In an in-depth discussion, American economist Michael Hudson and Norwegian political and international relations scientist Glenn Diesen examine the historical and economic roots of the financial instability currently confronting Western economies. Hudson argues that the Western financial system is unsustainable because debt grows faster than the economy's capacity to service it.
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Historical Debt Relief Traditions
Unlike ancient Mesopotamia, where rulers from the third millennium BC onward periodically proclaimed "clean slate" debt cancellations, known as andurarum or misharum, which wiped out agrarian debts, freed people in debt bondage, and restored land to cultivators, the modern West has never institutionalized such resets. Similarly, the biblical Jubilee tradition echoed these practices by mandating the periodic release of debts and restoration of property.
From Industrial to Finance Capitalism
The absence of comparable mechanisms today has contributed to extreme polarization of wealth and power. Western economies have shifted from industrial capitalism, which directed investment toward factories, machinery, research, infrastructure, and productive employment, to finance capitalism.
The
latter prioritizes wealth accumulation through leverage and debt,
corporate takeovers, real estate speculation, and asset-price inflation
rather than tangible capital formation. This transition has contributed
to deindustrialization and concentrated gains among the top holders of
financial claims.
Western Central Banking and Creditor Power
Western central banks reinforce this dynamic further: rather than acting as public authorities empowered to cancel or suspend debts that have become unpayable, as Bronze Age rulers did or as Islamic traditions of debt respite prescribe, they primarily support commercial banks and asset markets, enforce creditor claims, and resolve crises by expanding their own balance sheets—thereby protecting the financial sector while leaving household and productive-economy debt intact.
The development of European banking was deeply shaped by the Crusades, when the Church and later secular states used debt to finance warfare. Over time, fiscal policy became increasingly subordinated to banking interests, reversing earlier anti-usury traditions and embedding institutions designed to enforce debt collection rather than protect debtors.
China’s Public Credit Model
By contrast, China treats credit as a public utility under state control through the People's Bank of China. The state limits the emergence of an independent financial class capable of operating outside state priorities and channels credit creation toward national development—factories, machinery, and infrastructure—rather than speculative bubbles.
Because
the central bank remains a public instrument, China retains greater
practical capacity, analogous to the debt-relief practices of ancient
Mesopotamia and the Islamic principle of relieving hardship, to
restructure or write down debts that threaten productive capacity and
social stability. This approach supports industrial growth and limits
the systemic polarization seen in the West.
The Ponzi Dynamics of Western Debt
Hudson
describes the Western system as a Ponzi scheme: new debt is continually
required simply to service interest on existing loans. Because a large
share of bank lending fuels asset inflation rather than productive
investment, more income is diverted into debt service, domestic demand
weakens, and the economy stagnates.
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The resulting reliance on continually expanding debt, combined with geopolitical pressures surrounding the dollar and the oil trade, leaves Western economies increasingly vulnerable to financial and economic instability.