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Debt mounts up faster than the means to pay. Yet there is widespread
lack of awareness regarding what this debt dynamic implies. From Mesopotamia in
the third millennium BC to the modern world, the way in which society has dealt
with the buildup of debt has been the main force transforming political
relations. Financial textbook writers tell happy-face fables that depict loans
only as being productive and helping debtors, not as threatening social
stability. Government intervention to promote economic growth and solvency by
writing down debts and protecting debtors at creditors’ expense is accused
of causing an economic crisis (defined as bankers and bondholders not making as
much money as they thought they would). Creditor lobbyists are not eager to
save indebted consumers, businesses and governments from bankruptcy and
foreclosure. The result is a biased body of analysis, which some extremists
project back throughout history.
The most recent such travesty is William Goetzmann’s Money Changes
Everything, widely praised in the financial press for its celebration of
finance through the ages. A Professor of Finance and Management at the Yale
School of Management, he credits “monetization of the Athenian
economy” – the takeoff of debt – as playing “a central role
in the transition to … democracy” (p. 17), and assures his readers
that finance is inherently democratic, not oligarchic: “The golden age of
Athens owes as much to financial litigation as it does to Socrates” (p.
1). That litigation consisted mainly of creditors foreclosing on the property
of debtors. Goetzmann makes no mention of how Solon freed Athenians from debt
bondage with his seisachtheia (“shaking off of burdens”) in 594. Also
airbrushed out of history is the subsequent buildup of financial oligarchies
throughout the Mediterranean. Cities of the Achaean League called on Rome for
military intervention to prevent Sparta’s kings Agis, Cleomenes and Nabis
from cancelling debts late in the third century BC. Violence has often turned
public policy in favor of debtors, despite what philosophers and indeed most
people believed to be fair, just and stable. Rome’s own Social War opened
with the murder of supporters of the pro-debtor Gracchi brothers in 133 BC. By
the time Augustus was crowned emperor in 29 BC, the die was cast. Creditor
elites ended up stifling prosperity, reducing at least 15 percent (formerly
estimated as a quarter) of the Empire’s population to bondage. The Roman
legal principle placing creditor rights above the property rights of debtors
has been bequeathed to the modern world. The Bronze Age was not yet ripe for
oligarchies to break anywhere near as free of palace control as occurred in
classical Greece and Rome. But to Goetzmann the creditor takeover is the
essence of progress, despite the economic polarization and Dark Age it brought
on for the 99 Percent.
Misrepresenting why individuals ran into debt in ancient economies:
Ignoring the abundant documentation, the author misrepresents why early
economies ran up personal debt. He falls into the modernist trap of depicting
all debt as resulting from borrowers taking out loans, eager to invest the
proceeds profitably. He does not recognize debts as accruing in the form of
unpaid taxes or fees. Yet this was the case with most Mesopotamian debts, which
is where he starts his narrative. Personal debts subject to royal Clean Slate
edicts did not result from money lending, but accrued as obligations owed to
the palace and its collectors – for example, to providers of temple or
palace services such as boatmen, “ale women” and so forth. These
payments were to be made at harvest time. But sometimes the harvests failed, as
a result of drought, flooding or war. Taking it as an article of faith that
debt always benefits the “borrower,” Goetzmann does not recognize any
need to write down debts under such conditions. His blind spot regarding the
problems that arose when crop failure or military hostilities prevented
cultivators from paying their debts leads him to single out a royal edict from
Rim-Sin of Larsa (1822-1763) that allegedly caused the quite modern-sounding
“great crash of 1788.”
The idea that Clean Slate edicts were a “crash”.
Mesopotamian rulers are documented as protecting their citizenry from
foreclosing creditors by cancelling debts since at least as early as Enmetena
of Lagash c. 2400 BC. By the Old Babylonian epoch (2000-1800 BC) it was
customary for nearly every Near Eastern ruler to cancel personal debts upon
taking the throne, and again as economic or military conditions required –
e.g., if a flood or other natural disaster or military disturbance prevented
harvest debts from being paid on a widespread basis. Goetzmann treats this
normal practice of protecting debtors from losing their liberty (and hence
their ability to serve in the army and provide corvée labor on public
building projects) as if it were an isolated example, not the rule – and
as if it caused a crisis, not prevented it. Rim-Sin is reported to have
cancelled debts on three occasions. But only agrarian debts for consumption or
public fees were subject to such Clean Slate edicts. Like other rulers of his
epoch, Rim-Sin evidently recognized that if he permitted usury and debt bondage
to persist, much of the population would lose its land and be unable to provide
labor services or fight in the army. He needed “warriors from abroad, from
the surrounding deserts, who had to be attracted by agreeable conditions.”
That may have been the proximate cause of Rim-Sin’s moves to break the
influence of powerful creditors “and to favor his soldiers, for example,
by means of the loan of fields, upon which taxes were levied when the soldiers
were not on active service. The economy was saved, not the creditors (mainly
collectors or officials in the palace bureaucracy).
As for commercial “silver” loans and investments in trade ventures,
they were not affected by these royal decrees. And even in this commercial
sphere, economies hardly could have worked (nor can they survive today) without
leeway to bring debts in line with the ability to pay. In the case of
long-distance trade, financial “silent partners” typically consigned
goods or lent money to travelling merchants in exchange for receiving double
the value of their original advance after five years. But if a ship were lost
or its cargo taken by pirates, or if a caravan were robbed, the merchant was
not liable to pay. This debt forgiveness under extenuating circumstances
remained a common legal feature from the Laws of Hammurabi down through Roman
law. After misrepresenting Rim-Sin’s edict as “eliminating all debt
by royal decree,” he speculates: “Perhaps he himself or those close
to him had gotten into debt” (pp. 57f.) But Goetzmann’s reading
reverses the actual situation. Bronze Age palaces were society’s major
creditors, not debtors! The agrarian “barley debts” that Rim-Sin
cancelled were not those that he owed, but those that the population owed to
his palace. Abundant historical documentation exists that could have saved
Goetzmann from his embarrassing insistence that finance and money itself arose
as individualistic arrangements by private-sector creditors with no role for
government, and that it always is best to pay all debts, without regard for the
social and economic consequences. When Hammurabi lay dying in 1749 BC, his son
Samsuiluna wrote a letter saying that he found the land so burdened by debt
that he remitted arrears owed by many types of royal tenants. To revive their
economic position he “restored order (misharum) in the land,”
directing that tablets recording non-commercial debts be broken so as to cancel
the agrarian debts that had accumulated since the last such misharum act
thirteen years earlier (in Hammurabi’s 30th year, 1762). “In the
land, nobody shall move against the ‘house’ of the soldier, the
fisher, and other subjects.
Goetzmann does acknowledge that, “perhaps it was a political move to
restore popularity with his subjects.” But more than just popularity was
involved. Rim-Sin needed their support for his looming fight with Hammurabi,
who soon conquered Larsa in 1763. Goetzmann believes that Rim-Sin’s debt
cancellation was a disaster – as if it ended a golden age. Writing that
Larsa lost power as if “the crash of 1788” was to blame, he seems not
to understand that the victor, Hammurabi, proclaimed four debt cancellations to
protect his own citizen army during his reign. Goetzmann cites as his source
the respected assyriologist Marc Van De Mieroop of Columbia University. As it
happens, he and I co-edited a well-known colloquium in 2000 on debt
cancellations in the ancient Near East (see fn 1). Leading assyriologists and
Egyptologists traced over a thousand years of royal Clean Slates cancelling
agrarian debts owed to the palace, its collectors and other creditors. David
Graeber’s bestseller, Debt: The First 5,000 Years (2011) summarizes this
volume’s findings for the popular audience. This research would have saved
Goetzmann from imagining that Larsa’s debts were owed by rulers to
merchants. His aversion to such findings has the effect of wiping his narrative
clean of logic that would show any logic for endorsing regulation or
cancellation of debt. Goetzmann does cite the first historical example of
compound interest: the Stele of the Vultures boundary stone erected on the
irrigated buffer territory between Lagash and Umma citing the reparations that
Umma had accrued to Lagash c. 2440 BC. But he does not note that this debt had
grown far too large ever to be paid – and hence became a cause of future
war. That is the problem with compound interest (and too large reparations debt
demands). The rate of interest outruns the debtor’s capacity to pay.
The starting point of financial theory should be recognition of this tendency
of debts to be unpayable – that is, unpayable without a massive property
transfer, economic polarization and impoverishment. However, today’s
vested financial interests do not want to see a reasoned discussion of the
repertory and consequences of policy responses to this problem through the
ages. The guiding motto is: “If the eye offends thee, pluck it out.”
In order to insist that all debts must be paid, the thousands of years of
Bronze Age Mesopotamian examples and those of Graeco-Roman antiquity must be
censored, because the policy lesson is that bad debts should be written down or
annulled. Asserting that in the abstract, finance “is not intrinsically
good or bad,” Goetzmann is unwilling to draw the seemingly obvious
conclusion that what determines whether its effects are good or bad depends on
whether debts are cancelled when they grow beyond much of the population to
pay. To have kept Mesopotamia’s personal debts on the books (or more
accurately, on the clay tablets) would have reduced debtors to bondage and led
to loss of the land rights that gave them their status as citizens. It is not
hard to see the modern ay relevance. Keeping bad bank loans on the books in
2008 saved bankers and bondholders from taking a loss, but left austerity in
its wake by passing the financial losses onto the economy at large.
The false assumption that all loans are “productive” and readily
payable Goetzmann’s misreading of antiquity (on which he grounds his
bombastic big assumptions about the long sweep of financial history) follows
from his narrow view of debt only in terms of personal bargains between
creditors and borrowers – to share in a supposedly mutual gain. In
reality, the tendency was for debtors to lose their liberty and land to
foreclosing creditors – who put their usurious gains into more land
acquisition instead of investing in means of production to expand economies. It
has been to avoid repeating this impoverishing debt dynamic that the past few
centuries have seen more humanitarian treatment of debtors. But the past
century’s “Austrian” and kindred individualistic “free
market” financial theories have created a junk archaeology that depicts
monetary and fiscal reform as being against nature and leading to a crash
– such as Goetzmann’s fantasy of “the crash of 1788” –
instead of avoiding financial distress by restoring economic balance and
equity. Goetzmann’s obsolete theory of money as a commodity, not a fiscal
institution Georg Friedrich Knapp’s State Theory of Money (1905), defines
money as what governments accept in payment of taxes or fees. This theory also
is called Chartalism. It is confirmed by the assyriological research noted
above: Mesopotamian mercantile debts typically were denominated in silver,
while personal debts were denominated in grain, above all to the temples and
palaces. Their acceptability to these large institutions led the economy at
large to accept its valuation.
To defend his “free market” ideology, Goetzmann ignores the character
of money as debt, headed by debts owed to governments for taxes or other
payments. It is as if we are talking about barter, with money being just a
commodity, given value by “markets” with no apparent linkage to
government to denominate and pay tax debts. He repeats the century-old
threefold view of money as a means of exchange, a measure of value and store of
value. For starters, according to this view, metal was a handy medium of
exchange, presumably to barter. A buyer simply pulled out a coin or broke off a
piece of metal to pay for food, wool or whatever product was wanted. Problems
quickly arise with this scenario. Who produced the silver? How was
counterfeiting avoided? The Bible and Babylonian “wisdom literature”
are rife with condemnations of crooked merchants using false weights and
measures – a light weight for lending money or buying commodities, and a
heavy weight for measuring out repayment of debts. To avoid such problems,
metallic money had to be public in order to be used as a means of payment.
Babylonian contracts typically called for settlement in silver of 5/6 or some
similar specified purity. From third millennium Sumer down through Greece to
Rome (the Temple of Juno Moneta), temples produced the monetary metals and
coins. Their role as minters dovetailed with that of overseeing honest weights
and measures to prevent fraud. Money’s second function cited in modern
textbooks (which Goetzmann repeats) is to serve as a unit of account, a common
measure of value against which other commodities (and labor) are priced. The
paradigmatic historical example would seem to be the parity between a
Babylonian shekel-weight of silver and a “liter” of barley, fixed by
royal edict in for a thousand years, mainly to determine how debts could be
paid. Such money was a price schedule of how a specialized economy could make
payments, apparently evolving as part of the accounting system that enabled the
large institutions to allocate food and raw materials to their labor force, to
evaluate output consigned to (or bought from) traders, keep their
administrative accounts and denominate debts owed to them. (Later, when Rome
developed coinage, its nominal value was maintained even while adulterating its
purity.)
But this debt dimension is missing from Goetzmann’s survey.
Goetzmann’s failure to understand that “finance” has something
to do with debt Goetzmann’s desire to credit finance for almost everything
good and positive in civilization leads him to attribute the origin of writing
to finance. This distorts the researches of the archaeologist whom he credits
as acting as his informant, Denise Schmandt-Besserat. Her research started half
a century ago at Harvard’s Peabody Museum on Neolithic and Early Bronze
Age ceramics. It seems that when traders (chieftains or individuals) sent
animals, wool or textiles over a distance for trade from about the 9th
millennium to the 4th millennium BC, they would indicate each item with a small
animal- or geometric-shaped baked clay token, and wrap it in a clay envelope.
The recipient of such deliveries would compare what was received with the
itemized set of tokens. In time, Schmandt-Besserat proposed, impressions of
these tokens were imprinted on the clay envelope, to indicate the contents.
(Many such envelopes have survived). Such tokens were accounting devices. In
time, according to the plausible theory, the design of the impression evolved
into cuneiform writing. The vast majority of cuneiform tablets are accounting
records, debt notes and temple and palace accounts, e.g., to distribute rations
to the temple labor force and track the delivery and allocation of wool, grain
and other raw materials. Prices for silver, grain and a few other basic
commodities were administered to create an accounting system to co-measure and
allocate resources as well as to denominate payments to themselves. But such
fiscal accounting practice is not finance. It is an economic and administrative
use of writing, but finance involves debt, not just trade or account-keeping.
Goetzmann’s narrative suggests that “finance” exists without a
debt dimension.
This basically public institutional setting for writing, accounting, money and
archaic interest rates is precisely what the anti-government and pro-creditor
Austrian and Chicago Schools of “free market” financial relations
oppose. Their censorial view defends the privatization of money as a
“market creation,” and hence today’s bank monopoly on credit
creation as opposed to government creation of money (They claim that this would
be hyperinflationary and lead economies on the road to Zimbabwe – as if
bank credit has not fueled a vast asset-price inflation bubble that burst in
the 2008 crash.) And as noted above, they also insist that all debts must be
paid, even at the cost of impoverishing the economy – as the world has
seen most recently in Greece. Some years ago, a German assyriologist told me
why so many members of that discipline choose to publish in German or French
instead of in English. The reason is that so many Americans (and also
Englishmen) take documentation out of context to force into “crazy”
theories. To protect itself from such intervention, the assyriological
discipline is isolated from other academic departments. An unfortunate
byproduct is that cuneiform studies are rapidly shrinking throughout Europe. No
doubt a contributing factor is that the practices of Bronze Age Mesopotamia and
its neighbors controvert the most basic assumptions of today’s free market
orthodoxy, above all its denigration of public enterprise and opposition to
government money creation (leaving this as a private bank monopoly), and its
refusal to acknowledge logic justifying debt writedowns. Goetzmann has used the
exclusion of early economic history from the academic curriculum, and hence
from popular discussion, as an opportunity to substitute unrealistic
pro-creditor assumptions for the reality that he seems to find too abhorrent to
inform his readers about.
[1] See Cornelia Wunsch, “Debt, Interest, Pledge and Forfeiture in the
Neo-Babylonian and Early Achaemenid Period: The Evidence from Private
Archives,” in Michael Hudson and Marc Van De Mieroop, eds., Debt and
Economic Renewal in the Ancient Near East (CDL Press 2002), pp. 221-255.
2] F. R. Kraus, Königliche Verfügungen in altbabylonischer Zeit
(Leiden, 1984). On Rim-Sin’s measures see Charpin, Archives familiales et
propriete privee in Babylonie ancienne Geneva-Paris 1980), pp. 273f. and 133f.
and W. G. Lambert, Babylonian Wisdom Literature (Oxford, 1960; 2nd ed. 1967),
pp. 54f.
[3] W. F. Leemans, The Old Babylonian Merchant: His Business and Social
Position (Leiden, 1950), p. 122.
[4] Translations of this letter (TCL 17 76) in Leo Oppenheim. Ancient
Mesopotamia (1965), p. 157, and Letters from Mesopotamia (1967), and F. R.
Kraus, Königliche Verfügungen (1984), p. 67.
[5] “Entrepreneurs: From the Near Eastern Takeoff to the Roman
Collapse,” in David S. Landes, Joel Mokyr, and William J. Baumol, eds.,
The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to
Modern Times (Princeton: Princeton University Press, 2010):8-39.
[6] I trace the background in “The Cartalist/Monetarist Debate in
Historical Perspective,” in Edward Nell and Stephanie Bell eds., The
State, The Market and The Euro (Edward Elgar, 2003):39-76; “The
Archaeology of Money in Light of Mesopotamian Records,” in L. Randall Wray
(ed.), Credit and State Theories of Money: The Contributions of A. Mitchell
Innes (Edward Elgar, 2004); and “The Development of Money-of-Account in
Sumer’s Temples,” in Michael Hudson and Cornelia Wunsch, ed.,
Creating Economic Order: Record-Keeping, Standardization and the Development of
Accounting in the Ancient Near East (CDL Press, Bethesda, 2004):303-329.
[7] Denise Schmandt-Besserat, Before Writing (2 vols., University of Texas
Press, 1992), and How Writing Came About (University of Texas Press, 1996).
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