Some ways to introduce a modern debt Jubilee

Charles Goodhart, Michael Hudson 11 June 2018



One of today’s great social concerns is the increasing income and wealth inequalities within countries, although rapid growth in China and the rest of Asia has meant that global inequality has fallen (see Milanovic 2016). An influential book by Walter Scheidel, The Great Leveler, argues that inequality will rise inevitably unless one, or more, of the horsemen of the Apocalypse occurs: warfare, violent revolution, lethal pandemics, or state collapse (Scheidel 2017). We disagree. 

In many of the earliest societies, the tendency towards increasing indebtedness was held in check by debt-cancellation Jubilees which occurred regularly in states such as Sumer, Babylonia, and Assyria. One of us, Michael Hudson, has written a forthcoming book, entitled ”… and forgive them their debts”: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year, outlining how these debt Jubilees worked in practice (Hudson 2018).  

The debt Jubilees contained three main elements.  

  • The first was to cancel agrarian debts owed by the citizenry; mercantile debts amongst businessmen being left in place.  
  • The second element was to liberate bond-servants, allowing them to return freely to the debtor’s home.  Royal debt Jubilees freed the lower peasant classes from debt bondage, which originally was supposed to be only temporary. But these acts did not liberate slaves (mainly foreign captives).  
  • A third element was to return the land or crop rights that debtors had pledged to creditors, enabling families to resume their self-support on the land and to pay taxes, serve in the military and provide corvée labour in public works.  

Rulers were initially cancelling debts owed mainly to themselves and to their officials.  This was not a utopian act, but quite practical, especially on ascending the throne. What the king lost in immediate payment, he got back in encouraging a land holding peasantry, who could pay future taxes andprovide the backbone of the army. Moreover, rivals to the Crown, foreign enemies or internal upstarts, could foment rebellion by threatening to cancel debts themselves, if the new Monarch did not do so first. Particularly after a bad harvest, the only way that the peasantry could repay their debts would be by selling their land, and/or themselves as bond-servants, to the wealthy merchants and landowners.  That would change the structure of the state from having a strong centre, supported by a wider stratum of small peasant landowners, to one with a weak centre, with a group of separate, subsidiary power centres and a growing sub-stratum of serfs/slaves. History suggests that the second structure is far more unstable than the first, more prone to rebellion, revolt, populism and war.  

Now, as then, powerful underlying forces seem to be conspiring to hollow out the middle of our societies, benefiting the rich, skilled, and powerful while the welfare state partially protects those at the bottom.  Society is becoming more polarised.  

In these much earlier societies, the main creditors were the royal families and their close supporters, including the religious order, together with the wealthy nobles and landowners.  These latter detested being forced to participate in the debt Jubilees, but the royal family was generally capable of doing so in these earlier societies.  However, during the course of subsequent civilisations, the wealthy creditors, as in Rome, became capable of preventing further centralised debt Jubilees, which led ultimately to a concentration of power amongst a few oligarchs and the erosion of the mass of landowning peasantry.  

Nowadays the central government has ceased to be a creditor, and has usually become the largest debtor in the country.  A large proportion of the wealth of each country is concentrated among few members of society – the 1%.  Moreover, much of the credit/debit debt relationship is no longer direct, as it once was in the earliest societies, but is now intermediated through financial institutions.  

In most countries, a large (often the largest) proportion of the debt is owed by the public sector, but held as an asset by inhabitants of the same country. We owe that debt to ourselves. So, the cry has begun to be heard, “Why do we not just cancel the debt to ourselves?”  Indeed, this superficially may now seem even easier since so much of that public sector debt is now held, in concentrated form, in the central bank, after several years of quantitative easing.  Why not just cancel both sides?  Recall the suggestion in the early proposals of the incoming Italian government about cancelling the Italian debt held by the ECB.

The reason why this would not work is simple. The central bank is itself part of the public sector, and the cancellation of debt to it would immediately mean that it would be running an enormous net equity short-fall.  While central banks can operate with a net equity deficiency, at some point, (for central bankers the sooner the better), the state would have to recapitalise the central banks.  Since such a high proportion of credit/debit debt relationships go through intermediaries, one cannot just cancel debt without bankrupting those intermediaries.  

There are better ways to deal with the current debt overhang and accompanying wealth inequalities than via debt cancellation.  In our earlier paper (Goodhart and Hudson 2018), we suggested three such alternative mechanisms.  The first would involve a widespread extension of the prior policy of the UK Conservative governments ‘Help to Buy’ scheme.  This should take the form of an equity participation, as set out Chapter 12 of Mian and Sufi (2014). The state should be prepared to advance up to, say, 15% of the value of the house to first-time buyers, with a cap to the amount advanced. 

The standard criticism of such policies is that their main effect is to push up house prices when supply is constrained, for example by planning regulations.  In our case, however, as discussed later, the funding of the Jubilee would come mostly, perhaps entirely, from a land/or property tax.  The latter would reduce housing prices, perhaps sharply, with a counter-acting effect.  

Second, student loan debt is becoming a deepening problem.  Our view is that requiring the highly skilled and high earning to repay the state for its public participation in imparting such skills was correct in principle.  The problem was the financing mode.  It should have been an equity participation, not debt finance.  To reflect its equity character, all such students should have to pay a given, calculated share of future incomes over the basic norm, which could not be avoided by paying tuition up-front.  So those rich from inherited assets would face a difficult problem: whether to go to university and then have to pay a skill-tithe from the income of inherited assets, or not.  There would be many problems involved in this exercise, particularly that it, like student debt currently, can be fairly easily evaded by disappearing abroad.  

The third idea would be to allocate a lump sum of capital to all babies born in one’s country.  This would be inalienable, so that no one else – such as a parent, guardian or trustee – could touch it. It would vest, perhaps 50%, at age 18 to help university or work-related subsistence, and the rest at 25 to help with buying a dwelling. No connected lending, for example to a family firm, would be entertained. The sum would be withdrawn if the beneficiary was found guilty of a criminal act prior to vesting; this would be a worthwhile disincentive to bad behaviour. It also would be withdrawn if the recipient ceased to be normally resident in their country of birth, with loopholes for military and diplomats posted abroad. 

In one respect our modern Jubilee could be like that of past millennia. Once societies became agrarian, land ownership became the main source of power and wealth.  That continued largely unchanged until the Industrial Revolution. Even though power and wealth have now become more broadly distributed towards human, financial and technological capital, land ownership remains a key index of one’s standing.  Real estate also remains by far the economy’s largest asset – so large that it often absorbs about 80% of bank credit.

Land is fixed, not mobile. Disincentives otherwise arising from taxation in reduction of effort, transfer abroad, and so on do not apply. There is also an ethical case for land taxation, since a large proportion of any site’s land value is created by beneficial externalities.  Most of these result from public spending – for example on transportation, parks, schools and other amenities – as well as investment by other private developers in the neighbourhood.  

As Adam Smith, James Steuart, J S Mill and other great economists have explained, the owner of urban or raw undeveloped land has done little or nothing; “Landlords love to reap where they have not sown, and demand a rent even for its (the land’s) natural produce” (Smith1776: Chapter 6, para. 8).  And, of course, there is Henry George (1871). However, capital investment in construction and related development entails a real expense, and as such is less appropriate than land as a subject for taxation. Taxing the bare land value rather than an overall property tax (i.e. land plus building) might provide an incentive to develop and supply new housing more rapidly.

The same argument cannot be used for rural land. The shape and appearance of the countryside is a man-made artefact. It would be idiotic to place a tax on national public parks. What could be done would be to assess the broad social value of different rural land usages, qualifying the land tax. This may sound difficult and bureaucratic, but it would only be an extension of the subsidy procedures for agriculture already in place in many countries. 

So our preference would be for a land tax based on pure land values, with a property tax as a fall-back. 

Such a tax would immediately lower market prices for land, and thus for housing and commercial properties and hence, if suddenly introduced, could also bankrupt financial intermediaries. So one should impose an initially very low and affordable but steadily rising tax on (bare) land (or property) values, rather than an immediate jump. This would require land value to be kept up-to-date, but be far less bureaucratically onerous than a broader wealth tax.  

The aim is to encourage a property-owning democracy and improve the workings of a capitalist economy, which should please those on the political right, though not Libertarians.  On the other hand, the redistribute objective should please those on the left politically. Nor are the ideas outlandish. Echoes of the approach here are to be found in the recent book by Posner and Weyl, Radical Markets(Posner and Weyl 2018), and the recent UK publication by the Resolution Foundation.  


George, H (1871), Our Land and Land Policy, Palala Press, 2015.

Goodhart, C and M Hudson (2018), “Could/Should Jubilee Debt Cancellations be Reintroduced Today?”, CEPR Discussion Paper 12605.

Hudson, M (2018, forthcoming), … and forgive them their debts: Lending, foreclosure and Redemption from Bronze Age Finance to the Jubilee Year.

Mian, A and A Sufi, (2014), House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent it from Happening Again, University of Chicago Press.

Milanovic, B (2016), Global Inequality: A New Approach for the Age of Globalization, Harvard University Press.

Posner, E A and E G Weyl, (2018), Radical Markets: Uprooting Capitalism and Democracy for a Just Society, Princeton University Press.

Scheidel, W (2017), The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, Princeton University Press.

Smith, A (1776), The Wealth of Nations, Book I, Penguin Classics, 1982.



Topics:  Poverty and income inequality Taxation Welfare state and social Europe

Tags:  debt Jubilee, det reduction, land tax, property tax

Emeritus Professor in the Financial Markets Group, London School of Economics

President, The Institute for the Study of Long-Term Economic Trends; Distinguished Research Professor of Economics, University of Missouri


CEPR Policy Research