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Any history of debt must begin by acknowledging that societies choose how they relate to debt and for the longest time societies have made different choices. But the history that has led us to the sixth mass extinction which threatens all life on Earth follows a very particular sequence of choices made by a few and exported globally.
This is universal: in every culture there is exchange and every exchange is underpinned by a sense of fairness and reciprocity. Fairness does not mean like for like. What is fair or equal changes depending on the relations between people, the situation, culture, history and available materials and skills. In the moment of exchange there is debt and credit: one owes, another is owed.
The distribution of nature’s gifts is often unfair and the families with better land, better health and more members to work can accumulate more than less fortunate families. If the resulting divide in living standards is allowed to increase too much, it would provoke jealous actions that could tear the community apart. People everywhere developed practices to prevent excess inequality and greed that drives communities to the point of violence. Some cultures held all-in-common; others said a tax was owed from every family's harvest or earnings to the Gods, or a ruler, or to society itself and the collection was redistributed or used to build public works, temples or palaces. In many places, failing to share or pay the appropriate sacrifice was blamed for causing imbalances that would lead to terrible events that would inevitably destroy the community. In one way or another, everyone must pay their debt to the community.
Lending has been common for thousands of years. Credit allowed merchants to travel long distances to find buyers for commodities. Currencies appeared as a form of debt - every coin is the promise of value in relation to a real object. Then, wealthy individuals around the Mediterranean began lending and demanding interest - an extra amount as a rent for the service and risk of lending. Money-lending has the peculiar effect of alienating people from expecting equality from those in their community with better fortunes. Money-lending puts the burden onto those with the least wealth to find ways to increase their yield enough not only to survive - which they were struggling to do before - but to repay a loan and its interest to those who had surplus wealth to lend in the first place. Some cultures saw this led to increasing inequality and exploitation of the less fortunate and outlawed charging interest or ‘usury’, which is still haram according to the Koran, but others did not.
Inequality did increase. The wealthy bought better land and found ways to justify the imbalance. In times of war or crisis when communities need quick access to wealth, the rich would compete to be ‘protectors’ and were rewarded with honour, state contracts and political access that often made them even richer. This made a virtue of the wealth gap and many slowly became used to class and family divisions. Meanwhile, others could not pay their debts and became debt-slaves. In some places, those in debt slavery threatened to outnumber the ‘free’ people and there was the risk of revolution. Some executives declared debt forgiveness and redistributed the land. Sumerian rulers called wiping the slate clean like this, Ama-gi - 'return to the mother'. To many Jewish communities, and in the Bible, it is called 'Jubilee'. Other powers fought against popular uprisings for debt cancellation and championed the continued enrichment of a land-owning minority, Julius Caesar was one of these. Debt bondage continues today, Alaa Abd El Fattah remarked that in 2021 “a very very massive number” (from You have Not Yet Been Defeated, 2022) in Egyptian prisons is there for debt.
Religions changed, culture changed, conflicts carried on and finance continued its rise to power in Europe. A little over 600 years ago, private creditors financed the raids on what was later called South America expecting windfall interest - it was joked that the Portuguese ships that sailed to Brazil belonged to English creditors - and the wealthy developed a genocidal global market for abducting and using humans as chattel slaves.
European governments also fell into debts with high interest rates that they could not pay, often due to wars. Instead of redistributing wealth and land, which was now difficult in countries where the wealthy class had the most political and cultural access, governments created Central Banks to lend them money. The Bank of England was created 300 years ago to refinance the English state after its wars with France. The people exchanged their gold for 1.2 million pounds of bank notes in the name of King William III. The King was now £1.2m in debt to ‘his’ people - but he didn’t have to pay it back, the value of a bank note just had to stay stable.
European invaders took the rule of debt everywhere they went. They exported new machines, weapons, commodities and ideas and demanded to be paid in their own currencies, which meant a double debt since you must have traded something for pounds in order to buy something with pounds and the demand for pounds supported the English government by making the Central Bank currency stronger. Today, most sovereign debts are still paid in the currencies of the wealthiest nations: $, €, £.
Growing inequality between nations meant that Europeans were able to undercut local manufacturers. The ‘New World’ was a new market that fed European creditors and banks even more - growing their appetite to lend. And since all lending used national currencies and more Europeans had their wealth invested in banks, they became more interested in economic growth which keeps the value of their capital stable or growing. This meant finding new markets and new ways to exploit them and this created instability and conflict which required more lending. Soon Europe was at war with itself and dragged its colonies in too, spreading financial and human catastrophe across the world through its intricate web of debt and trade.
"The Allied and Associated Governments affirm and Germany accepts the responsibility of Germany and her allies for causing all the loss and damage to which the Allied and Associated Governments and their nationals have been subjected as a consequence of the war imposed upon them by the aggression of Germany and her allies."
On June 28th 1919, Germany signed the Treaty of Versailles and agreed to pay reparations to the European victors. Ten years later, populist parties rallied to liberate Germany from these debts, which some had predicted were too much and would cause unrest. Adolf Hitler’s party was one of these that fully embraced the global struggle for dominance, which it saw around itself perpetrated by the European empires competing for markets and which popular science decreed was a Natural Law - that the fittest survive. Great recessions and financial volatility across Europe and America led to new leaders and new lending regulation but the expansionist need for economic growth and a violent history made up a view of human nature that hastened another struggle for survival within Europe. Within ten more years the world was at war again.
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After this second world war, European and American economists were determined not to repeat their mistakes. The Bretton Woods Agreement in 1944 created institutions to regulate the global monetary order, including the International Monetary Fund (IMF) and what is now the World Bank, and the United States Dollar was made the global reserve currency, secured with gold. At first, the Bretton Woods system increased the power of Central Banks, controlled global exchange rates and made it harder for private creditors to lend internationally or make money from international markets. The dollar grew stronger and lenders in New York and senators in Washington had their eye on global markets again. Regulation soon started to change.
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Today, the IMF and the World Bank legitimise and police the global financial status quo. Their mission to prevent economic war means keeping powerful currencies stable, which requires new credit and economic growth that demands the discovery and exploitation of markets and the regular repayment of international debts and interest. Unlike rich nations, financially poorer countries are prohibited from uniting to repudiate debts (non-payment) or to create new exchanges (lending to their neighbours) - anything that could affect the dominance of European and American markets and currencies. Impoverished nations in the Global South are shackled with unpayable debts for building public and private infrastructure to serve global trade interests. This has enriched a new access-granting class in many countries who benefit from the new status quo and defend it by any means. Debt fuels corruption.
Over the last 70 years, leaders of the Global South like Thomas Sankara saw that their lands and people were rich in all things except the currencies of the North and the reason for this relative poverty - the debts they inherited - were the direct result of a particular and violent colonial history. They knew that the demand to repay sovereign debts with foreign currency was an unfair system that drained their cultures of their wealth, their self-determination and their futures. But few who spoke up survived their office - Sankara did not. Threat of military force or economic sanctions (i.e. economic war) backed up by the actions of the USA and Europe has linked the world together in a seemingly unbreakable edifice of international debt which continues to reward the wealthy and exploit those with least.
For the majority, who take on debt to survive, loan and interest repayments transfer hard-earned wages to a minority class of investors. This wealthy minority - ‘the 1%’ - invests in debt in order to extract more wealth and banks, the merchants of debt, are always willing to lend.
There are and have always been alternatives. Credit can be a dynamic tool for increasing living standards when lent within communities who have no interest in taking wealth from their neighbours who will lend back to them. Instead, the modern system of banks and nation-sized wealth managers like Blackrock and Vanguard has enriched a tiny minority and driven 54 nations into debt distress today - unable to pay their financial debts but too economically dangerous not to try.
This system and this history is the root of the climate and ecological catastrophe.
Unequal debt relationships drive extractivism and exploitation. The modern global debt architecture and its need for economic growth locks us into this pathway to mass extinction. It is also totally unstable as crashes and recessions continue to prove. But today’s political systems in the Global North are not equipped to dismantle the laws they made. Meanwhile, Global South countries are forced to take on new loans to rebuild after the latest climate ‘bombs’ drop on some of the poorest communities.
The former empire-states whose power was built on the back of slavery, fossil fuels, ecological destruction and odious debts owe a climate debt to the Global South.
To fall into the trap of believing that those with least must work harder to pay back those who profit from lending what they have in their power to lend is to add fuel to the system that is driving climate and ecological catastrophe.
It is right to demand justice and not build on the foundations of injustice.
It is right to call for that climate debt to be paid.
It is right to demand repair, redistribution of wealth and debt cancellation as a first and necessary step to enable climate action.
To demand it means that we remember history and grasp at hope because we are choosing the history that we want to write, together.
DEBT FOR CLIMATE!