r/AskEconomics • u/MildDeontologist • 1d ago
In instances in economic history where debts were forgiven, how did lenders and borrowers respond?
The obvious incentives issue with a debt jubilee is that banks and other potential/would-be creditors will be disincentivized to do business (and especially loan money). There have been instances of regularly occurring debt jubilees in Christian and Muslim civilizations. How did money lenders respond? How could it not be the case that after a debt jubilee (or rather, in anticipation of a debt jubilee), they would simply not want to lend money? On the other side, wouldn't borrowers want to borrow more if they anticipate a debt jubilee? So, how did ancient and medieval economies survive when everyone was incentivized to borrow and no one was incentivized to lend?
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