Commentary: Increasing income and wealth inequality is a major social concern. In many ancient societies, the tendency toward inequality was countered with debt-cancellation Jubilees. These occurred regularly in the ancient middle east as is documented, for example, in the Bible.
Debt has long had the potential to be a mechanism of oppression. In ancient times, people lived more on the edge. Deprivation and famine is only one crop failure away, and debt was often the only option for avoiding starvation. If later that debt could not be repaid, loss of property and bond-servitude were common outcomes. Power flowed from small farmers toward wealth lenders.
To counteract the increasing concentration of power in the elites, ancient rulers would declare Jubilees involving freeing of bond-servants and the return of land pledged to debtors. This benefited both the families of the debtor, who became self-supporting again, and the ruler by creating a class of small farmers that could be taxed and that could serve in the military.
Not surprisingly, wealthy nobles and landowners hated these debt Jubilees, but initially the ruler and their supporters were able to enforce Jubilees despite this opposition. Later, as the wealthy became more powerful, they were able to block Jubilees. This was an important factor in the increasing inequality in late antiquity that ultimately lead to the serfdom that characterized the middle ages.
Fast forwarding to the present, increasing wealth and income inequality in our own time makes interesting the question of whether a modern debt Jubilee could be used to help solve this problem. In fact, Jubilees are a common mechanism for improving the functioning of the market place.
Student debt, for example, has become a barrier to the full participation in the middle class of young people. Making debt repayment continent on post-graduation income would be a sort of Jubilee. Those who most benefit economically from school would still repay in full. Those who benefit less, say, by becoming a school teacher or otherwise engaging in public service, would pay back only a portion.
By my count, there are thirteen federal programs that allow for some form of student debt forgiveness based on different criteria, including those based on military service, and income contingent programs.
We also have personalized Jubilees in the form of bankruptcy laws. Just as ancient Sumerian and Babylonian nobles hated Jubilees, modern credit card companies and other lenders hate bankruptcy laws. And there is a balance to be had. On the one hand, we want to give those who through foolishness or bad luck have gotten stuck in debt trap a second chance. On the other hand, we don’t want to encourage frivolous bankruptcies that undermine the functioning of the financial system.
Too liberal a bankruptcy law and we encourage bad behavior. Too restrictive a system and we create modern bond-servitude.
The point of all this is to improve the working of capitalism. If, as many think, the normal working of capitalism is to concentrate wealth, then a Jubilee is a tried and true mechanism by which this accumulation of wealth can be moderated.
Christopher A. Erickson, Ph.D., is a professor of economics at NMSU. He has taught money and banking for many years. The opinions expressed may not be shared by the regents and administration of NMSU. Chris can be reached at chrerick@nmsu.edu.