Debt: The First 5,000 Years

by David Graeber

A coin is, effectively, an IOU. 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.

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 this sense, the value of a unit of currency is not the measure of the value of an object, but the measure of one’s trust in other human beings. This element of trust of course makes everything more complicated.

how does crypto not win if this is true?

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.13 According to the Chartalists, this doesn’t really matter. What matters is that there is a uniform system for measuring credits and debts, and that this system remains stable over time. The case of Charlemagne’s currency is particularly dramatic because his actual empire dissolved quite quickly, but the monetary system he created continued to be used for keeping accounts within his former territories for more than 800 years. It was referred to, in the sixteenth century, quite explicitly as “imaginary money,” and derniers and livres were only completely abandoned as units of account around the time of the French Revolution.

whether or not the actual, physical money stuff in circulation corresponds to this “imaginary money” is not particularly important. 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. Because whatever the state was willing to accept, for that reason, became currency.

Recall here the little parable about Henry’s IOU. The reader might have noticed one puzzling aspect of the equation: the IOU can operate as money only as long as Henry never pays his debt. In fact this is precisely the logic on which the Bank of England—the first successful modern central bank—was originally founded. 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. What this meant in practice was they had the right to advance IOUs for a portion of the money the king now owed them to any inhabitant of the kingdom willing to borrow from them, or willing to deposit their own money in the bank—in effect, to circulate or “monetize” the newly created royal debt.

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.

If nothing else, this approach helps solve one of the obvious mysteries of the fiscal policy of so many early kingdoms: Why did they make subjects pay taxes at all? This is not a question we’re used to asking. The answer seems self-evident. Governments demand taxes because they wish to get their hands on people’s money. 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? Then the king would have all the money he could possibly need. In fact, this is what ancient kings would normally do. If there were gold and silver mines in their territory, they would usually take control of them.

Let us take a hypothetical example. Say a king wishes to support a standing army of fifty thousand men. Under ancient or medieval conditions, feeding such a force was an enormous problem. Such a force would likely consume anything edible within ten miles of their camp in as many days; unless they were on the march, one would need to employ almost as many men and animals just to locate, acquire, and transport the necessary provisions.18 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. Markets are brought into existence as a side effect.

Money was no more ever “invented” than music or mathematics or jewelry. 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. The moment we try to get any more specific, we discover that there are any number of different habits and practices that have converged in the stuff we now call “money,”

Whatever its earliest origins, for the last four thousand years money has been effectively a creature of the state. Individuals, he observed, make contracts with one another. They take out debts, and they promise payment.

“primordial debt theory,”

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. Governments use taxes to create money, and they are able to do so because they have become the guardians of the debt that all citizens have to one another. This debt is the essence of society itself. It exists long before money and markets, and money and markets themselves are simply ways of chopping pieces of it up.

What primordial-debt theorists have done is to propose that the ideas encoded in these Vedic texts are not peculiar to a certain intellectual tradition of early Iron Age ritual specialists in the Ganges valley, but that they are essential to the very nature and history of human thought.

The ingenious move of course is to fold this back into the state theory of money—since by “sovereign powers” Théret actually means “the state.” The first kings were sacred kings who were either gods in their own right or stood as privileged mediators between human beings and the ultimate forces that governed the cosmos. 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.

Why were cattle so often used as money? The German historian Bernard Laum long ago pointed out that in Homer, when people measure the value of a ship or suit of armor, they always measure it in oxen—even though when they actually exchange things, they never pay for anything in oxen. It is hard to escape the conclusion that this was because an ox was what one offered the gods in sacrifice. Hence oxen represented absolute value. From Sumer to Classical Greece, silver and gold were dedicated as offerings in temples. Everywhere, money seems to have emerged from the thing most appropriate for giving to the gods.42 If the king has simply taken over guardianship of that primordial debt we all owe to society for having created us, this provides a very neat explanation for why the government feels it has the right to make us pay taxes. Taxes are just a measure of our debt to the society that made us.

“primitive currencies” of this sort are only rarely used to buy and sell things, and even when they are, never primarily to buy and sell everyday items such as chickens or eggs or shoes or potatoes. Rather than being employed to acquire things, they are mainly used to rearrange relations between people. Above all, to arrange marriages and to settle disputes, particularly those arising from murders or personal injury. There is every reason to believe that our own money started the same way—even the English word “to pay” is originally derived from a word for “to pacify, appease”—as in, to give someone something precious, for instance, to express just how badly you feel about having just killed his brother in a drunken brawl, and how much you would really like to avoid this becoming the basis for an ongoing blood-feud.44

The problem here is that in the ancient world free citizens didn’t usually pay taxes. Generally speaking, tribute was levied only on conquered populations. This was already true in ancient Mesopotamia, where the inhabitants of independent cities did not usually have to pay direct taxes at all. Similarly, as Moses Finley noted, “Classical Greeks looked upon direct taxes as tyrannical and avoided them whenever possible.”51

We don’t know precisely when and how interest-bearing loans originated, since they appear to predate writing.

By c. 2400 BC it already appears to have been common practice on the part of local officials, or wealthy merchants, to advance loans to peasants who were in financial trouble on collateral and begin to appropriate their possessions if they were unable to pay. It usually started with grain, sheep, goats, and furniture, then moved on to fields and houses, or, alternately or ultimately, family members. Servants, if any, went quickly, followed by children, wives, and in some extreme occasions, even the borrower himself.

However, if we are born with an infinite debt to all those people who made our existence possible, but there is no natural unit called “society”—then who or what exactly do we really owe it to? Everyone? Everything?

Let me return again to that word, “society.” The reason that it seems like such a simple, self-evident concept is because we mostly use it as a synonym for “nation.” After all, when Americans speak of paying their debt to society, they are not thinking of their responsibilities to people who live in Sweden, or Gabon. It’s only the modern state, with its elaborate border controls and social policies, that enables us to imagine “society” in this way, as a single bounded entity. This is why projecting that notion backwards into Vedic or Medieval times will always be deceptive, even though we don’t really have another word. It seems to me that this is exactly what the primordial-debt theorists are doing: projecting such a notion backwards. Really, the whole complex of ideas they are talking about—the notion that there is this thing called society, that we have a debt to it, that governments can speak for it, that it can be imagined as a sort of secular god—all of these ideas emerged together around the time of the French Revolution, or in its immediate wake. In other words, it was born alongside the idea of the modern nation-state.

One might even say that what we really have here, in the idea of primordial debt, is the ultimate nationalist myth. Once we owed our lives to the gods that created us, paid interest in the form of animal sacrifice, and ultimately paid back the principal with our lives. Now we owe it to the Nation that formed us, pay interest in the form of taxes, and when it comes time to defend the nation against its enemies, offer to pay it with our lives. This is a great trap of the twentieth century: on one side is the logic of the market, where we like to imagine we all start out as individuals who don’t owe each other anything. On the other is the logic of the state, where we all begin with a debt we can never truly pay. We are constantly told that they are opposites and that between them they contain the only real human possibilities. But it’s a false dichotomy. States created markets. Markets require states. Neither could continue without the other, at least, in anything like the forms we would recognize today.

Clearly, money was not invented to overcome the inconveniences of barter between neighbors—since neighbors would have no reason to engage in barter in the first place. Still, a system of pure credit money would have serious inconveniences as well. Credit money is based on trust, and in competitive markets, trust itself becomes a scarce commodity. This is particularly true of dealings between strangers.

what was outside were not especially clear. Within a community—a town, a city, a guild or religious society—pretty much anything could function as money, provided everyone knew there was someone willing to accept it to cancel out a debt.

For major transactions, of course, currency that was also acceptable outside the community (usually silver or gold again) was ordinarily employed.

Here is an example from the seventeenth century, by a certain Henry, who had a store at Stony Stratford, Buckinghamshire: This is clearly a case of the same principle: Henry would provide small change in the form of IOUs redeemable at his store. As such, they might circulate broadly, at least among anyone who did regular business at that shop. But they were unlikely to travel very far from Stony Stratford—most tokens, in fact, never circulated more than a few blocks in any direction. For larger transactions, everyone, including Henry, expected money in a form that would be acceptable anywhere, including in Italy or France.4

this is the “local gift card” history of money framed from both sides that i explained on the future vision bitcoin episode

money is almost always something hovering between a commodity and a debt-token. This is probably why coins—pieces of silver or gold that are already valuable commodities in themselves but that, being stamped with the emblem of a local political authority, became even more valuable—

If Nietzsche’s analysis of debt is helpful to us, then, it is because it reveals that when we start from the assumption that human thought is essentially a matter of commercial calculation, that buying and selling are the basis of human society—then, yes, once we begin to think about our relationship with the cosmos, we will necessarily conceive of it in terms of debt.

Why, for instance, do we refer to Christ as the “redeemer”? The primary meaning of “redemption” is to buy something back, or to recover something that had been given up in security for a loan; to acquire something by paying off a debt. It is rather striking to think that the very core of the Christian message, salvation itself, the sacrifice of God’s own son to rescue humanity from eternal damnation, should be framed in the language of a financial transaction. Nietzsche might have been playfully adopting the same assumptions as Adam Smith, but clearly the early Christians were not. The roots of this thinking lie deeper than Smith’s with his nation of shopkeepers. The authors of the Brahmanas were not alone in borrowing the language of the marketplace as a way of thinking about the human condition. Indeed, to one degree or another, all the major world religions did. The reason is that all of them—from Zoroastrianism to Islam—arose amidst intense arguments about the role of money and the market in human life, and particularly about what these institutions meant for fundamental questions of what human beings owed to one another. The question of debt, and arguments about debt, ran through every aspect of the political life of the time. These arguments were set amidst revolts,

One of the unusual things about the Bible is that it preserves some bits of this larger context.

It would seem that the economy of the Hebrew kingdoms, by the time of the prophets, was already beginning to develop the same kinds of debt crises that had long been common in Mesopotamia: especially in years of bad harvests, as the poor became indebted to rich neighbors or to wealthy moneylenders in the towns, they would begin to lose title to their fields and to become tenants on what had been their own land, and their sons and daughters would be removed to serve as servants in their creditors’ households, or even sold abroad as slaves.

World religions, as we shall see, are full of this kind of ambivalence. On the one hand they are outcries against the market; on the other, they tend to frame their objections in commercial terms—as if to argue that turning human life into a series of transactions is not a very good deal. What I think even these few examples reveal, though, is how much is being papered over in the conventional accounts of the origins and history of money. There is something almost touchingly naïve in the stories about neighbors swapping potatoes for an extra pair of shoes. When the ancients thought about money, friendly swaps were hardly the first thing that came to mind. True, some might have thought about their tab at the local ale-house or, if they were a merchant or administrator, of storehouses, account books, exotic imported delights. For most, though, what was likely to come to mind was the selling of slaves and ransoming of prisoners, corrupt tax-farmers and the depredations of conquering armies, mortgages and interest, theft and extortion, revenge and punishment, and, above all, the tension between the need for money to create families, to acquire a bride so as to have children, and use of that same money to destroy families—to create debts that lead to the same wife and children being taken away.

Some things just happen. This has been the most common attitude of peasants to such phenomena throughout human history. What’s striking about the historical record is that in the case of debt crises, this was not how many reacted. Many actually did become indignant. So many, in fact, that most of our contemporary language of social justice, our way of speaking of human bondage and emancipation, continues to echo ancient arguments about debt. It’s particularly striking because so many other things do seem to have been accepted as simply in the nature of things. One does not see a similar outcry against caste systems, for example,

What makes debt different is that it is premised on an assumption of equality. To be a slave, or lower caste, is to be intrinsically inferior. These are relations of unadulterated hierarchy. In the case of debt, we are talking about two individuals who begin as equal parties to a contract. Legally, at least as far as the contract is concerned, they are the same.

debt potentially affects everyone in a society while slavery does not though, so this feels like a straw man argument framed through morality vs the incentives of broader populations. no benefit to you to stand up for slaves historically while demanding debt not be placed upon you is clearly self serving. it takes a movement of ethics for a group to fight on behalf of another vs themselves. see: all of history.

Loans between rich and poor were something else again. The problem was that, unlike status distinctions like caste or slavery, the line between rich and poor was never precisely drawn.

Throughout most of history, when overt political conflict between classes did appear, it took the form of pleas for debt cancellation—the freeing of those in bondage and, usually, a more just reallocation of the land.

Part of the problem is the extraordinary place that economics currently holds in the social sciences. In many ways it is treated as a kind of master discipline. Just about anyone who runs anything important in America is expected to have some training in economic theory, or at least to be familiar with its basic tenets.

there are three main moral principles on which economic relations can be founded, all of which occur in any human society, and which I will call communism, hierarchy, and exchange.

the Communist parties that ruled over the USSR and its satellites, and that still rule China and Cuba, never described their own systems as “communist.” They described them as “socialist.”

But all social systems, even economic systems like capitalism, have always been built on top of a bedrock of actually-existing communism. Starting, as I say, from the principle of “from each according to their abilities, to each according to their needs” allows us to look past the question of individual or private ownership (which is often little more than formal legality anyway) and at much more immediate and practical questions of who has access to what sorts of things and under what conditions.9 Whenever it is the operative principle, even if it’s just two people who are interacting, we can say we are in the presence of a sort of communism.

in the immediate wake of great disasters—a flood, a blackout, or an economic collapse—people tend to behave the same way, reverting to a rough-and-ready communism. However briefly, hierarchies and markets and the like become luxuries that no one can afford. Anyone who has lived through such a moment can speak to their peculiar qualities, the way that strangers become sisters and brothers and human society itself seems to be reborn. This is important, because it shows that we are not simply talking about cooperation. In fact, communism is the foundation of all human sociability. It is what makes society possible. There is always an assumption that anyone who is not an enemy can be expected to act on the principle of “from each according to their abilities,” at least to an extent: for example, if one needs to figure out how to get somewhere and the other knows the way.

Both Christopher Columbus, in Hispaniola, and Captain Cook, in Polynesia, reported similar stories of islanders who either flee, attack, or offer everything—but who often later enter the boats and help themselves to anything they take a fancy to, provoking threats of violence from the crew, who then did their utmost to establish the principle that relations between strange peoples should be mediated instead by “normal” commercial exchange. It’s understandable that dealings with potentially hostile strangers should encourage an all-or-nothing logic, a tension preserved even in English in the etymology of the words “host,” “hostile,” “hostage,” and indeed “hospitality,” all of which are derived from the same Latin root.22 What I want to emphasize here is that all such gestures are simply exaggerated displays of that very “baseline communism” that I have already argued is the ground of all human social life.

Finally, once we start thinking of communism as a principle of morality rather than just a question of property ownership, it becomes clear that this sort of morality is almost always at play to some degree in any transaction—even commerce. If one is on sociable terms with someone, it’s hard to completely ignore their situation. Merchants often reduce prices for the needy. This is one of the main reasons why shopkeepers in poor neighborhoods are almost never of the same ethnic group as their customers; it would be almost impossible for a merchant who grew up in the neighborhood to make money, as they would be under constant pressure to give financial breaks, or at least easy credit terms, to their impoverished relatives and school chums.

Communism, then, is based neither in exchange nor in reciprocity—except, as I have observed, in the sense that it does involve mutual expectations and responsibilities. Even here, it seems better to use another word (“mutuality”?) so as to emphasize that exchange operates on entirely different principles, that it’s a fundamentally different kind of moral logic. Exchange is all about equivalence. It’s a back-and-forth process involving two sides in which each side gives as good as it gets.

unlike what happens in communism, which always partakes of a certain notion of eternity, the entire relationship can be canceled out, and either party can call an end to it at any time.

I have been told that in some of the more lawless parts of the former Soviet Union, gangs prey so systematically on travelers on trains and buses that they have developed the habit of giving each victim a little token to confirm that the bearer has already been robbed. Obviously, one step toward the creation of a state. Actually, one popular theory of the origins of the state, which goes back at least to the fourteenth-century North African historian Ibn Khaldun, runs precisely along these lines: nomadic raiders eventually systematize their relations with sedentary villagers; pillage turns into tribute, rape turns into the “right of the first night” or the carrying off of likely candidates as recruits for the royal harem. Conquest, untrammeled force, becomes systematized, and thus framed not as a predatory relation but as a moral one, with the lords providing protection, and the villagers, their sustenance.

We can describe a simple formula here: a certain action, repeated, becomes customary; as a result, it comes to define the actor’s essential nature. Alternately, a person’s nature may be defined by how others have acted toward him in the past. To be an aristocrat is largely to insist that, in the past, others have treated you as an aristocrat (since aristocrats don’t really do anything in particular: most spend their time simply existing in some sort of putatively superior state) and therefore should continue to do so. Much of the art of being such a person is that of treating oneself in such a manner that it conveys how you expect others to treat you: in the case of actual kings, covering oneself with gold so as to suggest that others do likewise. On the other end of the scale, this is also how abuse becomes self-legitimating.

should underline again that we are not talking about different types of society here (as we’ve seen, the very idea that we’ve ever been organized into discrete “societies” is dubious) but moral principles that always coexist everywhere. We are all communists with our closest friends, and feudal lords when dealing with small children. It is very hard to imagine a society where this would not be true. The obvious question is: If we are all ordinarily moving back and forth between completely different systems of moral accounting, why hasn’t anybody noticed this? Why, instead, do we continually feel the need to reframe everything in terms of reciprocity? Here we must return to the fact that reciprocity is our main way of imagining justice. In particular, it is what we fall back on when we’re thinking in the abstract,

Economists will often admit this, if you ask them in the right way. Markets aren’t real. They are mathematical models, created by imagining a self-contained world where everyone has exactly the same motivation and the same knowledge and is engaged in the same self-interested calculating exchange. Economists are aware that reality is always more complicated; but they are also aware that to come up with a mathematical model, one always has to make the world into a bit of a cartoon. There’s nothing wrong with this. The problem comes when it enables some (often these same economists) to declare that anyone who ignores the dictates of the market shall surely be punished—or that since we live in a market system, everything (except government interference) is based on principles of justice: that our economic system is one vast network of reciprocal relations in which, in the end, the accounts balance and all debts are paid.

a perfect summary of why economics are great but economic policy is unfounded