Solon - rhymes with colon, the original defaulter

Apologies in advance. This is another dry and unamusing entry via the serendipity of my private reading and google. Just one of those things that if I don’t do right now, I will never do.

The earlier entry ruminated on the derangement of imaginary money that is not offset by actual capital creation, and the modern heresy of debt default – drilled into us as an unmentionable evil we are prohibited from even thinking about by the Mandarins of Globalisation.

I found some rather relevant blog posts, all revolving around the writings of one of our finest, and appallingly undervalued, contemporary minds, John Ralston Saul (website). This is to extend the previous discussion. These items expand far more competently than I could hope to and I have little to add –

Unsustainable Levels of Debt by John Ralston Saul

(via Les Stewart)

Stewart digs out some earlier works by Saul. These are the key observations to ground us back in reality –

  1. The building up of unsustainable debt loads is a commonplace in history. There are several standard means of resolving the problem: execute the lenders, exile them, default outright or simply renegotiate to achieve partial default and low interest rates.
  2. There is no example of a nation become rich by paying its debts.
  3. There are dozens of examples of nations becoming rich by defaulting or renegotiating. This begins formally in the sixth century BC with Solon taking power in debt-crippled Athens. His organization of general default – “the shaking off of the burdens” – set the city-state on its road to democracy and prosperity. The Athens which is still remembered as the central inspiration of WESTERN CIVILIZATION was the direct product of a national default. One way or another most Western countries, including the United States, have done the same thing at some point. Most national defaults lead to sustained periods of prosperity.

Apart from the suggestion to shoot or exile (unrealistic in a globalised world unless you send them to Sudan) the scumbags that have created our quagmire, the key point to note is that, unknown to most people, the United States has defaulted previously, and has done so on many occassions. The world did not end and, as Stewart notes, the process of default usually led to an envigorated economy. Stewart proceeds to point out how the relation between public debt and personal property has effectively been flipped on its head by the collusion between financiers and politicians obsessed with “economic rationalism” over the last half century –

The question of national collateral was fully addressed in the eighteenth century when it became clear that an indebted people could not owe their national rights (their land and property) to a lender. The citizen’s natural and concrete rights took precedence over the lender’s abstract rights.

One of the most peculiar and insidious aspects of twentieth-century CORPORATISM has been an attempt to reverse this precedence. The managerial imperative suggests that national debts can be indirectly collateralized in several ways. Governments can be forced to sell national property to pay debts (PRIVATIZATION). They can also be pressed to transfer ownership of national property to lenders, as has been done in the Third World. — from Saul’s The Doubters Companion

These are the “austerity measures” being forced on those that can least afford them and our steadily disappearing pension funds – this is collective wealth being stolen from all to pay for imaginary interest generated by the continuous bailout processes. Essentially, institutionalised theft. Remember, unlike the days of the gold standard and similar equivalents that limited the issue of currency, the ever mounting debt burdens and accelerating interest rates generate money that is not offset by any real world wealth. It has to come from somewhere. Money is simply being printed, and the short term interest costs are financed by squeezing the public itself. Blood from a stone.

The next item revisits the history of early Athens, the cradle of our modern democracy, and how it came to be what it was by the Judgement of Solon, the original debt defaulter –

The judgement of Solon

(via Heresy Corner)

Even more interesting is the lesson Saul draws from Athens in the days of Solon. Athens in his day was in the midst of… I’m tempted to say a Greek-style debt crisis, but that would be doubly anachronistic. But yes, a Greek-style debt crisis. Archaic Athens was controlled by a financial elite, the Eupatridae, landowners who acted as bankers, lending money to poor farmers who, unable to pay it back, lost their land. “This debt situation spun further and further out of control.” Austerity and Draconian repression — Draco being the lawmaker responsible for the clampdowns — didn’t work. Faced with the final collapse of Athenisan society (and their rule) the Eupatridae sent for Solon:

Solon’s first act on taking power was to redeem all the forfeited land and to free all the enslaved citizens. This he did by fiat. That is to say, he legislated immediate default. The Athenians called it the shaking off of burdens, but in practical terms what he had done amounted to simply ripping up the debt papers.

Having released both the people and the nation from their paper chains, he was able to re-establish the social balance. From there he went on to create a code of fair laws (in place of Draco’s) and to lay the foundation for a democratic constitution. Athens immediately began its rise to glory, spewing out ideas, theatre, sculpture and architecture, democratic concepts and concrete riches.

This is largely a forgotten snippet of history, and one I suspect the technocrat snake oil merchants applying various “fixes” to the mess they created in the GFC don’t want widely known. But consider the vast amount of money disappearing into the void of the credit/debt market that is never seen again – money that does not generate any corresponding wealth via capital, but only devalues itself via the cancer of arbitrary interest rates – and consider what the result would be if that wealth were used instead to rebuild economies on a clean slate. Is default really that bad? Of course it is – it is heresy. So say the gurus.

The last item I want to share is an essay from the great man himself, largely a concise preview of his 2005 book The Collapse of Globalism: And the Reinvention of the World, from Harper’s Magazine March 2004 –

The Collapse of Globalism: and the Rebirth of Nationalism

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