On June 20, I will be participating in a live recording of the Go Fact Yourself podcast in Los Angeles. The following day, I’ll conduct an online reading for the Locus Awards at 16hPT, and on June 22, I’ll deliver a keynote at the Locus Awards in Oakland, CA. Finally, on July 14, I’ll conclude the fifteenth Hackers On Planet Earth event in Queens, NY.

The ideology of capitalism offers a troubling comfort: it suggests that the market rewards virtue, skill, and worthiness, implying that those who struggle do so because they are inherently unworthy, rather than merely unlucky. Consequently, the successful are seen not just as fortunate, but as truly superior, with no obligation to assist those deemed inferior by societal standards.

This belief mirrors the ancient theological concept of providence, where divine favor is demonstrated through wealth and status, while the impoverished are viewed as morally deficient. Much like religious interpretations of providence, the capitalist view of meritocracy serves to alleviate cognitive dissonance, allowing those who thrive to feel justified in ignoring those who suffer.

Debates surrounding merit versus luck have persisted through history, even reaching the monarchs of the Bronze Age who needed to address this dilemma. Their solution was the concept of the jubilee.

In ancient times, jubilees were occasions when all debts were forgiven. These events occurred on varying schedules, often triggered by significant changes in leadership or noteworthy events. To modern sensibilities, the idea of periodically erasing debts seems unfathomable. Why would a society embrace jubilee, and how could a ruler persuade the affluent creditor class to agree to it without facing rebellion?

The insights of historian Michael Hudson shed light on this issue. Hudson, who communicates effectively with both academic and general audiences, emphasizes that “debts that can’t be paid, won’t be paid.” This phrase encapsulates the essence of jubilee.

Consider the dynamics of debt and credit within an agricultural society. Farming is the foundation of such a civilization—successful harvests ensure the population can thrive. To cultivate effectively, farmers require credit for essential inputs like seeds, fertilizers, and labor. Without access to these resources before crops can be harvested, the cycle of agriculture falters.

Thus, the earliest records of "money" come from Babylonian credit ledgers documenting farmers' debts taken against anticipated harvests. This challenges the notion that coinage emerged solely to facilitate trade, as historical evidence supports the view that debt, not barter, birthed money.

While farming demands significant skill, it is inherently subject to the whims of chance. Even the best farmers may face crop failures due to factors like disease, drought, or pests.

As a result, farmers inevitably incur debts they cannot repay, leading to a cycle of escalating indebtedness. With compounding interest, no single bountiful harvest can erase the burden of previous losses. Consequently, the term “farmer” becomes synonymous with “debtor,” while the agricultural priorities of the nation become subservient to the interests of wealthy creditors.

This is where jubilee plays a vital role. Without mechanisms to interrupt the relentless cycle of debt, society risks destabilization and collapse.

To summarize: debts that cannot be settled will remain unpaid. A society must either forgive farmers’ debts or face systemic collapse, along with the political structures that uphold those debts.

Although jubilee is a relic of the past, the principle remains relevant today. Modern society has substituted bankruptcy for jubilee, providing a legal means for individuals to absolve their debts.

Bankruptcy manifests in various forms, notably distinguishing between elite bankruptcy and that of the average person. The limited liability company emerged to allow wealthy individuals to invest in enterprises while shielding themselves from liability. Economists often praise this structure for its efficiency in facilitating large-scale projects.

Through limited liability, corporations can accrue substantial debts without jeopardizing their owners beyond their initial investments. For instance, investing in Apple entails risk only up to the value of the stock purchased, even if the company incurs billions in liabilities.

This arrangement is also significant politically. Once individuals reach a certain wealth threshold, they effectively transform into an LLC. For freelancers, the benefits of forming an LLC may be minimal, but for the wealthy, it becomes crucial for managing and shedding debts.

Through careful planning, one can accumulate liabilities, then dispose of the LLC to evade debt responsibilities, allowing the individual to retain wealth while leaving debts behind.

For corporate entities, shedding debts via bankruptcy is often viewed as a savvy maneuver rather than a shameful act. Well-executed bankruptcies can demonstrate financial acumen, as seen with private equity firms that leverage borrowed funds to extract substantial dividends before filing for bankruptcy to eliminate debts.

The pinnacle of elite bankruptcy practices often involves massive corporate failures, where companies responsible for harming individuals exploit legal loopholes to minimize their liabilities, effectively erasing obligations to victims.

Recent scrutiny has emerged around corporations like Johnson & Johnson, which faced backlash for their actions regarding harmful products, highlighting the need for reform in bankruptcy practices.

However, the precarious state of elite bankruptcies is more a reflection of the moral failings of a small group of judges than a response to public outrage over these practices.

Conversely, the cancellation of debts for ordinary individuals raises significant moral concerns. For those burdened by student loans, for example, the prevailing argument is that forgiving debts sends the wrong message about personal responsibility.

Critics of jubilee often emphasize the plight of creditors, questioning who would lend to future students if debt cancellation became commonplace. This perspective overlooks the fact that federally guaranteed loans are inherently low-risk for lenders, effectively serving as a form of universal basic income for those already wealthy.

The argument against bankruptcy also hinges on the notion of personal accountability. In a well-functioning market, individuals who declare bankruptcy are deemed reckless and unworthy of credit, and forgiving their debts is seen as detrimental to their learning process.

This viewpoint can be empirically tested. If bankruptcy is indeed a reflection of personal failure, one would expect repeat bankruptcies among those who have previously declared. Conversely, if we accept the perspective that debt stems from a series of unfortunate events, then bankruptcy can represent an opportunity for renewal.

A recent study by IZA Institute of Labor Economics explored the long-term impacts of debt relief, focusing on individuals in Denmark who experienced bankruptcy after the country adopted a modern bankruptcy system in 1984. Before this reform, bankrupt individuals faced significant wage garnishment until their debts were repaid or they passed away.

The new system allowed for restructuring and debt discharge, creating a natural experiment to compare the outcomes of those who received debt relief against those who did not.

The findings were enlightening: individuals who discharged their debts through bankruptcy experienced substantial increases in income, employment, assets, and overall wealth that persisted for over 25 years post-ruling.

Post-bankruptcy, these individuals were less reliant on public assistance and secured better employment opportunities, ultimately benefiting their families and allowing creditors to recoup some funds—proving the adage that “debts that can’t be paid, won’t be paid.”

As Jason Kilborn noted, the advantages of debt relief are both significant and enduring, demonstrating that individuals do learn to manage their finances more prudently following bankruptcy.

These findings should resonate with Americans, especially considering that Danes are shielded from the leading cause of American bankruptcies—medical debts. In the U.S., unforeseen medical crises can obliterate a lifetime of careful planning and savings.

While society struggles to confront this issue, measures have been taken to mitigate the impact of medical debt on credit scores, yet systemic solutions remain elusive.

Historically, societies recognized that debts beyond repayment must be addressed, creating frameworks for discharging liabilities to foster productivity and societal well-being. Dismantling these systems necessitated the construction of complex economic ideologies, often cloaked in theological rhetoric.

If you’d like to explore this topic further in essay format, please visit my blog: https://pluralistic.net/2024/06/17/lovilee-jubilee/#debts-that-cant-be-paid-wont-be-paid