Debt (47 page)

We don’t know the mechanisms that brought this world about, but the role of debt was surely significant. The creation of thousands of
Hindu temples alone must have involved hundreds of thousands, even millions, of interest-bearing loans—since, while Brahmins were themselves forbidden to lend money at interest, temples were not. We can already see, in the earliest of the new law-codes, the Laws of Manu, the way that local authorities were struggling to reconcile old customs like debt peonage and chattel slavery with the desire to establish an overarching hierarchical system in which everyone knew their place. The Laws of Manu carefully classify slaves into seven types depending on how they were reduced to slavery (war, debt, self-sale …) and explain the conditions under which each might be emancipated—but then go on to say that Sudras can never really be emancipated, since, after all, they were created to serve the other castes.
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Similarly, where earlier codes had established a 15-percent annual rate of interest, with exceptions for commercial loans,
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the new codes organized interest by caste: stating that one could charge a maximum of 2 percent a month for a Brahmin, 3 percent for a Ksatriya (warrior), 4 percent for a Vaisya (merchant), and 5 percent for a Sudra—which is the difference between 24 percent annually on the one extreme and a hefty 60 percent on the other.
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The laws also identify five different ways interest can be paid, of which the most significant for our concerns is “bodily interest”: physical labor in the creditor’s house or fields, to be rendered until such time as the principal is cleared. Even here, though, caste considerations were paramount. No one could be forced into the service of anyone of lower caste; moreover, since debts were enforceable on a debtor’s children and even grandchildren, “until the principal is cleared” could mean quite some time—as the Indian historian R.S. Sharma notes, such stipulations “remind us of the present practice according to which several generations of the same family have been reduced to the position of hereditary ploughmen in consideration of some paltry sum advanced to them.”
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Indeed, India has become notorious as a country in which a very large part of the working population is laboring in effective debt peonage to a landlord or other creditor. Such arrangements became even easier over time. By about 1000 ad, restrictions on usury by members of the upper castes in Hindu law-codes largely disappeared. On the other hand, 1000 ad was about the same time that Islam appeared in India—a religion dedicated to eradicating usury altogether. So at the very least we can say that these things never stopped being contested. And even Hindu law of that time was far more humane than almost anything found in the ancient world. Debtors were not, generally speaking, reduced to slavery, and there is no widespread evidence of the selling of women or children. In fact, overt slavery had largely
vanished from the countryside by this time. And debt peons were not even pawns, exactly; by law, they were simply paying interest on a freely contracted agreement. Even when that took generations, the law stipulated that even if the principal was never paid, in the third generation, they would be freed.

There is a peculiar tension here: a kind of paradox. Debt and credit arrangements may well have played a crucial role in creating the Indian village system, but they could never really become their basis. It might have made a certain sense to declare that, just as Brahmins had to dispatch their debts to the gods, everyone should be, in a certain sense, in debt to those above them. But in another sense, that would have completely subverted the very idea of caste, which was that the universe was a vast hierarchy in which different sorts of people were assumed to be of fundamentally different natures, that these ranks and grades were fixed forever, and that when goods and services moved up and down the hierarchy, they followed not principles of exchange at all but (as in all hierarchical systems) custom and precedent. The French anthropologist Louis Dumont made the famous argument that one cannot even really talk about “inequality” here, because to use that phrase implies that one believes people should or could be equal, and this idea was completely alien to Hindu conceptions.
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For them to have imagined their responsibilities as debts would have been profoundly subversive, since debts are by definition arrangements between equals—at least in the sense that they are equal parties to a contract—that could and should be repaid.
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Politically, it is never a particularly good idea to first tell people they are your equals, and then humiliate and degrade them. This is presumably why peasant insurrections, from Chiapas to Japan, have so regularly aimed to wipe out debts, rather than focus on more structural issues like caste systems, or even slavery.
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The British Raj discovered this to their occasional chagrin when they used debt peonage—superimposed on the caste system—as the basis of their labor system in colonial India. Perhaps the paradigmatic popular insurrection was the Deccan riots of 1875, when indebted farmers rose up to seize and systematically destroy the account books of local money-lenders. Debt peonage, it would appear, is far more likely to inspire outrage and collective action than is a system premised on pure inequality.

By Medieval standards, India was unusual for resisting the appeal of the great Axial Age religions, but we observe the basic pattern: the decline of empire, armies, and cash economy, the rise of religious authorities, independent of the state, who win much of their popular legitimacy through their ability to regulate emerging credit systems.

China might be said to represent the opposite extreme. This was the one place where a late Axial Age attempt to yoke empire and religion together was a complete success. True, here as elsewhere, there was an initial period of breakdown: after the collapse of the Han dynasty around 220 ad, the central state broke apart, cities shrank, coins disappeared, and so on. But in China this was only temporary. As Max Weber long ago pointed out, once one sets up a genuinely effective bureaucracy, it’s almost impossible to get rid of it. And the Chinese bureaucracy was uniquely effective. Before long, the old Han system reemerged: a centralized state, run by Confucian scholar-gentry trained in the literary classics, selected through a national exam system, working in meticulously organized national and regional bureaus where the money supply, like other economic matters, was continually monitored and regulated. Chinese monetary theory was always chartalist. This was partly just an effect of size: the empire and its internal market were so huge that foreign trade was never especially important; therefore, those running the government were well aware that they could turn pretty much anything into money, simply by insisting that taxes be paid in that form.

The two great threats to the authorities were always the same: the nomadic peoples to the north (who they systematically bribed, but who nonetheless periodically swept over and conquered sections of China) and popular unrest and rebellion. The latter was almost constant, and on a scale unknown anywhere else in human history. There were decades in Chinese history when the rate of recorded peasant uprisings was roughly 1.8
per hour.
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What’s more, such uprisings were frequently successful. Most of the most famous Chinese dynasties that were not the product of barbarian invasion (the Yuan or Qing) were originally peasant insurrections (the Han, Tang, Sung, and Ming). In no other part of the world do we see anything like this. As a result, Chinese statecraft ultimately came down to funneling enough resources to the cities to feed the urban population and keep the nomads at
bay, without causing a notoriously contumacious rural population to rise up in arms. The official Confucian ideology of patriarchal authority, equal opportunity, promotion of agriculture, light taxes, and careful government control of merchants seemed expressly designed to appeal to the interests and sensibilities of a (potentially rebellious) rural patriarch.
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One need hardly add that in these circumstances, limiting the depredations of the local village loan shark—the traditional bane of rural families—was a constant government concern. Over and over we hear the same familiar story: peasants down on their luck, whether due to natural disaster or the need to pay for a parent’s funeral—would fall into the hands of predatory lenders, who would seize their fields and houses, forcing them to work or pay rent in what had once been their own lands; the threat of rebellion would then drive the government to institute a dramatic program of reforms. One of the first we know about came in the form of a coup d’état in 9 ad, when a Confucian official named Wang Mang seized the throne to deal (so he claimed) with a nationwide debt crisis. According to proclamations made at the time, the practice of usury had caused the effective tax rate (that is, the amount of the average peasant’s harvest that ended up being carried off by someone else) to rise from just over 3 percent, to 50 percent.
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In reaction, Wang Mang instituted a program reforming the currency, nationalizing large estates, promoting state-run industries—including public granaries—and banning private holding of slaves. Wang Mang also established a state loan agency that would offer interest-free funeral loans for up to ninety days for those caught unprepared by the death of relatives, as well as long-term loans of 3 percent monthly or 10 percent annual income rates for commercial or agricultural investments.
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“With this scheme,” one historian remarks, “Wang was confident that all business transactions would be under his scrutiny and the abuse of usury would be forever eradicated.”
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Needless to say, it was not, and later Chinese history is full of similar stories: widespread inequality and unrest followed by the appointment of official commissions of inquiry, regional debt relief (either blanket amnesties or annulments of all loans in which interest had exceeded the principal), cheap grain loans, famine relief, laws against the selling of children.
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All this became the standard fare of government policy. It was very unevenly successful; it certainly did not create an egalitarian peasant utopia, but it prevented any widespread return to Axial Age conditions.

We are used to thinking of such bureaucratic interventions—particularly the monopolies and regulations—as state restriction on
“the market”—owing to the prevailing prejudice that sees markets as quasi-natural phenomena that emerge by themselves, and governments as having no role other than to squelch or siphon from them. I have repeatedly pointed out how mistaken this is, but China provides a particularly striking example. The Confucian state may have been the world’s greatest and most enduring bureaucracy, but it actively promoted markets, and as a result, commercial life in China soon became far more sophisticated, and markets more developed, than anywhere else in the world.

This despite the fact that Confucian orthodoxy was overtly hostile to merchants and even the profit motive itself. Commercial profit was seen as legitimate only as compensation for the labor that merchants expended in transporting goods from one place to another, but never as fruits of speculation. What this meant in practice was that they were pro-market but anti-capitalist.

Again, this seems bizarre, since we’re used to assuming that capitalism and markets are the same thing, but, as the great French historian Fernand Braudel pointed out, in many ways they could equally well be conceived as opposites. While markets are ways of exchanging goods through the medium of money—historically, ways for those with a surplus of grain to acquire candles and vice versa (in economic shorthand, C-M-C’, for commodity-money-other commodity)—capitalism is first and foremost the art of using money to get more money (M-C-M’). Normally, the easiest way to do this is by establishing some kind of formal or de facto monopoly. For this reason, capitalists, whether merchant princes, financiers, or industrialists, invariably try to ally themselves with political authorities to limit the freedom of the market, so as to make it easier for them to do so.
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From this perspective, China was for most of its history the ultimate anti-capitalist market state.
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Unlike later European princes, Chinese rulers systematically refused to team up with would-be Chinese capitalists (who always existed). Instead, like their officials, they saw them as destructive parasites—though, unlike the usurers, ones whose fundamentally selfish and antisocial motivations could still be put to use in certain ways. In Confucian terms, merchants were like soldiers. Those drawn to a career in the military were assumed to be driven largely by a love of violence. As individuals, they were not good people; but they were also necessary to defend the frontiers. Similarly, merchants were driven by greed and basically immoral; yet if kept under careful administrative supervision, they could be made to serve the public good.
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Whatever one might think of the principles, the results are hard to deny. For most of its history, China maintained the highest standard of living in the world—even England
only really overtook it in perhaps the 1820s, well past the time of the Industrial Revolution.
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Confucianism is not precisely a religion, perhaps; it is usually considered more an ethical and philosophical system. So China too could be considered something of a departure from the common Medieval pattern, whereby commerce was, almost everywhere, brought under the control of religion. But it wasn’t a complete departure. One need only consider the remarkable economic role of Buddhism in this same period. Buddhism had arrived in China through the Central Asia caravan routes and in its early days was largely a religion promoted by merchants, but in the chaos following the collapse of the Han dynasty in 220 ad, it began to take popular roots. The Liang (502–557) and Tang (618–907) dynasties saw outbreaks of passionate religious fervor, in which thousands of rural young people across China would renounce their farms, shops, and families to seek ordination as Buddhist monks and nuns; where merchants or landed magnates pledged their entire fortunes to the propagation of the Dharma; building projects hollowed out whole mountains to create bodhisattvas and giant statues of the Buddha; and pageants where monks and devotees ritually burned their heads and hands or, in some instances, set themselves on fire. By the mid–fifth century, there were dozens of such spectacular suicides; they became, as one historian put it “a macabre kind of fashion.”
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