From Solon to Modern Times: The Cancellation of All Debts and the Concept of a Great Reset
The Athenian Constitution tells the story of how Solon liberated the people by cancelling all debts, public and private. This was called the Seisachtheia [the removal of burdens or relief of burdens]. It is an example of what we might today call “a great reset.”
This concept is important on a number of levels, both historically and in modern terms.
- Historically it is important because the Seisachtheia in many ways marked the shift of Athens as a tyrannical oligarchy to what would become Athenian Democracy. In other words, Athens found its people oppressed by a wealthy class of landowners to which the average person was indebted, and Solon “the Lawmaker” freed the people by ordering the removal of all debts, public and private. This act then paved the way for the Athens we all know from the history books, the one that produced the greats like Socrates, Plato, Aristotle, and Alexander the Great and thus shaped course of the history. In terms of a chain of cause and effect, there was perhaps no act more important to the formation of the modern state and modern philosophy (at least until we get to the Age of Enlightenment, which itself was highly influenced by this period and by those influenced by it)!
- In modern terms it is important because… the world is so heavily in debt right now (both the debt of citizens and the debt of nations; that is, public and private) that we might logically see another mass cancellation of debts (a concept that is today sometimes called a “great reset”) in the coming decades.
The basic idea in both today’s terms in terms of 600-ish BCE (the time of Solon) is the same, as debt piles up, interest compounds, and capital compounds it creates an ever widening power gap between those who are owed debt and those who owe the debt (see the effects of wealth inequality).
This is because both capital and interest compound (which is what makes lending with interest so profitable for the lender, but which can also make debts un-payable if they aren’t dealt with responsibly).
This effect is increased over generations (in Solon’s time the wealth and debt compounded over generations, and it is again that way today).
The result is those who own debt come to own the greater share of everything over time, and those who owe the debt find themselves in essence eternally and increasingly indebted.
More than just being “unfair” (that is a judgement call) the situation creates a dead end of sorts where people can no longer take on debt or pay their debt and thus lending dries up. When lending dries up, it drags on the economy, that means less wealth is being produced, that means less capital is being circulated, etc… and the cumulative effect of all that inhibits all parties.
It isn’t that the exact same thing happened in the Greece of yesterday that is happening in the Greece [and elsewhere] of today. Instead, today it is more complex, global, and in many ways worse due to nations being indebted in so many directions that the risk is systemic on a global and not just national level. That is to say, although the problems are only roughly comparable, the parallels are there.
Meanwhile, since guideposts for how to get through impossible and compounding debt burdens with a positive outcome are few and far between, Athens is a good place to look (I mean, we hardly want to look to pre-WWII era Germany, yet we do need to look somewhere)!
In short, if we are going to contemplate a “great reset” (one way to get out of a problem like this, not the only one), there are few better places to look than the first chapter of the Athenian Constitution for how to do the job right (as opposed to looking at the World War eras in which there are examples of how to do things both right, post-WW2, and wrong much of pre-WW1 to pre-WW2).
Here I’ll make some basic points that I think will help frame the most important takeaways:
Solon was born upperclass and had wealth. His ability to lead the people was in part due to his knowledge of the world, but in part due to his knowledge of both the higher and lower classes, his relationship with them, and the respect he commanded from those classes. The story goes that he didn’t attempt to consolidate wealth or power himself. It is rare that a person could fill this role and not end up becoming a self serving tyrant (if Solon was self serving, it it seems to be that he was so only in his accomplishing of becoming the type of figure he did). So there is a lesson to be learned in what type of leader was at the helm during a Seisachtheia.
It is important to note that Solon is accused of telling a few key people about the Seisachtheia before it occurred. Those he told (all rich people) apparently took on massive debts thus accumulating vast riches for free thereby becoming the new rich of the new Athens. The concept was that although all debts were cancelled, everyone owned what they owned before the Seisachtheia. So if you say took out massive debt to buy up the greater part of a region and its businesses, you would own all that outright after the Seisachtheia. Then again, one has to wonder if enough of the higher classes would have agreed to the cancellation if it didn’t benefit them? The idea Solon told others or did this for personal gain is disputed right in the Constitution, but it does bother to mention it and it I think should be noted.
The uprising led by Solon was essentially a rebellion of the lower classes against the rich (a populist uprising; like we see a bit today and saw in the World War eras). As capital consolidates into the hands of the few, it tends to create discontent in the lower classes as a side effect.
When the divide is large enough, and there is enough pressure, it tends to create uprisings (democratic or not).
We have seen this play out more than once in history.
It is a cycle that keeps occurring unless something is specifically done to offset it, for example: cutting spending and repaying the debt (staves off the compounding of interest; currently it is common to increase spending and cut taxes, in an effort to increase GDP… however this is not solving the debt issue, because although more capital is being created, it is not being used to pay down the debt), a fair global estate tax (staves of capital consolidation by letting capital compound in the hands of the few in the short term and the redistributing it later), universal education (which would help pay down debts over time by creating more skilled workers, economists, accountants, etc; although the capital from this needs to be used to pay off debts), and global universal income (staves off uprisings mostly, it doesn’t specifically solve the debt problem, in fact it would likely create more debt).
However, I would wager that war, uprisings, and debt cancellations are more likely first steps, as they don’t require well coordinated global policy changes.
History shows us that the situation left alone will demand an immediate response as an effect if global preemptive fiscal, monetary, and social policy measures aren’t taken to avoid that situation before it comes to that point.
Essentially, basic logic says we’ll need some sort of debt solution to keep the system running (you need a mechanism to prevent a total freeze up of the global economy) and history shows us that left alone we’ll tend to see uprisings and such.
A global estate tax [for example] is a solution that requires democratic consensus on a global level (how does that even happen?), a populist uprising requires nothing more than what we are currently doing (we already see global populist uprisings forming).
Thus, there are arguably more possible worlds where we get to a place where an immediate response is demanded.
The main problem underlying all of this, the one that makes the above inevitable if nothing is done, is the compounding nature of capital and debt. It is good in moderation, but wicked in excess. Capital compounds, debt compounds, people will choose to incur debt if it is an option, but as a result excessive interest will become un-payable, thus people won’t be able to incur more debt, and thus capital will stop compounding. This predictable series of events, if not curbed with preemptive measures like paying off debts (or ensuring the ability of people and states to pay off debts) can only be offset with mechanisms like debt cancellations and inflation. In both cases, a reboot of sorts is needed to jump start capitalism again.
Solon directed a populist uprising toward a positive end. If a populist uprising is not directed this way, it can end up being directed the way figures like Hitler and Stalin directed their populist uprisings (where war was essentially a mechanism for dealing with debt and inequality).
In short, there is more than one way to deal with compounding debt, but if one has to look to a model, Solon and the creation of an idealistic Democratic state are arguably better places to look than the populist uprising of the Weimar Republic, hyper inflation, and World Wars.
Bottomline: For a myriad of complex the world is becoming more and more encumbered by debt. As we move forward in time debt accumulation seems to be ramping up, not slowing down (just look at the US national debt as a percentage of GDP over time). Meanwhile, we can see wealth gaps forming and populist groups uprising already. This draws parallels with different eras. In some eras we saw war and inflation, but in the time of Solon we saw a cancellation of debt and the birth of Athenian Democracy. If it is that we do turn toward a cancellation of debt as a solution, there few better places to look for guidance than the Athenian Constitution. It doesn’t provide a detailed economic theory, but it does provide a few interesting guidelines worth considering.
On The Everything Bubble and How it Relates to Debt
Using debt to create more capital, but then not using the capital to pay off the debt (what we are all currently doing globally for the most part), combined with rampant speculation (also on credit), is arguably creating what one might call an “everything bubble.”
Consider, you have debt and assets, but your assets are things like equities and real estate and they have inflated price tags, due to speculation, which was being done on credit. What happens when the on-paper value of your assets drop as the interest on your debt compounds?
The outcome is not great, it would likely cause a panic and massive sell off (AKA a bubble popping).
This isn’t the only way things can go, but history tells us that we generally don’t see periods with inflated price tags for long.
Meanwhile, what happens when we fail to tax the wealth stored in assets as they are converted to cash? We miss the opportunity to pay down the debt.
So price tags of assets come down, debt increases, etc. It potentially creates a vicious cycle. Then you what, inflate the currency to pay down the debt? Again, there are lots of things that can happen here, but generally compounding debt mixed with overinflated price tags on assets is not an ideal combo.
The everything bubble popping [assuming it is a bubble and it does pop] is likely to go hand-in-hand with the effects described above (it would essentially be like the 2007 – 2010 financial crisis, a debt and credit crisis of sorts, but on a larger scale).
It doesn’t paint a pretty picture necessarily, at least not in the time it happens… but of course, as noted and to stress this, things don’t have to play out any specific way.
Just because we have examples of things from the past doesn’t mean we have to see it all happen that way again (this being true for every subject discussed on this page).
Still, looking back at the 2007 – 2010 global financial crisis, the World War Eras, and even the time of Solon can help us understand what could be in store if nothing is done.
For example, first a credit and debt crisis, then a rapid decrease in the prices of equities and real estate due to a sell off, then global bailout, then rapid inflation, then war/populist uprisings/etc, then debt cancellation (which in theory you would want to have bought back into real estate and equities before), and then the establishment of global income, estate tax, and global education under a global governing body (maybe with global central banks that mirror the Federal Reserve system)… that is one theoretical logical sequence that just has me copy and pasting past solutions/events we have already seen in the 1990s – 2000s (EU and Bailouts), 1940s (Marshall plan and NATO), 1910s (establishment of the Federal Reserve), and 600 BCE (Solon).
The potential problem is pretty clear, how exactly that plays out and what solutions are put forth are not as clear.
For all we know we could all globally pay down our debts and there could end up being no epic bubble. In fact, that would probably be for the best. The thing is, to pay down debt requires capital and assets to be taxed and then for that money to be used to pay down the debt rather than for more spending… and that part hasn’t happened very often in recent history. Instead borrowed capital is being used to create capital, and then that excess capital is largely being accumulated and compounded privately where it is then used to bid up the prices of assets and equities (and in markets like that not only are those able to pay it back in theory extended on credit, but people start speculating on debts of those who are unlikely to pay back their debts; like we saw in the housing bubble leading up to the financial crisis)… hence creating an everything bubble.
Of course, to end, these are complex issues. The idea here is to first and foremost talk about the concept of debt cancellation, and from there show how it is relevant in modern times. If it is relevant in modern times, then it is probably relevant in relation to the theory of an everything bubble. At the moment it is all very theoretical, but that theory is drawn from historic events… and thus in that sense is rooted in fact.