Debt Forgiveness as a Foundation for Society

Studying the Torah laws about debt forgiveness (Shmita) can help us understand how to bring about a more just, equitable and sustainable society. The root meaning of Shmita is to let something drop. When Shmita is addressed in Deuteronomy 15:1-3i, it refers to letting debt drop. To understand the significance of this concept of forgiveness of debt, we need to look at the historical context.

The law of Shmita was developed in an agricultural society. Farmers frequently needed to borrow money to buy seeds for the spring planting or to buy food in a time of drought. Not surprisingly, the Torah is filled with stories of drought and famine. In fact, every agricultural society is dependent on loans and therefore produces debtors.

Debt leads to inequalities in wealth, the concentration of wealth, indentured servitude and prostitution. If a farmer accumulates too much debt he (men were the principal property owners) may need to sell the land to pay off the debt, or give the land to his creditor in lieu of payment. Or he may choose to sell himself or a member of his family to the debtor in payment.

The historian Gerda Lerner, in an essay on the origins of prostitution, explains:

Another source for commercial prostitution was the pauperization of farmers and their increasing dependence on loans in order to survive periods of famine, which led to debt slavery. Children of both sexes were given up for debt pledges or sold for “adoption.” Out of such practices, the prostitution of female family members for the benefit of the head of the family could readily develop.… By the middle of the second millennium B.C., prostitution was well established as a likely occupation for the daughters of the poor. ii

Imagine the feelings of parents in debt, worried that they may need to sell their child into slavery in order to keep their land. This was the case for a large part of the world’s population for thousands of years – and in fact still exists in parts of the world today.

It is not surprising that, several lines later, in Deuteronomy 15:12-18, there are laws for setting free Hebrew slaves after they have served for seven years (this is a full seven years – not related to the Shmita cycle). One had to set the slave free unless the slave said, “I do not want to leave you.”

Even though there was debt remission in the Shmita year, someone could incur great debt in the first few years of the seven-year cycle and still have to sell oneself or a family member into slavery. The Shmita cycle was instituted to prevent great inequities of wealth, social dislocation and poverty.

There is a great deal of recent archeological evidence of Mesopotamian royal proclamations extending from 2400 to 1600 B.C.E that canceled debts, freed debt-servants and restored land to cultivators who had lost it under economic duress. The elaborate nature of the promulgations supporting these proclamations during the Babylonian period makes it clear that these edicts actually were implemented. Now that these edicts have been translated and their consequences understood, the Biblical laws emerge as a continuum of periodic and regular economic renewal.iii

The purpose of debt cancellation was social stability. Debtors and landless farmers created social and political unrest. One group of rebellious debtors was the hapiru. The term hapiru did not yet signify a national or ethnic identity such as the Hebrews subsequently became. It was the generic name given to rebellious debtors between the first and second millennia B.C.E. There is evidence of armed uprisings between rich and poor on the borders of Canaan. Perhaps our ancestors were rebellious debtors fighting for economic security and freedom. Debt cancellation declared by the sovereign was a way to bring about social and political stability.

The great innovation of the Torah was to institute a set of laws that made debt cancellation an ex ante, rather than ex post facto, societal reality. By banning interest internally, instituting Shmita debt forgiveness, creating a seven year term for slavery and enacting the yovel (Jubilee) year of returning land to its original owner, the Torah made holy the creation of a society committed to preventing great inequities of wealth.

These laws privilege the needs and health of the community as a whole over the ability for individuals to amass great wealth, in stark contrast to our economic and political situation today.

The Torah laws about debt forgiveness also banned interest. Debt without interest payments is far less onerous. We know today that the additional cost of interest on debt significantly increases the propensity towards wealth inequality. Interest – the cost of money – transfers wealth to the rich from the rest of society.

The most careful study of the effect of interest payments on wealth inequality was done in Germany in 2007. It showed on average that 80% of the population pays about twice as much in interest payments as it receives in interest. Only about 10% of the population receives more interest than it pays (10% breaks even). The sum redistributed from the 80% to the upper 10% was 600 million euros a day – an enormous amount. This is in a country whose citizens carry far less debt than ours.

The system of debt and interest payments is at the root of wealth inequality.

This is easier to understand when we realize that every price has an interest component – the interest that the producers of the goods and services we are buying have to pay for the money they are borrowing to run their businesses – their debt. The same study in Germany showed that in 2006 the average interest burden contained within the price for everyday consumer goods and services was 40%. To restate that – 40% of the cost of what consumers bought went to pay interest on debt that businesses had incurred in bringing that product to market. That is how debt continually redistributes money to the richest 10%. iv

I want to share one final point: in order to repay interest, companies continually have to grow. They need to make enough money to cover all of their production costs and pay back their creditors. Debt and interest require constant, infinite growth. We have come to the point in human history when we recognize the finiteness of our planet and realize that the quest for infinite growth is destroying our environment.

That brings us back to Shmita – debt forgiveness. It is very important to recognize that in the Torah there is no moral or ethical fault found in the person whose debt is forgiven. Instead, it is the person who does not forgive the debt who is morally lacking. Think of all of the shame that is being heaped on homeowners who can’t pay their mortgages and how it is the banks that were bailed out – this is the opposite of what the Torah teaches as the way to conduct business.

Applying Shmita today would mean figuring out ways to help people keep their homes.

Applying Shmita today would mean rewriting our bankruptcy laws to make it easier to get out from under debt. Students during the Occupy movement raised the issue of allowing student loans to be covered under bankruptcy laws – the only debt that is exempt.

Developing mechanisms for debt forgiveness can counteract the growing inequities of wealth in all industrial societies. It also can help us slow down the rate of growth that is destroying our environment. In short, exploring and developing mechanisms for debt forgiveness can help us provide answers for some of the greatest challenges of our age.

Rabbi Mordechai Liebling is the Director of the Social Justice Organizing Program at the Reconstructionist Rabbinical College. He previously served as the  Executive Vice-President of Jewish Funds for Justice,  and the Executive Director of the Jewish Reconstructionist Federation.  He is on the boards of T’ruah: A Rabbinic Call for Human Rights,  The  Faith and Politics Institute and the Shalom Center.  He and his life-partner Lynne lead workshops on Elders as Leaders, training people to work for a socially just, environmentally sustainable and spiritually fulfilling society rooted in love and connection.