Debt: The first five thousand years(blog.longnow.org)
blog.longnow.org
Debt: The first five thousand years
http://blog.longnow.org/2010/04/22/debt-the-first-five-thousand-years/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+longnow+%28The+Long+Now+Blog%29
7 comments
Interesting. I've read that under the rules of Islamic finance, which forbid lending at interest, people have exploited similar loopholes. In the UK, HSBC (I think) offers an "Islamic mortgage" product, in which the bank purchases the house, the prospective homeowner rents it, and the bank agrees to give him the house if he's a good renter for thirty years. The loan market interprets lenience as damage and routes around it.
Yes, the house rental trick was big in the European middle ages: sometimes the lender would just pretend to "buy" the borrowers' house, and charge him "rent" for his own house until he "buys" it back.
Still, the remarkable thing from the Medieval documents we have from the Middle East is that most people actually did follow the rules: they used to do profit-sharing instead of interest; lenders would become partners instead.
As for the pruzbul I believe that was introduced by Rabbi Hillel around the time of King Herod, a much later period. The remarkable thing is that jubilees were institutionalized in one form or another in much of the Middle East for many thousand years before that and it didn't cause significant economic disruption. Yes, the house rental trick was big in the European middle ages: sometimes the lender would just pretend to "buy" the borrowers' house, and charge him "rent" for his own house until he "buys" it back.
Still, the remarkable thing from the Medieval documents we have from the Middle East is that most people actually did follow the rules: they used to do profit-sharing instead of interest; lenders would become partners insteadThese two lines seem somewhat obvious, but are actually quite insightful to me now that I think about:
> This is not because [kings] are hostile to markets. On the contrary, they normally encourage them, for the simple reason that governments find it inconvenient to levy everything they need (silks, chariot wheels, flamingo tongues, lapis lazuli) directly from their subject population; it’s much easier to encourage markets and then buy them.
> This actually helps explain the rather puzzling behaviour on the part of royal courts: after all, since kings usually controlled the gold and silver mines, what exactly was the point of stamping bits of the stuff with your face on it, dumping it on the civilian population, and then demanding they give it back to you again as taxes? It only makes sense if levying taxes was really a way to force everyone to acquire coins, so as to facilitate the rise of markets, since markets were convenient to have around.
> This is not because [kings] are hostile to markets. On the contrary, they normally encourage them, for the simple reason that governments find it inconvenient to levy everything they need (silks, chariot wheels, flamingo tongues, lapis lazuli) directly from their subject population; it’s much easier to encourage markets and then buy them.
> This actually helps explain the rather puzzling behaviour on the part of royal courts: after all, since kings usually controlled the gold and silver mines, what exactly was the point of stamping bits of the stuff with your face on it, dumping it on the civilian population, and then demanding they give it back to you again as taxes? It only makes sense if levying taxes was really a way to force everyone to acquire coins, so as to facilitate the rise of markets, since markets were convenient to have around.
> This actually helps explain the rather puzzling behaviour on the part of royal courts: after all, since kings usually controlled the gold and silver mines, what exactly was the point of stamping bits of the stuff with your face on it, dumping it on the civilian population, and then demanding they give it back to you again as taxes? It only makes sense if levying taxes was really a way to force everyone to acquire coins, so as to facilitate the rise of markets, since markets were convenient to have around.
And that's still a very good story for the "backing" of our modern currencies. Apart from the effects of having stable equilibrium, i.e. everyone excepts currency because everyone else does--which is probably the much bigger effect in anything but the very long term.
And that's still a very good story for the "backing" of our modern currencies. Apart from the effects of having stable equilibrium, i.e. everyone excepts currency because everyone else does--which is probably the much bigger effect in anything but the very long term.
Yep, you can use anything you want as currency, but your government wants paying in the currency it prefers, and since you have to have some of that for them anyway, why not use it everywhere else too?
Another factor is that the world trades oil in USD. So you want to have some of your local currency and some USD around... That's why the dollar is the reserve currency of choice.
Another factor is that the world trades oil in USD. So you want to have some of your local currency and some USD around... That's why the dollar is the reserve currency of choice.
The Long Now's museum/offices at Fort Mason in San Francisco are well worth the trip, if you ever get the chance. They have all sorts of models of the mechanisms for their 10,000 year clock, as well as copies of the Rosetta disc documenting the world's languages. After reading Anathem, getting to see the binary adder at quarter scale was... almost a religious experience. :)
Anyway, they raise an interesting question here--one that I never considered at such scope. Not sure if I agree with their conjecture about violence creating markets, yet.
Anyway, they raise an interesting question here--one that I never considered at such scope. Not sure if I agree with their conjecture about violence creating markets, yet.
Very interesting. Under the section on the Middle Ages, there's a brief reference to the Chinese adopting paper money and such; does anyone happen to have a good resource for learning more about this period? It's always interesting to go back and look at such a drastic shift, as I'm assuming that likely was.
"Biblical prophets instituted a similar custom, the Jubilee, whereby after seven years all debts were similarly cancelled.... As economist Michael Hudson has pointed out, it seems one of the misfortunes of world history that the institution of lending money at interest disseminated out of Mesopotamia without, for the most part, being accompanied by its original checks and balances."
Seven years of slavery for you, your spouse, and your children seems like a fairly high ceiling for punishments. Are the author and Michael Hudson implying that the maximum punishment today -- bankruptcy -- is even more severe?
Seven years of slavery for you, your spouse, and your children seems like a fairly high ceiling for punishments. Are the author and Michael Hudson implying that the maximum punishment today -- bankruptcy -- is even more severe?
This type of debt slavery is not like the slavery of the blacks. For example the owner was forbidden from any kind of corporal punishment, the slaves ate exactly the same food as the owner, and their beds had to be at least as good as those of the owner.
You couldn't leave, and the owner got to choose your wife for you (if you were not already married), so it was not the same as freedom, but it also was not the same type of slavery you are probably thinking about.
There was a whole procedure a slave had to go through if he voluntarily chose to stay after 7 years - not something you would expect if it was the severe punishment you are thinking of.
There was also a concept of war slaves, which was different from debt slavery.
You couldn't leave, and the owner got to choose your wife for you (if you were not already married), so it was not the same as freedom, but it also was not the same type of slavery you are probably thinking about.
There was a whole procedure a slave had to go through if he voluntarily chose to stay after 7 years - not something you would expect if it was the severe punishment you are thinking of.
There was also a concept of war slaves, which was different from debt slavery.
This article had great perspective. We tend to believe our current fiat money is something "new" and "modern" when in reality metal/virtual currency seems to move in cycles (as the author points out). We also tend to believe this most recent economic crisis was a modern contrivance as well, when in reality it bears striking similarity to many crisis from previous centuries. Ken Rogoff and Carmen Reinhart wrote about the similarity between the current economic collapse and previous valuation bubbles and currency crisis in their book "This Time It's Different" which might be good further reading for anybody who was intrigued by this article.
http://www.amazon.com/This-Time-Different-Centuries-Financia...
http://www.amazon.com/This-Time-Different-Centuries-Financia...
See also "Slapped in the Face by the Invisible Hand: Banking and the Panic of 2007" ( http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401882) previously on HN.
What an intriguing idea is fostered by the longnow.org. I've heard of slow food but this moves it all on to a much longer time frame. Thanks for shining a light on these endeavours.
One error (omission actually) I noticed. He talks about the checks and balances on debt caused by canceling debts every jubilee (7 years). But does not mention that in practice what actually happened is that people would refuse to lend money the closer it got to the jubilee.
And this refusal actually caused social ills, because people needed loans. So in the talmud they instituted something called a http://en.wikipedia.org/wiki/Pruzbul which allowed people to collect debts after the jubilee by turning the debt over to the court.
It's still quite interesting though, just thought I'd share some more info on the subject.