The DNA of Western civilization is financially unstable

The Delphic Oracle Was Their Davos: A Four-Part Interview With Michael Hudson: (Part 3)

Cross-posted from Naked Capitalism

By John Siman, who is also the author of Part 1 and Part 2 in this series

John Siman: It seems that unless there’s a Hammurabi-style “divine king” or some elected civic regulatory authority, oligarchies will arise and exploit their societies as much as they can, while trying to prevent the victimized economy from defending itself.

Michael Hudson: Near Eastern rulers kept credit and land ownership subordinate to the aim of maintaining overall growth and balance. They prevented creditors from turning citizens into indebted clients obliged to work off their debts instead of serving in the military, providing corvée labor and paying crop rents or other fees to the palatial sector.

JS: So looking at history going back to 2000 or 3000 BC, once we no longer have the powerful Near Eastern “divine kings,” there seems not to have been a stable and free economy. Debts kept mounting up to cause political revolts. In Rome, this started with the Secession of the Plebs in 494 BC, a century after Solon’s debt cancellation resolved a similar Athenian crisis.

MH: Near Eastern debt cancellations continued into the Neo-Assyrian and Neo-Babylonian Empires in the first millennium BC, and also into the Persian Empire. Debt amnesties and laws protecting debtors prevented the debt slavery that is found in Greece and Rome. What modern language would call the Near Eastern “economic model” recognized that economies tended to become unbalanced, largely as a result of buildup of debt and various arrears on payments. Economic survival in fact required an ethic of growth and rights for the citizenry (who manned the army) to be self-supporting without running into debt and losing their economic liberty and personal freedom. Instead of the West’s ultimate drastic solution of banning interest, rulers cancelled the buildup of personal debts to restore an idealized order “as it was in the beginning.”

This ideology has always needed to be sanctified by religion or at least by democratic ideology in order to prevent the predatory privatization of land, credit, and ultimately the government. Greek philosophy warned against monetary greed [πλεονεξία,pleonexia] and money-love [φιλοχρηματία, philochrêmatia] from Sparta’s mythical lawgiver Lycurgus to Solon’s poems describing his debt cancellation in 594 and the subsequent philosophy of Plato and Socrates, as well as the plays of Aristophanes. The Delphic Oracle warned that money-love was the only thing that could destroy Sparta [Diodorus Siculus 7.5]. That indeed happened after 404 BC when the war with Athens ended and foreign tribute poured into Sparta’s almost un-monetized regulated economy.

The problem, as famously described in The Republic and handed down in Stoic philosophy, was how to prevent a wealthy class from becoming wealth-addicted, hubristic and injurious to society. The 7th-century “tyrants” were followed by Solon in Athens in banning luxuries and public shows of wealth, most notoriously at funerals for one’s ancestors. Socrates went barefoot [ἀνυπόδητος, anupodêtos] to show his contempt for wealth, and hence his freedom from its inherent personality defects. Yet despite this universal ideal of avoiding extremes, oligarchic rule became economically polarizing and destructive, writing laws to make its creditor claims and the loss of land by smallholders irreversible. That was the opposite of Near Eastern Clean Slates and their offshoot, Judaism’s Jubilee Year.

JS: So despite the ideals of their philosophy, Greek political systems had no function like that of Hammurabi-like kings — or philosopher-kings for that matter — empowered to hold financial oligarchies in check. This state of affairs led philosophers to develop an economic tradition of lamentation instead. Socrates, Plato and Aristotle, Livy and Plutarch bemoaned the behavior of the money-loving oligarchy. But they did not develop a program to rectify matters. The best they could do was to inspire and educate individuals — most of whom were their wealthy students and readers. As you said, they bequeathed a legacy of Stoicism. Seeing that the problem was not going to be solved in their lifetimes, they produced a beautiful body of literature praising philosophical virtue.

MH: The University of Chicago, where I was an undergraduate in the 1950s, focused on Greek philosophy. We read Plato’s Republic, but they skipped over the discussion of wealth-addiction. They talked about philosopher-kings without explaining that Socrates’ point was that rulers must not own land and other wealth, so as not to have the egotistical tunnel vision that characterized creditors monopolizing control over land and labor.

JS: In Book 8 of the Republic, Socrates condemns oligarchies as being characterized by an insatiable greed [ἀπληστία,aplêstia] for money and specifically criticizes them for allowing polarization between the super-rich [ὑπέρπλουτοι, hyper-ploutoi] and the poor [πένητες, penêtes], who are made utterly resourceless [ἄποροι, aporoi].

MH: One needs to know the context of Greek economic history in order to understand The Republic’s main concern. Popular demands for land redistribution and debt cancellation were resisted with increasing violence. Yet few histories of Classical Antiquity focus on this financial dimension of the distribution of land, money and wealth.

Socrates said that if you let the wealthiest landowners and creditors become the government, they’re probably going to be wealth-addicted and turn the government into a vehicle to help them exploit the rest of society. There was no idea at Chicago of this central argument made by Socrates about rulers falling subject to wealth-addiction. The word “oligarchy” never came up in my undergraduate training, and the “free market” business school’s Ayn Rand philosophy of selfishness is as opposite from Greek philosophy as it is from Judeo-Christian religion.

JS: The word “oligarchy” comes up a lot in book 8 of Plato’s Republic. Here are 3 passages:

1. At Stephanus page 550c … “And what kind of a regime,” said he, “do you understand by oligarchy [ὀλιγαρχία]?” “That based on a property qualification,” said I, “wherein the rich [πλούσιοι] hold office [550d] and the poor man [πένης, penês] is excluded.

2. at 552a … “Consider now whether this polity [i.e. oligarchy] is not the first that admits that which is the greatest of all such evils.” “What?” “The allowing a man to sell all his possessions, which another is permitted to acquire, and after selling them to go on living in the city, but as no part of it, neither a money-maker, nor a craftsman, nor a knight, nor a foot-soldier, but classified only as a pauper [πένης, penês] and a dependent [ἄπορος, aporos].” [552b] “This is the first,” he said. “There certainly is no prohibition of that sort of thing in oligarchical states. Otherwise some of their citizens would not be excessively rich [ὑπέρπλουτοι, hyper-ploutoi], and others out and out paupers [πένητες, penêtes].”

3 at 555b: “Then,” said I, “is not the transition from oligarchy to democracy effected in some such way as this — by the insatiate greed [ἀπληστία, aplêstia] for that which oligarchy set before itself as the good, the attainment of the greatest possible wealth?”

MH: By contrast, look where Antiquity ended up by the 2nd century BC. Rome physically devastated Athens, Sparta, Corinth and the rest of Greece. By the Mithridatic Wars (88-63 BC) their temples were looted and their cities driven into unpayably high debt to Roman tax collectors and Italian moneylenders. Subsequent Western civilization developed not from the democracy in Athens but from oligarchies supported by Rome. Democratic states were physically destroyed, blocking civic regulatory power and imposing pro-creditor legal principles making foreclosures and forced land sales irreversible.

JS:It seems that Greek and Roman Antiquity could not solve the problem of economic polarization. That makes me want to ask about our own country: To what extent does America resemble Rome under the emperors?

MH: Wealthy families have always tried to break “free” from central political power — free to destroy the freedom of people they get into debt and take their land and property. Successful societies maintain balance. That requires public power to check and reverse the excesses of personal wealth seeking, especially debt secured by the debtor’s labor and land or other means of self-support. Balanced societies need the power to reverse the tendency of debts to grow faster than the ability to be paid. That tendency runs like a red thread through Greek and Roman history.

This overgrowth of debt is also destabilizing today’s U.S. and other financialized economies. Banking and financial interests have broken free of tax liability since 1980, and are enriching themselves not by helping the overall economy grow and raising living standards, but just the opposite: by getting the bulk of society into debt to themselves.

This financial class is also indebting governments and taking payment in the form of privatizing the public domain. (Greece is a conspicuous recent example.) This road to privatization, deregulation and un-taxing of wealth really took off with Margaret Thatcher and Ronald Reagan cheerleading the anti-classical philosophy of Frederick von Hayek and the anti-classical economics of Milton Friedman and the Chicago Boys.

Something much like this happened in Rome. Arnold Toynbee described its oligarchic land grab that endowed its ruling aristocracy with unprecedented wealth as Hannibal’s Revenge. That was the main legacy of Rome’s Punic Wars with Carthage ending around 200 BC. Rome’s wealthy families who had contributed their jewelry and money to the war effort, made their power grab and said that what originally appeared to be patriotic contributions should be viewed as having been a loan. The Roman treasury was bare, so the government (controlled by these wealthy families) gave them public land, the ager publicus that otherwise would have been used to settle war veterans and other needy.

Once you inherit wealth, you tend to think that it’s naturally yours, not part of society’s patrimony for mutual aid. You see society in terms of yourself, not yourself as part of society. You become selfish and increasingly predatory as the economy shrinks as a result of your indebting it and monopolizing its land and property. You see yourself as exceptional, and justify this by thinking of yourself as what Donald Trump would call “a winner,” not subject to the rules of “losers,” that is, the rest of society. That’s a major theme in Greek philosophy from Socrates and Plato and Aristotle through the Stoics. They saw an inherent danger posed by an increasingly wealthy landholding and creditor ruling class atop an indebted population at large. If you let such a class emerge independently of social regulation and checks on personal egotism and hubris, the economic and political system becomes predatory. Yet that has been the history of Western civilization.

Lacking a tradition of subordinating debt and land foreclosure from smallholders, the Greek and Italian states that emerged in the 7thcentury BC took a different political course from the Near East. Subsequent Western civilization lacked a regime of oversight to alleviate debt problems and keep the means of self-support broadly distributed.

The social democratic movements that flowered from the late 19thcentury until the 1980s sought to re-create such regulatory mechanisms, as in Teddy Roosevelt’s trust busting, the income tax, Franklin Roosevelt’s New Deal, postwar British social democracy. But these moves to reverse economic inequality and polarization are now being rolled back, causing austerity, debt deflation and the concentration of wealth at the top of the economic pyramid. As oligarchies take over government, they lorded it over the rest of society much like feudal lords who emerged from the wreckage of the Roman Empire in the West.

The tendency is for political power to reflect wealth. Rome’s constitution weighted voting power in proportion to one’s landholdings, minimizing the voting power of the non-wealthy. Today’s private funding of political campaigns in the United States is more indirect in shifting political power to the Donor Class, away from the Voting Class. The effect is to turn governments to serve a financial and property-owning class instead of prosperity for the economy at large. We thus are in a position much like that of Rome in 509 BC, when the kings were overthrown by an oligarchy claiming to “free” their society from any power able to control the wealthy. The call for “free markets” today is for deregulation of rentier wealth, turning the economy into a free-for-all.

Classical Greece and Italy had a fatal flaw: From their inception they had no tradition of a mixed public/private economy such as characterized in the Near East, whose palatial economy and temples produced the main economic surplus and infrastructure. Lacking royal overrides, the West never developed policies to prevent a creditor oligarchy from reducing the indebted population to debt bondage, and foreclosing on the land of smallholders. Advocates of debt amnesties were accused of “seeking kingship” in Rome, or aspiring to “tyranny”(in Greece).

JS:It seems to me that you’re saying this economic failure is Antiquity’s original sin as well as fatal flaw. We have inherited a great philosophic and literary tradition from them analyzing and lamenting this failure, but without a viable program to set it right.

MH:That insight unfortunately has been stripped out of the curriculum of classical studies, just as the economics discipline sidesteps the phenomenon of wealth addiction. If you take an economics course, the first thing you’re taught in price theory is diminishing marginal utility: The more of anything you have, the less you need it or enjoy it. You can’t enjoy consuming it beyond a point. But Socrates and Aristophanes emphasized, accumulating money is not like eating bananas, chocolate or any other consumable commodity. Money is different because, as Socrates said, it is addictive, and soon becomes an insatiable desire [ἀπληστία, aplêstia].

JS:Yes, I understand! Bananas are fundamentally different from money because you can get sick of bananas, but you can never have too much money! In your forthcoming book, The Collapse of Antiquity, you quote what Aristophanes says in his play Plutus (the god of wealth and money). The old man Chremylus — his name is based on the Greek word for money, chrêmata[χρήματα] — Chremylus and his slave perform a duet in praise of Plutus as the prime cause of everything in the world, reciting a long list. The point is that money is a singular special thing: “O Money-god, people never get sick of your gifts. They get tired of everything else; they get tired of love and bread, of music and honors, of treats and military advancement, of lentil soup, etc., etc. But they never get tired of money. If a man has thirteen talents of silver — 13 million dollars, say — he wants sixteen; and if he gets sixteen, he will want forty, and so forth, and he will complain of being short of cash the whole time.”

MH: Socrates’s problem was to figure out a way to have government that did not serve the wealthy acting in socially destructive ways. Given that his student Plato was an aristocrat and that Plato’s students in the Academy were aristocrats as well, how can you have a government run by philosopher-kings? Socrates’s solution was not practical at that time: Rulers should not have money or property. But all governments were based on the property qualification, so his proposal for philosopher-kings lacking wealth was utopian. And like Plato and other Greek aristocrats, they disapproved of debt cancellations, accusing these of being promoted by populist leaders seeking to become tyrants.

JS:Looking over the broad sweep of Roman history, your book describes how, century after century, oligarchs were whacking every energetic popular advocate whose policies threatened their monopoly of political power, and their economic power as creditors and privatizers of the public domain, Rome’s ager publicus, for themselves.

I brought with me on the train Cæsar’s Gallic War. What do you think of Cæsar and how historians have interpreted his role?

MH:The late 1stcentury BC was a bloodbath for two generations before Cæsar was killed by oligarchic senators. I think his career exemplifies what Aristotle said of aristocracies turning into democracies: He sought to take the majority of citizens into their own camp to oppose the aristocratic monopolies of landholding, the courts and political power.

Cæsar sought to ameliorate the oligarchic Senate’s worst abuses that were stifling Rome’s economy and even much of the aristocracy. Mommsen is the most famous historian describing how rigidly and unyieldingly the Senate opposed democratic attempts to achieve a role in policy-making for the population at large, or to defend the debtors losing their land to creditors, who were running the government for their own personal benefit. He described how Sulla strengthened the oligarchy against Marius, and Pompey backed the Senate against Caesar. But competition for the consulship and other offices was basically just a personal struggle among rival individuals, not rival concrete political programs. Roman politics was autocratic from the very start of the Republic when the aristocracy overthrew the kings in 509 BC. Roman politics during the entire Republic was a fight by the oligarchy against democracy and the populace as a whole.

The patricians used violence to “free” themselves from any public authority able to check their own monopoly of power, money and land acquisition by expropriating smallholders and grabbing the public domain being captured from neighboring peoples. Roman history from one century to the next is a narrative of killing advocates of redistributing public land to the people instead of letting it be grabbed by the patricians, or who called for a debt cancellation or even just an amelioration of the cruel debts laws.

On the one hand, Mommsen idolized Cæsar as if he were a kind of revolutionary democrat. But given the oligarchy’s total monopoly on political power and force, Mommsen recognized that under these conditions there could not be any political solution to Rome’s economic polarization and impoverishment. There could only be anarchy or a dictatorship. So Caesar’s role was that of a Dictator — vastly outnumbered by his opposition.

A generation before Caesar, Sulla seized power militarily, bringing his army to conquer Rome and making himself Dictator in 82 BC. He drew up a list of his populist opponents to be murdered and their estates confiscated by their killers. He was followed by Pompey, who could have become a dictator but didn’t have much political sense, so Caesar emerged victorious. Unlike Sulla or Pompey, he sought a more reformist policy to check the senatorial corruption and self-dealing.

The oligarchic Senate’s only “political program” was opposition to “kingship” or any such power able to check its land grabbing and corruption. The oligarchs assassinated him, as they had killed Tiberius and Gaius Gracchus in 133 and 121, the praetor Asellio who sought to alleviate the population’s debt burden in 88 by trying to enforce pro-creditor laws, and of course the populist advocates of debt cancellation such as Catiline and his supporters. Would-be reformers were assassinated from the very start of the Republic after the aristocracy overthrew Rome’s kings.

JS:If Caesar had been successful, what kind of ruler might he have been?

MH:In many ways he was like the reformer-tyrants of the 7thand 6thcenturies in Corinth, Megara and other Greek cities. They all were members of the ruling elite. He tried to check the oligarchy’s worst excesses and land grabs, and like Catiline, Marius and the Gracchi brothers before him, to ameliorate the problems faced by debtors. But by his time the poorer Romans already had lost their land, so the major debts were owed by wealthier landowners. His bankruptcy law only benefited the well-to-do who had bought land on credit and could not pay their moneylenders as Rome’s long Civil War disrupted the economy. The poor already had been ground down. They supported him mainly for his moves toward democratizing politics at the expense of the Senate.

JS: After his assassination we get Caesar’s heir Octavian, who becomes Augustus. So we have the official end of the Republic and the beginning of a long line of emperors, the Principate. Yet despite the Senate’s authority being permanently diminished, there is continued widening of economic polarization. Why couldn’t the Emperors save Rome?

MH:Here’s an analogy for you: Just as nineteenth-century industrial reformers thought that capitalism’s political role was to reform the economy by stripping away the legacy of feudalism — a hereditary landed aristocracy and predatory financial system based mainly on usury — what occurred was not an evolution of industrial capitalism into socialism. Instead, industrial capitalism turned into finance capitalism. In Rome you had the end of the senatorial oligarchy followed not by a powerful, debt-forgiving central authority (as Mommsen believed that Caesar was moving toward, and as many Romans hoped that he was moving towards), but to an even more polarized imperial garrison state.

JS:That’s indeed what happened. The emperors who ruled in the centuries after Cæsar insisted on being deified — they were officially “divine,” according to their own propaganda. Didn’t any of them have the potential power to reverse the Roman economy’s ever-widening polarization of the, like the Near Eastern “divine kings” from the third millennium BC into the Neo-Assyrian, Neo-Babylonian and even the Persian Empire in the first millennium?

MH:The inertia of Rome’s status quo and vested interests among patrician nobility was so strong that emperors didn’t have that much power. Most of all, they didn’t have a conceptual intellectual framework for changing the economy’s basic structure as economic life became de-urbanized and shifted to self-sufficient quasi-feudal manor estates. Debt amnesties and protection of small self-sufficient tax-paying landholders as the military base was achieved only in the Eastern Roman Empire, in Byzantium under the 9th– and 10th-century emperors (as I’ve described in my history of debt cancellations in …and forgive them their debts).

The Byzantine emperors were able to do what Western Roman emperors could not. They reversed the expropriation of smallholders and annulled their debts in order to keep a free tax-paying citizenry able to serve in the army and provide public labor duties. But by the 11thand 12thcenturies, Byzantium’s prosperity enabled its oligarchy to create private armies of their own to fight against centralized authority able to prevent their grabbing of land and labor.

It seems that Rome’s late kings did something like this. That is what attracted immigrants to Rome and fueled its takeoff. But with prosperity came rising power of patrician families, who moved to unseat the kings. Their rule was followed by a depression and walkouts by the bulk of the population to try and force better policy. But that could no be achieved without democratic voting power, so faith was put in personal leader — subject to patrician violence to abort any real economic democracy.

In Byzantium’s case, the tax-avoiding oligarchy weakened the imperial economy to the point where the Crusaders were able to loot and destroy Constantinople. Islamic invaders were then able to pick up the pieces.

The most relevant point of studying history today should be how the economic conflict between creditors and debtors affected the distribution of land and money. Indeed, the tendency of a wealthy overclass to pursue self-destructive policies that impoverish society should be what economic theory is all about. We’ll discuss this in Part 4.

end of part 3

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