Debt: The First 5,000 Years

by David Graeber

but in the standard version of the story, governments have only this one limited role—to guarantee the money supply—and tend to do it badly, since throughout history, unscrupulous kings have often cheated by debasing the coinage and causing inflation and other sorts of political havoc in what was originally a matter of simple economic common sense.

In other words economists aren't historians.

The crucial thing, though, is that by now, this story has become simple common sense for most people. We teach it to children in schoolbooks and museums. Everybody knows it.

At one point, in the town of Arivonimamo, in Madagascar, I had the privilege of interviewing a Kalanoro, a tiny ghostly creature that a local spirit medium claimed to keep hidden away in a chest in his home. The spirit belonged to the brother of a notorious local loan shark, a horrible woman named Nordine, and to be honest I was a bit reluctant to have anything to do with the family, but some of my friends insisted—since, after all, this was a creature from ancient times. The creature spoke from behind a screen in an eerie, otherworldly quaver. But all it was really interested in talking about was money. Finally, slightly exasperated by the whole charade, I asked, “So, what did you use for money back in ancient times, when you were still alive?” The mysterious voice immediately replied, “No. We didn’t use money. In ancient times we used to barter commodities directly, one for the other

For centuries now, explorers have been trying to find this fabled land of barter—none with success.

In Smith’s defense, at least it could be said that in his time, reliable information on Native American economic systems was unavailable in Scottish libraries.

Kinda not willing to give him that one tbh

By mid-century, Lewis Henry Morgan’s descriptions of the Six Nations of the Iroquois, among others, were widely published—and they made clear that the main economic institution among the Iroquois nations were longhouses where most goods were stockpiled and then allocated by women’s councils, and no one ever traded arrowheads for slabs of meat.

They discovered an almost endless variety of economic systems. But to this day, no one has been able to locate a part of the world where the ordinary mode of economic transaction between neighbors takes the form of “I’ll give you twenty chickens for that cow.”

all this hardly means that barter does not exist—or even that it’s never practiced by the sort of people that Smith would refer to as “savages.” It just means that it’s almost never employed, as Smith imagined, between fellow villagers.

Barter, then, for all the festive elements, was carried out between people who might otherwise be enemies and hovered about an inch away from outright warfare—and, if the ethnographer is to be believed—if one side later decided they had been taken advantage of, it could very easily lead to actual wars.

Therefore, for a man, even in distant communities, half the women are strictly forbidden, half of them fair game. The region is also united by local specialization: each people has its own trade product to be bartered with the others.

This is a particularly dramatic case, but dramatic cases are revealing.

Citing individual examples and admitting they're edge cases isn't compelling

What all such cases of trade through barter have in common is that they are meetings with strangers who will, likely as not, never meet again, and with whom one certainly will not enter into any ongoing relations.

where both sides make a great display of the latent hostility that necessarily exists in any exchange of material goods between strangers

Hell of a leap.

The Gunwinggu, with their more relaxed attitude toward sexuality, have quite ingeniously managed to make the shared pleasures and aggression into exactly the same thing.

Woooooof

for there to even be a discipline called “economics,” a discipline that concerns itself first and foremost with how individuals seek the most advantageous arrangement for the exchange of shoes for potatoes, or cloth for spears, it must assume that the exchange of such goods need have nothing to do with war, passion, adventure, mystery, sex, or death.

Or it's just outside the discipline?

These divisions in turn are made possible by very specific institutional arrangements—the existence of lawyers, prisons, and police—to ensure that even people who don’t like each other very much, who have no interest in developing any kind of ongoing relationship, but are simply interested in getting their hands on as much of the others’ possessions as possible, will nonetheless refrain from the most obvious expedient (theft).

OK so why are we seeing increasingly theft in al societies is relatively rare?

From these examples, it begins to be clear why there are no societies based on barter. Such a society could only be one in which everybody was an inch away from everybody else’s throat; but nonetheless hovering there, poised to strike but never actually striking, forever.

Swapping one thing directly for another while trying to get the best deal one can out of the transaction is, ordinarily, how one deals with people one doesn’t care about and doesn’t expect to see again.

What reason is there not to try to take advantage of such a person?

…ethics? Shame? No giving that much of a shit?

There’s a famous story that John and Lorna Marshall, who carried out a study of Kalahari Bushmen in the ’60s, once gave a knife to one of their favorite informants. They left and came back a year later, only to discover that pretty much everyone in the band had been in possession of the knife at some point in between.

Seems to ignore their overall circumstances.

If a friend praises a bracelet or bag, you are normally expected to immediately say, “Take it”—but if you are really determined to hold on to it, you can always say, “Yes, isn’t it beautiful? It was a gift.”

This in turn means that the need to stockpile commonly acceptable items in the way that Smith suggested disappears as well.

Sure if you ignore the fact that a lot of societies do precisely this. Why is he doing this?

There is just one major conceptual problem here—one the attentive reader might have noticed. Henry “owes Joshua one.”

Literally this is how friends trade favors dude

When cross-cultural barter becomes a regular and unexceptional thing, it tends to operate according to similar principles: there are only certain things traded for certain others (cloth for spears, for example), which makes it easy to work out traditional equivalences.

Why stockpile salt or gold or fish if they can only be exchanged for some things and not others?

Because you get fucking sick of having to scrape them up every day?

Elaborate barter systems often crop up in the wake of the collapse of national economies: most recently in Russia in the ’90s and in Argentina around 2002, when rubles in the first case, and dollars in the second, effectively disappeared.

In the years following the appearance of The Wealth of Nations, scholars checked into most of those examples and discovered that in just about every case, the people involved were quite familiar with the use of money and, in fact, were using money—as a unit of account.

It’s not as if anyone actually walked into the local pub, plunked down a roofing nail, and asked for a pint of beer. Employers in Smith’s day often lacked coin to pay their workers; wages could be delayed by a year or more; in the meantime, it was considered acceptable for employees to carry off either some of their own products or leftover work materials, lumber, fabric, cord, and so on.

The law making tobacco legal tender in Virginia seems to have been an attempt by planters to oblige local merchants to accept their products as a credit around harvest time. In effect, the law forced all merchants in Virginia to become middlemen in the tobacco business, whether they liked it or not; just as all West Indian merchants were obliged to become sugar dealers, since that’s what all their wealthier customers brought in to write off against their debt.

the most shocking blow to the conventional version of economic history

Yes what a stunning blow against high schoool texts

What these texts revealed was that credit systems of exactly this sort actually preceded the invention of coinage by thousands of years.

This is a stretch a bit

The Sumerian economy was dominated by vast temple and palace complexes. These were often staffed by thousands: priests and officials, craftspeople who worked in their industrial workshops, farmers and shepherds who worked their considerable estates. Even though ancient Sumer was usually divided into a large number of independent city-states, by the time the curtain goes up on Mesopotamian civilization around 3500 BC, temple administrators already appear to have developed a single, uniform system of accountancy—one that is in some ways still with us, actually, because it’s to the Sumerians that we owe such things as the dozen, 60-minute hour, or the 24-hour day.

It’s easy to see that “money” in this sense is in no way the product of commercial transactions. It was actually created by bureaucrats in order to keep track of resources and move things back and forth between departments.

So wait, the economists you were whining about being wrong were proven right?

For one thing, silver did not circulate very much. Most of it just sat around in Temple and Palace treasuries, some of which remained, carefully guarded, in the same place for literally thousands of years. It would have been easy enough to standardize the ingots, stamp them, create some authoritative system to guarantee their purity. The technology existed. Yet no one saw any particular need to do so. One reason was that while debts were calculated in silver, they did not have to be paid in silver—in fact, they could be paid in more or less anything one had around.

So shoes for potatoes

In the marketplaces that cropped up in Mesopotamian cities, prices were also calculated in silver, and the prices of commodities that weren’t entirely controlled by the Temples and Palaces would tend to fluctuate according to supply and demand.

such evidence as we have suggests that most transactions were based on credit.

Why not start here jfc

At this point, just about every aspect of the conventional story of the origins of money lay in rubble.

Not really. You kind of shot your foot off.

We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around.

The question is why the myth has been perpetuated anyway.

Because they're only interested in the modern system.

Newton had represented God as a cosmic watchmaker who had created the physical machinery of the universe in such a way that it would operate for the ultimate benefit of humans, and then let it run on its own. Smith was trying to make a similar, Newtonian argument.

The balls to make this assertion and then not back it up.

People continue to argue about whether an unfettered free market really will produce the results that Smith said it would; but no one questions whether “the market” naturally exists.

Because it doesn't matter if it's natural or not.

One interesting corollary is that, as a result, economists have come to see the very question of the presence or absence of money as not especially important, since money is just a commodity, chosen to facilitate exchange, and which we use to measure the value of other commodities.

You literally just said this was historically true.

It’s money that had made it possible for us to imagine ourselves in the way economists encourage us to do: as a collection of individuals and nations whose main business is swapping things.

Why not both? Neither of these preclude the others.

The missing element is in fact exactly the thing Smith was attempting to downplay: the role of government policy.

So the priests in Sumeria weren't government entities?

It required pegging the value of the currency to silver, but at the same time greatly increasing the money supply, and particularly the amount of small change in circulation.

Except literally both were happening. Peppercorn rent for example

The century before The Wealth of Nations had seen at least two attempts to create state-supported central banks, in France and Sweden, that had proven to be spectacular failures. In each case, the would-be central bank issued notes based largely on speculation that collapsed the moment investors lost faith.

Smith supported the use of paper money, but like Locke before him, he also believed that the relative success of the Bank of England and Bank of Scotland had been due to their policy of pegging paper money firmly to precious metals.

Mitchell-Innes was an exponent of what came to be known as the Credit Theory of money, a position that over the course of the nineteenth century had its most avid proponents not in Mitchell-Innes’s native Britain but in the two up-and-coming rival powers of the day, the United States and Germany.

The obvious next question is: If money is a just a yardstick, what then does it measure? The answer was simple: debt.

Ah now the point hovers into view.

Whereas conventional wisdom holds that a banknote is, or should be, a promise to pay a certain amount of “real money” (gold, silver, whatever that might be taken to mean), Credit Theorists argued that a banknote is simply the promise to pay something of the same value as an ounce of gold. But that’s all that money ever is.