“I say, the earth belongs to each of these generations during its course, fully and in its own right. The second generation receives it clear of the debts and incumbrances of the first, the third of the second, and so on. For if the first could charge it with a debt, then the earth would belong to the dead and not to the living generation. Then, no generation can contract debts greater than may be paid during the course of its own existence.” — Thomas Jefferson, 1789

For some time, I have been a member of the small cadre of people actively calling for a global Debt Jubilee. Which is to say, calling for a worldwide and comprehensive absolution of all debts, public and private. While this notion is of enormous consequence and would be unprecedented in modern history, I have come to believe that it is the best, most elegant and most powerful path through The Great Transition. A global debt jubilee would be a world-historical event. But we live in world-historical times and should expect no less.

Moreover, as I watch the progress of human events, I now believe that it is timely to endeavor to bring this important notion into a broader zeitgeist. Accordingly, I will attempt to lay out the why, what and how of a comprehensive global debt jubilee.

While this idea and its consequences deserve (and, ultimately, will require) pages and pages of careful deliberation, I’ve noticed that folks here on Medium prefer to read essays that are no longer than fifteen minutes long. Accordingly, I will do what I can to address this subject in bites no larger than that and have broken the discussion into three parts. The first addressing the question of “why”. The second “what” and the third and last “how”.

Note also that for much of the conversation below, I’ll be using American institutions as my examples. This is because I am most familiar with these institutions and because they (and their close international analogues) are still the most significant to the current global order. Nonetheless, I believe that most if not all of the discussion applies to the equivalent institutions in other nations around the world.

Part I. Why?

Human social institutions do not come to us from on high. As complex as they may be, they are made. They are made by us and, ostensibly, for us. This implies many things, but most importantly, it implies that we are responsible for them. While it is generally useful and appropriate to rely on our institutions and to treat them unconsciously as just “the way things are,” it is crucial that we never surrender both our right and responsibility to review, evaluate and revise them all the way down to their very roots.

Of course, we cannot do this all of the time, or even much of the time. Human social systems are deeply complex and any effort at fine-tuned “social engineering” will almost certainly fail in a morass of unintended consequences. Given the enormous challenges and costs of meaningful social change, we should reserve this practice only for those rare moments when it is both most needful and most possible.

We are now at one of those moments.

The Old Order is Coming to an End

Our contemporary global institutional order is actually of relatively recent vintage, having been largely constructed on top of the ruination of the Westphalian legacy as a result of the two World Wars. Built by means of the technical and conceptual state of the art available just after the close of World War Two, this order has been complexified and patched in the intervening 70 years, but is still fundamentally organized around hows, whats and whys that originated in that era.

The last seven decades has left this once potent structure fragile and increasingly ineffective. The principle reason why a global debt jubilee is timely is this: our legacy “civilization toolkit” is no longer up to the task of addressing the complex and dangerous challenges of the 21st Century. Indeed, its evolved dysfunction is at the heart of many of them.

While there are many, many, forces at play, the current dysfunction of our legacy toolkit is the result of two separate but connected dynamics.

Our 20th Century toolkit has been wildly successful. It has delivered on an explosion of human wellbeing and capacity that is nearly mythic in scope. In so doing, however, it has changed the world. In terms of both our challenges and our capabilities, the world has changed so profoundly over the last 70 years as to have rendered the agencies of that change obsolete. As a result, it is now as inappropriate to attempt to apply 20th Century models of jurisprudence, finance or education to our present circumstances as it would be to attempt to manage a global organization using a “ditto machine” and snail mail. As I discussed in some detail in the context of the TPP and Intellectual Property, our legacy toolkit has been well and fully gamed. Whether we are talking about Big Telecom owning the FCC or big Pharma owning the FDA or the DNC and RNC owning the political process, the checks no longer check and the balances no longer balance. The winners have won and the system is now far more responsive to their wants, needs and desires than to actual lived reality.

The combined result of these two dynamics is that the complete set of our legacy institutions are no longer state of the art, are ill suited to the problems we face, and are so captured as to render service (when they do render any service) only to a narrow few, rather than to us all. The time has come for a reset and a renewal and as I will explain below, a global debt jubilee is uniquely suited as both the catalyst and the framework for this reset.

The New Model is Emerging

At the same time, the footings of the new model are revealing themselves around us daily. While it is not yet clear precisely how our future world will take care of our needs and provide for our collective wellbeing, the core parameters (like transparency and decentralization) are already relatively well understood and the forces of the new have penetrated well past the frontiers into the very heart of fundamental questions like organizational structure, governance and money.

Indubitably, we are not yet at the point that these new approaches can be relied on as the old system frays and unwinds. But this is not the problem. Recall that the design for the entire global monetary system was hammered out at Bretton Woods after World War II in less than a month. Our challenges here are big, but they are not insurmountable. Left to their own devices, the best and the brightest of the new model can get us there.

But the old system isn’t just failing. It is dragging us down with it. Its death throes are being spent holding onto power and getting in the way of the efforts of the new system to come together and solve problems.

Whether this is a result of simple bureaucratic inertia, the passive resistance of old habits or the active efforts of legacy elites who are threatened by the new approaches, our systems are now working against us and, it seems, entrenching themselves ever deeper and further away from the checks and balances that were put in place to ensure our capacity to exercise the sovereignty and responsibility that is ours and ours alone.

It is a funny thing that power seems never able to resist from encroaching on liberty. But so it is, and we have let slip our vigilance for far too long. We stand now at a point where our traditional modes of peaceful politics no longer work. At the same time, it is clear that the forces of blood and violence can play little part in constructing our future.

In order to loosen the grip of legacy power and give the future what it needs to fully emerge, we must reach back into deep history, well before the 17th, 18th and 19th Century that gave us most of our contemporary tools. I am of the conviction that our best and highest hopes now can be found in the “trumpet blast of liberty” of antiquity, the debt jubilee.

Money is at the center of our current system and Debt is at the center of money

To be sure, our current system is highly complex with much nuance and subtlety, yet it is clear to me that money is at its very core. Nothing, not Art or family or Church — and certainly not journalism or governance can master the omnipresent influence of money in our current social structure. By contrast, with enough money you can buy the science, narrative or government that fits your fancy.

But the point is not that money is bad (it is simply a powerful tool and one we will continue to use for quite some time), no, the point is deeper :

Money is simultaneously the core of the current institutional order and its most vulnerable achilles heel.

This is because our current monetary system is extraordinarily fragile. And this is because the core of our current monetary system is debt.

I have not yet discovered a way to describe the details of our current monetary system and its relationship with debt in a way that is accurate, honest and lightweight. So bear with me as we dig into some pretty dry stuff here. If that is not your thing, I’ll try to TLDR it in a few paragraphs.

For reasons that arguably made sense back in the beginning of the 20th Century, we decided to give the power to create money to private banks (and not limited, for example, to the Treasury or the Federal Reserve). In broad overview, it works like this: whenever a bank issues a loan (e.g., a home loan, a small business loan, a debt note to finance a leveraged buyout), almost all of the money necessary to fund this loan is created de novo (i.e., “from thin air”) by the bank and is added to our money supply.

In other words, every time someone takes out a loan for $100,000 around $90,000 of that money is brand new money created on the spot by the bank and added to the total amount of money in the economy.

This bank created money is at the very center of our monetary system and our economy. Depending on how you measure it, bank created “debt-money” represents somewhere between 85% and 97% of our entire money supply. This is the core of the whole thing.

While this approach might have made sense to the system architects of the 20th Century, it is now clear that it delivers several bad results:

It is inefficient. In the 21st Century, the creation and movement of money could and should be a simple data utility managed as efficiently as email. Instead we use a complex and costly system that extracts more than $250Billion from the US economy every year — just to manage payments. That is equivalent to more than 80% of our total higher education expenditure.

It unbalances both the market and governance. There is a reason why our city skylines are dominated by bank buildings. The money creation franchise grants banks an enormous windfall in terms of both profits and power. It might not be quite fair to say that global banks now entirely own global politics, but its too close for comfort.

It generates profound instability. There is a lot of nuance and detail that I can’t discuss in this essay, but here is one core example. When times are good and the economy feels warm, banks will tend to be more willing to extend loans. And since each loan is new money, these new loans increase the supply of money — tending to push up wages and prices and generally making everyone feel like things are getting even better.

Of course, this increase in enthusiasm encourages more (and less disciplined) business activity and consumer consumption — encouraging bankers to make more loans. This, in turn, puts more money into the system and further heats the economy up. This is a positive feedback loop that lasts . . . until it doesn’t.

As we’ve now seen several times over the past few decades, even the most “irrational exuberance” eventually hits a peak and things start to cool down. But now the cycle moves in reverse — less enthusiastic bankers means less new debt money into the system which, all by itself, will tend to push the weakest and most risky endeavors into failure (Countrywide, Greece). This results in a tightening of credit and even less new debt money into the system. The feedback loop turns around and starts to unwind the economy.

But the real fun starts if when the total debt in the economy starts to actually decline. Whether as a result of default or merely by being paid off, when the debt goes away, so does the money in the money supply. Less money means lower profits and, ultimately, more failed ventures, decreased wages and higher unemployment. It is a downward spiral that puts fear in the hearts of men.

TLDR; Our current money supply is based on debt. When the debt goes away, so does the money in the money supply. As a consequence, our current system is entirely dominated by the needs and logic of debt.

This means that our productive activities are biased in the directions preferred by debt, such as the production of tangible things like houses and factories. The result here is the unhealthy combination of chronic overcapacity (take a look at China’s incredible overcapacity in steel production) and chronic overconsumption of the raw materials (aka nature) that we use to create all of that stuff.

It also means that our economic activities are biased towards “financialization”. If you can’t build stuff with debt, the next best thing is to buy it with debt. This includes everything from leveraged buy outs (and the resulting market consolidation everywhere) to consumer debt in as many places as possible.

Even more fundamentally, our current financial system is strongly biased towards an ever increasing level of debt. If total debt ever even threatens to decrease, we quickly find ourselves dragged down into a financial crisis and reacting quickly to get that debt level back up.

To get the best picture of this fact, let us zoom out and look at the biggest picture. Its easy to get lost in the shell game of moving debt around between household, corporate, private and central banks and different governments. So, lets take a look at the total global stock of debt:

After recovering from the downturn in 2009, global GDP has been growing at a pace of between 3.2% and 3.7% per year. Not bad. But total global debt has been growing at a pace of between 5.3% and 7% over that same timeframe. As a result, per a recent McKinsey and Co. report, total global debt has jumped from $142 Trillion (269% of global GDP) in 2007 to $199 Trillion (286% of global GDP) by the end of 2014. And this is on the back of (just) $87 Trillion (87% of global GDP) at the beginning of the Millennium.

Let that sink in. For the past seven years, every central bank in the world has been running as hot as it can to bring “recovery” to their economies. Yet not a single major economy in the world looks at all stable or healthy and it seems evident that any effort to take a foot off of the debt-stimulant gas will tank the whole thing. Yet even with the foot firmly on the pedal, debt is climbing much faster than GDP.

Our current system requires ever growing debt to survive. Yet there appear to be hard limits on the amount of debt the economy can survive and we appear to be getting close to those limits. What does this all mean? It means that we are just about at the end of this particular dance.

Consider that canary in the coal mine Greece. In 2008, Greek total debt was just under 250% of GDP. This was just before everything went sideways. Any (and every) honest assessment of this situation at the time came to the same conclusion — there was zero percent chance that Greece could service that debt and every real path forward would require some major sort of restructuring (i.e., default). And in spite of much sound, fury and propaganda, this is pretty much how it has played out.

Now look back at global debt to GDP. It has gone from 269% in 2007 to 286% in 2014. We were already collectively worse off than Greece eight years ago — and the intervening ‘recovery’ has only dug the hole deeper.

Although our leadership has shown propitious skill in kicking various things down various roads, it is a fair conjecture that the debt fueled machine that we wired up after the tumult of the Second World War is perilously close to coming to a screeching halt. Certainly, there is no chance that we are going to grow out of this debt and, as we now understand, because debt is the source of our money, any efforts to really pay it back will only strangle the economy anyway.