festival was on, how was communication spread that this was the time to come together?

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Michael: We discussed this in the second volume of our series, Urbanization & Land Use in the Ancient Near East. They did it by the solar and lunar calendar, by counting the moons leading up to solar solstices or equinoxes. The great ceremonial sites from Stonehenge to Turkey were based on the particular equinox or solstice. Chieftains usually would be the calendar keepers. Going all the way back to the Ice Age around 29,000 BC Alex Marshack, one of our members, published The Roots of Civilization reporting on the carved bones he found with notations for the phases of the moon. The job of the chieftain was to keep the lunar calendar, trace the waxing and waning of the moon to calculate how long the month would be, and to decide that, “Ah, in this month, six months after the equinox, here’s where we have to get together and have everybody come to the gathering and begin working on the big site”.

The pyramids and other ancient monuments were built by free labor, not by slaves

Karl: I’m still trying to grasp this Michael. Would all these labourers come together in a centralised place to build this giant statue or pyramid based on some sort of goodwill?

Michael: Well, to begin with, you would have a beer party to get everybody friendly. You would have big feasts, and also these were the major occasions for socialization. All over the world, communal feasts were the primordial way to integrate societies.

Obviously somebody was in charge of designing these monuments. We don’t know whom, but they would supervise the cutting and carving of the stones. These had to bebrought over large distances, just like in Stonehenge. The groups would quarry them and cut them. Maybe the cutters and designers were the same people. And in Göbekli we’re dealing in a time before they’d invented steel or metal. Many of the stones had to be cut and designs carved just by chipping away with other stones. It obviously was a very laborious type of work.

Corvee labor was supplied on the basis of landholdings

Later, by about 2,000 BC, populations were growing more dense. There also was a shift from the temples, which originally organised most of these mega-projects, to the palaces that developed out of them around 2750 BC. Their scribes developed accounting practices to schematise and organise this labour coming together. To coordinate this in an equitable, almost schematic way, land tenure was allocated on the principle that whoever had such-and-such a plot size had to supply a give number of labourers to work on the public infrastructure. So what we found as a by-product of the labour volume is that the origins of land rights were defined by the tax payments – the corvée labor obligation.

To get the right to a given land of a given size, you had to promise on such-and-such dates to provide this much labour for the corvée project. It’s a French word, because a corvée tax in the form of labour instead of money payments lasted all the way down through the 18th Century in France. It was typical in mediaeval Europe before you had a money economy. Everybody who had their own subsistence land or their own land holdings of one form or another, or their grazing lands, would have to supply X number of labourers to the big building project.

Karl: That’s quite some discovery. So you’re saying that labour was provided as an in-kind payment for taxation based around calendars to build these giant monuments?

Michael: Yes. Each of our archaeologists, Assyriologists and Egyptologists has found this for every period of the Bronze Age and the Neolithic.

Karl: And so we’re still rather on a voluntary level, there was no quantifying –

Michael: There weren’t that many people in the world in 10,000 BC, 3000 BC or even 2000 BC. If a government got too oppressive, or when they would raise the contributions or taxes too high, people would just flee to another area. Or if they were too much indebted the debtors would flee, as they did from Babylonia around 1600 BC. We are talking about free labor, not slave labor.

Karl: So they built a social contract around these feasts, around this sense of belonging by being at this public works event. It sounds like a fascinating way to keep society on track and organise labour so that civilisation would develop on some level. Have you found any indication on that managerial class and how they developed through the chieftains?

Michael: First the priesthoods, then the accountants and scribes. The calendar keepers were usually the chiefs (there may have been “sky chiefs” and “war chiefs” separately, or perhaps their roles were combined as dynastic rulers developed). Most of the religions were cosmological. They wanted to create an integrated cosmology of nature and society (“On earth, as it is in heaven”). Administration was based on the astronomical rhythms of the calendar, lunar and solar cycles. For instance, you typically find a society divided into 12 tribes, as you had in Israel and also in Greece with its amphictyonies. In a division of 12 tribes, each could take turns administering the ceremonial centre for one month out of the year.

The physical design of cities also was based on the calendar. Big cities would have 12 gates. Most cities had maybe four gates, representing the four seasons or the four quarters of the Earth. The outline of the land and the Earth was based on a calendrical cosmology, much like a mandala.

Ceremonial sites such as Stonehenge also were calendars in miniature, designed so that the light would fall on the stones in a particular way on a solstice or equinox. We have this going back into the Ice Age around 30,000 BC. Alex Marshak’s article in our volume on urbanisation found that these sites already in the Ice Agewere usually sited on waterways, so that everybody could get to them. They often were sited with mountains in the background and in between them the sun would shine in a particular way on the equinox or on the solstice in a particular alignment that occurred just at that calendrical time. They were recreating the cosmos on Earth.

Karl: You’re on 3CR’s Renegade Economists, this week with distinguished Research Professor Michael Hudson from Michael-Hudson.com and we’re discussed his new colloquium book “Labour in the Ancient World”. We’re tracking back some 10,000-odd years, hearing about how civilisation was developed. Michael, this is a fascinating discussion. I’m interested, of course, here on the Renegades, about this role of land tenure, and how that influenced citizens’ role in society. From what I’ve read out of your new book, it sounds like land holdings played a huge role in the status of a participant in one’s society.

Ancient citizenship, voting rights – and social obligations – were based on landholding

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Michael: In America down to the time of the Revolution in the 18th century, and in early Australia I assume also, in order to be a citizen and vote, you had to be a landowner. And all the way back in Rome and earlier times, Mesopotamia, Babylonia, Sumer, citizens had to have their own land. In Rome each citizen’s voting rights were defined by the land area he owned. I say “he” because only the males were citizens. It was a patriarchal society, with voting rights proportional to the size of one’s landholdings.

Much as today, debt was a major factor concentrating landholdings. Finance always has been the great lever to appropriate the land rent and interfere with widespread land ownership. If you owe money on a mortgage and you can’t pay, you can be evicted. That began to happen already around 2000 BC in Babylonia.

But the process was limited and reversed, because when creditors evicted land-tenured citizens, this caused a problem for rulers. The former landholder no longer was a citizen – and if he’s not a citizen, he can’t serve in the army.

One’s rank in the army down through Roman times was defined by how much land one had. If you had just a basic subsistence plot, you were in the infantry. If you had a lot of land, you were able to support yourself in leisure, have a horse and participate in the cavalry, practicing military training and buying your armour and weapons. You find much the same thing in Japan. All over the world, citizenship, landownership and one’s rank in the army were linked together.

Karl: Yes, the English military had the same arrangement. So you can see a point that if you own lots of land, you want to defend it, so these landowners need to be involved to defend their land. How times have changed.

Michael: They weren’t merely defending; they were also aggressive. There was continual warfare. Attacking and defending also had a financial dimension. In Greece a military manual in the 3rd century BC was written by a man who took the pseudonym of Tacticus – not Tacitus as in Rome, but Tacticus for tactics. He wrote that if a general planned to attack a city, he should promise to cancel the debts and free the slaves, in order to get the debtors to come over to his side. And if you’re defending a city, you also promise to cancel everyone’s debts and free the slaves. That’s how you get people on your side.

Coriolanus did that in Rome, and Zedekiah in Judah. But both rulers went back on their word as soon as the fighting was over. However, in Babylonia we have more or less regular debt cancellations whenever a new ruler would take the throne. This is in our third volume, Debt & Economic Renewal in the Ancient Near East. Babylonian rulers would proclaim andurarum and misharum, their words for a Clean Slate. David Graeber picked up this historical analysis in Debt: The First 4000 Years, discussing it from an anthropological point of view.

These proclamations did three things – the same three things you find in the biblical jubilee year (which used a cognate word, deror): These acts liberated the debt servants and let them return to their family of origin; they canceled all the personal debts that were owed (but not commercial business debts); and they returned the land rights or crop rights to debtors who had pledged them to their creditors. These royal proclamations restoredorder by making things the way they were in an idealised past. It was a situation where everybody was supposed to own their own self-support land to provide their means of subsistence free of debt. That was their idea of economic balance.

This is the opposite of debt serfdom reducing more and more people to debt peonage, obliged to pay their income to creditors. If they finally lose their job, they lose their home and their house and the banks get to keep it. That practice would have depopulated the ancient world. If that would have happened, debtors would have just got up and left, or they’d go over to the enemy when other armies would attack. You’d have defections. So reversing personal debts preserved widespread landownership and liberty from debt.

Karl: Right, so reiterating, the Clean Slate would build that social contract with the ruler and help continue the goodwill that led to this massive public development that was voluntarily provided tax in-kind, usually in labor. It sounds fascinating that people would just defect and move to another country underanother ruler if the debt stayed too high, even back in those times when weweren’t anywhere near as mobile as today.

Michael: We have all sorts of documents around the 14th and 13th centuries, especially about the hapiru, bands of debt fugitives and others, who some people translate as Hebrews. Rome was said to have been founded by exiles and runaways, mainly runaways from debt who created their own society there. Flight from debt goes way back.

Bronze Age “divine kingship” gives way to classical creditor oligarchies

Karl: Given the history of Clean Slates and the jubilee, how did agrarian debt develop? And how did the conflict of interest between creditors and rulers play out?

Michael: It played out differently everywhere. There was a constant tension from the Bronze Age through classical antiquity between rulers trying to maintain a society under their control, and local headmen trying to get power for themselves. The big question was who would run society and draw up its rules. Would it be the priesthood and military rulers at the top of the pyramid, or creditors and warlords grabbing peoples’ land and trying to create their own control? Strong rulers like Hammurabi were able to centralise rule. He proclaimed andurarum upon taking the throne, and numerous times thereafter, down to his 30th year of rule. When he was sick and dying, his son Samsuiluna also proclaimed misharum to restore order to start his own reign in balance. But then you’d have Intermediate Periods with afree-for-all in which local leaders gained autonomy. And they simply disobeyed royal Clean Slates.

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From 1200 BC to about 750 BC in the Mediterranean you have a Dark Age. Apparently you had not only very bad weather around 1200 BC – maybe a small Ice Age and drought – but the weather and crop failures led to mass migrations and invasions. The palaces of Mycenaean Greece were burned and syllabic writing disappeared for nearly 500 years. Then, when you have alphabetic writing emerging, the person whose title originally meant “local branch manager” of the palace workshop suddenly appears as the basileus, the ruler. But mostly you have landholding aristocracies holding the population in debt serfdom (like the Athenian hektimoroi, “sixth parters” liberated by Solon in 594 BC). It was much like the post-Soviet kleptocrats when Red Managers gave themselves control of their companies. When central power falls apart, local headmen take over. The dissolution of royal power led to privatization – including the privatization of credit, taking it and its rules out of royal hands. So Clean Slates stopped.

Much the same thing occurred in England. After the Norman invasion you had the Magna Carta when the autocratic King John tried to grab all the economic surplus for himself. The landowning barons wanted to break free. The Magna Carta limited what kings could tax without landlord agreement. The barons said, in effect, “The rent that we formerly paid to support the royal army, we henceforth will keep for ourselves. Also, we won’t pay the debts we owe to the Jews, so that we can keep our land.” The founding constitution or legal documents of almost every nation have to do with the relationship between finance, land tenure and its tax liability, and the relationship between centralised power and local power.

You could say that the progress of civilisation for the last thousand years, since feudal times, has been a dissolution of autocratic feudal power toward more democratised power. The problem is that land has been democratised on credit. So instead of owing money to landlords, homeowners now owe money to their bankers.

Creditor stratagems to evade the law and religious sanctions

Karl: That is the challenge of the ages isn’t it? Looking through these writings of yours, it becomes clear that this battle between credit and the sovereignty of this democratic process has been an ongoing challenge. In antiquity, did the vocabulary distinguish interest from usury?

Michael: No. It was only in the 13th century that Thomas Aquinas and the Schoolmen distinguished between interest and usury. Any taking of interest was considered usury in antiquity. That’s why some people tried to ban it, mainly for consumer interest. When the distinction was made, usury was supposed to refer to consumer loans, and interest was for bona fide commercial loans. These usually involved shipping to foreign buyers or transferring payments from one country to another, for instance when barons left to fight in the Crusades. The Latin word for such foreign exchange fees was agio, a premium.

Bankers managed to get around Christian sanctions against usury by saying, “Okay, it’s not interest, it’s a fee. It’s a foreign exchange fee.” They would pretend to make a foreign exchange transaction, and pay for the currency convertibility. Ifyou’re converting Australian pounds into dollars, you have to give a few percentage points to the banker. In medieval times, interest was concealed as a foreign exchange fee and as interest or, for real estate, as rent – much as in today’s Islamic finance. This was called “dry exchange,” because it occurred on dry land. No sea transport was involved.

Karl: So when we look over the history of this era and its battle between credit and the ruling elite, the challenge was to maintain land ownership within your community and keep your people there, making sure that they had some share in the benefits of working together. This sort of independence of people being able to live off their land seems to have become a battle between democratic principles and creditors.

Michael: That’s basically so. Early common law had blockages against the things that creditors could foreclose on – the widow’s ox, the blacksmith’s anvil and basic tools of one’s trade and self-support. If you were a creditor and wanted to get somebody else’s land, you needed a legal stratagem.

In Babylonia and neighbouring Indo-European speaking communities such as Hurrian-speaking Nuzi, customary land tenure rights were only transmissible within a family or clan. The aim was to enable kinship units to supply their basic needs. The creditor’s stratagem was to get himself adopted by the debtor as number one son, as his heir. When the debtor died, the number one son, the creditor, would inherit most of the land, as if he were part of the kinship-based community. A Babylonian proverb reflects this practice: “A creditor has many relatives.” These subterfuges that creditors used are much like the small print that bank lobbyists write into today’s bankruptcy laws to stack matters in their own favor. Creditors and Wall Street have always been subtle in finding end runs around laws, obeying the letter of the law but changing the spirit of the law.

The U.S. political outlook: the Democrats and Hillary Clinton’s 2016 run

Karl: Changing gears, let’s speed into the current American situation with Elizabeth Warren and the Democratic ticket. I saw this week that she’s come out fighting against banks and their threat to reduce donations to the Democratic Party if she doesn’t tone things down. Did your blood boil when you read that Michael?

Michael: Not at all. The Democratic Party in America is the party of Wall Street. A Republican administration could never get away with turning over power to Wall Street, because as long as they’re in power, the Democratic opposition will block them from doing it. Although the Republican Party is almost entirely funded by lobbyists, the Democratic Party is the one that has the power to unblock the giveaways to Wall Street. Most of this is done under former Clinton Treasury Secretary Robert Rubin who got rid of the Glass-Steagall Act, blocked regulation of bank derivative gambles, and inaugurated the wave of deregulation and outright criminalization of banking.

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The Glass-Steagall Act was repealed in 1999, when the Clinton Administration also blocked regulation for bank speculation in derivatives. It took only eight years for the most criminal organisations, Citibank and Bank of America (which bought the junk mortgage writer, Countrywide Finance) to bring down the economy. The head of Citibank was Rubin, after having freed it from regulation. What the press called the Rubino Gang wrote fake mortgages – they’re called “liar’s loans” or “Alt-A,” based on false declarations of income and false property valuations (the liars were the banks and the mortgage brokers) and sold them to gullible investors like German Landesbanks that were naïve enough to believe that Wall Street wouldn’t try to cheat them. The junk mortgage bubble was one of the biggest ripoffs in history.

You can read what my UMKC colleague Bill Black has written recently on Naked Capitalism and the University of Missouri Kansas City site, New Economic Perspectives on the Citibank criminogenic organisation. The Democrats under Obama have blocked any prosecution of financial criminals. Not a single bank crook has been thrown in jail after over $4 trillion had been stolen and bailed out by the Federal Reserve’s wave of Quantitative Easing. The crime wave of Wall Street and real estate in the last decade has endowed an entire rulingclass for the next century in America.

They’re as criminal as the Russian kleptocrats, because they’re in total control of the government. They’ve used their power to re-define the meaning of a “free market.” To them, a free market is one completely free of government regulations to control banking, and free of any criminal prosecution, because they have their factotums in the Justice Department. The head of the Justice Department is Eric Holder, whose job is to protect Wall Street. He resigned recently in favour of a successor, Loretta Lynch, who also is a non-prosecutor of Wall Street’s.

So essentially the real estate and mortgage system in America has been criminalised in the way that Bill Black has been describing in four wonderful articles that he’s published in the last week on Naked Capitalism. Hillary is fully on board with the Rubinomics gang.

Finance capitalism is dominating and stifling industrial capitalism with debt deflation

Karl:Excellent Michael, I’ll look forward to reading those. That’s the horror story of banking, but I like the fact that you’ve dug into the archives and found one of the bright spots for the finance industry, and that was the Saint-Simonian banking ethos. Can you remind our listeners what that was all about, and how we hope the finance sector might evolve?

Michael: In the 19th century the Industrial Revolution really taking off. The great financial question was how to create a banking system that would helpindustrialise countries to bring them into the modern era. Before the 19th century – ever since antiquity – you don’t find banks lending to build factories or other means of production. Loans were made against property pledged as collateral, or were made largely to export goods once they were produced. But banking before the 19th century did not actually fund tangible capital investment. James Watt wasn’t able to get the money for his steam engine from a bank, except by mortgaging his property and borrowing from friends.

Saint-Simon founded a school of reformers in France that realized that in order to industrialise the nation, catch up with England and overtake it, it had to move banking beyond its medieval stage. Instead of making lending to businesses in exchange for interest payments – which can force them into bankruptcy when sales turn down, bank loans should really be made on the basis of profit sharing.This is how commercial loans were made back in Babylonian times. Saint-Simon’s idea was to make banks more like mutual funds. Their fortunes would rise orfall with those of their business clients.

The main country that adopted this industrial banking principle was Germany as well as other central European countries. Their banks invested in their customers as stock owners as well as acting as creditors. They acted basically as the forward planning arm of industry, working with governments to promote export sales abroad.

Until World War I most futurists, from Karl Marx to regular businessmen, expected banks to take the lead in planning society. But after Germany lost World War I, the world reverted to Anglo-American banking. This was basically short-term hit and run. Banks still don’t make loans for industrial development. They do lend for raiders and mergers to take over companies, and also to ship exports. But they’re not set up to actually fund industrial capital formation. So society has fallen back in the last hundred years to the opposite of what classical economists and what 19th-century futurists expected banking to become.

Although we do have a centrally planned society, it is centrally planned by Wall Street, the City of London, Frankfurt and other financial centres. This planning is extractive, not productive. It seeks to extract interest payments, to profiteer from takeovers and gambles, and to make capital gains on stocks and real estate speculation. But it’s not designed to industrialise economies. That’s why most of the world outside of China is in a period of economic shrinkage and de-industrialisation.

Karl: So to wrap things up Michael, what can we learn from the Ancient Near East? Perhaps you can tell us how you got interested in this historical topic going way back through these cuneiform readings of clay tablets.

Michael: For me, the advantage of studying the ancient Near East is to see how different economies through history have dealt with the phenomenon of debts that are too large to be paid. Right now you’re having in the Eurozone with its arguments against Greece saying that if its government can’t pay its debts to the IMF, European Central Bank and the rest of the troika, it has to submit to austerity, even if its population is forced to emigrate. That is what much of the Greek population is doing. Shrinkage and emigration is what to pay for not being able to cancel debts – in this case public debts. The ancient Near East couldn’t afford the Eurozone’s pro-creditor stance, because it would have been depopulated and been conquered by neighbouring countries that didn’t submit to such austerity.

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The advantage of studying the ancient Near East is to see a contrast with today. I got into this originally when I was working with the United Nations Institute for Training & Research (UNITAR) in 1978 and ’79. We had a meeting in Mexico and I gave a lecture on what I’d found when I was Chase Manhattan banks’ balance-of-payments economist. The Third World couldn’t pay the foreign debts it had run up. This was a few years before Mexico declared it couldn’t pay in 1982. There was such a fuss and denials by the banks that countries couldn’t pay that I decided to write a history of how societies had dealt with situations where debts couldn’t be paid. I got all the way back to classical antiquity and the Jewishlands, and then found that there wasn’t any economic history of the early Near East. The economic and financial details were scattered through many journals.

In 1984, I went up to Harvard and a decade later we decided to put together a group to study the origins of economic organization, category by category, to trace how ancient economies developed the origins of modern economic civilisation. The five books you cited earlier were the result, as well as many articles you put in my website.

Karl: Well Michael Hudson, thank you very much for joining us here on the Renegade Economists’ radio show yet again, that must be about our fifteenth interview I reckon.

Michael: Good, thank you.

 
• Category: Economics, History • Tags: Banking, Debt 
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  1. joe webb says:

    A while back I wrote on the problem of surplus capital, of which the world now has plenty, thus, among other things , driving down the value of capital.

    I know a banker who guessed that there is 5 trillion dollars of capital sitting on the sidelines in the US, or elsewhere, but more or less “owned” by US firms.

    What obtains in Europe and elsewhere, I would like to know…surplus capital. Uncle Karl talked about surplus value, which had a little truth to it as today we know that productivity of workers has been soaring, but the worker share of same is close to zero. That is surplus labor in our time.

    Another striking feature today is high debt, both for governments and individuals/firms. Thus, a funny kind of image can be imagined, and probably plotted in a graphic way, with a big top of surplus capital, a middle body of more or less healthy economic relations, and a very large bottom of swollen debt.

    Everybody agrees that the key, in any modern economy , to robust health is consumer spending to drive everything else. The only thing that can provide this is money in the hands of consumers.

    That is lacking big time these days of stagnant wages, etc.

    Say, for the sake of discussion , that Europe has another 5 trillion dollars equivalent of surplus capital. Never mind the rest of the world.

    The child playing outside the box, might simply suggest that a large part of this surplus capital be , ahem…confiscated and returned to workers, say anyone making under $100 k a year, the only condition being that it must be spent within a given time period, and not spent on tulip bulbs or real estate speculation.

    Another large chunk of do-nothing or surplus capital would be confiscated for what the economists call infrastructure (horrible word).

    None of this surplus capital confiscated could be spent on welfare programs.

    The remainder of the surplus capital could be left to capitalists to invest in business which would have been stimulated by worker/consumer spending.

    A bonus, assuming that the thing works in the first place, would be to then pay down some of the national debt.

    A huge bonus would include the beginning of another way to do economics: that attention must be given to our own country first. Call it a nationalist economics, and then make most favored nations thinking with regard to trade be basically a White Nationalist thinking that put Europe and Canada and Australia in our own New Atlanticism.

    Now the shrieks and howls can commence.

    Joe Webb

  2. Smells of ‘onion’ (or anthropology, they’re about equal.) I’m not certain how you square 12 tribes with a 13 month lunar year (Keynesian economics?) .. anyhow I’d been meaning to lampoon anthropology for quite some time, here’s the closest I’ve come to now:

    http://ronaldthomaswest.com/2015/04/01/merge/

    ^ Harbinger of essays to come (keep your head down Michael Hudson!)

    • Replies: @Threecranes
  3. Art says:

    The Magna Carta limited what kings could tax without landlord agreement. The barons said, in effect, “The rent that we formerly paid to support the royal army, we henceforth will keep for ourselves. Also, we won’t pay the debts we owe to the Jews, so that we can keep our land.

    Some things never change!

  4. Kiza says:

    These may be only my conclusions, but I get an impression that the modern history has been teaching us a warped view of the past. Based on Michael Hudson, people had more freedom in the past then they have now. Pyramids have been built by almost voluntary labor??? Amazing!!! They were coming to work on pyramids to socialize and for good food and rivers of beer??? Then later in history, if people did not like repression of their feudal lord, they would just pick up and leave for another, better feudal lord???

    Well, this excellent interview leaves an impression that the world is going for ever worse in terms of personal and economic freedom. Square the almost full freedom of the ancient ages with today’s bankster leeches on the financial system, the law-for-everything (everyone is a criminal) and ubiquitous surveillance of the world’s population by the NSA (data shared between US and Israel).

    • Replies: @Joe Hill
  5. anon • Disclaimer says:

    Say, for the sake of discussion , that Europe has another 5 trillion dollars equivalent of surplus capital.

    There’s no surplus capital. It’s fake collateral leveraged hundreds of times and used to gamble with.

    • Replies: @anon
  6. anon • Disclaimer says:
    @anon

    example: a mortgage on a hundred grand house gets valued as a million in collateral and then leveraged and re-hypothecated around the globe until the original hundred grand is nominally worth a hundred million and then used to gamble with.

    (as a 1% return on a bet with 100 million is a lot more than the same 1% return on 100 grand)

    (obviously a 1% loss would be bigger too which is what “too big to fail” is for – the loss risk is transferred to the public)

    • Replies: @Anonymous
  7. Anonymous • Disclaimer says:

    The child playing outside the box, might simply suggest that a large part of this surplus capital be , ahem…confiscated and returned to workers, say anyone making under $100 k a year, the only condition being that it must be spent within a given time period, and not spent on tulip bulbs or real estate speculation.

    You wouldn’t need to confiscate the money. You could just print money and hand it out to workers making less than $100k to spend. It would be effectively the same thing. This is probably not a very good economic policy though.

  8. Anonymous • Disclaimer says:
    @anon

    Why does the $100k mortgage become valued at $100m in your example?

    • Replies: @anon
  9. anon • Disclaimer says:
    @Anonymous

    Fraudulent valuation to 1 mill as the first step, leveraged to 10 mill as the second step, re-hypothecated through London to 100 mill as the third step.

    (The critical point is it’s used for gambling rather than investment so as long as the tax payer guarantee is there as a safety net then it pays to crank up the leverage as high as humanly possible.)

  10. @Ronald Thomas West

    365 days per year / 29.5 days per lunar month = 12.37. So where do you come up with the number 13? The odd fraction was given over to special celebrations.

    But you miss the larger point. A compass and a straight edge can divide a circle 3, 6, 12, 24 times precisely with no calculation or measurement. Did you not ever wonder why there are 24 or 12 hours in a day? Where that came from? The ancients were able to achieve precise division of the circle with these simple instruments, so 12 months in the year dovetails nicely with their abilities in geometry.

    Meanwhile the Greeks were busy scratching their heads over the apparent incommensurability of the relation of a diameter to the circumference of a circle, a problem which is completely bypassed by using a compass to (perfectly) trisect a circle.

    12 is a special number because it is divisible by both 3 and 4. 4 representing the quartering of the Universe (north, south, east and west,) and Time (Spring, Summer, Autumn, Winter–due to the Solstices and Equinoxes which are a tangible geometric relation and are as far as smelling of “onion” as possible) and 3 having the property I just described. So 12 represents the unity of both the circle and square, female and male principle acting in the universe.

    Great post, Michael.

    • Replies: @Ronald Thomas West
  11. Dutch Boy says:

    “Finance capitalism is dominating and stifling industrial capitalism with debt deflation.”
    Our problem in a nutshell. It will continue to be our problem until our government shuts down the Fed, drives the money changers from the temple and makes credit and money creation interest-free.

    • Replies: @Anonymous
  12. joe webb says:

    “The main country that adopted this industrial banking principle was Germany as well as other central European countries. Their banks invested in their customers as stock owners as well as acting as creditors. They acted basically as the forward planning arm of industry, working with governments to promote export sales abroad.

    Until World War I most futurists, from Karl Marx to regular businessmen, expected banks to take the lead in planning society. But after Germany lost World War I, the world reverted to Anglo-American banking. This was basically short-term hit and run. Banks still don’t make loans for industrial development.”

    Question: isn’t investment banking at least close to this earlier European model? What it appears to me however, is a short-term view only: get in and get out probably after manipulation of the stock price.

    What also is of note is that this 19th century European banking style, was less a “principle” or abstract idea, but practical and organic relationship between economic actors without mass communications, etc. The small town, or at least small city wherein these actors knew one-another and had mutually reinforcing social ties and presumably good information about firms and banks….this was a kind of national (not international) economic context.

    Guessing that likewise the political and cultural context was that of National thinking, not International thinking, or conservative and not liberal thinking, the European model was close to what we could consider a Nationalist Economics Program for today.

    While the former was natural and organic, today, we are required to think about it in abstract terms. That is ok of course, but more difficult inasmuch as most folks do not enjoy thinking, especially pragmatic Anglo-Americans.
    ————-
    This article is important and I am amused that more people have not commented on it. Too much thinking required I guess, with the eyes-glaze-over department entering when it comes to economics.

    I would like to see more discussion of Industrial Policy, Sovereign loan/investment funds like in China. The old wisdom of the Invisible Hand is very dated, given the international character of capitalism now. Finance capitalism clearly does not work well for our country, or any other country.

    The planners do not plan , they scheme. We need a Nationalist economics which links up with other White countries and abolishes liberal economics.

    Joe

  13. Anonymous • Disclaimer says:

    This article took me 20 mins and a whisky to read. It would take 2 days and a continuous barbecue, with lots of clever people and beer in abundance, to even scrape the surface. Beer and beef would lead to many diversions, but it would come to no conclusions.

    Any one up for a barbecue?

  14. Anonymous • Disclaimer says:
    @Dutch Boy

    If you read the Gospel of Luke, you’ll find an episode where Jesus went in to a synagogue (an anachronism), is given a book of Isaiah, Jesus opens it and says (or reads?):

    “I have come to proclaim the Acceptable Year of the Lord” – that year being the Jubilee.

    Jesus might have been running a debt cancellation revival campaign, seriously.

  15. @Threecranes

    365 days per year / 29.5 days per lunar month = 12.37. So where do you come up with the number 13? The odd fraction was given over to special celebrations

    The odd fraction depends on what culture you’re from, actually. Here the better explanation:

    http://blog.world-mysteries.com/science/ancient-timekeepers-part4-calendars/

    Both solar & lunar calendars have to be adjusted, I happen to prefer lunar on account of cultural background .. and you seem to have little sense of humor but since you seem to prefer calendars along the lines the Jewish calendar with the occasional thirteenth ‘solar’ month; perhaps you can appreciate this satire (or not, laughs)

    http://ronaldthomaswest.com/2013/08/22/demons-anonymous/

    The anthropological supposition presented is simplistic to a point of onion aroma but that comes as no surprise at all, here’s a take on western mentality:

    http://ronaldthomaswest.com/2015/04/01/merge/

    Or if you prefer a more serious critique of the so-called science (anthropologists are generally mistaken to a degree they’re incapable to grasp, and those most deceived by ethnocentric bias) have a look here:

    http://ronaldthomaswest.com/2014/02/16/apple-indians-anthropology/

    ^

  16. joe webb says:

    here is a piece from todays’ NYT and my response.

    Boring old economics.

    : NYTimes.com: Economists Actually Agree on This Point: The Wisdom of Free Trade (who do they work for?)

    Fw: NYTimes.com: Economists Actually Agree on This Point: The Wisdom of Free Trade

    Jewyorktimes cheerleads for International Capital as well as third world immigration. The balance sheet is written for Capital, certainly not Labor.

    Two factors are clobbering working class and middle class jobs, cheap labor from third and second worlders both here and abroad, and finance capitalism which is interested in profit, not productivity.

    So, the Jews and religious liberal fanatics get rich by destroying our country economically and socially/racially. (The religion is Racial Equality.)

    So, maybe Marx was at least half right, the dominant Ideology is determined by economics, or at least half of it. The other half is determined, in White countries anyway, by religious zealots of Liberalism/Equality–racial and otherwise- to accomplish a universally leveled Rainbow Humanity, the pot of gold at the end of the Rainbow being instead a pot of seething resentment of a Hobbesian war of all against all.

    As Hobbes put it, life is solitary, nasty, brutish and short. Well, that is where we are heading, but with gadgets and porn to entertain the Supreme Individual, solitary
    and the rest of it. However, Whites will succumb to this up to a point, but the races of color will not. They will and are organizing themselves to compete for the spoils of civil war when Whites, defeated, keep muttering things like “inalienable rights” and ” all men are created equal”, and “we hold these truths to be self-evident.”
    There is something to be said for these utterances, and that is this: only Whites can dream up stuff like this. No other race does so.

    It is genetically determined. Whites have this evolution based thing called Altruism, which while Good for Whites when we were alone, becomes pathological when living with other races, who “have race”, that is the desire to have children and multiply per Oswald Spengler (Decline of the West). Whites tend not to have children these days what with fertility in Europe at about 1.5 and here about 1.8. Making matters worse is that while the colored races have virtually no chance of getting their kids into Ha-vad cuz of their low intelligence generally, Whites do have a chance, or think they do despite Jewish takeover of same and jew race war against White admissions (see Ron Unz’s paper on this at The Unz Review…400% overrepresentation of Jews, and 600% underrepresentation of Whites at the Ivys), plus the middle-class angst about getting their kids into the Good College and lots of hectoring of their kids with consequent unpleasantness for them…Childhood Lost.

    Colored races don’t give a hoot about college, and just have children and get on with it. They got Race, and Whites don’t. Besides, the coloreds can shake Whites down for Free Money, and the rest of that too.

    So, Whites worry about everything, and if they have kids, hassle them with college nightmares. Where are we heading?

    One World of Liberal Universal Unhappiness.

    Then, here is proof of how things are in every way, every day, getting better and better. From The American Renaissance: the other side of the coin.

    Congress: Middle Class Incomes Drop as Immigration Surges

    Paul Bedard, Washington Examiner, April 23, 2015
    Wages of America’s middle class have dropped below 1970s levels as immigration has surged 325 percent, according to a new congressional report that questions claims that native Americans are economically helped by greater immigration.
    The nonpartisan Congressional Research Service report studied immigration and middle class income from 1945-2013 and found that as immigration slowed between 1945 and 1970, American incomes increased.
    But when immigration expanded, the incomes of the bottom 90 percent of Americans went flat and then dropped beginning in 2000.
    In the report to the Senate Judiciary Committee, the CRS reported that the foreign-born population of the United States surged 324.5 percent, from 9,740,000 to 41,348,066, from 1970 to 2013.
    And as that happened, incomes of the bottom 90 percent dropped 7.9 percent in 2013 dollars, from an average of $33,621 to $30,980.
    The report could throw cold water on congressional efforts to expand immigration for tech and other jobs. One bill, sponsored by Republican Sen. Orrin Hatch and backed by presidential candidate Sen. Marco Rubio would boost guest worker levels and remove any cap on green cards for certain foreign graduates of American colleges and universities.
    {snip}
    Original Article
    Joe Webb

  17. Joe Hill says:
    @Kiza

    Surprise! Nearly everything we’ve been told our entire lives is a lie.

    MLK told us the *moral* arc of the universe bends towards justice, but the *actual* arc of human society bends towards coercion and slavery.

    From the point of view of an anarchist, I am very much interested in how early societies apparently based on voluntary cooperation turned into cancerous hierarchies of coercion. I strongly suspect that religious ceremonies were hijacked by psychopathic priests.

    Today those priests would be known as “economists”. *

    * (not Dr Hudson. I’m thinking of the Chicago School and the MBAs manufactured at Wharton, etc)

  18. Luke Lea says: • Website

    @ Hudson – “The problem in these early periods was how to get labour to work at hard tasks, if not willingly? For 10,000 years there was a labour shortage. If people didn’t want to work hard, they could just move somewhere else.”

    I don’t believe that. The effect of agriculture was just the opposite. It tied people down to a place — you had to tend your crops — and when the harvest came in it was in a form that could be captured by superior force, taxed, or simply divvied out. In other words, the way was open to conquest and servitude (aka political states). The idea that a peasant could just pick up and leave the state in which he lived went out with hunting-and-gathering societies, when you really could do just that.

  19. “The main country that adopted this industrial banking principle was Germany as well as other central European countries. Their banks invested in their customers as stock owners as well as acting as creditors. They acted basically as the forward planning arm of industry, working with governments to promote export sales abroad.”

    “Until World War I most futurists, from Karl Marx to regular businessmen, expected banks to take the lead in planning society. But after Germany lost World War I, the world reverted to Anglo-American banking. This was basically short-term hit and run. Banks still don’t make loans for industrial development. They do lend for raiders and mergers to take over companies, and also to ship exports. But they’re not set up to actually fund industrial capital formation.”

    American entry into WWI was mindless vandalism.

  20. Ben Gunn says:

    Thank you for a wonderful and illuminating article! Part of the puzzle is missing, I suggest you read Steve Sailer on affirmative action lending and how it destroyed banking. Describing debt as money (Graeber) needs to recognize risk. Politicians generally ignore risk while business must deal with it. What about the welfare state, how does it figure in with banking? It seems to resemble a bank.

    • Replies: @MRW
  21. MRW says:
    @Ben Gunn

    You need to make a distinction between the issuer of a currency, and the users.

    The issuer creates currency. It is called “debt” because that’s how the issuer accounts for it in accounting language: the right side in double-entry accounting (liabilities). In the case of US currency, it’s the federal government, solely, that has the legal right to create the currency. THERE IS NO RISK ATTACHED TO THIS “DEBT.”

    The users of said currency–like ours–is everyone else, whether that’s business, households, state and local governments, US banks, foreign governments, banks, & investors. These groups do incur “debt” as we commonly understand it. Loans require collateral, a repayment schedule, and demand interest paid. THERE IS RISK ATTACHED TO THIS “DEBT.”

    The only risk to a federal politician spending the currency through congressional appropriation–the only way new money can enter the real economy–is that the spending can be uneven and heat up the economy which runs the risk of creating inflation.

    Social safety nets at the federal level do not cost anyone a thing. If they are paid for on the state or local level with state or local taxes, then, yes, they are paid for by the state and local taxpayers. But not at the federal level. The federal government issues the currency. (Taxes at the federal level are a thermostat. Lower or eliminate them when the economy is ice-cold. Raise them when the economy is running red-hot. It’s how we regulate the fiat currency economy; that and issuing treasury securities after the fact in the amount of congressional spending.)
    ———————–

    Steve Sailer’s 2008 on affirmative action lending is not only obsequious closet racism at its profound best, it is just plain factually wrong. You want to understand the mortgage mess? What really happened? Listen to this: http://harryshearer.com/le-shows/may-1/?tag=bill%20black It is also highly entertaining to listen to. I could direct you to a bunch of links to read, but this is a lot more fun, and you, frankly, will be shocked. As I was. And it all makes sense.

    • Replies: @animalogic
  22. @MRW

    Re MRW

    I believe your account of “debt” is incorrect. Money is debt because: “new” money enters the economy in two primary ways
    Firstly, money enters via loans made by banks etc, issued as debt to a borrower. This money is effectively created by the bank, and is not determined by any pre-existing deposits. This money “creation” is affirmed by no less an entity as the Bank of England ( sorry, no link).
    Secondly, governments inject money into the economy not only by spending tax receipts, but by borrowing in the form.of issuing bonds ( in the US case these bonds are never truly paid out: when a bond falls due the government simply sells new bonds to pay out the old ones).
    Thus, the entire system is mired in debt; debt which, mathematically speaking can never be paid back.
    Modern Monetary Theory is a response to this vicious, parasitical and ridiculous situation. Liquidate usery now !

    • Replies: @MRW
  23. MRW says:
    @animalogic

    I believe you are talking about this Bank of England article: http://www.bankofengland.co.uk/publications/documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

    Credit money enters via banks. Loans create deposits. But don’t forget that the depositor’s liability (loan) is someone else’s asset. All nets to zero at this level across the system.

    Interest-free (Base) money enters via Congressional appropriation, the only legal entity in the US government (or the world) allowed to create US dollars.
    —————————————–

    The Federal Government:
    (1) does NOT spend tax receipts.
    (2) does NOT borrow money by issuing bonds.

    What happens is this, in this order:

    1. Congress decides to spend on something the public needs. Let’s say $100 to fix roads.

    2. Congress appropriates and approves this spending. Essentially makes $100 up “out of thin air,” and approves the vendors who are going to get it.

    3. The US Treasury tells its banker, the Federal Reserve, to increase its General Account at the Fed by $100.

    4. The US Treasury tells its banker, the Federal Reserve, to pay the vendors that Congress authorized.

    5. The Federal Reserve distributes the $100 to the vendors’ bank accounts at the Fed for onward forwarding by the bank to their clients. (FEDWIRE)

    6. The money supply in the real economy is increased by $100.

    Break for some explanation
    ————————————
    However, now the US Treasury has -$100 in its General Account. An overdraft. By law (from the gold standard days), the US Treasury is not allowed to have an overdraft in its General Account. And. And. And. The money supply has been increased by $100, which can affect inflation because there is now $100 looking for goods and services to buy. (Technically, and I am giving you the simple version, the treasury securities are used to control the interest rate, but not important here.)

    So the US Treasury creates/issues/makes up “out of thin air” treasury securities in the same amount as what Congress appropriated in #1/#2, and offers them at auction to the public.
    ———————————–

    Back to regular programming.

    7. The US Treasury issues $100 in treasury securities to the public at auction. (t-bills mature between 0-1 year, t-notes mature between 2-10 years, and t-bonds mature between 10-30 years.)

    8. The Federal Reserve is not allowed to buy them.

    9. $100 in treasury securities are offered at auction. People all over the world want them, especially countries that have pegged their currency to the US dollar.

    10. The money supply has now been restored to balance.

    No children, no grandchildren involved.

    All this happens before banks are even involved.

    Why would people want treasury securities?
    The FDIC only insures commercial bank accounts up to $250,000. Anything more, and the depositor can lose it. That happened to so many people (retirees) in 2008 with bank failures.

    Pension funds, university trusts, businesses, retirees, foreign governments and banks, investors, rich people, your grandma, anyone with more than $250,000 in an account wants treasury securities to protect their money. And they pay interest! And they are tradable!

    If a construction firm wins a $10 billion federal government contract, it needs to protect the money above $250,000. It buys treasury securities, the safest financial instrument on planet earth because it’s guaranteed by the full faith and credit of the US government. As good as cash. Safer than putting your money in a commercial bank. Treasury securities sell out in nanoseconds at the auction. Everyone wants them.

    They are known as “The National Debt.” Or, “Debt Held by the Public.” The national wealth. Pay off the national debt, and no one will have a g.d. penny in their pockets.

    What about “the interest on the debt?”
    Once a year at the end of August, the US Treasury asks the Federal Reserve to tell it how much interest it will owe on all outstanding treasury securities for the year, how much money will the US Treasury have to pay bond holders during the year for interest. Remember, some of these bonds are 29 years old.

    The US Treasury then creates/issues/makes up “out of thin air” treasury securities in the amount of the interest due, and sells them at auction.

    In fact, the small amount of interest that the federal government pays the bondholder, or owner of treasury securities–whatever you want to call it–also increases the net financial assets, or wealth, of the private sector.

    No children, no grandchildren involved.

    Do you know what a contronym is?
    It’s a word with two different meanings.

    “Bolt” can mean to lock something up, or to burst out of area suddenly (like a horse).

    “Cleave” can mean to hold something close to your heart, or to chop something up.

    Well, “Debt” is a contronym. When the federal government issues “debt,” it is issuing real honest-to-god money per its constitutional duty.

    When the non-federal government sector issues credit money, that is real “debt” as you and I know it. Businesses, households, banks, foreign governments and banks, and foreign investors, incur real debt when they borrow US dollars from a bank. They have to provide collateral, pay interest, and keep to a repayment schedule.

    The two debts are not the same.

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