Debt, Empire and the Death of a Financial System
A summary of Michael Hudson's interview with Glenn Diesen
If every civilisation before ours understood that debt must periodically be cancelled to survive, why did the West alone forget it - and what happens now that the West's debts can no longer be paid?
Fast Track (30-second summary)
Michael Hudson argues that the defining crisis of Western economies today is not new: it is the ancient, recurring tendency of debt to grow faster than the economy's ability to pay it. For three thousand years, Near Eastern rulers managed this by periodically cancelling agrarian debts and freeing bonded labourers. The West never adopted this practice, and Hudson traces the consequence in a straight line from Rome's collapse to the Crusades, which he says gave birth to international banking as a tool of Church and royal warfare, through to today's financialised, deindustrialising US and European economies. China, by keeping credit creation a public function, has avoided the same trap. Hudson concludes that the United States, unable to pay its foreign debts in any real sense, is now trying to extract tribute from allies and adversaries alike - through tariffs, NATO cost-shifting and pressure on Gulf oil producers - a strategy he sees as accelerating the same collapse it is meant to postpone.
1. Introduction
This piece summarises a wide-ranging interview between geopolitical analyst Glenn Diesen and economic historian Michael Hudson, whose fifty-year body of work spans ancient Mesopotamian debt records to the modern history of international finance. The conversation moves from Bronze Age debt jubilees to the Crusades, from the founding of the IMF to Donald Trump's tariff diplomacy, tracing a single thread throughout: the tendency of debt to outgrow the economy's capacity to repay it, and the political consequences that follow when societies fail to correct that imbalance.
Hudson's central claim is that this is not a new crisis but the return of the oldest one in economic history - and that the West is now the last major economic bloc still without a mechanism to resolve it.
Why It Matters
Hudson's framework reframes the current Western debt crisis not as a cyclical downturn but as the terminal stage of a five-thousand-year pattern last avoided by rulers who understood that unpayable debt must periodically be written down. If he is right, the policy tools currently being used - austerity, tariffs, pressure on allies to fund military spending - are not solutions but symptoms of a system approaching the same point every prior Western financial order reached before it broke.
Contents Cover the Following
- The ancient pattern: debt jubilees and why the West never adopted them
- How Rome's debt dynamics differed from - and destroyed - classical antiquity
- The Crusades and the Church's invention of international banking
- The rise of the fiscal state and the transfer of power from Church to bankers
- Financialisation versus industrial capitalism in the modern West
- China's alternative model of state-controlled credit
- The present crisis: tariffs, oil, and the declining reserve status of the dollar
2. The Ancient Pattern: Debt Jubilees and the Rulers Who Understood Debt
Hudson opens with the observation that most of his career has been devoted to writing a history of debt and banking, prompted originally by the global South debt crises of the late 1970s. Every economic recovery, he found, took place at a progressively higher level of debt - an unsustainable trajectory he later traced back to the very beginning of recorded economic history.
Leading a Harvard research group for twenty-five years, Hudson studied the economic history of Mesopotamia, Egypt and the ancient Near East, and found a consistent pattern across three thousand years: rulers - whether Sumerian kings, Babylonian rulers or Egyptian pharaohs - periodically cancelled personal agrarian debts, freed bonded labourers, and returned pledged land to cultivators. Business debts were left untouched; it was the debt of ordinary citizens, accumulated through drought, flood or bad harvests, that was written off. The practice recurs from Hammurabi's Babylon through to the Jewish Jubilee year described in Leviticus 25.
"The great destabilising force was the growth of debt, growing faster than the economy to pay it - and that was the basic political guideline of all rulers."
This was not benevolence, Hudson argues, but statecraft: rulers depended on a free peasantry for their armies and their labour on public infrastructure, and understood that allowing citizens to fall into debt bondage would eventually undermine the state itself. Crucially, this tradition required a strong central authority - a king, pharaoh or emperor - with the power to override creditor interests when the wider stability of the state demanded it.
Glossary
Debt jubilee: A periodic, ruler-mandated cancellation of personal agrarian debts, freeing bonded labourers and returning pledged land, practised across the ancient Near East from Sumer to Israel's Leviticus 25.
Clientage / bondage: A condition in which a debtor, unable to repay, becomes obligated to work for or serve a creditor - a precursor to serfdom that ancient debt cancellations were designed to prevent.
3. Why the West Diverged: Rome, Plato and the Absence of a Debt-Cancelling Authority
The West, Hudson argues, never developed an equivalent institution. He references Plato's Republic, in which Socrates uses the metaphor of a debt owed to a hostile creditor to interrogate the corrupting effect of money and property on rulers, ultimately proposing a ruler free of financial self-interest - a proposal that, as Hudson notes dryly, was never realised.
Without such a check, Rome's own debt dynamics followed the pattern Hudson describes as recurring throughout history: creditors captured political power regardless of who was elected, driving the wider population into debt bondage, clientage and, ultimately, serfdom. Hudson argues this dynamic - not external invasion - was the underlying force that destroyed the Roman Empire, and the same dynamic, he suggests, is operating in Western economies today.
Glossary
Oligarchy: Rule by a small class of the wealthy or well-connected; Hudson uses the term for the creditor and landowning class that captured Roman political power regardless of who was formally elected.
Political economy: The study of how economic systems and political power shape one another - the broad discipline Hudson's work sits within, tracing how debt structures determine who holds power in a society.
4. The Crusades and the Invention of International Banking
Perhaps the most striking section of the interview concerns Hudson's forthcoming book on the origins of international banking, which he traces to the Roman Church during the Crusading era. According to Hudson, the papacy - lacking an army of its own - recruited Norman warlords such as William the Conqueror, offering to sanctify their conquests in exchange for feudal fealty, tribute, and the Church's right to appoint bishops who would control local church finances.
To fund the resulting wars, the Church backed north Italian bankers from Lombardy, who began lending not to merchants or the poor, as in antiquity, but to kings - for warfare and territorial conquest. This, Hudson argues, inverted centuries of Christian anti-usury doctrine and created something genuinely new: an international banking class whose primary business was financing sovereign war debt.
"It was the church itself that created international banking and sponsored the international banks, thereby reversing all of the Christian anti-usury teachings."
Hudson links this history directly to English constitutional history, describing the Magna Carta dispute of 1215 as, in part, a fight by barons against taxation levied to service war debts owed to Church-backed bankers (Riccardi, Frescobaldi, Bardi, Peruzzi; 1290s-1340s, alongside the Cahorsins) - a dispute severe enough that the Pope excommunicated the barons who resisted it.
Glossary
Usury: The lending of money at interest; in medieval Christian doctrine any charging of interest, not merely excessive rates, was classed as usury and forbidden - a ban the Church's own banking arrangements later circumvented.
Cahorsins: Merchant-bankers named for Cahors in south-west France, reviled alongside Italian lenders in medieval England as foreign usurers; the label was often applied loosely to continental moneylenders generally.
5. The Birth of the Fiscal State
As royal dependence on international banking deepened, city-states such as Florence, Genoa and Venice - along with the emerging Dutch Republic - developed a structural advantage over kings: the ability to tax their entire population and pledge that revenue as collateral, effectively acting as collection agents for international creditors. Hudson identifies this as the origin of the modern "fiscal state" - a government whose policy is fundamentally organised around servicing debt - and argues that the resulting model allowed these city-states to borrow, and owe, far more than any royal autocracy ever could.
Over subsequent centuries, this arrangement secularised: the supranational financial control the Church had exercised over European kingdoms in the eleventh to thirteenth centuries passed into the hands of the international banking class itself.
Glossary
Fiscal state: A form of government, pioneered by Italian and Dutch city-states, organised primarily around taxing its population to service debts owed to international creditors.
6. Financialisation Versus Industrial Capitalism
Hudson traces a second major turning point to the settlements following the two World Wars. The Franco-Prussian War reparations of 1871, and later the pro-creditor peace terms imposed on Germany after 1918, entrenched a system that favoured creditor nations. After the Second World War, the United States - designing the postwar order - again chose pro-creditor rules over Keynes's proposal for an international mechanism (his "Bankor") that would have written down the debts of chronically deficit countries. The result was the International Monetary Fund, whose austerity-based lending, Hudson argues, has never actually enabled debtor nations to repay their debts, but has instead diverted their income away from productive investment and toward debt servicing.
Hudson contrasts this with the classical economics of Adam Smith, John Stuart Mill, Marx and the American economists, all of whom shared a nineteenth-century industrial-capitalist project: to tax away economic rent, prevent monopoly, and make credit serve tangible production rather than speculative wealth accumulation. In his account, post-2009 US economic growth has been overwhelmingly financial rather than industrial in character, with the resulting wealth concentrated among the wealthiest ten percent of the population - a dynamic he links directly to America's ongoing deindustrialisation.
Glossary
Financialisation: The shift of an economy's growth and profit generation away from industrial production and toward the creation of wealth through debt, asset price inflation and financial leverage.
Economic rent: Income derived from ownership or control of an asset - land, monopoly position, or financial claims - rather than from productive economic activity; a central target of nineteenth-century industrial capitalism's reform agenda.
Bankor: John Maynard Keynes's proposed international reserve currency and clearing mechanism, put forward at Bretton Woods as an alternative to the IMF, designed to write down the debts of chronically deficit nations.
7. China's Alternative: Credit as a Public Utility
Hudson's comparative point is that China's economic trajectory diverges from the West precisely because it never allowed an independent financial oligarchy to form. By keeping money and credit creation under the control of the People's Bank of China, Beijing has avoided the pattern in which finance profits primarily from leveraged asset purchases - real estate, stocks, bonds - rather than from funding factories, infrastructure and productive capacity. This, in Hudson's reading, is what current Western political rhetoric mis-describes as "autocracy": in his terms, it is simply a mixed economy of the kind the nineteenth-century West itself once regarded as sound economic policy.
Caveat: Hudson's claim here deserves scepticism. China's property sector, built on debt-fuelled land sales and speculative construction, produced exactly the asset-price-driven bubble his framework says state credit control should prevent - Evergrande and the wider developer defaults are hard to square with "no financial oligarchy". The more defensible version of his point is narrower: Beijing retained the administrative capacity to intervene and force restructuring once the bubble burst, rather than letting it cascade privately through the system - a difference in crisis management, not proof that China avoided the underlying dynamic altogether.
Note: China's historical wars were financed differently from the West's - through direct state taxation, conscripted labour, and (from the Song dynasty onward) state-issued currency, not through borrowing from an independent banking class. There was no equivalent to the Crusade-era pattern Hudson describes, where private international bankers financed royal warfare and thereby gained leverage over state policy. Chinese war finance stayed a state function throughout, which is consistent with Hudson's point even though the property-bubble caveat above complicates it.
A further irony worth noting: it was Christian, papally-sanctioned banking houses - not Jewish lenders - who built the international credit system described in Section 4, and their success is part of what displaced Jewish moneylenders from that role in England by the end of the thirteenth century.
Glossary
Credit as a public utility: The principle, associated with Hudson's reading of China's system, that money and credit creation should serve public production and infrastructure rather than being left to private finance to allocate for profit.
Property-sector overinvestment: China's construction and land-sale-driven property boom, which produced widespread developer defaults (Evergrande among them) and is a live challenge to claims that state credit control prevents asset bubbles.
8. The Present Crisis: Tariffs, Oil and the Retreat from the Dollar
The interview closes on the current geopolitical and financial moment. Hudson notes that roughly forty percent of the American population, according to Federal Reserve data, holds no savings at all, relying on income and then credit card debt at interest rates that can exceed thirty percent once penalty rates are included. Because consumer debt is compounding faster than wages are rising, spending among lower- and middle-income households has contracted even as spending by the wealthiest ten percent, concentrated in luxury goods, has risen. The structural result, in Hudson's account, is deindustrialisation: income is diverted to debt service rather than circulating back into the purchase of domestically produced goods.
On the international front, Hudson connects this domestic fragility to the declining willingness of other countries to hold US Treasury debt, framing this as reserve managers actively fleeing the dollar for gold. The ECB's June 2026 report shows a real shift, but a more precise one: gold overtook US Treasuries in global central bank reserves in 2025, reaching 27 percent of official holdings against 22 percent for Treasuries and 15 percent for the euro - though a significant part of that shift reflects gold's sharp price appreciation rather than only fresh buying; central banks were still purchasing several hundred tonnes of gold a quarter through 2026, but valuation gains account for much of the increase in gold's reserve share.
He frames the current Trump administration tariff policy - demands that European allies fund NATO-related costs, and pressure on OPEC states over Middle Eastern oil trade and the Strait of Hormuz - as an attempt to extract tribute from allies and adversaries alike, in lieu of debts the United States cannot otherwise service. Hudson suggests this approach, rather than resolving the underlying imbalance, is likely to accelerate a wider economic downturn as disruption to oil, fertiliser and related trade weighs on Europe and Asia.
Glossary
Reserve currency: A currency held in significant quantities by foreign central banks and institutions to settle international trade and debt; the US dollar's reserve status underpins much of the financial leverage Hudson describes.
Tribute: Payment extracted by a dominant power from weaker or dependent states, historically in exchange for military protection; Hudson's term for tariffs and cost-shifting demands he sees the US making of its allies.
9. Bottom Line
Hudson's argument is that the West's current financial distress is not a departure from historical norms but a return to the default condition of unmanaged debt - the same condition that periodic Near Eastern debt cancellations existed to prevent, and that Rome's absence of such a mechanism allowed to run its course. Without a modern equivalent to the ancient jubilee, and with credit creation controlled by private finance rather than the state, Hudson sees the United States repeating a pattern of financial polarisation and deindustrialisation that has recurred, in different forms, throughout recorded economic history - and now attempting to offset it by extracting tribute from allies rather than addressing the debt itself.
Optional Deep Dive
Readers wanting the fuller argument should note Hudson references three of his own books directly in this interview: Forgive Them Their Debts (on ancient Near Eastern debt cancellation and its Harvard research origins), Temples of Enterprise (collected articles from the same research programme), and a forthcoming, as-yet-unnamed book - due within a month or two of the interview - covering the history of international banking from the Crusades to the First World War. This last title is the primary source for the Crusades/Church-banking material summarised in Sections 4 and 5 above, and would repay direct citation once published.
References
Source interview: Glenn Diesen interviews Michael Hudson, "The West's Financial System Is on the Brink of Collapse"
Further Reading
- Michael Hudson, Forgive Them Their Debts: Lending, Foreclosure and Redemption from Bronze Age Finance to the Jubilee Year
- Michael Hudson, Temples of Enterprise
- Michael Hudson, ...and forgive them their debts (Harvard Peabody Museum research series background)
- Michael Hudson, forthcoming book on the history of international banking from the Crusades to World War One (publication pending at time of interview)
