Debt

A few weeks ago I had a short exchange with Nick Land on Twitter on the issue of debt.

https://twitter.com/Outsideness/status/1115053094654451712

Debt is a huge issue, a big part of what's wrong with the fabric of modernity, a big factor of what's driving modern civilization into collapse. And yet it has remained largely underdiscussed in these circles. Moldbug, who to the end still remained something of a libertarian, did have a keen interest in finance, and after the great crisis of 2008 made a series of long posts on financial crises and how to design a properly sound banking system. His "favorite topic" he even called it. Well it's certainly not my favorite topic, nor I'm sure it's Mr. Land's, but it's nonetheless a fascinating issue, and more importantly, a critical one.

Again, my approach to all intellectual issues is to think about its history, and the one thing that strikes one when thinking about debt is how easy-going the ancients were about them. Sovereign bankruptcies were routine, and nothing really happened. But most importantly, debt jubilees were *very* common. Mr. Land here seems to think it's a horrible idea, and he may be right, but I can't be faulted for liking something that Chinese emperors did every few years as part of general amnesties. New emperor? Cancel the people's debt. Emperor has a change of mood and sets a new regnal era? Cancel the debt. Cute imperial baby is born? Out with the debt. Some Emperors had general amnesties almost every year. It's interesting to note that the Song Dynasty, famous for its fabulous wealth, commercial mindset and urban culture, and thus a polity which you would expect to have more care about enforcing contracts, had over 200 debt jubilees over its 318 year history. That's one every eighteen months.

Again, you could say that the one thing that ensured the Great Divergence, the Rise of the West, the Industrial Revolutions and basically everything that's nice and productive about the modern world (and there's plenty of that, I do like fast transport, air conditioning and modern hygiene, thank you very much), was the establishment of the Sanctity of Contracts as an important part of Western culture. There's certainly something to that. A non-negligible part of reactionary authors will spit on Libertarianism a dozen times a day, but they will stay give you a 2 hour speech in praise of the Joint Stock Corporation as the fundamental basis of the modern economy and Western Civilization as we know it. By that line of reasoning, the only reason we ever got away of the Malthusian trap was when we stopped forgiving damn debtors and we used state authority to enforce commercial contracts.

And yet, reactionaries since Moldbug have also been very concerned with the problem of sovereignty. Most precisely, the lack of it. We bemoan the lack of ability of the holders of political power in the West to take hard measures that could fix many of the social problems which afflict us. But, you know, that's not surprising given that we don't allow our political authorities to mess with "the sanctity of contracts". If routine commercial transactions are held to be above the supreme power of the land, how the hell do we expect them to get anything done at all?

Why did the kings and emperors of yore issue decree debt jubilees so often? Why at all? Not just to get debt out of their own shoulders, obviously, they had the power to do that and just that, and do not relieve the commoners from their own debt obligations. And yet they did that, all the time: have commoners be free of paying back their debts. Again this sounds outrageous to our modern sensibilities, and yet it was routinely done for millennia, and everybody thought it perfectly natural. Part of that is because anything the Sovereign did was perfectly natural. The whole point of being king is that you get to do things like issue debt jubilees and screw the merchants royally. Pun intended. There's such a thing as different sorts of power, and economic power, the power that arises from having massive amounts of wealth, is very real. And yet, all that power is good for nothing in front of the King's authority, who on a whim can wipe out all your claims of debt collection. The merchants cry, and the indebted peasants rejoice. That's just good politics for the king: gains him popular favor, and signals his power.

But was that all? Just the King, sticking it to the merchants because he can? The whole frequency of the measure seems to hint there's something more going on. Maybe debt jubilees were an actual tool of governance. A good tool, a necessary tool, in order to achieve some positive outcome. Surely in terms of political stability, the most immediate concern of kings. And maybe something more. Maybe debt relief just actually fixes something in society, corrects some imbalances which lead to not just more safety for the king, but actually a better society, in terms of economics, natality and just general happiness and prosperity.

If you have read Peter Turchin's book War and Peace and War, and if you haven't you should stop right here and just go read it right now (if you have time for my blog you really should be going and read that book), you might recall Chapter 10, which Turchin titled "The Matthew Principle". That's a rather forced coinage from a quote of the evangelist. The idea is basically that the rich always get richer and the poor always get poorer. That's a historical reality and there's plenty of evidence for it in premodern times, those very times I'm referring to as having frequent amnesties and debt jubilees, canceling everybody's debt and starting over, screwing with creditors every few years.

Now, when talking at this level of abstraction it's always important to take a pause and think carefully of the definitions we are using. Think of the proposition "the rich always get richer". Who exactly is "the rich" here? Are we talking of individuals? Do rich men, on average, grow their fortune over time until their death? I'm not sure that's true, but even if it were, analysis of a single lifetime are hardly interesting. What about families? Are rich families, again on average, richer over generations? That seems intuitively to be true, and Gregory Clark has written an interesting book arguing that case, The Son also Rises. The difference between families and individuals is that families to some extent get to choose their members, so rich family names persist by accepting rich heiresses and the like, and gently expelling underperforming sons, helping maintain or grow the family "honor".

What about the rich as a class? That was the focus of Turchin's argument. What he meant is that absent political action to counter it (i.e. violence), economic inequality always grows. And grows. And grows. It happens that it always ends, or at least has ended to this point in history, with some eruption of violence, either a popular revolt, a civil war, or some kind of crackdown by the government against the wealthy. But if you were somehow able to avoid violence from ever happening, inequality just would continue to grow, slowly but steadily, by its implacable mathematical logic, until we got a Gini coefficient of 1. That's just a law of nature. Pure, abstract math, in practical terms. Just the way humans work. The rich just keep getting richer, and the poor keep getting poorer, and there's nothing you can do about it except using organized violence (i.e. politics) to stop the process. Those processes of growing inequality and eventual freak-out tend to last about a 100 years, so Turchin calls them "secular cycles".

Turchin, who may be right or wrong but is nonetheless a great writer, describes his argument with a very easy example. In any competition, he notes, the poor are at a disadvantage against the rich, having fewer resources, and so overtime tend to lose ground. Think of land, the almost only source of wealth in civilized societies until very recently. Assume an initially completely equal distribution of land. And that's, by the way, not an absurdity. There's actually a very good example in China's Tang Dynasty, which adopted an "equal-field" system. All land was owned by the state, which allotted equal sized fields to individual peasant families.

What happened afterwards? Concentration. Little by little, some peasants were thriftier, others more prone to spend. Some were luckier, some more unfortunate with weather, or disease, or family issues. Some peasants started mortgaging away their fields to other peasants who again, due to thrift or luck had money available to spend. Those latter peasants then ended up with more land. Rince and repeat the process for several decades, and you get some very rich guys and a lot of landless vagrants. Keep the process going for even longer and you'd get even more inequality.

As Turchin himself says it:

“The mathematical model I developed, however, tells us that this mechanism by itself will not produce a vast gulf between the rich and the poor. When land becomes a scarce commodity, however, another process begins to operate. Human beings need to consume a certain amount of goods to survive. Most basically, they have to get enough food. Those who do not have enough land to feed themselves will have to start selling what they have to make up the difference. As a result, they become poorer. By contrast, those who have more land than they need to feed themselves will have a surplus income that they can use to acquire even more land. Thus, the rich get richer. The positive feedback of the Matthew principle arises as a result of threshold of the minimum consumption level. The Matthew principle ensures that all people whose land holdings are below the threshold—the poor—gradually lose their remaining property, which ends up in the hands of the rich. Finally, the population is divided into a tiny minority of wealthy landowners and a huge majority of landless proletarians.”

But that seldom happened, as eventually some ambitious man always found a way of organizing those landless vagrants into a rebel army and started a big fat war. Chinese dynasties tended to all last exactly 250 years, with a big rebellion in the middle. Two secular cycles. And the Chinese historians always agree in the culprit. 土地兼并, land concentration. Every single time. Europe had less obvious closure but also plenty of wars to stir things up. And eventually, of course, the Age of Revolutions.

Things are of course different now in our incredibly diversified economies; even landless peasants or the equivalent today can work their way up some corporate ladder or find some new economic niche and start a successful business. But the fact that poor people, on average, are at a disadvantage in resource competition against the rich. The rich just have less to lose. As Half Sigma, unsuccessful candid Jew always says, talk of "risk-taking entrepreneurs" is just bullshit. Rich people have enough money stashed away to live comfortably all their lives. They are investing their spare wealth, and yes, there's always a risk there. But big deal. They're covered.

Again, I'm following Turchin and talking like evolution ends at the neck. Which it doesn't. People are genetically different, not only in intelligence but appearance (a very important part of individual capital), and a myriad personality traits which affect one's ability to gain wealth. Those successful genes, "moxie" as Greg Cochran calls them, also get sent up to wealthier families as successful people choose to marry into them, depleting the lower classes of the most fundamental resource, the very physical basis of economic success, especially in a culture like ours, without marriage taboos or formally separate social classes.

Modern debt has perhaps little to do with the debt of a peasant mortgaging his small plot of land to pay for his father's funeral. While commoners today have plenty of student or consumer debt, most debt is hold by corporations or public entities, in a complete madness of intertwined obligations going on for trillions and trillions. But it's not unreasonable to see corporations as the perhaps foremost subjects of the modern state, and not humans, who are but appendixes to corporations in the eyes of many bureaucratic agencies. Debt in the modern economy might not be as obvious as the poor medieval peasant of Turchin's tale, but the deleterious social effects, and the existence of a class of advantaged people using their position to increase their wealth against the debt of the masses is still very similar, and fits Turchin's equations.

Back to the beginning of the post, you can now see what debt jubilees were meant to achieve. Interestingly, Turchin's book doesn't mention the word "jubilee" even once. He probably didn't think them important, as economic inequality historically did grow anyway. But surely periodic legal debt relief made the process slower. Eased societal contradictions to a more manageable level for the court. But it was never enough, it was barely a stopgap to the inexorable trend. But at least it served to lower the gas boiling the frog.

I just realized that I started this post with the intention of arguing in favor of debt relief, of learning from the ancients how to pacify society. But given the limited power it historically had, and given the trends we are seeing now, the complete obliteration of Western Civilization down the road to becoming Brazil, then South Africa and ultimately Haiti, maybe the proper accelerationist position is to make the fire stronger and make the damned frog jump from the pot once and for all. No jubilee. No peace. Let's just observe the coming of the age of the oligarchs, and hope it breaks down fast.

If it does, though.

I rather wish I'd said so at the time, but to Land's assertion that a jubilee is contrary to contractual solemnity, a response would be 'ok, but that's the field the merchants knew they had to operate under.' You've simply changed the rules of the game. Now, if you're a merchant who knows that he's lent at extorionate rates, or if you're considering expending the resources to create a land monopoly you know the king may want to eventually break up for the common weal, what does that change about your behavior from a game theoretic perspective? As long as the sovereign doesn't lose his mind canceling every debt, my guess is you start doing more socially-responsible, long-term-thinking-type moves (and more responsible lending) rather than giving up on trade or wealth accumulation altogether. You know the ax can come any time if you and your compatriots overplay your hand, so your choice is to be responsible to the poor (charity, self-imposed and self-serving sharing of wealth) or to 'overthrow' the system/sovereign. Of course, incentives often favor the latter.

This is something I have wondered about in a different context before. Going through Jim's posts over the years I've had it hammered into my head that anyone who seeks to denounce the rich and claims to help the "little guy" is usually a communist, a trotskyite, or some other associated lefty that in actuality will end up making things much worse. However, as you noted, wealth inequality IS a fundamentally unstable situation for a society to be in once it reaches a certain point. I suppose one could label the Gracci Brothers or Wang Mang trotskyites, but it seems to me that this is a more complex issue than simply labeling any criticism of the wealthy as communist. I'm kind of rambling I guess, the process of wealth inequality feels similar to other "cyclical theories of history" like Ibn Battuta's theory of Assabiyah, so I dont know if there's really any point in attempting to come up with solutions for it when the pattern is innate to human nature.

Anyone who hasn't dwelt with Zippy's Usury FAQ should do so ASAP: https://zippycatholic.wordpress.com/2014/11/10/usury-faq-or-money-on-the-pill/ That man spent a lot of time doing some very clear thinking on the subject of debt, how it works and how we abuse it, starting from the viewpoint of an asset owner and occasional venture capitalist. Be aware you're unlikely to get responses from the host, as he has gone on to his reward.

Wouldn't those jubilees just cause lenders to charge higher interest rates, thus resulting in poor having fewer opportunities and increasing the inequality?

Would hyperinflation effect a debt jubilee, or would wealthy creditors pass a law that all old debts must be repaid in the new currency?

[…] Source: Bloody Shovel […]

"But that seldom happened, as eventually some ambitious man always found a way of organizing those landless vagrants into a rebel army and started a big fat war. Chinese dynasties tended to all last exactly 250 years, with a big rebellion in the middle. Two secular cycles. And the Chinese historians always agree in the culprit. 土地兼并, land concentration. Every single time. Europe had less obvious closure but also plenty of wars to stir things up. And eventually, of course, the Age of Revolutions." Now you're talking my language, brother. All internal taxes should be eliminated except for land tax (structures are improvements and are not taxed). Land tax should be applied progressively, with a high minimum threshold (say $500k), and becomes punitive at high levels (say 90% @ >$20M). All land must be held by a natural living person (no trusts or corporations to evade taxes). This eliminates rent-seekers by limiting the control of the only truly scarce resource. Here's just one example of why this needs to happen: Half of England is owned by less than 1% of its population''' https://www.zerohedge.com/news/2019-04-18/half-england-owned-1-population Import tariffs are OK and likely desirable, except on commodities. they should be minimal. Finished goods, tariff as you wish.

Good post. When William the Conqueror came to England the first thing he did was create debt by making taxes payable only in gold and silver. Previously, they were payable in the increase of the land... just like the Biblical tithe. The Catholics have a lot to pay for. Officially they were against usury, but the Church itself kept the Jews around to do the usury for them.

First, will reply to Mike. Jim is an old christian retard & his entire spiel about women being views as angels instead of Violent has to do with the virgin birth. He could fix it by converting to a religion with a Goddess of War but won't. As far as Debt: A Brahmin once told me that essentially, Warriors (Ksytrias) are the highest. It is worse to kill an Emperor than a Brahmin The Brahmin guides/advises the Ksytria The Ksytria controls the merchants/usurers to help out the poor. Those who claim to help the poor end up making things worse in the interim because only the King can help the poor.

You acceleration faggots are gay just ban abortion and you'll get your civil war

I just disagree that you can compare "debt jubilees" in societies without strong credit markets or a real merchant class to "debt jubilees" today. First, in ancient societies -- let's take ancient middle east, where the biblical example of a "jubilee" comes from. Most debts were social and informal -- the ones you owed to your local community. These were never cancelled. These were the mutual obligations that all communities form. Your neighbor helps you repair a roof and you owe them to help repair their roof. These debts were not cancelled by jubilees and were the dominant form of credit. What was cancelled were the debts you owed to the local temple, a pseudo governmental organization anyway. You might have borrowed some grain and needed to pay it back after harvest. So it makes sense that the government, which ran the temple, as an act of graciousness would offer a jubilee. Now, let's fast forward to the present. The informal of debts you owe to your community have been formalized. They are now traded in credit markets and make up people's retirement accounts just as investing in your local community helped assure you of being cared for in the past. There are still some debts owed to the government -- say IRS debt or student loan debt. The equivalent of a "debt jubilee" at the founding of a new government would be to free those debts. But the debts you owe for buying your house are the modern version of the debt you owed your community who helped you build your house, and obligated you to build theirs. Cancellation of these types of debts would be socially disruptive now just as they would have been disruptive in the past. They would throw pensions into risk. Whereas the cancellation of a debt owed to a temple did not throw the temple's pension into risk. The government lives forever and isn't going to move to Florida and retire. Then there is the issue of scale. There was just very little lending back then -- the amount of lending was so small that cancellation of debts was akin to throwing an expensive party. Even a moderately strong government could afford that. Today, we have so much credit that it would throw the entire economy into upheaval. Today, money _is_ credit, so the equivalent ancient act would be to cancel the entire currency, declare it worthless, and offer to introduce a new currency. How often did that happen in the past? And how often did the government voluntarily do it rather than being forced into it in time of massive social collapse?

Spandrell, you are not asking the important question. Who would bother to lend money under the Song dynasty? It looks like an incredibly risky thing to do. One would only do it very short term and with high interests. There are safer way to invest excess money. Or not invest. Just sit on it. Money does not spoil. Food does spoil. This may explain part of it. The Catholic-Aristotelean discussions on why usury is bad were mostly not about direct money lending, but more selling goods on credit. Mostly food, to survive the winter. And food does spoil. So here is my hypothesis. If there were rules that Song peasants had to produce as much as they can and merchants must buy all, merchants had little choice but to sell some of it on credit and hope there won't be a jubilee, because otherwise the food would have spoilt. So they had to take that risk.

What kind of "debt" did these Chinese jubilees forgive? Only debts generated by loans? Or also unpaid paid bills for goods or services received? Unpaid taxes? Unpaid wages? "Debt" in the modern world is any money owed, regardless of why. If someone gives a loan, both parties want the debt to be created. That's different from other situations where immediate payment was expected.

Genetically pacified races like east asians and europeans have probably had too many of their violence genes eugenicized. Take the Chinese in asean. Increased brutality of violence triggers their risk aversion. A shrinking population decreases the chances of success. As the situation decays, the chances of fighting back decrease. The premise for accelerationist collapse is that the violence is eventually going to get "so bad" that the productive elements of the economy are going to not be able to continue or choose to fight back. But they're already having their daughters raped, self castrating, etc. The worst possible outcome has already arrived. People continue to pay into the system after their children are beheaded. I am skeptical that a debased currency is going to accelerate some sort of collapse, rebellion, etc. narrative. I think only a sovereign government can do anything about this. Maybe it's time to start begging the mainland Chinese for help.

And if the purpose would be to reduce inequality and stop the Matthew Principle, then (although I find this whole topic distasteful) then taxes are obviously better than random debt jubilees and pretty sure sovereigns understood that. Random debt jubilees inject unpredictability into the system. Just do it once, and no lender will know anymore if he will be paid back or not. This should logically mean interests go up with risk. Not good for the poor. Remember the core Hoppean truth: civilization implies low time-preferences, investing into the future, which requires not only IQ but a predictable future. Just like nobody plants a farm if any random bandit can burn it, same with lending. A tax whose rate never changes because the sovereign vows on his mother's feet that it will never change is predictable, hence does not harm future-orientedness and thus civilization so much. And there is also the matter of what kind of tax. Georgian taxes have some good arguments behind them. My favorites are sumptuary taxes on luxury consumption. The rich buy expensive things mostly just because they are expensive, to show off their wealth. Already Veblen noticed th demand for these goods does not drop with the price increasing. So just tax these, the rich won't even be offended too much as these goods becoming even more expensive work even better as as a wealth signal, and it can be used for financing the state. Or if one really wants to, reduce inequality. Compared to something like this a debt jubilee is crude and barbaric. As it scares lenders and makes lending scarce and expensive. Or it can lead to private, mafia-style debt enforcement.

Definitely a worthwhile subject. I started looking at this a while ago but got sidetracked. The one useful step I think I made was to decide you can't look at "debt" in isolation. From prehistory to the middle ages, you have three subjects that are entangled: Poor Relief (what we would now call "welfare"), Debt, and Slavery. Some people -- "neoabsolutist?" T. A. Jackson? -- were pushing this book https://en.wikipedia.org/wiki/Debt:\_The\_First\_5000\_Years and posting interesting extracts. It talked about the earliest civilisations (Babylon etc.), the gist I got was that debt mostly came about when a farmer's harvest was inadequate and they needed to borrow to get through. The other thing I remember is the theory that rulers used jubilees because commoners farming their own land would fight for the kingdom, but slaves/serfs/peasants wouldn't, so it was in the ruler's interest to restore their freedom periodically to keep the armies going. Without thinking it all through, it seems plausible that debts incurred to survive a bad harvest could or should be treated differently from debts incurred to, say, buy a new car. That's what I mean by saying that debt and "welfare" aren't separate subjects. Again, if everyone is subsistence farming, then working what used to be your land but is now Fred Bloggs's because he now owns it because he fed you through last winter when your stores ran out is not substantially different from being Fred Bloggs's slave. The Old Testament concept of jubilee is not simply forgiving debts, but returning land to the families that originally held it. Or rather, iirc, every 7 years money debts were cancelled and every 50 land was transferred back. To the hardcore libertarian "welfare" is an invalid concept, but in practice watching your neigbours starve is generally not an option, so some welfare/debt/slavery treatment is necessary.

I also want to challenge the notion that eliminating credit is going to reduce inequality. With zero debt, everything is equity financed. That means you rent. No mortgages. You pay for your house with cash. Now, who is going to be able to buy the house, if not the rich? Everyone else will rent from them. And it's very hard to save up enough to buy a house if your are competing with the landlord who is taking 1/3 of your income and rolling that over to buy more houses while you tighten your belt and try to save after paying rent. A society in which people are denied credit benefits the rich, and a society in which ordinary people have access to credit is an ownership society, even if the wealthiest people are richer in the latter society. Take the virtuous, frugal, risk averse Germans and the heavily indebted credit addicted Spaniards. Compare home ownership rates in Germany (52%) and Spain (82%). The Spanish own their own homes and as a result, median household net worth (after accounting for debt) is higher in Spain (182K) than in Germany (51K). Yes, owing a mortgage sucks, but paying rent every month and not owning your home sucks even more. Germans are virtuous and avoid debt, with high downpayment requirements, whereas the Spanish have much easier credit access to credit. And who knows, maybe even more 'inequality', but they are still better off with ready access to credit than if they were credit constrained.

I very much like Turchin but I don't like how he is so hung up on inequality. You can take the boy out of the Soviet Union but you cannot... or more likely because he is insisting on creating an empirical, quantitative science of history. I think he has some very good basic ideas, but trying to make history a numbers science is not a possible aim. Anyway so like the man who lost his car keys in the dark but is looking for it under the streetlight, he is quantifying whatever can be quantified, not what really matters. I think for him inequality is simply the only quantitative number he can find of internal divisions, for less cooperation and cohesion in a society. But status inequality matters more, but that is not a numbers game. And I don't even see why would inequality necessarily lead to less cohesion. All the cohesive people he mentions, like conquering Mongols, had rather inequal ways of sharing the war loot. The important part was that there was war loot, war loot is a tide that lifts all boats. Think Caesar. He had immense amounts of war loot. This was not distributed equally. But there was enough loot to pay his soldiers, have cohesion in his side. He had far more cohesion in his soldiers than in Roman society in general where there was a bit of a rich vs. poor thing going on. But his soldiers got enough loot so were happy and loyal. And still a lot left. Perhaps when a people cannot loot others anymore they start looting each other. But I don't see money being the more important factor in this. Internal cohesion can be lost just as well by fighting for power or status, rather than money. But that is not quantifiable. The poor really do care about money, but history is not decided by the poor, it is decided by elites who often care more about power and status. Okay, let's say it actually matters how many discontented poor supporters the rebellious elites can find. But whether the poor can be mobilized against the rich depends not really on the level of inequality but whether they have a Plan B. Of starting a business or something. Or more likely, directing their efforts outside the country, become a soldier for war loot, trade with colonies, start a farm or plantation on the colonies etc.

Very in depth discussion of debt and debt jubilees in the ancient world (east and west) here: http://www.unz.com/mhudson/the-delphic-oracle-was-their-davos/

The point about the rough-and-readiness of jubilee may be that actually banning debt/slavery is very difficult. Black markets appear. "Yes you can enslave a starving man but only up to the next jubilee" is an easily enforcible limitation.