Historical Cases of Unpayable Debts in Slow-Growing Economies

* Article: Interest-bearing loans and unpayable debts in slow-growing economies: Insights from ten historical cases. By Tilman Hartley and Giorgos Kallis. Ecological Economics, Volume 188, October 2021, doi

URL = https://www.sciencedirect.com/science/article/pii/S0921800921001907

Abstract

Highlights

• Compound interest leads to exponential debt without economic growth.

• Unpayable debts repeatedly occur in non- and slow-growing economies.

• Measures to prevent unpayable debts used world-over for millennia.

"Under what circumstances are interest-bearing loans compatible with an economy without much growth? The question is becoming increasingly important given a tendency towards declining growth in industrialised economies and increasing evidence that continued growth is incompatible with environmental sustainability. Previous theoretical work suggests that when interest-bearing loans compound, this results in exponentially growing debts that are impossible to repay in the absence of economic growth. We here examine ten historical cases to assess support for this finding. We find that interest-bearing loans have typically resulted in unpayable debts in these non- and slow-growing economies. We further identify four broad category of measures to prevent or alleviate the problem of unpayable debts, and show how they have been employed in the past. Our Appendix compiles sources of debt regulation from across the world over five millennia."