How a nation handles debt - public and private - is a subject with a rich history. It lies at the very foundation of democracy in ancient Athens. This was the plight of the city-state before the advent of Solon and Athenian democracy. The average Athenian was deeply in debt to a small band of oligarchs. A tax of 1/6th of everything an Athenian produced was payable to the city's rich. Beyond that, if debt wasn't paid the debtor could be taken into slavery. Many opted to sell their children into slavery instead or simply flee Athens entirely.
Then along came the father of democracy, Solon, who introduced debt cancellation, Seiusachteia, and the Jubilee. Solon swept away the laws that enshrined the nobility and their hold over the masses that had been introduced by a predecessor, Draco (get the connection?), more than a century earlier.
Under the pre-existing legal status, according to the account of the Constitution of the Athenians attributed to Aristotle, debtors unable to repay their creditors would surrender their land to them, then becoming hektemoroi, i.e. serfs who cultivated what used to be their own land and gave one sixth of produce to their creditors.
Should the debt exceed the perceived value of debtor's total assets, then the debtor and his family would become the creditor's slaves as well. The same would result if a man defaulted on a debt whose collateral was the debtor's personal freedom.
The seisachtheia laws immediately cancelled all outstanding debts, retroactively emancipated all previously enslaved debtors, reinstated all confiscated serf property to the hektemoroi, and forbade the use of personal freedom as collateral in all future debts. The laws instituted a ceiling to maximum property size - regardless of the legality of its acquisition (i.e. by marriage), meant to prevent excessive accumulation of land by powerful families.
And what followed? Did Athens slide into economic collapse? Were there riots in the streets? No, democracy happened and the Athenian economy prospered. Can you imagine? Now, can you imagine any government doing something proto-Athenian today? Not in our world where wealth is notional but debt is as solid as concrete, eh? Just don't tell that to the Japanese.
The Bank of Japan is in the process of owning most of the outstanding government debt of Japan (it currently owns around 40%). BoJ holdings are part of the consolidated government balance sheet. So its holdings are in fact the accounting equivalent of a debt cancellation. If I buy back my own mortgage, I don’t have a mortgage.
If the Federal Reserve followed the same policy and bought 40% of the US national debt, the Fed would be holding $8 trillion in federal securities, three times its current holdings from its quantitative easing programs.
Eight trillion dollars in money created on a computer screen! Monetarists would be aghast. Surely that would trigger runaway hyperinflation!
Selling the government’s debt to its own central bank has not succeeded in driving up Japanese prices, even though that was the BoJ’s expressed intent. Meanwhile, the economy is doing well. In a February 2017 article in Mother Jones titled “The Enduring Mystery of Japan’s Economy,” Kevin Drum notes that over the past two decades, Japan’s gross domestic product per capita has grown steadily and is up by 20 percent.
What are the lessons we should take from Athenian history and how the Japanese are writing off their debt? For starters we need to see that what we've been conditioned to see as the immutable laws of economics, simply aren't. Economics isn't science. It's more akin to religion, a belief-based construct. Neoliberalism is founded on neoclassical economics, the latest in a succession of economic ideologies we've toyed with since the Industrial Revolution. It's an economy that thrives on debt, getting the plebs indebted and keeping them that way. Imagine if they had found a means to monetize lung cancer, we'd all be cajoled into a two pack a day habit. It's this engine of debt that drives our obsessive quest for perpetual exponential growth in a stubbornly finite planet. And now, with giant banks moving to control the real economy, everything from oil production to owning and operating airports and just about anything lucrative in between, we have a destructive economic power akin to Athens' nobles but on a global scale.
Sounds like a solid argument in favour of switching to a Steady State economic model, something we'll have to adopt if we're going to find a way to live within the limits of our environment.