The Key to a Sustainable Economy Is 5,000 Years Old

We are again reaching the point in the business cycle known as “peak debt,” when debts have compounded to the point that their cumulative total cannot be paid. Student debt, credit card debt, auto loans, business debt and sovereign debt are all higher than they have ever been. As economist Michael Hudson writes in his provocative 2018 book, “…and forgive them their debts,” debts that can’t be paid won’t be paid. The question, he says, is how they won’t be paid.

Mainstream economic models leave this problem to “the invisible hand of the market,” assuming trends will self-correct over time. But while the market may indeed correct, it does so at the expense of the debtors, who become progressively poorer as the rich become richer. Borrowers go bankrupt and banks foreclose on the collateral, dispossessing the debtors of their homes and their livelihoods. The houses are bought by the rich at distress prices and are rented back at inflated prices to the debtors, who are then forced into wage peonage to survive. When the banks themselves go bankrupt, the government bails them out. Thus the market corrects, but not without government intervention. That intervention just comes at the end of the cycle to rescue the creditors, whose ability to buy politicians gives them the upper hand. According to free-market apologists, this is a natural cycle akin to the weather, which dates all the way back to the birth of modern economics in ancient Greece and Rome.

Hudson counters that those classical societies are not actually where our financial system began, and that capitalism did not evolve from bartering, as its ideologues assert. Rather, it devolved from a more functional, sophisticated, egalitarian credit system that was sustained for two millennia in ancient Mesopotamia (now parts of Iraq, Turkey, Kuwait and Iran). Money, banking, accounting and modern business enterprise originated not with gold and private trade, but in the public sector of Sumer’s palaces and temples in the third millennium B.C. Because it involved credit issued by the local government rather than private loans of gold, bad debts could be periodically forgiven rather than compounding until they took the whole system down, a critical feature that allowed for its remarkable longevity.

The True Roots of Money and Banking

Sumer was the first civilization for which we have written records. Its notable achievements included the wheel, the lunar calendar, our numerical system, law codes, an organized hierarchy of priest-kings, copper tools and weapons, irrigation, accounting and money. It also produced the first written language, which took the form of cuneiform figures impressed on clay. These tablets were largely just accounting tools, recording the flow of food and raw materials in the temple and palace workshops, as well as IOUs (mainly to these large public institutions) that had to be preserved in writing to be enforced. This temple accounting system allowed for the coordinated flow of credit to peasant farmers from planting to harvesting, and for advances to merchants to engage in foreign trade.

In fact, it was the need to manage accounts for a large labor force under bureaucratic control that is thought to have led to the development of writing. The people willingly accepted this bureaucratic control because they viewed the gods as having decreed it. According to their cuneiform writings, humans were created to work in the fields and the mines after certain lower gods tasked with that hard labor rebelled.

Usury, or the charging of interest on loans, was an accepted part of the Mesopotamian credit system. Interest rates were high and remained unchanged for two millennia. But Mesopotamian scholars were well aware of the problem of “debts that can’t be paid.” Unlike in today’s academic economic curriculum, Hudson writes:

Babylonian scribal students were trained already c. 2000 BC in the mathematics of compound interest. Their school exercises asked them to calculate how long it took a debt at interest of 1/60th per month to double. The answer is 60 months: five years. How long to quadruple? 10 years. How long to multiply 64 times? 30 years. It must’ve been obvious that no economy can grow in keeping with this rate of increase.

Sumerian kings solved the problem of “peak debt” by periodically declaring “clean slates,” in which agrarian debts were forgiven and debtors were released from servitude to work as tenants on their own plots of land. The land belonged to the gods under the stewardship of the temple and the palace and could not be sold, but farmers and their families maintained leaseholds to it in perpetuity by providing a share of their crops, service in the military and labor in building communal infrastructure. In this way, their homes and livelihoods were preserved, an arrangement that was mutually beneficial, since the kings needed their service.

Jewish scribes, who spent time in captivity in Babylon in the sixth century B.C, adapted these laws in the year or jubilee, which Hudson argues was added to Leviticus after the Babylonian captivity. According to Leviticus 25:8-13, a Jubilee Year was to be declared every 49 years, during which debts would be forgiven, slaves and prisoners freed and their property leaseholds restored. As in ancient Mesopotamia, property ownership remained with Yahweh and his earthly proxies. The Jubilee law effectively banned the outright sale of land, which could only be leased for up to 50 years (Leviticus 25:14-17). The Levitican Jubilee represented an advance over the Mesopotamian “clean slates,” Hudson says, in that it was codified into law rather than relying on the whim of the king. But its proclaimers lacked political power, and whether the law was ever enforced is unclear. It served as a moral rather than a legal prescription.

Ancient Greece and Rome adopted the Mesopotamian system of lending at interest, but without the safety valve of periodic “clean slates,” since the creditors were no longer the king or the temple, but private lenders. Unfettered usury resulted in debt bondage and forfeiture of properties, consolidation into large landholdings, a growing wedge between rich and poor, and the ultimate destruction of the Roman Empire.

As for the celebrated development of property rights and democracy in ancient Greece and Rome, Hudson argues that they did not actually serve the poor. They served the rich, who controlled elections, just as rich donors do today. Taking power away from local governments by privatizing once-communal lands allowed private creditors to pass laws by which they could legally confiscate property when their debtors could not pay. “Free markets” meant the freedom to accumulate massive wealth at the expense of the poor and the state.

Hudson maintains that when Jesus Christ preached “forgiveness of debts,” he was also talking about economic debt, not just moral transgressions. When he overturned the tables of the money changers, it was because they had turned a house of prayer into “a den of thieves.” But creditors’ rights had by then gained legal dominance, and Christian theologians lacked the power to override them. Rather than being a promise of economic redemption in this life, forgiveness of debts thus became a promise of spiritual redemption in the next.

How to Pull Off a Modern Debt Jubilee

Such has been the fate of debtors in modern Western economies. But in some modern non-Western economies, vestiges of the debt write-off solution remain. In China, for instance, nonperforming loans are often carried on the books of state-owned banks or canceled rather than putting insolvent debtors and banks into bankruptcy. As Dinny McMahon wrote in June in an article titled “China’s Bad Data Can Be a Good Thing”:

In China, the state stands behind the country’s banks. As long as authorities ensure those banks have sufficient liquidity to meet their obligations, they can trundle along with higher delinquency levels than would be regarded safe in a market economy.

China’s banking system, like that of ancient Mesopotamia, is largely in the public sector, so the state can back its banks with liquidity as needed. Interestingly, the Chinese state also preserves the ancient Near Eastern practice of retaining ownership of the land, which citizens can only lease for a period of time.

In Western economies, most banks are privately owned and heavily regulated, with high reserve and capital requirements. Bad loans mean debtors are put into foreclosure, jobs and capital infrastructure are lost, and austerity prevails. The Trump administration is now aggressively pursuing a trade war with China in an effort to level the playing field by forcing it into the same austerity regime, but a more productive and sustainable approach might be for the U.S. to engage in periodic debt jubilees itself.

The problem with that solution today is that most debts in Western economies are owed not to the government but to private creditors, who will insist on their contractual rights to payment. We need to find a way to pay the creditors while relieving the borrowers of their debt burden.

One possibility is to nationalize insolvent banks and sell their bad loans to the central bank, which can buy them with money created on its books. The loans can then be written down or voided out. Precedent for this policy was established with “QE1,” the Fed’s first round of quantitative easing, in which it bought unmarketable mortgage-backed securities from banks with liquidity problems.

Another possibility would be to use money generated by the central bank to bail out debtors directly. This could be done selectively, by buying up student debt or credit card debt or car loans bundled as “asset-backed securities,” then writing the debts down or off, for example. Alternatively, debts could be relieved collectively with a periodic national dividend or universal basic income paid to everyone, again drawn from the deep pocket of the central bank.

Critics will object that this would dangerously inflate the money supply and consumer prices, but that need not be the case. Today, virtually all money is created as bank debt, and it is extinguished when the debt is repaid. That means dividends used to pay this debt down would be extinguished, along with the debt itself, without adding to the money supply. For the 80% of the U.S. population now carrying debt, loan repayments from their national dividends could be made mandatory and automatic. The remaining 20% would be likely to save or invest the funds, so this money too would contribute little to consumer price inflation; and to the extent that it did go into the consumer market, it could help generate the demand needed to stimulate productivity and employment. (For a fuller explanation, see Ellen Brown, “Banking on the People,” 2019).

In ancient Mesopotamia, writing off debts worked brilliantly well for two millennia. As Hudson concludes:

To insist that all debts must be paid ignores the contrast between the thousands of years of successful Near Eastern clean slates and the debt bondage into which [Greco-Roman] antiquity sank. … If this policy in many cases was more successful than today’s, it is because they recognized that insisting that all debts must be paid meant foreclosures, economic polarization and impoverishment of the economy at large.


This article was first posted on Ellen Brown chairs the Public Banking Institute and has written thirteen books, including her latest, Banking on the People: Democratizing Money in the Digital Age She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at

30 Responses

  1. If someone knew their debt would eventually be forgiven, why wouldn’t they just keep borrowing more and more? He with the largest debt will have the most fun.

  2. Excellent post. This is why China will not “liberalize” their banking system as Trump and the West want.

    Steve Keen has also promoted a similar debt forgiveness by the government providing a debt forgiveness program where the debtor must pay their “dividend” to the creditor(s) and either save or spend the “dividend” for those that are debt free.

    • Hmm . . . sounds like a bank bailout to me. The banks made bad “loans” (writing the credit into their books) to students and car buyers and should not have their bad loans made good by the taxpayer. It stinks of irresponsibility. I say nationalize the predatory private banks–they’re the main source of the problem.

  3. A bank loan is the rental of credit with the rental fee in the same units as that which is rented. Can you imagine renting 10 cars for a year and having to pay back 11 cars? A bank cannot operate without money being already in the economy, ie money to pay the interest. The crash point is very easy to describe mathematically, the crash point being where loans cannot be repaid because they exceed the money in the economy. The variables that define when the crash will happen are the interest rate and the quantity of sovereign money spent by the government into the economy. Banks, thinking in short term fashion, have negated almost all sovereign spending. US Notes and Silver Certificates are gone. Dollar coins are not distributed and half dollar coins are no longer minted. Pennies and nickles carry negative seigniorage with only dimes and quarters having positive seigniorage. In 2016 quarter minting carried a seigniorage of about 400 million dollars. Social Security is also a form of sovereign spending but other payments to government workers etc are balanced out by the tax and borrow process.

  4. While you may well be right about the origin of “money” and “banking”, Ellen, I don’t think that is relevant to the way banking works today.
    It seems to be an unrecognised fact that virtually all profit is derived from debt. Profits can only come from consumption – if the production is not consumed it will not produce a single dollar of profit. However, when 90% plus of a nation’s money supply is created as interest-bearing debt, it means that the vast amount of purchasing power must come from using that debt “money”.
    Under the present system, even most of the Government created money is created as debt through the selling of interest-bearing bonds or treasuries.
    Perhaps, the answer is not so much focusing on a debt write off but to look at eliminating the compounding of interest. Within the concept of a “democracy”, we do not create a Government to rule over us. In today’s world, “money” has become an essential service for everyone’s survival. As such, isn’t it logical that the Government should fulfill its responsibility in providing the nation with an acceptable and guaranteed medium of exchange that can be done in a way to benefit the society? One way this could be done is for the Government to sell access to “credit” to the private banks who would then pass it onto their customers. The loans would be based on a proper due diligent assessment along with an admin fee over the period of the loan and a competitive profit margin but without any interest charges.
    The fee charged by the Government for providing the “credit” access would be calculated to provide sufficient revenue to eliminate every other form of taxation now imposed and hampering the economy.

  5. Also, their development of democracy was accompanied by theater!

  6. Government created money is unlike bank created money The latter is a liability, the former has no liability. Otherwise the government budget would not be possible. The deficit side is the creation side. the tax is the destruction side, The mainstream, saying taxes are revenue, cannot work as a budget with spending on both sides of the ledger.

    The deficit is free of liability because the paying off/ buying the deficits’ debts extinguishes them at the same instant that it creates the currency. All government spending creates currency into the non government sector. The creditors now have the currency which the government has paid and it can then be spent into the economy.

  7. There is no way a debt forgiveness (jubilee) will ever be enacted by the current political regime. With a massive amount of public education it might be done by a constitutional amendment, but there will always be the problem that those who have been responsible will feel cheated when those who have been irresponsible are absolved.

    In any case, I floated the idea more than 8 years ago:

    to the usual effect, which is to say none.

    The only other “solution” that doesn’t involve an immediate social catastrophe is what we have been doing so far, which is to kick the can down the road. Eventually this will fail in spectacular fashion, key word being “eventually”. It has already gone on much longer than a rational calculation would consider possible. The capacity for mass delusion is far greater than I could have imagined in my youth.

    One other problem, a really big one, is that there is no way to pick and choose which debts will be forgiven. It has to be an across the board thing. The effects of this are so far reaching and dramatic that it’s hard for people to get their heads around it. That also makes it a tough sell, politically.

    If we were really a “self-governing” people a constitutional amendment would be possible, I think. But that horse left the barn a long time ago. Realistically, jubilees can happen only when you’re governed by an enlightened monarch.

    • Maybe, JMRJ, the solution is not so much in debt forgiveness but more in eliminating compounding of the interest. The interest charges on a routine home mortgage over, say, 25 or 30 years, will amount to something in the order of 200% more than the original principle loaned. That is the real “killer” in the system as it perpetuates the continuation of a lot of additional money in order to service the interest payments.
      Borrowing under a due diligent regime and done for the constructive benefit of the society can be a good thing when managed responsibly. The onus on “responsibly managed” is on both the borrower and the lender and if the interest charges are eliminated then the money supply would be better related to a balance between the productive potential of a nation and the nation’s consumption potential. A properly managed money supply should try to achieve such a relative balance based on the population levels.
      Logically, only the issuer of the nation’s legal tender is in a position to monitor and control the money supply, hence the concept of the Government selling access to the needed “credit” to the private banks to pass on with a competitive admin and profit margin but without any interest charges. All such loans would be covered by a due diligent analysis for the constructive benefit of the nation and not allowed for pure speculation or gambling, such as playing the stock and commodity markets.
      Then, the banking system might get back to the proper function they should serve, that of distributing the nation’s money supply for the benefit of the society and not for the benefit of the banking fraternity.

      • Indeed, stopping interest repayments from compounding would be an excellent idea. The debt jubilee in our era of private ownership of everything will only be a last resort. Here in Australia I believe all land is crown land, so making that more understood could reduce the wealth the private sector gains today.

  8. Seems everyone forgets that Economics is a philosophy, not a science. That’s why this or that particular Economic system doesn’t work no matter how it is tried. When was any Economic system put to a double-blind study? Never. It just can’t be done. Economics can’t be put through the rigors of a scientific study. Consequently, none of them will ever work.

    • True as that sounds, there IS an economy and we need to understand it. To do that you have to jettison all the lies and obfuscations overlaying and distorting it. The arrival of text books on MMT are explanations of the real workings of the economy. The Economy is certainly not perfect, but if we understand it it will allow vastly superior results. Certainly to reduce inequalities is one.

  9. […] The Key to a Sustainable Economy Is 5,000 Years Old […]

  10. Some commentors have asked why anyone would lend or pay back if a jubilee was known to occur. I would suggest that Jubilee was a solution used in context of buying and selling at low profit margins! See Leviticus 25: 36-37 In commerce there is no real way to “break even” because one doesn’t know future expenses, one only knows what they paid for something or how much labor it took to make. Changes occur constantly in the natural world, so a harvest or materials could be in great or meager supply, but one needs to consume regardless (at differently levels) and all this creates a ‘chaotic’ marketplace which an invisible hand is alleged to reign over. If someone is in great debt, it follows that others are enjoying great wealth. This inequality leads to social conflict. Both Leviticus and Adam Smith wrote in favor of low profit margins, because the real ‘wealth of a nation’ is in the social contract, not in private accumulation. Adam Smith, like Marx and Jesus and the old testament have all been turned on their head. In a low profit society everyone is happy. In a high profit society, there is social strife. See also The Great Wave by David Hackett Fischer. All debt is really “profit.” 2+2=4. Profit is 2+2=5. As you compound this false math, the problem gets worse (ie national debt of trillions) and wealth separates between winners and losers. Whereas a jubilee at a constant and fixed schedule, and low profit margins, avoids the wealth extremes. It makes jubilees politically easy because it isn’t that big a change. Everyone knows the numbers on paper are meaningless. We have made them too important because everyone is afraid of debt, and the response to volatility and instability is to make the problem worse by increasing profit margins as a means of survival.

  11. Please change my email to: Thanks, Lee Schilling


  12. My understanding of the ancient history of Mesopotamian Jubilee – via Hudson – is that it was generally declared by newly crowned kings, as opposed to the periodic version (every 49 or 50 years) noted in the Old Testament/Torah. IMO, the difference is significant.

    A periodic Jubilee would lead to regular cycles of expansion/contraction in the economy (expectations would affect Rates). In the years immediately preceding a scheduled Jubilee, (private?) capital would dry up. After the Jubilee, capital would be readily available, at low rates, creating a Boom. A drought in the lean years could be disastrous for the society.

    OTOH, if Jubilees are a-periodic and not announced in advance, rates would be flatter through time (risk gets spread more evenly), diminishing the Boom-Bust cycle and reducing the risk of famine.

    But perhaps a more relevant point about Mesopotamia is that political & economic power was highly centralized – more like modern China than any Western nations.

    I disagree strongly with one sentence in Ellen’s original Post: “We need to find a way to pay the creditors while relieving the borrowers of their debt burden”. These days, Creditors are Predators; let’s use the next Crash to claw back some power from the Banksters and build Public Banks. Just Nationalize failing Banks – screw the stockholders – and declare Jubilee.

    Even better – a “Progressive” Jubilee where the amount of debt forgiven is inversely proportional to a person’s total Debt! So, if somebody is having trouble paying off a $5k loan on a 10-year old car, just wipe the debt; but somebody who bought a bunch of McMansions to flip is still on the hook for most of it.

    Ellen, thanks for keeping up the good fight!

    • The answer is staring everyone right in the face:


      A bit of analysis: an actual government (quoting myself) is “one or more persons who claim natural resources, are willing and able to defend those resouces, and make and enforce decisions regarding the allocation of those resources”. Ergo, the government is the actual (de facto) owner of everything within its domain, and, when you come down to it, we are all government property; all money is government money, and all debt is government debt: money is allocated to persons, businesses or any other economic entity to keep track of what the government has decided they are owed in goods and/or services. So everyone’s cash or electronic equivalent likewise gets converted into credits into the new accounts. Interest-bearing loans would not be allowed using the new credit money (as that would be counterfeiting), but cash and interest-bearing notes could be purchased from banks (like you buy a loaf of bread at the grocery store, you would buy some cash or a loan on a car or house from the bank, the catch being that banks will no longer be propped up by the government when they over-extend). A small, flat “infrastructure maintenance fee” on the new (captured) wealth accounts should replace all income-based taxation, fund all levels of government on an equi-dollar basis, and have plenty left over to fund $500 per week of government compensation for having taken every legal resident’s right to free access to land sufficient to support their right to life, so there you got your UBI to boot. More on the website.

  13. To believe “Government created money is unlike bank created money The latter is a liability, the former has no liability. “ as John Doyle claims above, is an illusion.

    It is correct that the commercial bank created money can be paid off and subject to collection, but it is incorrect to conclude the Federal Reserve created money (sic, book entry credit creation) will not be subject to collect attempts.

    The Fed runs a Ponzi scheme that created a National Debt of principal by the issuance of Treasury securities. The acts ostensibly creates a debt that requires payment of the principal PLUS THE INTEREST at maturity. The interest is never created; it does not exist, it cannot be paid. The contract is an act of fraud which is void upon it inception. Ref.

    But this is not to say the touted (national debt) liability may not exist. Even though fraud has been used to build a National Debt, the ultimate inherent bankruptcy of the Ponzi scheme will see the (select) Primary Dealers, who are tasked with the responsibility of collecting maturing Treasury securities for redeeming with payment handled EXCLUSIVELY by the FRBNY (ref. 31 CFR 375.3), will be demanding payment in insolvency by the seizure of national assets at firesale value. Ref.

    The PD’s will demand liability be paid in the same manner Greece must pay their national debt to the Troika—assuming the fraudulent nature of the Federal Reserve/PD’s is not exposed.


    • Sorry, Mate. You are not correct. Fed money loses its liability when it is created because it is created to pay off the government’s debts, After that the customer can spend it into the economy.

      It most certainly not a ponzi scheme. Do you understand what that is? It happens when contributions are spent to pay off earlier contributions. The fed never uses “old” money, It is a bit like the bank in Monopoly, always handing out fresh notes. The so called national debt is old money, funds used from old fiscal deficits that have not been taxed. The interest is a debt and the created money pays it off.n taxed away, to buy at auction offered bonds at interest. It can be best described as corporate welfare.

      Why I say it is a fraud is because Congress is doing this to make us believe its bills are needing it, which is wrong on 2 counts. Firstly its old money and secondly the initial purchase of the debts has already settled any claim to them.

  14. Hello there,

    I host a weekly radio show on WUSB, a 3,600 watt non-commercial station located on the campus of Stony Brook University, in NY. I interview guests on topics such as foreign policy, the environment, healthcare, voting reform, human and animal rights, and whatever fire needs to be put out.

    Our signal can be heard at 90.1 FM on most of Long Island, and in Southern Connecticut, parts of NYC (Brooklyn and Queens), and Westchester County, also simulcasting on 107.3 to reach Stony Brook University campus. Over the Internet we livestream from our website at .

    Would Ellen Brown be available for a live phone interview? I would like to feature her on my program, which takes place on Mondays, between 12:30 and 1:30 PM. The show is an hour long, which allow for guests to go deeper into topics as they normally would have the chance to, though I’ll take as little or as much time as she can spare.


    Pauline Salotti Radio Host @ WUSB Stony Brook 90.1 FM (Mondays at noon) Solar Energy Consultant at SUNation 631.456.0637


  15. Ellen writes about modern debt forgiveness:

    “This could be done selectively, by buying up student debt or credit card debt or car loans bundled as “asset-backed securities,” then writing the debts down or off, for example.”

    Don’t forget the crushing, suicide driving, small farmers’ debt.

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