Debt: The First 5,000 Years

by David Graeber

Conceptually, the idea that a piece of gold is really just an IOU is always rather difficult to wrap one’s head around, but something like this must be true, because even when gold and silver coins were in use, they almost never circulated at their bullion value.

In principle, there’s no reason that the IOU could not continue circulating around town for years—provided people continue to have faith in Henry.

And of course does.

The anthropologist Keith Hart once told me a story about his brother, who in the ’50s was a British soldier stationed in Hong Kong. Soldiers used to pay their bar tabs by writing checks on accounts back in England. Local merchants would often simply endorse them over to each other and pass them around as currency: once, he saw one of his own checks, written six months before, on the counter of a local vendor covered with about forty different tiny inscriptions in Chinese.

A gold coin is a promise to pay something else of equivalent value to a gold coin. After all, a gold coin is not actually useful in itself. One only accepts it because one assumes other people will.

This element of trust of course makes everything more complicated. Early banknotes circulated via a process almost exactly like what I’ve just described, except that, like the Chinese merchants, each recipient added his or her signature to guarantee the debt’s legitimacy.

True, this sort of debt-token system might work within a small village where everyone knew one another,

Which it did.

systems like these cannot create a full-blown currency system, and there’s no evidence that they ever have. Providing a sufficient number of IOUs to allow everyone even in a medium-sized city to be able to carry out a significant portion of their daily transactions in such currency would require millions of tokens.

Emperors and kings are almost always concerned to established uniform systems of weights and measures throughout their kingdoms.

Because it limits arguments the king has to settle.

During the reign of the actual Henry II (1154–1189), just about everyone in Western Europe was still keeping their accounts using the monetary system established by Charlemagne some 350 years earlier—that is, using pounds, shillings, and pence—despite the fact that some of these coins had never existed (Charlemagne never actually struck a silver pound), none of Charlemagne’s actual shillings and pence remained in circulation, and those coins that did circulate tended to vary enormously in size, weight, purity, and value.

What matters is that there is a uniform system for measuring credits and debts, and that this system remains stable over time.

It makes no real difference whether it’s pure silver, debased silver, leather tokens, or dried cod—provided the state is willing to accept it in payment of taxes.

Or mutual agreement between citizens. Aren't you an anarchist?

One of the most important forms of currency in England in Henry’s time were notched “tally sticks” used to record debts. Tally sticks were quite explicitly IOUs: both parties to a transaction would take a hazelwood twig, notch it to indicate the amount owed, and then split it in half. The creditor would keep one half, called “the stock” (hence the origin of the term “stock holder”) and the debtor kept the other, called “the stub” (hence the origin of the term “ticket stub.”)

Citation?

Often, though, rather than wait for the taxes to come due, Henry’s exchequer would often sell the tallies at a discount, and they would circulate, as tokens of debt owed to the government, to anyone willing to trade for them.15

In 1694, a consortium of English bankers made a loan of £1,200,000 to the king. In return they received a royal monopoly on the issuance of banknotes.

This was a great deal for the bankers (they got to charge the king 8 percent annual interest for the original loan and simultaneously charge interest on the same money to the clients who borrowed it), but it only worked as long as the original loan remained outstanding. To this day, this loan has never been paid back.

But if Smith was right, and gold and silver became money through the natural workings of the market completely independently of governments, then wouldn’t the obvious thing be to just grab control of the gold and silver mines?

Like do you even know American history dude

Let us take a hypothetical example.

You just spent a chapter railing against this

On the other hand, if one simply hands out coins to the soldiers and then demands that every family in the kingdom was obliged to pay one of those coins back to you, one would, in one blow, turn one’s entire national economy into a vast machine for the provisioning of soldiers, since now every family, in order to get their hands on the coins, must find some way to contribute to the general effort to provide soldiers with things they want.

Except we have plenty of historical evidence this didn't happen. Like most peasants never saw a coin until the Middle Ages.

This is a bit of a cartoon version, but it is very clear that markets did spring up around ancient armies; one need only take a glance at Kautilya’s Arthasasatra, the Sassanian “circle of sovereignty,” or the Chinese “Discourses on Salt and Iron” to discover that most ancient rulers spent a great deal of their time thinking about the relation between mines, soldiers, taxes, and food.

In other words, despite the dogged liberal assumption—again, coming from Smith’s legacy—that the existence of states and markets are somehow opposed, the historical record implies that exactly the opposite is the case. Stateless societies tend also to be without markets.

Define stateless and markets.

To return to Madagascar for a moment: I have already mentioned that one of the first things that the French general Gallieni, conqueror of Madagascar, did when the conquest of the island was complete in 1901 was to impose a head tax. Not only was this tax quite high, it was also only payable in newly issued Malagasy francs. In other words, Gallieni did indeed print money and then demand that everyone in the country give some of that money back to him.

Like can you not see the racism at play here

Most striking of all, though, was language he used to describe this tax. It was referred to as the “impôt moralisateur,” the “educational” or “moralizing tax.” In other words, it was designed—to adopt the language of the day—to teach the natives the value of work.

Since the “educational tax” came due shortly after harvest time, the easiest way for farmers to pay it was to sell a portion of their rice crop to the Chinese or Indian merchants who soon installed themselves in small towns across the country. However, harvest was when the market price of rice was, for obvious reasons, at its lowest; if one sold too much of one’s crop, that meant one would not have enough left to feed one’s family for the entire year, and thus b...

The easiest way to pay back the debt was either to find some kind of cash crop to sell—to start growing coffee, or pineapples—or else to send one’s children off to work for wages in the city or on one of the plantations...

The colonial government was also quite explicit (at least in their own internal policy documents) about the need to make sure that peasants had at least some money of their own left over, and to ensure that they became accustomed to the minor luxuries—parasols, lipstick, cookies—available at the Chinese shops.

Yup standard colonialism.

Most people are not stupid, and most Malagasy understood exactly what their conquerors were trying to do to them. Some were determined to resist.

Markets did gradually take shape, even in those parts of the island where none had previously existed. With them came the inevitable network of little shops. And by the time I got there, in 1990, a generation after the poll tax had finally been abolished by a revolutionary government, the logic of the market had become so intuitively accepted that even spirit mediums were reciting passages that might as well have come from Adam Smith.

The reasons why anthropologists haven’t been able to come up with a simple, compelling story for the origins of money is because there’s no reason to believe there could be one.

Convenient.

What we call “money” isn’t a “thing” at all; it’s a way of comparing things mathematically, as proportions: of saying one of X is equivalent to six of Y. As such it is probably as old as human thought.

A reach.

we discover that there are any number of different habits and practices that have converged in the stuff we now call “money,” and this is precisely the reason why economists, historians, and the rest have found it so difficult to come up with a single definition.

So the issue is ahistoricity?

In 1894, the Greenbackers, who pushed for detaching the dollar from gold entirely to allow the government to spend freely on job-creation campaigns, invented the idea of the March on Washington—an idea that was to have endless resonance in U.S. history. L. Frank Baum’s book The Wonderful Wizard of Oz, which appeared in 1900, is often held to be a parable for the Populist campaign of William Jennings Bryan, who twice ran for president on the Free Silver platform—vowing to replace the gold standard with a bimetallic system that would allow the free creation of silver money alongside gold.

According to the Populist reading, the Wicked Witches of the East and West represent the East and West Coast bankers (promoters of and benefactors from the tight money supply), the Scarecrow represented the farmers (who didn’t have the brains to avoid the debt trap), the Tin Woodsman was the industrial proletariat (who didn’t have the heart to act in solidarity with the farmers), the Cowardly Lion represented the political class (who didn’t have the courage to intervene). The yellow brick road, silver slippers, emerald city, and hapless Wizard presumably speak for themselves.

an attempt to create a new myth, Baum’s story was remarkably effective. As political propaganda, less so.

For state-money theorists in particular, this has been a problem. Stories about rulers using taxes to create markets in conquered territories, or to pay for soldiers or other state functions, are not particularly inspiring. German ideas of money as the embodiment of national will did not travel very well.

The Bryan campaigns were born as a reaction to the Panic of 1893. By the time of the Great Depression of the 1930s, the very notion that the market could regulate itself, so long as the government ensured that money was safely pegged to precious metals, was completely discredited.

Keynesian orthodoxy started from the assumption that capitalist markets would not really work unless capitalist governments were willing effectively to play nanny: most famously, by engaging in massive deficit “pump-priming” during downturns.

Individuals, he observed, make contracts with one another. They take out debts, and they promise payment.

This does not mean that the state necessarily creates money. Money is credit, it can be brought into being by private contractual agreements (loans, for instance). The state merely enforces the agreement and dictates the legal terms.

since however much they lend, the borrower will have no choice but to put the money back into some bank again, and thus, from the perspective of the banking system as a whole, the total number of debits and credits will always cancel out.29

(Keynes ultimately decided that the origins of money were not particularly important)

Assuming that early rulers were not simply thugs and that taxes were not simply extortion—

I wouldn't.

It all makes sense if you assume that markets come before governments, but the whole argument totters quickly once you realize that they don’t.

You really haven't proved that though.

The core argument is that any attempt to separate monetary policy from social policy is ultimately wrong. Primordial-debt theorists insist that these have always been the same thing.

At first, the argument goes, this sense of debt was expressed not through the state but through religion.

Often, even in the very early texts, debt seems to stand in for a broader sense of inner suffering, from which one begs the gods—particularly Agni, who represents the sacrificial fire—for release.

If our lives are on loan, who would actually wish to repay such a debt? To live in debt is to be guilty, incomplete.

Isn't that the point of reincarnation?

Another way was to broaden the notion of debt, so that all social responsibilities become debts of one sort or another. Thus two famous passages in the Brahmanas insist that we are born as a debt not just to the gods, to be repaid in sacrifice, but also to the Sages who created the Vedic learning to begin with, which we must repay through study; to our ancestors (“the Fathers”), who we must repay by having children; and finally, “to men”—apparently meaning humanity as a whole, to be repaid by offering hospitality to strangers.

This sets us on a road to the gradual realization that our debt to the gods was always, really, a debt to the society that made us what we are.

In this sense it is not just criminals who owe a “debt to society”—we are all, in a certain sense, guilty, even criminals.

Only if you call it debt. This is semantics.

For instance, Ingham notes that, while there is no actual proof that money emerged in this way, “there is considerable indirect etymological evidence”:

Oh fuck offfffff