What President Biden Doesn’t Know About Debt Cancellation
The History of Debt Goes Back — Way Back
Anyone paying attention to the policy debates in the lead-up to the 2020 election may have been surprised at the extent that student debt cancellation became a rallying cry across the field of Presidential candidates and political platforms. Of course, with the student debt crisis ballooning to a staggering $1.6 trillion, it shouldn’t be a surprise as debt cancellation looks more attactive an option than ever. Most recently, the policy has sparked debates about who is and isn’t ‘worthy’ with President Biden weighing in on the worthy.
First let’s clarify: what’s kind of debt cancellation are we talking about? Current proposals for debt cancellation mostly involve legislative or executive action to cancel the Government-held debts of the close to 45 million Americans who have outstanding student loan balances. A mechanism for this ‘cleaning of the slate’ exists already in the terms of the Higher Education Act of 1965, which enables the executive branch wide authority to create and cancel debt, but this doesn’t preclude other means from being taken. While many particulars would need to be ironed out, including who get’s what amount of debt cancellation, and what to do in the aftermath to resolve the underlying factors that led to the debt crisis in the first place, it’s certain there are clear and legally-defensible paths to achieve debt cancellation.
Logistics aside, public discourse goes haywire as soon as the morality of debt cancellation enters the conversation, due to the questions it raises about the very nature of debt and the morality of wealth and inequality. This helps explain why someone like President Biden reportedly supports one version (up to $10k of cancellation) while rejecting others ($50k of cancellation), arguing it would be ‘immoral’ to cancel the debts of ‘wealthy Ivy League grads’.
All this sound too unrealistic or complicated? While such sweeping debt cancellation may be unprecedented in recent history, the historical record is actually filled with examples of ancient societies doing just that when their markets and economies faced crises, usually centered around explosion of debt among the common people.
Mesopotamia
For as far back as we have written records, and even long before the rise of money as we know it, we see examples of urbanized civilizations undergoing periodic debt crises followed by widespread debt amnesties. Ancient Sumeria offers some of the earliest examples. From 3500 BCE onward, historically we see the rise of interest-bearing loans to finance trade, fund manufacture of goods, and help farmers recover from poor harvests. Yet periodically, as a result of famine or conflict, debts rose so high amongst the general populace that farmers were forced to put their family into effective slavery to pay off mounting debts, and at times whole sections of the underclasses were forced to flee into the mountains to escape their debts. The economic toll was often horrendous and rather than risk graver conflicts sparking from general revolt, or attack from rival cities to take advantage of their weakness, a tradition arose where newly annointed kings would grant general amnesty to citizen debts. Even the famous Hammurabi — known for one of the earliest legal codes and his harsh ‘eye for an eye’ justice— participated in debt abolition, considering the reality of widespread crushing debts too oppressive to ignore (which begs the question, if Hammurabi can do it, I’m sure the ‘leader of the free world’ can figure out something for student loans!).
Ancient Judea
Such debt crises weren’t isolated to the ancient near east, but also appeared in one way or another in civilizations as diverse as Egypt, India, China, Rome and ancient Greece. Debt cancellation or other similar forms of ‘resetting’ were regularly used to respond to the threats that widespread economic hardships brought. One strong example can even be found in the Hebrew Bible (aka Old Testament). Leviticus 25:8–13 describes a ~50 year cycle of debt cancellation: “And you shall hallow the fiftieth year and you shall proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you: you shall return, every one of you, to your property and every one of you to your family.” The idea of ‘returning to your property and family’ here refers to being freed from debtor’s prison, or having family properties returned that were seized as a result of debt crises. More darkly, it also refers to those who were enslaved to their creditors (as a result of their own debts or even the debts of their parents) being freed to return to their family, because the ‘jubilee’ included provisions to free the enslaved.
So why did debt cancellation become a feature of ancient societies? The answer is, of course, expansive: debt and credit have been around even longer than currencies, and questions about the morality of debt and it’s role in economy are ultimately questions about human nature. What is clear is that the governments and societies that avoided resolving these cyclical crises faced ruinous consequences, whether through rebellion, economic collapse, or invasion.
So the next time anyone tells you that debt cancellation is some kind of impossible dream, let them know about the long history of debt cancellation that was used to great effect in the face of worrisome crises. Who knows, it may even be a good solution for us now.
