The trickle-down economy, natural but not inevitable, history shows


Thinking About Debt with Michael Hudson

Jesus, a non-believer in trickle-down economics, drives the moneylenders out of the Temple in the illustration on the cover of “…and forgive them their debts” by Michael Hudson. (Image credit:

Almost all the new money the US economy has produced in four decades has gone to the wealthiest people. We’ve been living with this trickle-down economy since Ronald Regan introduced the term “trickle down” in his 1980 presidential campaign.

Long before that, the common belief, including among Catholic bishops and economists, was that “a rising tide lifts all boats.” Less metaphorically, in the years immediately following World War II, it was believed that an expanding economy would benefit everyone. Thus, Catholic ethics shifted from opposing materialism to economic growth, or added the second to the first. See this quote from one of my posts on modern catholic by James Chappel:

The only dogma that has remained the same [between liberals and progressives] however, time alone was believed to solve problems of poverty and inequality – time for the economy to grow.

After 40 years of neoliberal economics, characterized by tax cuts and small government, many economists have become critical of the outcome. These include two Catholics, Anthony Bennett and Michael Hudson. Their ideas will be featured in a series of articles that began with this article on Anthony Bennett. Hudson …and forgive them their debts is another major source for this series.

Credit and Debt in Ancient History and the Bible

Michael Hudson has made a study of the effects of debt in modern and ancient societies. His oft-quoted conclusion is, “A debt that cannot be paid will not be paid.” He correctly predicted the Latin American debt defaults of the 1980s and the financial crash of 2008. (Interview with Michael Hudson in “The Honest Sector”.) For someone like Hudson, this raised two questions: is it natural, in an economy, for debt to accumulate? to crisis point? For “runoff to be the second name of all economic theory? And is there a more humane solution than the current prescription of fiscal austerity. In Latin America and around the world, this IMF solution often meant that a country could not provide its citizens with the necessities of life. This is the definition of crisis debt. Hudson decided he had to “write a history of how countries have dealt with paying debts in the past”.

…and forgive them their debts is the result of this decision. In it, Hudson details the origin of money in the ancient credit-based economies of the Near East. It also shows the unequal positions of creditors and debtors, what ancient rulers like Hammurabi of Babylon did about it, and how the Bible and even Jesus got involved. Jesus’ first sermon that Luke records and many of his stories are about money, debt, and forgiving or not forgiving debt.

Debt forgiveness in the ancient world

The biblical book of Leviticus (25:10-11) offers farmers a market that sounds too good to be true. Every 50 years, “the year of Jubilee”, the debts that had accumulated since the last Jubilee were to be cancelled. Peasants who had sold themselves into debt slavery would regain their freedom. Land lost due to debt foreclosure would revert to the original owners. It has seemed to most scholars too utopian to ever have been implemented. A typical modern economist would say that an economy cannot survive such a practice.

The Bible got its idea from the cancellation of Babylon’s debt. Debt forgiveness was a regular and successful practice there. Babylon is the most 6 placeand The Judeans of the century spent 50 years in exile. And Babylon obtained this answer to the indebtedness of earlier Near Eastern societies. From Sumer to Hammurabi and all the way to the Byzantine Empire, debt cancellations kept economies from collapsing under unsustainable debt. The trickle-down effect did occur, but it was steadily countered by returning to “Mother,” the previous state.

Early clay tablet records show how credit and record keeping were key to ancient economies. Peasants obtained seeds on credit. At compound interest, loans would double in five years. (The scribes could handle these calculations.) This was usually not a problem because farmers could repay their grain loans at harvest time. Grain could be converted into money for wider trade. Hudson sees the origin of money in the exchanges of debt and credit.

The farmer had more than start-up loans to repay. They needed meat. They needed beer from the breweries. All this they obtained on credit and paid it back out of the harvest. They also owed to the king, from whom they received the land. They paid their tax bill with military service or worked on public projects like temples, palaces, pyramids and infrastructure.

Old trickle-down economy

All of this meant that the king had an interest in maintaining the peasantry as a viable occupation for his subjects. Against the interest of the king, a class of financiers develops. Naturally, their interest was to keep their loans intact. Unfortunately, this regularly led to the separation of peasants from their land and even from their freedom. Debtors’ prison did not yet exist, but slave labor on other people’s land did.

The worst fears of peasant life are born of the unavoidable uncertainties of agricultural life. The rain and the sun were not always there. Some years a farmer could not repay his spring loan. He could extend the loan, at compound interest, in the hope of a bumper harvest next year. But in the end, a large number of peasants had to face difficult options. They could repay their loans with some of their land, again casting doubt on the future success of farming. They could sell their family members as slaves to work for their creditors. As a last resort, they could sell all their land and enter the slave market themselves.

One way or another, many peasants ended up working on land they did not own, paying rent in addition to seeds and living expenses. The creditors, a whole class of financiers, grew rich and eventually powerful.

Creditors against kings

From the king’s point of view, it was a disaster. A financial class was accumulating its reserve of necessary manpower and military service. As long as this class was small and weak or even part of the king’s family or retinue, the solution was simple. The king could simply declare canceled all debts for agricultural work and other means of subsistence. Kings regularly did just that, often the first year or two after ascending the throne. Another likely occasion was the start of a war, when the kings would need a healthy and loyal supply of soldiers from the peasantry.

The inscriptions on the clay tablets are records primarily of financial transactions, and among them are numerous announcements of cancellation of debts, release of peasants and return to their lands. Economic historians, with their bias in favor of creditors, are mostly unaware of this ancient practice. The Rosetta Stone is famous, but not for the message it contains: the forgiveness of debts.

Unfortunately, the kings could not resist the rise of the financiers. Leaders began adding “fine print” to their debt release announcements to address evasion techniques. Eventually the creditors became more powerful than royalty. Greece and Rome – democratic aspirations in the first and republicanism in the second – had their own conception of freedom; and it did not include debt relief for peasants. A populist leader like Julius Caesar was an endangered species. It is the Greek and Roman belief in the “sanctity” – Hudson’s word – of debt that has endured into our time. This same belief, says Hudson, led to the downfall of Rome through the impoverishment of the people.

A look ahead

From the early Near Eastern empires to the present day, money has naturally evolved upwards. The Progressive era of the Great Depression until about the 1970s temporarily halted this trickle-down trend. But the stabilizing method of debt cancellation practiced by the early kings has been largely lost. The loss is particularly acute in the international economy when the unsustainable debt of poor countries accumulates.

Future articles in this series will explore applications of the historical practice of debt forgiveness. I will watch

  • how the Jubilee Year of the Bible, if ever more than words on scrolls, unfolded in the time of Jesus and the Pharisees,
  • how the great Rabbi Hillel, master of Saul before he became Paul, innocently or not, served the interests of creditors over debtors,
  • what was the attitude of Jesus, and how the Church spiritualized the idea of ​​”forgive us our debts” at a time when hope for the peasant class was waning,
  • also how my two authors, Anthony Bennett and Michael Hudson, imagine a modern economy that includes debt cancellation as a stabilizing element.

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