Debt Forgiveness in Ancient Societies

Most of us think of debt as something that must be repaid. After all, you decided to borrow the money; you should have to deal with the consequences. However, historically, there has been an awareness that there are different types of debt, some of which are regarded as corrosive to social functioning.

As economist Michael Hudson explains, in many different Bronze Age societies in the Near East, including Babylonia and Assyria, rulers often practiced widespread debt forgiveness. Records of such practices “have been excavated in Lagash, Assur, Isin, Larsa, Babylon and other Near Eastern cities as far west as Asia Minor.”[[13]]

Debt cancellation was not for all debts, such as those incurred by merchants for capital growth purposes or by wealthy landowners for their townhomes. Rulers forgave the debts of the agrarian population and aimed for nothing “above the basic subsistence needs of citizens…. The aim was not equality as such, but the assurance of self-supporting land and production for the citizenry.”[[14]]

Hudson continues, “Rulers sought to check the economic power of wealthy creditors, military leaders or local administrators from concentrating land in their own hands and taking the crop surplus for themselves at the expense of the tax collector.”[[15]]

Why would rulers do this? Essentially, to be able to continue their rule. Hudson writes,

When harvests failed as a result of drought, flood or pests, there was not enough crop surplus to pay agrarian debts. In such cases rulers canceled debts owed above all to themselves and their officials, and increasingly to private creditors as well. The palace had little interest in seeing these creditors force debtors into bondage.[[16]]

It was better to have a loyal population that could feed itself than one indebted and indentured to a small, wealthy class, for two reasons. One, rulers needed a free population to join the army or to help build public infrastructure, such as temples and city walls, when called upon. Two, a population that was in debt bondage to anyone other than the ruler would be a threat to their rule. Thus, as Hudson argues, “For thousands of years, economic polarization was reversed by canceling debts and restoring land tenure to smallholders who cultivated the land, fought in the army, paid taxes and/or performed corvée labor duties (what we would now call public works projects).”[[17]]

Canceling debts so that people could continue to survive, pay taxes, and fight for the military was a strategic move on the part of the ruler. It acknowledged that not all debt is a result of uncontrolled spending; sometimes natural events such as droughts and challenges such as war put excessive strain on populations.

Debt forgiveness by rulers faded away during the Roman Empire. In this period, instead of protecting debtors from losing their property and livelihoods, governments began protecting creditors from loss. The general attitude toward debt became more like what we’re familiar with today: “Moral blame is placed on debtors, as if their arrears are a personal choice rather than stemming from economic strains that compel them to run into debt simply to survive.”[[18]]

But not recognizing the different kinds of debt and their potential impacts on the stability of leadership can have negative consequences. According to Roman historians, including Livy and Plutarch, “Classical antiquity [was] destroyed mainly by creditors using interest-bearing debt to impoverish and disenfranchise the population. Barbarians always stood at the gates, but only as societies weakened internally were their inventions successful.”[[19]]