In the battle between William Goetzmann and Michael Hudson, I stand with Michael Hudson


I know little of “Austrian” economics, aside from three facts:

1- Ron Paul sometimes mentions it;

2- Lew Rockwell think it is the bee’s knees;

3- The devotees of Mises have enough humor to call themselves “Mises freaks.”


Michael Hudson has recently taken up the cudgels against Austrian economists who distort history. Hudson claims that Austrians abhor the abolition of unpayable debts, and while I don’t know whether Ron Paul would agree, I do think that anyone interested in Ron Paul should skim through Michael Hudson’s claims.


Michael Hudson wrote more than 3000 words on why historians shouldn’t lie in order to flatter the corrupt paradigms of white-collar criminals. The following is a condensed version of about 1500 words, with additional bold and italic highlighting. The original is at the link below.


Debt mounts up faster than the means to pay. … the way in which society has dealt with the buildup of debt has been the main force transforming political relations.

Financial textbook writers tell happy-face fables that depict loans only as being productive and helping debtors, not as threatening social stability. …The result is a biased body of analysis…

The most recent such travesty is William Goetzmann’s Money Changes Everything: How Finance Made Civilization Possible, …

Goetzmann makes no mention of how Solon freed Athenians from debt bondage with his seisachtheia (“shaking off of burdens”) in 594. Also airbrushed out of history is the subsequent buildup of financial oligarchies throughout the Mediterranean. Cities of the Achaean League called on Rome for military intervention to prevent Sparta’s kings Agis, Cleomenes and Nabis from cancelling debts late in the third century BC.

Violence has often turned public policy in favor of debtors … Rome’s own Social War opened with the murder of supporters of the pro-debtor Gracchi brothers in 133 BC. … The Roman legal principle placing creditor rights above the property rights of debtors has been bequeathed to the modern world. …

Misrepresenting why individuals ran into debt in ancient economies

Ignoring the abundant documentation, the author misrepresents why early economies ran up personal debt. He falls into the modernist trap of depicting all debt as resulting from borrowers taking out loans, eager to invest the proceeds profitably. He does not recognize debts as accruing in the form of unpaid taxes or fees. Yet this was the case with most Mesopotamian debts, which is where he starts his narrative. Personal debts subject to royal Clean Slate edicts did not result from money lending, but accrued as obligations owed to the palace and its collectors – for example, to providers of temple or palace services such as boatmen, “ale women” and so forth.[1] These payments were to be made at harvest time. But sometimes the harvests failed, as a result of drought, flooding or war.

Taking it as an article of faith that debt always benefits the “borrower,” Goetzmann does not recognize any need to write down debts under such conditions. …

The idea that Clean Slate edicts were a “crash”

Mesopotamian rulers are documented as protecting their citizenry from foreclosing creditors by cancelling debts since at least as early as … c. 2400 BC. By the Old Babylonian epoch (2000-1800 BC) it was customary for nearly every Near Eastern ruler to cancel personal debts upon taking the throne, and again as economic or military conditions requirede.g., if a flood or other natural disaster or military disturbance prevented harvest debts from being paid on a widespread basis. Goetzmann treats this normal practice of protecting debtors from losing their liberty (and hence their ability to serve in the army and provide corvée labor on public building projects) as if it were an isolated example, not the rule – and as if it caused a crisis, not prevented it.

Rim-Sin is reported to have cancelled debts on three occasions.[2] But only agrarian debts for consumption or public fees were subject to such Clean Slate edicts. Like other rulers of his epoch, Rim-Sin evidently recognized that if he permitted usury and debt bondage to persist, much of the population would lose its land and be unable to provide labor services or fight in the army. He needed “warriors from abroad, from the surrounding deserts, who had to be attracted by agreeable conditions.” …

As for commercial “silver” loans and investments in trade ventures, they were not affected by these royal decrees. And even in this commercial sphere, economies hardly could have worked (nor can they survive today) without leeway to bring debts in line with the ability to pay. In the case of long-distance trade, financial “silent partners” typically consigned goods or lent money to travelling merchants in exchange for receiving double the value of their original advance after five years. But if a ship were lost or its cargo taken by pirates, or if a caravan were robbed, the merchant was not liable to pay. This debt forgiveness under extenuating circumstances remained a common legal feature from the Laws of Hammurabi down through Roman law.

After misrepresenting Rim-Sin’s edict as “eliminating all debt by royal decree,” he speculates: “Perhaps he himself or those close to him had gotten into debt” (pp. 57f.) But Goetzmann’s reading reverses the actual situation. Bronze Age palaces were society’s major creditors, not debtors! The agrarian “barley debts” that Rim-Sin cancelled were not those that he owed, but those that the population owed to his palace.

…When Hammurabi lay dying in 1749 BC, his son Samsuiluna wrote a letter saying that he found the land so burdened by debt that he remitted arrears owed by many types of royal tenants. To revive their economic position he … direct[ed] that tablets recording non-commercial debts be broken so as to cancel the agrarian debts that had accumulated [for thirteen years] “In the land, nobody shall move against the ‘house’ of the soldier, the fisher, and other subjects.”[4]

Goetzmann does cite the first historical example of compound interest: the Stele of the Vultures boundary stone erected on the irrigated buffer territory between Lagash and Umma citing the reparations that Umma had accrued to Lagash c. 2440 BC. But he does not note that this debt had grown far too large ever to be paid – and hence became a cause of future war. That is the problem with compound interest (and too large reparations debt demands). The rate of interest outruns the debtor’s capacity to pay.

The starting point of financial theory should be recognition of this tendency of debts to be unpayable – that is, unpayable without a massive property transfer, economic polarization and impoverishment. However, today’s vested financial interests do not want to see a reasoned discussion of the repertory and consequences of policy … In order to insist that all debts must be paid, the thousands of years of Bronze Age Mesopotamian examples and those of Graeco-Roman antiquity must be censored, because the policy lesson is that bad debts should be written down or annulled.

The false assumption that all loans are “productive” and readily payable

…the past century’s “Austrian” and kindred individualistic “free market” financial theories have created a junk archaeology that depicts monetary and fiscal reform as being against nature and leading to a crash –… – instead of avoiding financial distress by restoring economic balance and equity.

Goetzmann’s obsolete theory of money as a commodity, not a fiscal institution

…To defend his “free market” ideology, Goetzmann ignores the character of money as debt, headed by debts owed to governments for taxes or other payments. …

metallic money had to be public in order to be used as a means of payment. … temples produced the monetary metals and coins. Their role as minters dovetailed with that of overseeing honest weights and measures to prevent fraud.

Money’s second function cited in modern textbooks (which Goetzmann repeats) is to serve as a unit of account, … apparently evolving as part of the accounting system that enabled the large institutions to allocate food and raw materials to their labor force, to evaluate output consigned to (or bought from) traders, keep their administrative accounts and denominate debts owed to them. (Later, when Rome developed coinage, its nominal value was maintained even while adulterating its purity.)

But this debt dimension is missing from Goetzmann’s survey.

Goetzmann’s failure to understand that “finance” has something to do with debt

The vast majority of cuneiform tablets are accounting records, debt notes and temple and palace accounts, e.g., to distribute rations to the temple labor force and track the delivery and allocation of wool, grain and other raw materials. … But such fiscal accounting practice is not finance. It is an economic and administrative use of writing, but finance involves debt, not just trade or account-keeping. Goetzmann’s narrative suggests that “finance” exists without a debt dimension.

This basically public institutional setting for writing, accounting, money and archaic interest rates is precisely what the anti-government and pro-creditor Austrian and Chicago Schools of “free market” financial relations oppose. Their censorial view defends the privatization of money as a “market creation,” and hence today’s bank monopoly on credit creation as opposed to government creation of money (They claim that this would be hyperinflationary and lead economies on the road to Zimbabwe – as if bank credit has not fueled a vast asset-price inflation bubble that burst in the 2008 crash.) And as noted above, they also insist that all debts must be paid, even at the cost of impoverishing the economy – as the world has seen most recently in Greece.

Some years ago, a German assyriologist told me why so many members of that discipline choose to publish in German or French instead of in English. … many Americans (and also Englishmen) take documentation out of context to force into “crazy” theories.

No doubt a contributing factor is that the practices of Bronze Age Mesopotamia and its neighbors controvert the most basic assumptions of today’s free market orthodoxy, above all its denigration of public enterprise and opposition to government money creation (leaving this as a private bank monopoly), and its refusal to acknowledge logic justifying debt writedowns. Goetzmann has used the exclusion of early economic history from the academic curriculum, and hence from popular discussion, as an opportunity to substitute unrealistic pro-creditor assumptions for the reality that he seems to find too abhorrent to inform his readers about.


Michael Hudson

A Travesty of Financial History: Bank Lobbyists will Applaud

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