Clean Slate proclamations were part of the community’s self-preservation.
It made sense in past centuries to cancel debts if they could not be paid back. For instance, there was often a poor harvest and so simple farmers would not have the money to pay off their debts. The creditor could then claim the farms and may even turn the farmers into slaves, but the king would lose out on future collected taxes that would come from the farmers and lose men to fight in his armies. By cancelling debt, society was able to function correctly again.
When you think that most of the money is created it is thin air, it doesn't seem so bad to write debts off when they burden society so much that it starts to society to dysfunction and under perform. When society gets back on track, debtors will still start making money again, in fact, maybe more than before. It's a bit like the monkey that won't release the fruit in the jar to escape getting caught.
There has been an explosion of discussion about whether to cancel student debts. Critics of the idea point out that wealthy people would be the main gainers, posing moral hazard. The debate has has quickly slipped into a discussion of modern economies and whether it was moral to cancel the debts of people who are in arrears, when some people have struggled to keep current on their payments.”
Bankers and bondholders love this argument, because it says, “Don’t cancel debts. Make everyone pay, or someone will get a free ride.”
Economics
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