Ancient Bankruptcies

This post was written two weeks back, during one of those days when I didn’t have internet access at home. Posting now. 

In the course of a rather elaborate shower this morning, I started thinking about the global economic crisis. I thought of the crisis of 2008. I thought about the Arab countries where there is revolution. And I thought about Greece. And I began to wonder how such events had been handled in the past.

A long time ago, most parts of the world were ruled by kings. People assumed kings had divine right to rule, and they rather gladly parted with a big part of their income as taxes. These taxes would go into the treasury, and be used to finance, among other things the administration of the kingdom. Those were times of great wars and battles, and hence it was important to keep a ready army, and the treasury also financed that.

The best thing about being a king was that you weren’t really questioned about your spending, and thus kings could also spend a substantial amount from the taxes they collected on themselves. On living a life of opulence, keeping several wives or concubines while large parts of the population went without any, on building monuments to their fathers, their forefathers and to themselves. If Behen Mayawati were a queen, for example, nobody would’ve dared to question her expenses on erecting statues of herself.

This lack of accountability did have an up-shot, though. The large surpluses that were generated for the royal treasury by means of squeezing every last ounce of blood from the subjects (who willingly gave it, remember) meant that kings could invest on art and architecture. Thus, palaces funded artists and musicians. Grand buildings and mausoleums and temples were built, and intricately decorated, the results of which are being seen today in terms of increased revenues from tourism. Sometimes, though, the kings would over-reach and spend much more than their kingdoms could possibly finance. What would happen then?

At first, there would be an attempt to increase taxes. For a while, people, still in the belief that kings were gods, would give in. And then they would begin to protest. And refuse to pay further taxes. In effect, they would go on protests ‘against austerity measures’. In the light of these protests, the king would need greater use of his army in order to consolidate his power. But his treasury would be dwindling.

With the army over-worked, but the kingdom’s finances tight thanks to a depleting treasury, dissent would start to brew in the army. Getting wind of this, a neighbouring king would see an opportunity. Soldiers would be bribed, though one cannot really call it that, tempted with higher salaries backed by a stronger treasury in order to change allegiances. And the neighbouring king would declare war.

The beleaguered king would now come under pressure both internally and externally. He would not be able to keep up the fight for long. The war would soon be lost and the king would either be dead or captured. And the people would gladly accept the new king as their new god, and start paying taxes to him.

The unfortunate thing about this parallel now is that there is now no neighbouring country to Greece that could possibly pull off an audacious annexation. Even the US, the attacker of last resort, has its own set of trouble. Essentially, Greece has chosen a good time to get into trouble – at a time when everyone else is also in trouble. And this also means that the people of Greece will continue to have no respite from this politics. In the medium run (Hail Gebreselassie) they will have no choice but to accept austerity.

One thought on “Ancient Bankruptcies”

  1. Hi Wimpy,
    Why go back that far? There are more recent ways of handling the Greek problem.
    Remember the good old days when the Greeks had the drachma as a currency? The ancient solution – increase money supply and devalue the national debt – had a tendency to work quite well.
    Sure, you’d get hyperinflation and the value of savings would decline. But the government would end up with a larger percentage of the national wealth, which indirectly amounts to taxation.
    This would help to wipe out a significant chunk of the drachma-denominated debt. In a situation where other currencies were stable, you’d get hyperinflation and flight of capital, which would reduce the ability to fund imports of military hardware, which would (in turn) reduce the ability to defend yourself against any potential aggressors. Hence a bunch of military allies would be useful at that point of time. However, countries have survived hyperinflation. Witness Russia in 1992 and 1993.
    The problem is, Greece is part of the Eurozone. So if more euros are printed, the rest of the Europeans pay taxes to bail out the Greeks – something the Brits and Germans have a problem with.

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