CRANSTOUN: The question of debt goes much further back than Ricardo. In your work on Sumer and Babylonia, what were debt jubilees, and what problem were they designed to solve?
HUDSON: Beginning in the third millennium BC, in Sumer and Babylonia, every new ruler would start his rule with a clean slate. For three thousand years, the Middle East, Mesopotamia, and Egypt were the most rapidly growing parts of the world. Almost all of the economic phenomena that we have today, money, interest, and land tenure, emerged from this period.
All early economies operated on credit because there really was not much money. Most economies were agricultural. During the crop year, cultivators would run up debts. If they went to the bar, the ale woman would mark up what they drank on the tab, just like workers in Britain for years. The bartender would say: okay, I am marking up your IOU, and on payday you are going to pay it off.
Payday was when the crops came in. So cultivators owed money not only for beer. They owed money to priests who officiated at weddings, burials, or ceremonies. The palace or other people would lend them animals to help with the harvest.
When it came to harvest time, the agricultural families that had land tenure would bring their grain to the threshing floor, and the grain would be measured out and used to pay the debts they owed. This happened in Britain until about the fourteenth century. For British serfs, whatever their status on the land, harvest time was the time to pay their debts.
Sometimes there would be a problem. What if there was a flood? What if there was a drought? Around 1750 BC, Hammurabi of Babylon wrote laws holding that if the storm god prevented the crop from being harvested, then the population on the land would not be forced to pay their debts. If they were forced to pay, they would fall into bondage to their creditors, many of whom were palace officials, and would ultimately lose their land. You would have a landlord class, and you would have an oligarchy developing.
If that happened, the population would run away. Or, if they were attacked by another country, they would go over to the attackers if the attackers promised to cancel the debts. That is just what Hammurabi did after he conquered another kingdom. He would cancel the debts of the people.
So there were three elements that every Near Eastern realm carried out. This was the subject of the five volumes of economic history that I edited as part of my Harvard project for twenty-five years. You would cancel the debts. You would free the debt servants to go back to their families. You would return the slaves to their original owners, and you would restore the land.
These were, word for word, the measures that the Jewish population of Babylonia brought with them when they returned to Judea under Persian occupation. The result was the laws of Leviticus. That is the Jubilee year. The Jubilee year was what Hammurabi had proclaimed, not in his laws, but in the four debt cancellations that he proclaimed, and that every king in his dynasty began his rule by proclaiming......
HUDSON: From the fifth century BC to the time of Jesus, there is hardly any documentation in Judea about what was happening politically, because it was not written on clay. It was written on perishable papyrus or other material. But obviously the creditors fought back, and the Bible describes this in the form of the Sadducees and the Pharisees.
In Luke’s Gospel, Jesus is described as giving his first sermon when he goes back to Nazareth, his home city, and unrolls the scroll of Isaiah, where Isaiah calls for the year of the Lord’s favour, the debt Jubilee year. Jesus says this is what he has come to fulfil.
Now that we have the Dead Sea Scrolls, translated and published over the last half century or so, we can see that what Jesus was saying was part of a whole movement of debtors against creditors. They were all calling for this. Basically, Jesus’s message was to go back to the original Judaism, to the laws of Leviticus and Deuteronomy, the Mosaic Law, the Torah.
That became Christianity...........
......CRANSTOUN: You describe this as a five-thousand-year struggle over creditor power. Today that conflict also appears geopolitically — through sanctions, energy, and the dollar system. Where does Iran fit into that picture?
HUDSON: The Iran situation is not going to be solved. The United States is not addressing Iran’s decision to say: the world has changed. If you attack us, we are going to collect reparations. We are going to charge money for access to the Strait of Hormuz. And if you try to overthrow our government, if you attack us militarily again, then we are going to respond.
For the last century, the United States has based its foreign policy on control of the world’s oil. If you control oil, then you can cut off the energy supply to other countries if they do not follow the policies that you want. That is why the United States insisted, first of all, in 2022, on blocking Russia from exporting oil and gas to Europe. It is why the United States seized Venezuelan oil, whose proceeds are now paid into a bank account in Florida managed by Donald Trump.
The logic of Trump’s policy is: we want to overthrow Iran. In effect, it is: I want to appoint the new prime minister of Iran. I could act as prime minister myself, because I am going to control Iran’s oil exports, so that I will be in a position to restore America’s control of the whole international oil trade. Then I can cut off China, cut off Russia, and cut off any country that does not agree to impose trade sanctions against our enemies, Russia, China, and anyone else who seeks to achieve sovereignty along lines that we do not approve.
Iran has said: if you are going to destroy us, this is an existential problem for us. If you destroy us, we are going to prevent you from carrying out your designs to control the world, and certainly to control OPEC’s Arab countries. If we cannot export oil, then none of our fellow OPEC Middle Eastern countries can. We are going to blow it all up and plunge the whole world into depression.
Already, the interruption of oil trade through the Strait of Hormuz has created the conditions for what I think will be an economic depression by the end of this year. And if the United States attacks Iran again, Iran will destroy the oil export facilities that remain, all the way from the Emirates monarchies to Saudi Arabia, and the whole world could lose 20 per cent of its oil supply. That also means its supply of fertiliser, sulphur, and chemicals. Those are the stakes.
The United States is not able to make any agreement that Iran can accept, because Iran has said: you have grabbed $100 billion of our assets. We will not agree to any agreement based on what you promise to do, because you have broken your promise again and again. Until you pay us $25 billion as a signal that you are going to move to pay the remainder, we cannot accept it.
The US Congress has said that no matter what Trump and his negotiators agree with Iran, we in Congress are not going to permit any repayment of the money that we have grabbed. We have stolen it fair and square, as Senator Hayakawa once said. So there is not going to be an agreement. And without an agreement, there is going to be a continued interruption of oil trade. The world is going to be forced into a downturn.
What the increased price of oil has done is essentially create a financial crisis for Western banks. Suppose you are a Global South country. All of a sudden, the price of your fertiliser is up, the price of your oil is up. You are in the position of consumers who are being squeezed. How can you afford to pay your foreign debt, service your dollar debts, and still pay more money for energy and fertiliser for your agriculture?
Something has to give. What are they going to choose? Obviously, they are going to choose to preserve their livelihood. They need the energy. They are not going to pay their debts. There has to be a debt moratorium. The debts cannot be paid.
Since we have spent much of this conversation talking about how the Western countries cannot pay their debts, this inability to pay is even clearer for the Global South, Asian countries, and other countries that are now so debt-strapped within their own economies that, when you add foreign debt service to bondholders, they cannot pay.
The bondholders are not going to agree to any write-down. So what you are going to have is a break between the Western economies, the United States, Europe, and their associated states, probably including Japan, Korea, and so forth, and the rest of the world.
Trump’s and the US attempt to isolate Russia, China, and Iran is ending up isolating the United States and Europe from what has been the most rapidly growing economic area of the world: China, Russia, and Iran.
So what are countries in the middle going to do? Are they going to tie their economic fortunes to the United States, which itself is a shrinking market because of its deindustrialisation and financialisation? Or are they going to say: we see the world’s growth occurring in East Asia. We are going to try to be part of that growth and mutually benefit.
That is the choice. There is no assurance that countries are going to follow their own economic interest. So a materialist approach to history does not help very much here, because countries are not following their own interests. It is all political.
CRANSTOUN: That brings us back to the question of the issue: what is to be done? If the West wanted to restore productive capacity rather than preserve creditor claims, what would that actually require?
HUDSON: There is only one way to restore economic and industrial growth to Britain, Europe, and the United States. That is to write down the debts that have built up, especially in the United States, and I understand in Britain also, with student debts.
How on earth can graduates pay their student debts, and their mortgage debts, if they have their own home, and the rising rents to the absentee landlord class? This is just what the classical economists fought against. How can they break even unless they are paid a high enough salary to pay all of these debts?
If employees in Britain have to be paid enough money to pay their student debts, their mortgage debts, their rents, and their medical debts, then British labour will be as high-priced as American labour is. Twenty per cent of America’s national income now goes to medical insurance, because privatised medical care is incredibly expensive compared to public medical care.
So, in order to restore industrial growth, you would have to deprivatise the financial sector and the natural monopolies. The government would not be charging for water what Thames Water is charging. You would have to have a responsible bureaucracy, so there is no monopoly rent.
Essentially, you would have to do what John Stuart Mill urged: increase the tax on rising land prices so that landlords do not make money and capital gains in their sleep. You have to stop all of the tax advantages that you give to running into debt by treating interest payments as if they are a cost of production. They are not a cost of production. They are the cost of how industries are financed.
If a corporation says, well, we can borrow money to buy our own stocks, that is not a cost of production. That is a choice of financing, and it should not be treated as a tax-deductible expense. Because if the government does not collect the land rent, as I brought up with the Jubilee Line and with the Second Avenue line in New York City, then the rest of the population is going to pay it as an income tax.
That is almost like the kind of tribute payments that the classical economists wanted to free industrial Britain from on its way to becoming the workshop of the world, and as competitive as it was. It is the same thing in America: free the economy by preventing monopolists, and by using the government.
Everybody called this socialism at the time. Socialism was not a bad word. It was the natural evolution of industrial capitalism. The natural evolution was to socialise the natural monopolies and socialise the land rent, so that there was no longer any privatisation of rent, interest, and monopoly rent.
CRANSTOUN: The implication is bleak: the remedy is not technically mysterious, but politically almost impossible.
HUDSON: That is what it looks like.
