Ecological Economics 188 (2021) 107132 Contents lists available at ScienceDirect Ecological Economics journal homepage: www.elsevier.com/locate/ecolecon Analysis Interest-bearing loans and unpayable debts in slow-growing economies: Insights from ten historical cases Tilman Hartley a, *, Giorgos Kallis a, b a Institute of Environmental Science and Technology, Universitat Autònoma de Barcelona, Spain b ICREA, Barcelona, Spain A R T I C L E I N F O A B S T R A C T JEL classifications: Under what circumstances are interest-bearing loans compatible with an economy without much growth? The N20 Economic History of Financial Markets question is becoming increasingly important given a tendency towards declining growth in industrialised and Institutions economies and increasing evidence that continued growth is incompatible with environmental sustainability. O44 Environment and Growth Previous theoretical work suggests that when interest-bearing loans compound, this results in exponentially Q57 Ecological Economics growing debts that are impossible to repay in the absence of economic growth. We here examine ten historical Keywords: cases to assess support for this finding. We find that interest-bearing loans have typically resulted in unpayable Interest Debt debts in these non- and slow-growing economies. We further identify four broad category of measures to prevent Stationary economy or alleviate the problem of unpayable debts, and show how they have been employed in the past. Our Appendix Steady-state economy compiles sources of debt regulation from across the world over five millennia. Environmental sustainability 1. Introduction there is zero net saving then the compounding of interest is avoided (see the next section of this paper). What these models have really shown Longstanding work suggests a conflict between an economy with therefore is that, although there is no incompatibility between simple positive interest rates where compounding results in exponentially interest and zero growth, the long-held thesis still holds true: that growing debt, and a real economy that is subject to environmental and “compound interest ... is incompatible with a stationary economy” resource limits (e.g. Soddy, 1926; Daly, 1980; Martinez-Alier, 1987; (Cahen-Fourot and Lavoie, 2016: 167–168). Douthwaite, 1992, 1999; Grignon, 2009; Svartzman et al., 2020; Arns­ This paper adds an empirical dimension to a discussion that has been perger et al., 2021). Recent economic modelling based on a post- until now theoretical for the most part. We ask: what does the empirical Keynesian stock-flow consistent framework have served to dispel some record show? How have economies without growth fared – or dealt with oversimplifications that had crept into the debate (Jackson and Victor, – positive interest rates? Do we find in the historical record examples of 2015; Berg et al., 2015; Cahen-Fourot and Lavoie, 2016; Richters and societies that tried to impose the strict conditions postulated in the Siemoneit, 2017). But since these models suggest that under certain aforementioned models? No modern economy has yet experienced conditions positive interest rates are compatible with zero growth, this prolonged periods of zero or very low growth. In contrast, prior to the has led to some confusion about what these macro models actually tell nineteenth century, no economy ever sustained annual per capita GDP us. Essentially, the condition required for the compatibility of interest growth much above 0.3% (see Table A1 and Fig. A1 in the Appendix). with a non-growing economy in these models is zero net saving, since if Historical research thus serves as a useful empirical complement to the * Corresponding author. E-mail address: tilman.hartley@uab.cat (T. Hartley). https://doi.org/10.1016/j.ecolecon.2021.107132 Received 23 June 2020; Received in revised form 2 June 2021; Accepted 16 June 2021 Available online 9 July 2021 0921-8009/© 2021 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/). T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 Table 1 List of cases. Case Approximate dates Ancient Mesopotamia 24th to 16th centuries BCE The Hebrews 14th BCE to 14th CE CE Classical Athens 7th to 3rd BCE Classical Rome 5th BCE to 3rd CE India 5th BCE to 19th CE China 5th BCE to 19th CE CE Christianity 3rd to 19th CE Islam 7th to 19th CE The Nahua (‘Aztec’) 16th CE CE The Tolai (Papua New Guinea) 19th CE current theoretical debates about the feasibility and potential institu­ new colonies for the dispossessed to go. But at some point expansion tional forms a more sustainable economy may take. encounters limits. Therefore, our research shows that though societies Others before us have noted the presence of interest in historical with little or no growth did indeed have lending with interest, this was cases. For example, Strunz et al. (2017: 346) note the existence of in­ often a major source of inequality, social division, and instability.2 terest in Egypt, Mesopotamia, America, India, China, and medieval A second purpose of this paper is, then, to identify the kinds of Western Europe. Similarly, Cahen-Fourot and Lavoie (2016: 167) write measures attempted by these different societies to try to avoid or to that “interest [was] in existence long before modern capitalist econo­ mitigate the consequences of unpayable debts. We place these different mies relying on economic growth as their ultimate goal took shape in the measures into four broad categories: forgiving accumulated debts; Western world. It was for instance the case in ancient Mesopotamia, eliminating the charging of interest altogether; preventing the com­ ancient Italy, the young Islamic world and Middle-Age India”.1 This pounding of interest; and limitations such as rate caps and setting desire to better understand the circumstances in which interest-bearing maxima on the size and duration of loans. Our specific focus here is on loans have been possible in the absence of substantial rates of growth is historical cases where the accumulation of interest renders debts what motivates this paper. unpayable.3 The solutions we identify here thus either prevent the A first aim of the paper, then, is to examine the extent to which the accrual of interest resulting in unpayable debts, or mitigate such debts charging of interest in the absence of substantial economic growth has when they do occur. The measures we discuss in our historical cases all been problematic historically. Recent research has presented cross- fit into one of these four broad categories. cultural comparisons of debt, including instances of the problems First, cancelling debts could resolve the problem of debt accumula­ caused by debt in general (Graeber, 2011), the early development of tion. Such debt forgiveness measures may take place on the individual interest-bearing debt and debt forgiveness (Hudson, 2018), and a com­ level as well as more broadly. More narrowly, creditors may be moti­ parison of the European and Islamic traditions (Geisst, 2013). We here vated to forgive individual debts through informal norms such as a systematically compare the literature on specifically interest-bearing desire to behave charitably, or may be compelled to forgive loans debt, drawing particularly on source materials published in the last through the formal mechanisms provided by bankruptcy legislation, for few years on the economic history of regions beyond Europe and example. More broadly, debt jubilees provide for the cancellation of Western Asia. debts of large numbers of indebted individuals. We find the broad We examine literature on ten different cases (see Table 13). The cases approach of regular jubilees in ancient Mesopotamia and among the are drawn from across Eurasia, Oceania, and the Americas, their dates Hebrews, and more occasional debt write-offs, as well as narrower in­ ranging from bronze age societies of the 3rd millennium BCE up to the dividual cases of debt forgiveness, in Athens, Rome, and China. 19th century CE when the period of modern economic growth was just Second, banning the charging of interest altogether is another beginning. We find that in these historical cases, interest-bearing debts obvious way to prevent the accrual of interest into unpayable debts. often did come to exceed the ability of debtors to repay. In general, the Interest bans might be partial, such as when interest is permitted on presence of interest-bearing debt in a non- or slow-growing economy some forms of loan such as for trade or production, but forbidden on tended to be accompanied by the accumulation of unpayable debts, loans that might be expected to quickly become unpayable such as debtor dispossession, and social upheaval. Sometimes the problem may consumption loans to the poor. We find interest bans attempted in be quite limited, since if there are only few debtors then unpayable debts Rome, China, Christianity, and Islam, and a variety of partial bans do not become a widespread social issue, and even low rates of aggre­ among the Hebrews. gate growth might be sufficient for small numbers of debtors to be able Third, the compounding of interest might be prevented. The com­ to repay loans at interest. Sometimes territorial expansion mitigates the pounding of interest is particularly problematic in non- or slow-growing problem of growing debts for a while, whether by providing the re­ economies, since the compounding of interest leads to exponentially sources through which debtors can meet repayments or by providing growing debts. The broadest possible measure to prevent compound 1 2 Cahen-Fourot and Lavoie (2016: 167) immediately qualify this by writing There are, of course, many other potential sources of societal conflict, but that “debt money and interest were at work only in a few sectors of these our focus in this paper is on those problems attributed to interest-bearing loans. 3 noncapitalist socio-economic formations, so there is no direct comparability There are many reasons a debt may become unpayable, and we even find with monetary economies of production where the production and the mone­ some instances where debt forgiveness is applied to individuals whose debts tary circuits fully overlap”. There is some debate as to what extent these his­ have become unpayable due to some specific misfortune or difficulty (see Ap­ torical societies can been described as ‘capitalist’ (e.g. Rodinson, 2007; Temin, pendix Table A3). But for the most part the measures we have found are applied 2013; Jones, 1988: 74; Frank and Gills, 1993; Epstein, 1968). Whether we call broadly and are intended to prevent the accumulation of debts across wide them capitalist or not, our approach to comparative historical research is that it cross-sections of the population, not only those who have suffered some can nevertheless help us see how theories proposed for one society, or parts of particular misfortune. Indeed, one of our four categories of measure specifically it, may or may not apply to others. In fact, a good way to test a theory to see targets compound interest, suggesting that the people implementing these how well it applies in cases that are otherwise quite different (see Case Selec­ measures considered the compounding of interest to be the underlying cause of tion section below). these problems. 2 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 interest would be to prevent creditors lending any of their interest in­ assumption “would immediately lead to positive net investment and come, since then no interest would be paid on interest. In Christianity, accumulation of the capital stock” providing growth (p. 37, mathe­ we find charitable lenders allowed to charge interest only to cover the matical notation removed). Banks also pay out all interest income to costs of lending, effectively preventing interest income being lent, and in households, and those households consume all their post-tax income, China interest income was often earmarked for specific spending pur­ with government taxation set to ensure that consumption is equal to poses. In these cases the intention seems to have been to prevent disposable income. Hence firms do not retain profits, and banks do not charging excessive interest and to raise funds, respectively, rather than retain interest income - both pay them out to households. In turn, to explicitly prevent interest compounding, though that would have households are prevented from earning interest upon their interest in­ been the result. A narrower version of preventing compounding is to come by ensuring that household consumption equals their disposable prevent a creditor charging interest on the interest owed by any indi­ income. Jackson and Victor write: “For a stationary state solution, as vidual debtor. This is often effected as a ban on adding interest to the Godley and Lavoie (2007, p. 73) point out, the net lending of the loan principal. Such a measure would at least prevent the exponential household sector must also be equal to zero” (p. 39, mathematical no­ accumulation of interest on individual debts, if not in the economy as a tation removed). So to reach a stationary state where no sectors have whole. Such a ban seems likely to have been much easier to police than increasing stocks, households (as the ultimate recipients of interest in­ attempting a broader ban on compounding by trying to prevent lenders come) must not be saving and no interest income is ever lent, thus the lending their interest income. We find such bans on charging compound compounding of interest is avoided. interest in Rome, China, India, and Christianity. The model by Berg et al. (2015) aggregates the banking sector, the Fourth, limitations capping the maximum interest rate, the central bank, and the government sector. Firms in the industry sector maximum size of a loan, or the maximum duration of a loan could be pay interest on loans to the government, which pays interest to house­ applied. Though they would not prevent the accrual of unpayable debts holds; firms also distribute all profits to households. Unlike Jackson and altogether, such measures would limit the number of debts that become Victor, Berg et al. assume no immediate consumption out of interest and unpayable and the rate at which those debts increase. We find such profit income at all, but instead assume that all household consumption measures in Rome, India, China, Christianity, Islam, perhaps among the is out of wealth and wages. Examining their model to establish the Nahua, and among the Tolai. parameter space within which a stock-flow equilibrium is reached, the Finally, we found no cases of a society imposing a condition of zero authors conclude that “[t]hough our model shows that positive interest net saving on their population – the condition which renders positive rates do not necessarily imply exponential growth of government lia­ rates of interest compatible with zero growth in recent theoretical bilities, this result crucially depends on consumption decisions by models (Berg et al., 2015; Cahen-Fourot and Lavoie, 2016; Richters and households” (p. 13). Specifically, in order to remain in a stationary state, Siemoneit, 2017). A ban on all saving would be equivalent to a ban on taxes and consumption must be sufficiently high to avoid household borrowing, since nobody would have anything to lend, though we did deposits increasing exponentially as the “[f]lows of interest payments not find a ban on saving or borrowing in any of our cases. Historically, from the government accumulate” (p. 13). As in Jackson and Victor perhaps the closest we found is some suggestion of a ban on borrowing (2015), when the model is in a stock-flow equilibrium, the total income among the Persians around 430 BCE – clearly an effective way to avoid of households equals taxes and consumption, so no interest income is unpayable debts, since if there is no debt then no-one will ever find ever lent at interest and no compounding of interest can occur. themselves with a debt they cannot pay. But we have not included this in Cahen-Fourot and Lavoie (2016) present a static model in which, as our case studies since the available information consists of a single in Jackson and Victor (2015) and Berg et al. (2015), banks and firms do sentence from the Greek historian Herodotus: “They hold lying to be the not retain their income but pay all income out as dividends to in­ most disgraceful thing of all and next to that debt; for which they have dividuals. Again, these individuals do not lend but consume this income. many other reasons, but this in particular: it is inevitable (so they say) Cahen-Fourot and Lavoie thus similarly conclude that whilst interest per that the debtor also speak some falsehood” (I.138, trans. Alfred Denis se is possible in a stationary economy, “our article supports the argu­ Godley). Although societies can effectively operate without individuals ment that compound interest debt-based money is incompatible with a saving or lending (Hartley, 2019), they tend to be small-scale and, given stationary economy but interest bearing debt-based money does not the absence of saving or lending, will not have experienced the problems necessarily imply compound interest” (pp. 167–168, emphasis added). associated with interest-bearing loans that we find in the ten cases we Finally, Richters and Siemoneit (2017) present a detailed review and describe below. stability analysis of these models; they also examine two models by Godley and Lavoie (2007) which yield similar results. They do not 2. Theoretical models dispute the previous modellers findings but seek the general conditions for stability. They find that across these five models “[p]ositive interest We begin by briefly reviewing the findings of recent macro-economic rates do not systematically lead to exponentially growing deposits, models that have investigated the conditions in which positive interest because taxation and consumption out of wealth and income can rates are theoretically possible in non-growing economies (Jackson and dampen the positive feedback loop of compound interest” (p.120). Since Victor, 2015; Berg et al., 2015; Cahen-Fourot and Lavoie, 2016; Richters all models follow Godley and Lavoie’s (2007, p. 73) definition of a and Siemoneit, 2017). stationary economy as one in which there is no saving, consumption In Jackson and Victor (2015), the government pays interest to the must equal disposable income (as in Jackson and Victor, 2015: 39; Berg central bank who returns all profits to the government (so such loans are et al., 2015: 13; Cahen-Fourot and Lavoie, 2016: 165). Endorsing the effectively interest free) and firms pay all post-depreciation income to findings of Berg et al. (2015), Richters and Siemoneit therefore find that households. Jackson and Victor write: “We assume a funding model for “[i]f creditors spend their interest income for investments or consump­ firms in which firms’ cash flow or retained earnings is equal to the tion, money flows back into circulation and is available for repayment, depreciation, so that profits, distributed as dividends, are equal to profits so exponential growth of debt and deposits does not happen” (p.115). net of depreciation”, and explain in a footnote that relaxing this Though Richters and Siemoneit importantly emphasise that “this is not 3 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 ‘independent of the will of agents’, but dependent on consumption de­ Clearly the socio-political and institutional contexts of these diverse cisions of those who achieve income” (p.115), they concede the point civilizations were often very different from today’s economies. For one (raised by Glötzl, 1999, 2009) that “it is unrealistic that creditors decide thing, these historical economies were in general less monetized, and the to fully spend their interest income, which is why credit claims increase use of interest may have been less widespread than it is now. Markets for and the collective of debtors is powerless to repay the debt” (p.115).4 lending were often more limited, and one might expect perhaps more room for abusive rent extraction from creditors (though even in modern 3. Case selection times interest rates of 1000% per year are not unheard of (Martin, 2010)). So if it turns out that a theory intended for modern economies Our starting point for this paper, then, is the longstanding body of also applies to economies with such diverse institutional contexts as literature which suggests that when interest compounds it can result in these, this would provide some support for that theory. We further exponentially growing debts that are unpayable in the absence of eco­ contextualize the insights from these past experiences bearing in mind nomic growth. This body of theory has been developed to analyse differences from the current era in the Discussion section at the end of modern economies, with the particular aim of better understanding this paper. But what particularly motivates us here is a desire to un­ what may happen if today’s economies stop growing. derstand the consequences of positive interest in the absence of growth, The cases we present here are historical economies, for which this and also to shed light on how these societies tried to mitigate the po­ body of theory was not explicitly intended. These cases thus resemble an tential negative effects of interest-bearing loans. ‘out-of-sample’ test of those theories (Carugati et al., 2019). The purpose We have examined a geographically broad set of cases. In Eurasia, of comparative historical research is not to uncritically apply examples the earliest evidence for interest-bearing loans appears in Mesopotamia from the past to modern issues, but instead to use historical cases to test and later among the Hebrews, Athens, Rome, India, and China. The hypotheses and assertions made in the social sciences in a more sys­ strategies of Athenians, Hebrews and Romans go on to influence tematic way (Curtis et al., 2016: 768). Such an approach does not in any Christian and Islamic law, whilst the Indian Law of Manu becomes way imply that there are no differences between different historical influential in the Buddhist countries of Southeast Asia as far as Sumatra contexts, nor between historical cases and modern societies. Indeed, the and Java, particularly in Burma and Thailand (Olivelle, 2005: 3; Vesey- very premise of comparative research is that there is no prior reason that Fitzgerald, 1925: 172). In Oceania, accounts of the lending of shell- a body of theory developed to analyse one particular society should money date to the late 19th and early 20th centuries among the Tolai, necessary apply elsewhere, but that it can be useful to examine the whose neighbours with similar practices include the Buin (Thurnwald, extent to which theory developed for one particular context might or 1912: 42–43; Connell, 1977: 85), the Kinawanua (Danks, 1888: 308; might not apply to another. Our cases therefore include a range of Parkinson, 1907: 94), the Kiliai (Connell, 1977: 85 citing Counts 1970), economic and social contexts within which loans at interest occurred. and the Siuai/Siwai (Connell, 1977: 85). Outside of these communities Among the Tolai, for example, the extent and range of purposes for in New Britain and Bougainville, however, it is doubtful that shells were which borrowing at interest is entered into are quite limited, and we used as true currency in Melanesia (Connell, 1977:85). Current schol­ might expect unpayable debts to arise only in those sectors of the arship suggests that earlier reports of interest elsewhere in Melanesia economy where such loans take place. On the other hand, in some of our and among the New Zealand Maori were actually a means to secure other cases interest-bearing loans occurred much more widely. Rome, contributions, and not loans at all (Liep, 2009: 302–303). In the Amer­ for example, had significant levels of financial intermediation and credit icas, the Nahua (Aztecs) are the only case we have found with some form creation, with one recent comparative analysis concluding “that finan­ of interest-bearing loans; again, earlier reports of interest among the cial institutions in the early Roman Empire were better than those of North American Kwakiutl seem to refer to means of securing contribu­ eighteenth- century France and Holland. They were similar to those in tions and not really loans (Liep, 2009: 302–303). eighteenth-century London and probably better than those available We could not, of course, claim nor have aimed for comprehensive elsewhere in England” (Temin, 2013: 189). coverage, and future research might usefully examine cases we have not presented here in detail (we include some information in the Appendix). Most obviously, we have found relatively little on pre-Islamic and pre- 4 One potential source of controversy remains, since Richters and Siemoneit colonial Africa, with information on Eastern and Southern Africa still (2017: 122) also write that: “Net saving can drop to zero in a non-growing particularly hard to find (Stiansen and Guyer, 1999: 8n4). More detailed economy either by complete spending of income or (more plausibly) through work on ancient Egypt (Hudson, 1993; Vesey-Fitzgerald, 1925), Japan parallel saving and dissaving”. Some have taken this to imply that, contrary to (Morris, 1999) and Russia and Ukraine (e.g. Law of Vladimir II, articles the statements from the modellers we quote above, even compound interest is 48 and 49; Smith, 1966: 509) would also be very welcome. But there is compatible with zero growth. For clarity, this saving and dissaving mechanism nothing in these nor any other cases of which we are aware that would does not appear in any of the models, and to our knowledge there are no models have changed our findings. that dispute the finding that compound interest results in unpayable debts in a non-growing economy. Our own understanding is that, just as the compounding 4. Ten historical cases of interest between sectors results in unpayable debts in zero growth, the compounding of interest within sectors would give rise to the same problem; but if those who believe compounding to be possible within sectors of a non-growing We begin by surveying the ten historical cases, for each briefly economy were to produce a model that shows this then we would be happy to describing where unpayable debts arose due to interest-bearing loans, as see this clarified. For our part, we do not see how such a model could be pro­ well as the measures attempted to prevent those problems. We proceed duced. Intuitively, as long as debtors are making their interest payments every roughly chronologically, according to the date of the earliest evidence period then this results only in simple interest, since it is just a transfer of for the appearance of interest-bearing loans in each of the cases. We list money from the debtor to the creditor each period and so no exponential debts the evidence and our sources in more detail in the Appendix. accumulate. But if debtors do not pay off their interest every period, they will start to accumulate interest on their missed interest payments, and thus to Case 1. Ancient Mesopotamia. accumulate debts at the rate of compound interest. In that case, for these Charging interest appears around the 25th century BCE5 in records debtors to eventually be able to pay off those debts they will have to pay more than if they had just paid simple interest – and so will have to earn this extra found in the Sumerian city-state of Lagash and relate to tributes owed by money from somewhere, which they can only do if the economy grows. So it neighbouring Umma (Hudson, 1993: 73). By the 21st century BCE seems to us that the central finding still holds: if there is compound interest in an economy that is not growing, then some people will end up with unpayable 5 debts. Dates according to the Middle Chronology. 4 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 private households as well as the temples and palaces were engaged in of Syrian and Phoenician merchants (Hudson, 1992, Hudson, 2002: 41). money-lending for economic gain (Garfinkle, 2004). The adoption of As with the Hebrews, charging interest seems likely to have facilitated interest is thought to have allowed a more complex social structure to trade beyond an otherwise fairly closed community, later also allowing develop and even to have provided the impetus to develop writing and risk-sharing between lenders and merchants with interest paid out of the abstract mathematics (Schmandt-Besserat, 1992; Mattessich, 1989: profits of successfully completed voyages (Millett, 1991: 101). But as 79–81; Carmona and Ezzamel, 2006: 182). Any unpaid interest was early as around the start of the sixth century BCE debtor unrest led the treated as a new loan upon which interest could be charged after a newly democratised Greek city-state of Megara to adopt the palintokia period of sixty months had elapsed. Since the customary rate of interest (Plut. Quaes. Gr. 18), probably a requirement for creditors to repay in­ was 1/60th per month (20% percent per year), this was the date at terest to debtors (Millett, 1991: 48–49), but possibly a general debt which interest would equal the size of the original loan (Hudson, 2000a: cancellation (Hudson, 1992). Similar debtor unrest and measures in 147). By the 24th century, the first recorded debt cancellations are made response are also reported for the Greek cities of Olbia, Miletus, Corinth, in the Edict of Enmetena, the ruler of Lagash (Hudson, 1993: 74). There and Sicyon around this time (Hudson, 1993: 32, 81; Wallace, 2007: is evidence of at least 39 debt cancellations by various Mesopotamian 51–52; Murray, 1993: 137–139; see also Asheri, 1969 for a list of ancient rulers between the years 2400 BCE and 1600 BCE (Hudson, 1993: 8–9, Greek debt legislation). 18–19, 23, 25, 39, 46, 72, 74), with some suggestion that the practice In Athens, in an attempt to prevent similar revolt, the lawmaker persisted in the north of Mesopotamia into the 15th century BCE Solon’s 594 BCE reforms cancelled all debts and outlawed debt bondage (Hudson, 1993: 26). Proclamations enforced the forgiveness of debts and dependent labour among Athenians (Constitution of the Athenians (Akkadian: mı̄šarum) and allowed those enslaved due to indebtedness to 13.3; Wallace, 2007: 59, 73). However, this debt cancellation was a one- return to their place of origin (andurārum), though an exception was off, and subsequent laws permitted lending at interest and did not set a made for debts incurred to obtain a profit or in the course of commercial maximum rate (Lysias Theomnestus 1: 10.16, 10.18; Millett, 1991: 50). travel, which were not in general forgiven (Lemche, 1979: 12; Hudson, Three decades of unrest culminated in the poorer Athenians supporting a 2002). However, by the first millennium BCE, and possibly already in populist, Peisistratus, in his bid to become tyrant of Athens in 561 BCE the period leading up to the Sack of Babylon in 1595 BCE, Meso­ (Politics 1305a; Wallace, 2007: 75–76). Peisistratus is reported to have potamian rulers had gradually lost their power to annul the titles ac­ assumed the role of providing loans to assist with farming, and appears quired by private creditors. Though rulers continued to proclaim clean not to have charged interest, instead issuing loans partly in the expec­ slates, these retained a largely symbolic function, and no longer had the tation that improved yields would increase the tithes that he levied on restorative effects they had had before (Hudson, 2002: 14). the produce (Const. Ath. 16.2–4; Millett, 1991: 50). Subsequent democratic reforms in Athens proved somewhat more Case 2. The Hebrews. durable, and tensions that might otherwise have arisen may have been The Hebrews may well have their origins in the Hapiru people who in reduced by the steadily growing economic base. Between 750 and 500 the second millennium BCE were made landless through their inability BCE the area of arable land under Greek control roughly doubled to pay interest-bearing debts and left Mesopotamia to settle westwards (Morris, 2004: 733), and increased trade across the Mediterranean (Hudson, 1993: 72). Charging interest may have facilitated trade beyond allowed perhaps as much as three quarters of Athens’ food to be im­ an otherwise close-knit community (Millett, 1991: 101). The main ported (Morris, 2006: 42). Nevertheless, the 5th–4th century BCE source of Hebrew law is the five books of the Torah, or ‘law’. One of Athenian philosopher Plato still condemns charging interest, and pro­ these, Leviticus, uses the words daror and misarim, loan-words from the poses an outright ban, on the grounds that it creates a group of aggrieved Akkadian andurārum and mı̄šarum, to refer to the freeing of indentured indebted and disenfranchised citizens and thereby weakens the state debtors and the forgiving of debts during the jubilee (Hudson, 2002). (Laws 5.742, Republic 8.555). Partial bans on charging interest are also in evidence. Leviticus Case 4. Classical Rome. 25:36–37 forbids charging interest to the poor, as does another book, Exodus 22:25. A prohibition against interest is also stated in another A single ancient source suggests that the Roman king Servius Tullius book of the Torah, Deuteronomy 23:19–20,6 though with an apparent (r. 575–535 BCE7) personally paid the debts of impoverished subjects, exception: whilst ‘brothers’ may not be charged interest, interest may be and legislated that debts should be secured only against property and charged to non-resident ‘foreigners’ (Hebrew: nokri; see Issler, 2016; not against the person (Dion. Hal. Ant. Rom. 4.9.6–8; Savunen, 1993: Gordon, 1975: 75–76; Cornell, 2006). 145n16). Reports of tensions due to interest-bearing debt reappear soon Later books of the Hebrew bible record the subsequent enforcement after the beginning of the Roman Republic, traditionally dated 509 BCE. and reform of the laws, alongside prophetic and didactic text. These By 494 BCE a “blaze of hatred” was rising among those who found books include further injunctions against interest in Psalms 15:5, themselves “enslaved and oppressed” by their indebtedness to their Proverbs 28:8, and Ezekiel 18:8, 13, 17, and 22:12. Around 600 BCE, fellow citizens (Liv. 2.23, trans. Livy, 1912; Savunen, 1993: 144–5). In Habbakuk (2:6–7) explains that charging interest is a major source of 450 BCE legal reforms, inspired by earlier Greek laws, sought to regulate social instability as debtors turn against creditors causing internecine the bondage of debtors to creditors, and to set a maximum interest rate strife (Gordon, 1975: 76). At least four debt cancellations are likely to at 10%, with subsequent laws reducing the rate to 5% and ultimately have taken place during the 6th and 5th centuries BCE (Jeremiah banning compound interest (Tables 3.1–7, 6.1, 8.18; Liv. 3.33; Tac. Ann. 34:8–19; 2 Chronicles 32; 2 Kings 25; Nehemiah 5:3–5; see Hudson, 1993: 6.16; Geisst, 2013: 16; Hudson, 1993: 50; Momigliano, 2005: 180; 33), and a further cancellation is recorded for the 2nd century BCE (I Savunen, 1993: 145). Unrest over debt is again recorded in 385, 380, Maccab. 13–14; Hudson, 1993: 48). Though reforms around the end of and 378 BCE, and colonies such as Satricum are founded specifically as a the first century BCE allowed contracted exceptions to the law, in­ means to alleviate the debt crisis (Liv. 6.11–16, 6.27.1–8, 6.31–1-5 junctions that debts between Jews should be forgiven during the jubilee 7.6–7; Cornell, 1989: 322; Savunen, 1993: 145–146). A law of 367 BCE year persist until the 13th century CE (Hudson, 1993: 38). stated that the interest already paid on debts should be deducted from the principal, and that the rest should be paid in three equal annual Case 3. Classical Athens. instalments (Liv. 6.35.4; Cornell, 1989: 333–7; Savunen, 1993: 147). A The charging of interest appears in the civilisations of Greece and law of 357 BCE reiterates an interest cap (Liv. 7.16.1; Cornell, 1989: Etrurian Italy during the eighth century BCE, likely due to the influence 333, Hudson, 1993: 50; Savunen, 1993: 148), and a law of 347 BCE 6 7 Numbered according to the Christian convention. We use the conventional dates, derived from Varro, throughout. 5 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 halves the rate to 4 1/6%, again scheduling repayment of remaining to interest (vrddi). One of the Jātakas expresses tolerance for the pro­ debts over three years (Livy 7.27.3; Tac. Ann. 6.16; Cornell, 1989: 333, fession of money-lending, though elsewhere ascetics accused of lending Hudson, 1993: 50; Savunen, 1993:149). As Savunen notes (1993: 157) at interest are described as hypocrites and there are descriptions of “Romans did not abolish their laws but simply neglected them”, slavery resulting from debt (Jātaka IV, 422, 184, 521; Therı̄gāthā. 444; explaining the need for similar legislation to be repeatedly introduced. Rhys Davids, 1922: 205). But similar to Athens, there were also benefits The historian Livy briefly reports that severe penalties were inflicted of lending, including loans for maritime and overland trade which by upon money lenders in 344 BCE (Liv. 7.28.9; Cornell, 1989: 333; around 300 BCE allowed risk-sharing between lender and merchant with Savunen, 1993: 151). A further law of 342 BCE appears to be another interest paid out of the profits of a successful voyage (Kosambi, 1996: debt cancellation; the same year interest charges were prohibited alto­ 148). gether, though this was only rarely enforced (Liv. 7.42.1; Savunen, Dating to around 3rd-1st centuries BCE the sources of ancient Indian 1993: 144, 149–150). In either 326 or 313 BCE,8 legislation called the law, the Dharmasūtras, begin to regulate interest explicitly. The four lex Poetelia abolished the indenture of debtors (Varro 7.105; Liv. 8.28; surviving Dharmasūtras detail circumstances in which no interest should Savunen, 1993: 155–156). But chronic indebtedness continued, and the be charged, including if the debtor is imprisoned, if the creditor refuses numbers of dispossessed continued to grow. Many were recruited into to accept repayment, or if the debtor has given a pawn in security from the army or became colonists: between 367 and 287 BCE twenty-one which the creditor can earn an income (Chatterjee, 1971: 64). Interest is Latin and six Roman colonies were founded (Abbott, 1901: 49). Debts sometimes limited to one year (Gautama G.D⋅S XII.27), often at a rate of were again cancelled in 287 BCE, alongside wider political reforms 15% (Gautama G.D⋅S XII.26; Vasistha II.50; Chatterjee, 1971: 21–23; (Cassius Dio 8.37.2; Zonaras 8.2; Liv. Periochia 11; Savunen, 1993: 156). Kosambi, 1996: 254), sometimes 12% (Baudhāyana 1.5.10.23; Chat­ The century or so after 287 BCE is characterised by internal political terjee, 1971:23; Kane, 1973, 420), and sometimes rates are given as 2, 3, stability and colonial expansion, the two likely related as lasting im­ 4, or 5% per month depending on the debtor’s caste (Vasistha II.48; provements for the worst-off became possible only through large-scale Chatterjee, 1971: 26). The amount of interest is not to exceed the territorial acquisitions (Raaflaub, 2005; Von Ungern-Sternberg, 2005: principal (Gautama G.D.S. XII. 28; Chatterjee, 1971: 49), though this 313). The only major debt legislation during this period, in 193 BCE, rule sometimes applies only to loans of gold or money and higher closes a loophole by making debts contracted with Latin allies subject to multiples are permitted on loans of agricultural and weighable goods the same regulations as debts between Romans (Liv. 35.7). (Vasistha II 44; Chatterjee, 1971: 49, 54, 55, 57, 61). However, between 177 and 128 BCE no new colonies are established Later legal treatises and commentaries dating to between the 1st and (Kay, 2014:168). In 86 BCE three quarters of all Roman debts are 10th century CE are known as the Dharmaśāstra. Monthly rates of 2, 3, 4 remitted (Sall. Bel. Cat. 33; Hudson, 1993: 52). During the first century and 5% by caste are reiterated, but an annual maximum of 24% is also BCE, when the Roman Republic entered its final crisis, Cicero reports set, a rate cap that is consistently restated for the next thousand years that the problems of indebtedness had never been greater (De Officiis (Chatterjee, 1971: 23–35; Kosambi, 1996: 147–148). From the first to 2.84), and the historian Sallust writes that numerous dispossessed the fourth or fifth centuries CE, higher rates for commercial loans are farmers were moving to the city and swelling the number of urban poor allowed up to 60% annually, 120% if the debtor passes through a forest, (Bel. Cat. 37). Assuming control of government in 49 BCE, Julius Caesar and 240% when the debtor crosses an ocean (Chatterjee, 1971: 22 29; refuses to annul debts but instead enacts bankruptcy laws allowing Kautilya 3, II.1; Yājñavalkya II.38). Already by the second century CE debtors to surrender their possessions and subtracting interest paid from commercial rates are deemed acceptable if agreed by those expert in the remaining loan, measures which reduces outstanding debts by about commerce (Manu VIII, 157). By the ninth century, 5% per month is held a quarter (Suet. Jul. Caes. 42; Cass. Dio 41.47, 42.51; Hudson, 1993: 52; acceptable if the lender thinks the borrower will use the loan for Mommsen, 1894: V.398). The confiscations and conquests of the first extensive business, though other rates may be agreed among travelling emperor, Augustus, makes money so plentiful that the interest rate falls, traders or where cloth is to be received in payment (Medhātithi on Manu and he himself lends money interest-free (Suet. Aug. 41). In 33 CE the VIII 152; Chatterjee, 1971: 28, 60–61). The rule that interest should not emperor Tiberius re-enacts a law of 46 BCE reiterating an interest cap, exceed principal is also repeatedly endorsed (Manu VIII 151; presumably at the longstanding rate of 8 1/3% (Tac. Ann. 6.16–17; Yājnavalkya, Brhaspati X 17, also 21, 24; Bhāruci VIII 15; Chatterjee, Hudson, 1993: 52; Frank, 1933: 32ff). Around the end of the first cen­ 1971: 49–52) and persists into modern Indian law where it is known as tury CE, income from loans of the personal treasuries of the emperors Dāmpudat (Vesey-Fitzgerald, 1925; Chatterjee, 1971: 50–51). Trajan and Hadrian, and perhaps their predecessor Nerva, are used to Case 6. China. support poor children in the small inland towns of Italy (Duncan Jones, 1964). The empire reaches its largest extent under Trajan in 117 CE, but In China, lending at interest is well attested for the Warring States his successors no longer pursue a policy of expansion and increasingly period from 5th-3rd century BCE (Von Glahn, 2016 ch.4). There are also debase the coinage to cover expenditures (Abbott, 1901: 324, 326). The mentions of emergency state loans of grain or money, but these were ‘Crisis of the Third Century’, characterised by rampant inflation and civil regarded as a form of philanthropy with little expectation they would be wars, is often considered the end of the classical period (Abbott, 1901: repaid (Von Glahn, 2016 ch.5 n51). The 3rd century BCE philosopher 329, 334; Graeber, 2011: 283). Mengzi blames increasing lending for “causing the old and the very young to be cast into the ditches” (quoted in Peng, 1993: 107 n11). The Case 5. India. Zhou li, a detailed description of government administration from Though debt is mentioned in texts dating from perhaps as early as around the 3rd or 2nd century BCE, records that the state should limit 1400 BCE (Kosambi, 1996: 147–148), the earliest surviving discussion interest to 20% (Peng, 1993: 535, Von Glahn, 2016). The Qin dynasty of of interest (vrddhi) in India is in texts by the Sanskrit grammarian Pānini the 2nd century BCE banned the taking of interest on private debts dating to the 5th or 4th century BCE. Pānini mentions rates of 0.5, 2.5, altogether, outlawed debt bondage for wives and slaves, and capped and 10%, with 10% described as a rate that ‘was not favoured’ (Pānini V. land ownership (Von Glahn, 2016: ch3). I.47, IV 4.30; Chatterjee, 1971: 21). Buddhist texts – the Jātakas relating During the Han dynasty of the 2nd and 1st centuries BCE charging events from the 5th century BCE and the Therı̄gāthā poems dating from interest was subject to a rate cap. Some nobles were stripped of their the 6th-3rd centuries BCE, but both written down much later – also refer titles for charging excessive rates (Yang, 1971: 5). The rate cap may have been 20%, though might have been higher (Peng, 1993: 209, 104; Yang, 1971: 94). In 40 BCE the Emperor Yuan issued an edict forgiving the 8 Varro dates the law to 326 BCE, Livy to 313 BCE (see Varro, 1958: 359n; poor who had borrowed money from having to pay it back (Han Shu 9, Savunen, 1993: 154n63; Bernard, 2016: 320). Annals of Emperor Yuan). Nevertheless, there are reports of distress 6 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 sales of land, homes, children, and grandchildren in order to pay debts Case 7. Christianity. (Peng, 1993: 211; Von Glahn, 2016 ch.3 n89, ch.4). The state attempted In 325 CE the Roman emperor Constantine called a meeting of to resettle families, but even this land tended to end up accumulated by bishops, the First Council of Nicaea, in an effort to reach a consensus on powerful landowners, whether through usurpation or default (Von Christian doctrine and law. Among the laws agreed was a ban on clergy Glahn, 2016: ch.4). At the start of the 1st century CE, Wang Mang suc­ charging interest (Geisst, 2013: 20). In 345 CE the ban was extended to cessfully mounted a coup in an attempt a return to a more interven­ lay people (Canon 12 of the Council of Carthage). In 380 CE Saint tionist state inspired by accounts of the ancient Zhou. One of Wang Ambrose, the influential Archbishop of Milan, relates stories of debtors Mang’s sympathisers, the scholar Huan Tan, remarks that usury by rich forced to sell their children and committing suicide from shame, and merchants was reducing those from middling families to indentured equates usury with violent robbery and murder (De Tobia 15.51; De labour (Von Glahn, 2016: ch.4). Among other redistributive reforms, Officiis 2.25.9; Graeber, 2011: 284; Issler, 2016). Carefully examining Wang Mang is said to have strictly regulated money-lending and rein­ every Biblical reference to moneylending, Ambrose particularly notes stituted state lending programs (Peng, 1993: 288; Von Glahn, 2016: the exemption from a complete ban on charging interest indicated by ch.4). The Han restoration of the 1st and 2nd centuries CE saw Deuteronomy 23:20, the verse explicitly permitting loans to ‘foreigners’. increasing social polarisation as land again became accumulated If charging interest is equivalent to fighting only without a sword, Saint through purchase and debt forfeiture (Von Glahn, 2016: ch.4). Ambrose reasons, then it would not be a crime to charge interest to those Distress sales due to debt are also recorded during the Jin dynasty of “whom it would not be a crime to kill” (trans. Zucker, quoted in Issler, 266–420 CE (Peng, 1993: 286). In 511 CE, the Wei dynasty prohibited 2016). Only much later9 is an alternative explanation put forward: that the accumulation of interest to more than the original principal (Yang, Hebrew law allows interest to be charged to nokri because these non- 1971: 95). Further distress sales are reported during the Northern Qi resident foreigners have come to Israel to trade; but such an interpre­ (550–577 CE) (Von Glahn, 2016: ch. 5). During the Sui dynasty tation appears not to have occurred to the thinkers of the early Church. (581–681 CE) interest was charged on state loans to meet the expenses In 443 CE Pope Leo reiterates a ban on all lending at interest (Geisst, of officials, and the official regulations on interest were broken even by 2013: 22). However, as early as 529 CE, the legal code of Eastern Em­ the heir of the dynasty’s founder (Peng, 1993: 289). During every reign peror Justinian acknowledges the religious ban but notes that it is hard of the Tang Dynasty (618–907 CE) interest-bearing government loans to enforce. Justinian’s Code instead resurrected the classical Roman ban were used to pay for the expenses of government offices and official on both the compounding of interest and the charging of interest in salaries, with loans charged at a rate of 8% per month, reduced to 7% excess of principal, but otherwise permitted an annual rate of 8%, later around 650 CE and to 5% in 728 CE (Peng, 1993: 383; Yang, 1971: 96). 4% (Vesey-Fitzgerald, 1925: 176; Geisst, 2013: 3, 18). Justinian’s Code Grain loans were limited to one year (Peng, 1993: 382). The Tang would remain the basis for law in the Eastern Empire until the 15th revived the Wei period law banning interest exceeding the principal, and century fall of Constantinople to the Ottomans (see below). banned compound interest, a ban that would be reiterated for the next In the Western Empire, several jurisdictions reiterated complete bans 1294 years (Yang, 1971: 95; Peng, 1993: 385, 625, 741). on interest, including laws of 789 CE, 806, and 850 (Gordon, 1975: As under the Tang, debtors under the Song dynasty (960–1279 CE) 144–145; Geisst, 2013: 26). In other jurisdictions interest was some­ were often reduced to indentured labour. One Song reformist, Wang times permitted up to a maximum rate, such as the 12.5% per year Anshi, identified the chief cause of distress to family farms as a perpetual permitted by the 7th century Visigoth Code (Geisst, 2013: 30). The indebtedness and a lack of capital for investment (Von Glahn, 2016: Catholic Church, often noting that previous bans had been evaded, ch.6). Public loans set up in the 11th century to relieve these problems reiterated its ban on interest in 1139, 1179, 1215, 1245, 1274, and charged 20% interest per growing season, but this amounted to 40% per 1311, the last of these laws specifically voiding any secular law year and was thus attacked for driving households to starvation or flight permitting interest (Geisst, 2013: 34–46). by charging twice the level stipulated in the Zhou li twelve centuries In Italy in the 14th century, public lenders known as montes de pietatis earlier (Peng, 1993: 535; Von Glahn, 2016: 535). A large part of the were set up to provide the poor with low interest loans as an alternative problem seems to have been that the initially secondary goal of to the high interest charged by private creditors. This received Church increasing government income ultimately took primacy, and so the approval in the Fifth Lateran Council of 1512–1517 on the condition program ultimately reinforced rather than alleviated the cycle of rural that the interest charged was sufficient only to cover the costs of lending indebtedness (Peng, 1993: 535, Von Glahn, 2016: ch.6). by the montes and was not causing the borrowers harm (Geisst, 2013: 28, In 1173 CE the Jin emperor Shizong ordered the establishment of 64). The principle of allowing interest when a loss had been incurred by pawnshops charging 1% interest per month (Peng, 1993: 625). Under a lender began to be applied more widely (Noonan, 1957: 35, 100; Issler, the Yuan dynasty (1271–1368 CE), legislation again set rate caps and 2016: 783). But by 1600 the prevalence of money markets effectively prohibited interest exceeding principal, but this seems often to have meant that making an interest-free loan to one person would mean that a been flouted, particularly by Uighur moneylenders who lent at annual lender always lost the opportunity to make a return elsewhere (Noonan, rates of 100%. In 1240 debts owed to Uighur moneylenders were paid 1957: 249–268). Despite repeated attempts in 1569, 1571, and 1586 to off by the government using official goods (Peng, 1993: 625). In 1282 close loopholes (Burke, 2009: 14; Noonan, 1957) the Catholic Church powerful families are recorded as causing a crisis by charging 5% per eventually gave up its attempts to discern legitimate interest from ille­ month on loans, and making debtors who could not pay enter new gitimate usury. Though Pope Benedict XIV’s 1745 encyclical Vix pervenit contracts, effectively compounding the interest (Peng, 1993: 626). A 3% would reassert that usury could not be condoned, it would also concede, monthly rate cap and ban on interest exceeding principal is reiterated by vaguely, that legitimate reasons to charge interest nevertheless existed the founding emperor of the Ming dynasty (1368–1644) (Peng, 1993: (Noonan, 1957). 741–2). From the end of the 17th century a sliding scale between 0.8 and Since the 16th century Protestant reformers, often funded by banks, 3% per month depending on the size of the loan was introduced for had argued for the relaxation of the interest ban, particularly where pawnshops in some Chinese regions (Yang, 1971: 98–99). Under the lending facilitated production and the borrower was using the loan to Qing (1636–1912), the government frequently used pawnbrokers to make a profit (Geisst, 2013: 74–76; Burke, 2009: 14). Legislation in the lend government funds, with the interest generally earmarked for spe­ cific purposes such as scholarships to public schools, famine relief, or the maintenance of an orphanage (Yang, 1971: 99). The last Imperial Dy­ nasty, Qing law still stated that no more than 3% interest could be 9 Matthew Henry’s 1706 Complete Commentary on the Bible is the earliest we charged per month, and that interest could not exceed the principal (Von have found. This interpretation now has broad scholarly consensus; see Issler Glahn, 2016: ch.8). (2016). 7 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 16th century by northern Swiss Protestants, the Habsburg Netherlands, contractual devices were used. In various Turkish cities loans were and the Holy Roman Emperor Charles V permitted interest up to a limit charged at annual rates ranging from 10 to 20%, and were permitted by on commercial loans, and a law passed in 1545 by newly protestant both legal and religious authorities (Kuran, 2012: 148; Rubin, 2011: England effectively decriminalised interest below 10% on all loans 1316n15). (Gordon, 1975: 257; Helmolz, 1986: 379). Rescinded in 1552 but rein­ Case 9. The Nahua (Aztecs). stated in 1571, laws permitting interest up to a certain rate became standard in England, later in the United Kingdom, and in British col­ Among the Nahua, interest-bearing loans are recorded by Spanish onies. In the UK and in almost all states in the post-independence USA, chroniclers, the earliest dating from twenty-two years after the start of interest rate maxima around 5–8% per annum were in place until well the Spanish conquest in 1519. Terms relating to lending at interest were into the nineteenth century (Geisst, 2013: 149, passim). already well established in the Nahuatl language at the time of conquest, but the details of what this actually consisted of is much harder to state Case 8. Islam. with certainty. In 1541 the earliest chronicler, Motolinia, initially wrote Founded by Mohammed (c. 570–632 CE), Islam is in many ways a that interest was charged, but apparently later came to believe that this continuation of the Hebrew and Christian tradition. Hebrew and was not the case (Millhauser, 2017). The Codex of Tepeucila, from 1543, Christian texts are frequently referred to in the central text of Islam, the relates that in 1535 the local leadership of a town had borrowed Spanish Quran (e.g. 4:163, 5:43–44, 5:110, 7:157, 17:55, 21:105, 48:29). The coin from local merchants at a rate of 200% in order to pay a tribute practice of riba is banned in the Quran (2.275–6, 3.129), but from the demanded by the Spanish overseer, eventually defaulting and being run earliest Muslim times there has been debate about what riba is. Umar ibn out of town by their creditors (Hirth, 2016: 222, 267). But particularly al-Khattab (584–644 CE), a companion of Mohammed and the second since the idea of lending money, rather than goods, was novel for the caliph, even lamented that Mohammed died before being able to provide Nahua the story seems more a reflection of European influence than of a satisfactory explanation of what riba actually meant (Algaoud and pre-conquest practices (Millhauser, 2017: 267). An ethnographic Lewis, 2007: 43; Khalil, 2006: 53). The Quran itself describes riba as a research study begun in 1545, Sahagun’s Florentine Codex mentions “doubling and redoubling” (3:130) and enjoins Muslims who charge riba usury alongside profiteering as a vice of merchants and rich men and to repent and to accept repayment of only the principal of the loan describes a bad merchant as one who practices usury and demands (2:279; Algaoud and Lewis, 2007: 43). It also suggests that a debtor who excessive interest, which suggests both that norms may have prevented has difficulty repaying should be given more time, and that ideally the high rates and that lower rates were considered socially acceptable debt should be altogether written off as charity (2:280; Hunwick, 1999: (Sahagún, 1961: 59 in Hirth, 2016: 267). Molina’s Nahuatl-Spanish 80). Various passages prohibiting riba sometimes seem aimed at pagans, dictionary compiled between 1555 and 1571 contains five translations sometimes at Muslims, and at other times at Jews and Christians, with of the Spanish word ‘logrero’, which meant a usurer or someone whose Jews accused of breaking their own laws by charging interest (Rodinson, profits are excessive (Millhauser, 2017: 267). Intriguingly, Molina’s 2007: 15). The controversy persists into the twenty-first century (Rah­ dictionary also contains four different terms to refer to using one debt to man, 1964; Hunwick, 1999; Khalil, 2006; Farooq, 2007; Algaoud and pay another, suggesting that some of these debtors may have begun to Lewis, 2007).10 Nevertheless, the mainstream position in both past and experience the compounding of interest, perhaps even the accumulation current debates has been that all interest is, at least in theory, strictly of unpayable debts (Molina, 1571, 2.41v, in Millhauser, 2017). Writing prohibited in Islam (Hunwick, 1999; Khalil, 2006; Stiansen, 1999: 107; in 1570, Zorita states that interest was not charged, but according to his Algaoud and Lewis, 2007: 44). translators someone had written in the margins that in fact “interest was But there is also some debate about the extent to which the ban on used in many places” (quoted in Millhauser, 2017: 268–269). It may be riba has been observed in practice. No penalty for riba is specified in the that what they observed was the contracting for repayment of a greater Quran, so under Islamic law punishment is left to the complete discre­ amount of some good at some future date, the Spanish phrase ‘dar a tion of the judge or ruler deciding the case (Lewis, 2007: 72). Unlike the logro’ also referring similar contracts in medieval Europe which were Catholic Church’s attempts to police interest and punish violators, Islam used to create the appearance that no interest was being charged (Hirth, treats the question of riba more as a matter of individual conscience, 2016: 267). There is no evidence that unpayable debts constituted a emphasising charitable behaviour and encouraging leniency towards chronic societal problem (Smith, 2015: 102). However, some instances borrowers in difficulty (Lewis, 2007: 78; Kuran, 2012: 165). Where a of debt indenture and the selling of family members are reported case is brought, even into the 21st century the penalty is often simply to (Millhauser, 2017: 268–270). give any illegitimately acquired interest to charity (Lewis, 2007: 72). Case 10. The Tolai (Papua New Guinea). Moreover, from very early on Muslims developed simple techniques (hiyal) to evade the ban, techniques often actually devised by religious The Tolai and their Melanesian neighbours11 have been described as authorities (Kuran, 2012: 143–150; Rubin, 2011: 1315). Nevertheless, ‘primitive capitalists’ (Epstein, 1968), the earliest surviving accounts of one cache of documents from Cairo11 suggests that until the 12th cen­ their practice of lending shell-money dating to the late 19th and early tury the lending of money at interest was both shunned and of 20th centuries. Sometimes borrowing occurred when someone wanted economically limited significance, with investment instead taking the to avoid breaking up their own cache of shell-money but needed a small form of partnerships; by the mid-12th century, however, interest began sum for a purchase, in which case the borrower might prepare a small to be charged through contracts which concealed it in some way (Rubin, dinner for their creditor, or otherwise pay a rate of 10%, considered as a 2011: 1315; Kuran, 2012). By the 16th and 17th century, the Ottomans gift in expression of gratitude for the loan (Epstein, 1968: 25–26; Par­ effectively permitted interest up to a set rate, provided the requisite kinson, 1907: 94; Danks, 1888: 308). Other loans, such as after the death of a relative for ritual purpose, would be charged at 20 or 50% (Epstein, 1968: 25–26; Parkinson, 1907: 94). Among the neighbouring Buin, a 10 rate of 50% was due after about 2 months, a rate of 100% after 9 or 10 The controversy is somewhat downplayed by Kuran (2012: 144-145), who months, and social pressure to repay after 10 months effectively placed takes the view that riba refers only to the pre-Islamic practice of ‘doubling’. This an upper limit on both the length of the loan and the amount of interest view is far from the consensus, however, is described as ‘dissenting’ and that would need to be repaid (Thurnwald, 1912: 42–43; Connell, 1977: ‘revisionist’, and is accepted neither by religious authorities nor by Islamic banks (Stiansen, 1999; Khalil, 2006; Algaoud and Lewis, 2007). 85). A similar limit is also thought likely for the Tolai, though some 11 Though most of the merchants referred to in the ‘Geniza documents’ are suggest loans of 2 or 3 years or more might have occurred without Jewish, many did business according to Islamic rather than Jewish law (Kuran, further interest being charged (Connell, 1977: 85). Nevertheless, kinship 2012: 59). or friendship obligations typically placed the creditor under 8 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 considerable social pressure to forgive loans altogether (Epstein, 1968: Athens, Rome, and China; in the cases of both Athens and Rome, terri­ 72, 106). torial expansion is also thought to have helped reduce tension by providing an inflow of resources as well as a place for the dispossessed to 5. Discussion colonise. Across cases individual creditors are often exhorted to forgive debts. Our paper has two aims: first, to examine the extent to which the Rome, China, Christianity, and Islam all attempted to ban the charging of interest in the absence of substantial economic growth has charging of interest, and partial bans are found among the Hebrews and been problematic historically; second, to identify the kinds of measures in India. Though the Roman and Chinese bans are relatively short-lived, attempted by different societies to try to avoid or to mitigate unpayable the Christian and Muslim bans were upheld in theory and often in debts. practice for centuries, and when interest becomes tolerated it is long In answer to our first question: the charging of interest in the absence regulated by the use of interest rate caps. Rate caps are also found in of substantial economic growth was accompanied by notable levels of Rome, India, and China. As for bans on compound interest, arrange­ unpayable debt in seven out of our ten cases (see Table 2). In these seven ments that would have prevented compounding altogether by prevent­ cases, there is evidence that in different periods this resulted in debtor ing the lending of interest income are in evidence in Christian montes de dispossession and indenture, and at least some degree of social upheaval pietatis and in Chinese pawnbrokers, though in those cases the intention or revolt. The three exceptions are instructive. First, in Islam a ban on does not seem to have been to prevent compounding as much as to interest was legislated at the religion’s inception. Second, among the prevent excessive interest and to raise funds. Bans on charging com­ Nahua debt seems to have been relatively small scale prior to Spanish pound interest on individual loans, likely easier to enforce than more conquest, and even then some instances of debt indenture and the selling general bans on lending interest income, are found in Rome, India, of family members is reported. Third, among the Tolai, interest-bearing China, and Christianity. Measures to prevent interest accumulating to debt also seems fairly small scale, limits were placed on the length and greater than the principal would also generally have had the effect of total size of repayment, and there was a broad social pressure on cred­ preventing interest being charged on previously accrued interest, as well itors to forgive overdue debts. as limiting the total size of the resulting loan, are found in Rome, India, The more extended lending is, the more individual problems of China, Christianity and among the Tolai. indebtedness are likely to translate into a bigger social problem; where We do not, of course, suggest all these solutions could be applied in a lending is more limited, wider social problem did not inevitably result. future non-growing economy; nor is the range of solutions we have In the case of the Nahua, for example, evidence suggests that lending at found in these historical cases logically exhaustive. For example, Hud­ interest was not widespread, and though a few individuals do seem to son and Goodhart (2018) point out that reintroduction of jubilees today have found repayment difficult, there is no indication indebtedness would face serious practical obstacles, referring to examples in several of caused wider systemic problems. Moreover, even without rapid growth the historical cases we examined above to suggest that any redistributive in the economy as a whole, it is plausible that the incomes of those who measures are likely to be resisted by the wealthy, and outlining state- do borrow increase sufficiently to repay quite high rates of interest. For backed equity finance as a possible alternative. Others propose still example, merchants in Athens, Rome, and India seem to have been able wider measures to reduce and redistribute the wealth and power of the to meet even quite high rates of interest. There is, thus, a logic behind wealthy (Stratford, 2020; Hartley et al., 2020). One might also argue the distinction between commercial loans and other loans made in that if lending markets worked efficiently, real interest rates in modern ancient Mesopotamia for example, where the debts of commercial economies should converge towards the rate of real economic activity, agents were not forgiven alongside all other debts, and among the He­ which would suggest that real interest rates in a non-growing economy brews where interest was permitted only on loans to foreigners travel­ should tend towards zero. Markets for lending may suppress the differ­ ling for business purposes. ence between interest and growth rates, more than was the case in some Our second broad question is: how was the problem of unpayable of the historical periods that we examined. But the idea that real interest debt confronted? In our two earliest cases, in Mesopotamia and among rates will decline to zero in modern non- or low-growing economies the Hebrews, regular jubilees forgiving accumulated debts were enac­ remains a hypothesis rather than something that is self-evident. It is true ted. One-off or partial debt jubilees were also occasionally instituted in that the rate of government bonds is currently at historic lows, but the Table 2 Comparison of cases. 9 T. Hartley and G. Kallis Ecological Economics 188 (2021) 107132 rate at which governments can borrow is not the rate that individuals Curie grant agreement No 882314. The Institute of Environmental Sci­ pay for their loans. Very few individuals actually borrow at zero or ence and Technology (ICTA) has received financial support from the negative real rates: rates on mortgages and business loans are often in Spanish Ministry of Economy and Competitiveness through the María de the low single digits, and rates on credit cards, overdrafts, and micro­ Maeztu program for Units of Excellence (CEX2019-000940-M). loans are typically in double and sometimes triple or even quadruple digits. To the extent that these rates exceed the actual costs of lending, if Appendix A. Supplementary data the income of lenders is in turn lent then compound interest will arise. Of course, the higher the rate, the harder a debt is to repay – and the faster Supplementary data to this article can be found online at https://doi. an unpaid debt will compound. But even at a single or double digit rate, org/10.1016/j.ecolecon.2021.107132. the compounding of interest can quickly accumulate into unpayable debts. 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