The Hudson Report: Ep 1 Debtors Prisons 2018

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Debtors Prisons 2018
THE HUDSON REPORT: Modern-day debtors’ prisons and debt in antiquity
POSTED ON MARCH 19, 2018

We’re excited to announce our new weekly series called The Hudson Report with the legendary economist Michael Hudson. Every episode we’ll pick Professor Hudson’s brain for 10 or 15 minutes on an economic issue that is either being ignored—or hotly debated—that week in the press.

Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri at Kansas City. He counsels governments around the world on finance and tax policy and has served as an economic adviser to the US, Canadian, Mexican, and Latvian governments. Michael is a financial analyst and a veteran of Wall Street, an economic historian and one of the world’s leading experts on the history of private property, debt, and real estate and the origins of economic civilization in the Ancient Near East. He’s widely credited with being one of the few economists who foresaw the financial crisis of 2007-08. His new book, …and forgive them their debts: Credit and Redemption From Bronze Age Debt Remissions to the Jubilee Year, releases in May of 2018.

LISTEN to this week’s first episode of The Hudson Report on modern-day debtors’ prisons in America and debt in antiquity:

Paul Sliker: So Michael, in conjunction with Harvard University’s Peabody Museum you headed up an archaeological research team on the origins of private property, debt, and real estate and the origins of economic civilization in the ancient Near East. You actually have a new book coming out in May called ‘…and forgive them their debts: Credit and Redemption From Bronze Age Debt Remissions to the Jubilee Year’. And speaking of debt that’s a perfect segue into the topic of our first discussion here. A new ACLU report just got released called A Pound of Flesh: The Criminalization of Private Debt, that shows that thousands of debtors are arrested in jail each year in the U.S. because they owe money–and millions more are threatened with jail. The debts can be as small as a few dollars and can involve every kind of consumer debt from medical bills to car payments to student loans to credit card debt. 

It goes sort of something like this… cities and private collections agencies have teamed up to bring back a system of modern day debtors’ prisons to skirt around federal law that has prohibited debtors’ prisons since 1833. And it’s also in clear violation of the Equal Protection Clause of the 14th Amendment. And these agencies and their hired lawyers will send out a notice to someone who’s missed a payment. That person won’t show up to court. They get a notice of contempt and then it goes on their record and an arrest warrant is issued for their failure to appear in court. And this takes some pretty big cooperation or coordination with the prosecutors and the judge. One of the most alarming things is that there’s sort of a business relationship or a quid pro quo between collection agencies and the prosecutors. 

So my question for you Michael is, as an economist and someone who is an expert on the history of debt, can you give us your reaction to this report? 

Michael Hudson: Well I think much of the modern variable is the privatization of prisons. If you have a privatization of prisons, you run them for profit. And what do you need in order to run the prison for profit? Well, you need inmates. So the first question is how are you going to get inmates. And that’s what brings us back to the issue of debt.

So far for the last 20 or 30 years most of the inmates have been racial minorities on drug deals…marijuana and other drug deals putting them in. But now that’s being phased out because they realize how destructive and racist it is. So they want an equal opportunity source of inmates and debt is a major source of the inmates to be employed to make a profit. Now in a way this goes back to the very origins of debt.

I’m a little surprised that the title that the ACLU gave its report A Pound of Flesh. That obviously refers to Shylock’s loan–and that was a zero interest loan. And that misses the whole point. The whole point of debt is interest!

We’ve done a number of books recently through the Harvard group. One is on Labor in the Ancient World (ISLET, 2015, ed., Piotr Steinkeller and Michael Hudson) where we look at the origins of how labor was mobilized in the Neolithic and the early Bronze Age in Mesopotamia and Egypt. Originally there were no workers for hire. There was no labor for hire… you couldn’t say well I’m a cultivator on the land and I need to make some money so I think I’ll go into town and get a job. But governments could mobilize labor to work on public building projects. That’s how the infrastructure was built up.

How would individual merchants or even temples or palaces get labor? The only way of doing it was to make an interest bearing loan to a cultivator, where the interest was paid in the form of labor and where the worker himself or his family member – his son, his daughter or a household servant – was pledged as collateral. The collateral was supposed post to work off the interest. The original way of getting labor for hire was to make a loan, and get labor as interest, not to pay wages. Wages only developed maybe in the second millennium, very largely on the basis of what labor had to be paid or supported when it was pledged for debt. So the idea of working off a debt by one’s labor and in the form of bondage pledged to one’s creditor is a very old idea.

What’s fairly new in history is that there are public institutions–public jails–that you’d be pledged for if you couldn’t pay a debt. Instead of being pledged to the creditor to work off the debt you would be–especially in England it was known from the medieval times through pretty recent times–they still have the debtors’ prisons open and if you couldn’t pay a debt you’d be consigned to a debtors’ prison. You’d have to pay for your own food and board and you’d be charged for the support. And the only way if you didn’t have any money to pay for your own food–or if you didn’t have friends who would bring by food for you–would be to stick your hands out of the grate for alms. Many people who were Almsgivers would go by the debtors’ prison supporting the debtors so they wouldn’t simply starve to death.

Paul Sliker: And Michael I want to talk a little bit about the reasons for why debts have been written down over the course of history. So I mean, you know, according to your work from my perception, writing down debts obviously reduces the overall economy’s financial costs… so the perception of this long term macroeconomic dynamic explains why debtors’ prisons have been closed and things like bankruptcy laws have become increasingly humanitarian to enable debtors to make a fresh start and become economic actors and start spending into the economy again. 

So what are the reasons why they’re sort of trying to bring back these arrangements particularly here in the U.S. today? 

Michael Hudson: I think they’ve forgotten history. If you look at the founders of Greece and Rome, for instance Solon of Athens in 594 B.C. There was a problem: A lot of cultivators were in debt and were tied to the land…sort of like serfs. They weren’t put in jail but they were tied to the land and the rent surplus had to be turned over to the creditors. The result throughout Greece and the Greek cities, all the way from Sparta to Corinth to Megaera, was revolution. the cries throughout all antiquity, down through the Hellenistic period of the 3rdCentury to 2nd Century B.C., were revolutions for debt cancellation.

Debtors who were faced with being imprisoned or reduced to bondage would overthrow the oligarchy, cancel the debts, and redistribute the land. So Solon came in and everybody had expected him to do what had been done in Corinth and other cities: cancel the debts and redistribute the land. So he did cancel the debts and he banned debt bondage in Athens. But he didn’t redistribute the land and so that was left to Peisistratos–his successor and relative–to sort of complete the revolution that people called the “tyrants” did in other cities.

The tyrants were really the lawgivers and the catalysts for democracy. The idea that tyrants had a bad name all was developed much later by the creditors… the last thing they wanted was a popular leader who would cancel the debts and redistribute the land.

Well we’re having something similar today that is just building up. Most debtors are not sent to prison. Most Americans in the bottom quarter of the income scale have to spend their lives in their own homes, not in prison. But all of the surplus they produce–everything above their basic needs and basic raw minimum living standards–has to be paid to the bank for the credit card debt, auto debt, bank debt, mortgage debt (if they can afford a house), and student debt. And we’re having a situation now that is very much like antiquity where the entire economic surplus has to be paid out to the creditors.

Rome finally found that it was easiest not to reduce the creditors to bondage, but to give them their own lands and serfdom was progress over bondage. So we’ve moved beyond serfdom–we leave people in their own homes–but the effect is the same as bondage. They have to spend all of their income paying the creditors. Now if they don’t the enforcer of that is… well, if you don’t, we’re going to have to just put you in jail and you’re going to have to work to make a surplus for the privatizers who run the jail.

Michael Palmieri: Professor Hudson, would you agree that as economies have been more financialized and creditors have gained political power they’re also able to kind of disable any realistic academic discussion of the debt problem that we’re having here right now with you? 

Michael Hudson: It’s not really in economics departments. But it is discussed in ancient history departments. So if you’re in academia studying Babylonian cuneiform, you certainly read about debt. The vast majority of tablets are debt tablets or concern debt.

Also if you’re in classical studies–Greek and Rome–you read about debt. It’s only when you get into the modern era you stop reading about debt… and the economic models that are taught in the schools leave debt out of account. It’s as if the whole economy works on barter, not only without money, but without debt relationships. These simply are not built into the models and they’re not even built into the statistics.

For instance, I was recently down in Washington where I’m heading a group at Democracy Collaborative to look at the Gross Domestic Product accounts. We’re trying to figure out how much of GDP–Gross Domestic Product–is absorbed by interest. And surprisingly, even though debt is going up and up and up, we didn’t find the interest or debt service rising. So we called up the Bureau of Economic Analysis that publishes the GDP statistics. I asked what happens when the credit card companies make more money on penalties than they make in interest. When you miss a payment on your debt (this is before you go to prison) and you can’t pay the electric bill or a credit card bill, your rate goes up from 11 percent to 29 percent.

The answer they gave us was: “That’s not interest. We count that as a financial service, and financial services are an addition to GDP.” So all the added penalties that people pay for falling behind in their debts for arrears are counted as a growth in GDP – as economic growth!

So, you know, national income analysis is not taught in a single university in the United States. The only way you can learn about it today is to go to work for a government agency. Nobody really questions in the media and asks what these statistics mean. You’re not going to have a discussion of either GDP or debt or the flow of funds or even money in school.

One colleague of Paul Krugman at MIT says that Krugman told him what the professor said is, avoid talking about money and you’ll be safe. Something to that effect.

Paul Sliker: As we know, the macroeconomic models pretty much avoid debt, money, and the activity of banks. 

But this is why we’re honored to have you on The Hudson Report… so you can start to debunk some of these things that are discussed in the mainstream media and bring to light some of the things that they aren’t discussing. So Michael Hudson, thank you so much for joining us on the first episode of The Hudson Report. 

Michael Hudson: Well it’s good to be here.

Paul Sliker is an editor and commentator at Democracy at Work, and the co-host of the podcast Left Out—a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left. Follow him on Twitter: @psliker

Michael Palmieri is a d@w contributor and the co-host of Left Out—a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left.

Dante Dallavalle is a d@w contributor and cohost of the podcast Left Out—a podcast that creates in-depth conversations with the most interesting political thinkers, heterodox economists, and organizers on the Left. He’s a graduate student in economics at John Jay College of Criminal Justice. Follow him on Twitter @Drax138.