Cancel the Debts of Impoverished Countries? It Wouldn’t Be the First Time
Debt cancellation for most American economists is unthinkable today, yet it was common in the ancient world and was used to stabilize economies after World War II
Many propositions of debt forgiveness today actually mean the shifting of debts from one party to another. Proposals for student loan forgiveness consider how these debts, now being paid by the student debtors at a lesser amount (or not at all), will have to be paid to make up for the increased federal deficit that would accrue if the debts were not paid. This results in talk of tax hikes, directed at those without student loans who may already be struggling with other tax payments.
But there is a much more radical solution to the debt problem based on biblical principles: the outright cancellation of debt from the balance sheet and the complete abolition of payments to the creditor.
If one visits Liberty Bell Center in Philadelphia, he can read these words protruding from the iconic bell: “Proclaim Liberty Throughout All the Land Unto All the Inhabitants thereof.” This biblical verse is from Leviticus 25:10, and was chosen by the Speaker of the Pennsylvania Assembly Isaac Norris, “possibly to commemorate the 50th anniversary of William Penn's 1701 Charter of Privileges which granted religious liberties and political self-government to the people of Pennsylvania.”
But this interpretation of liberty and freedom, which has always been the dominant belief of Americans since the country’s founding, is contrary to what the verse actually means. The context is in reference to the Jubilee Year, when after 50 years all Israelite slaves would be released from their bondage and their property returned. Their debts canceled; they would begin with a clean slate. In addition to the Jubilee Year, Israelites also celebrated the Sabbatical Year every seven years, which also included remission of debts.
Jesus spoke of the forgiveness of debts within the Lord’s Prayer: “And forgive us our debts, As we also have forgiven our debtors.” He extends this necessity of us forgiving debts with sins in general. In fact, our salvation is dependent on it: “For if you forgive men their trespasses, your heavenly Father also will forgive you; but if you do not forgive men their trespasses, neither will your Father forgive your trespasses.”
Debt cancellation for most American economists is unthinkable today, yet it was common in the ancient world and was crucial to stabilizing economies. For example, as the eminent economist Michael Hudson, whose work was promoted by the Vatican noted, King Hammurabi of Babylon is known to have canceled debts:
What actually had legal binding force — and we know this from the cuneiform court records — were the debt cancellations that Hammurabi proclaimed in the second year of his rule, and later when he went to war with Larsa, and proclaimed it on other occasions.
The word that they used was andurarum, a word that has the sense of “a river flowing.” You sort of restore the flow. It really meant that bond servants were free to go back to their families.
These Clean Slates had three elements: Number one, they would cancel the personal debts — not the business debts, not the debts denominated in silver among merchants and other rich people. These debts were business contracts, and they remained in place. It was the petty debts, the consumer debts, that were canceled. Number two, lands that had been forfeited were restored: the crop rights, if they’d been pledged to creditors. And three, all the human beings who had been pledged as bondservants would be free to return to their families.
This word andurarum reappears in the Bible as the word deror. The Hebrew word is deror, which is obviously a direct cognate. And the jubilee year that appears in Leviticus 25 is a direct translation of Babylonian practice.
But although these large-scale debt write-offs have been successful in the past, could they still be economically feasible to implement today?
In fact, it has been done recently.
The most recent financial clean slate was the 1948 Allied Currency Reform of Germany. Basic business debts were left in place, along with employer debts to employees. The population was allowed to keep minimum working balances. But the residue of debts was cancelled, on the logic that most were owed to former Nazis. Applauded as a “free market,” Germany’s economy was freed from the postwar debt legacy that had shackled it after World War I. The aftermath in 1948 left Germany’s economy effectively debt-free, paving the way for the Economic Miracle that followed.
So encompassing was this reform, that “when the Deutsche Mark was introduced, replacing the Reichsmark, 90 percent of government and private debt was wiped out. Germany emerged as an almost debt-free country, with low costs of production that jump-started its modern economy.” Instead of destroying the German economy, the country is now associated with productive industrial labor, producing some of the finest engineered products in the world, whether it be automobiles, machinery or other appliances.
The Church today calls for debt cancellation, looking back to this ancient tradition to foster a more just society. Pope St. John Paul II called for Christians “to raise their voice on behalf of all the poor of the world, proposing the Jubilee as an appropriate time to give thought, among other things, to reducing substantially, if not cancelling outright, the international debt which seriously threatens the future of many nations.”
Pope Francis has likewise stated: “I repeat my call for the cancellation of the debt of the most vulnerable countries, in recognition of the severe impacts of the medical, social and economic crises they face as a result of COVID-19.”