Debt: The First 5,000 Years

by David Graeber

In 1895, for example, France invaded Madagascar, disbanded the government of then–Queen Ranavalona III, and declared the country a French colony. One of the first things General Gallieni did after “pacification,” as they liked to call it then, was to impose heavy taxes on the Malagasy population, in part so they could reimburse the costs of having been invaded, but also, since French colonies were supposed to be fiscally self-supporting, to defray the costs of building the railroads, highways, bridges, plantations, and so forth that the French regime wished to build. Malagasy taxpayers were never asked whether they wanted these railroads, highways, bridges, and plantations, or allowed much input into where and how they were built.1 To the contrary: over the next half century, the French army and police slaughtered quite a number of Malagasy who objected too strongly to the arrangement (a hundred thousand, by some reports, during one revolt in 1947). It’s not as if Madagascar has ever done any comparable damage to France. Despite this, from the beginning, the Malagasy people were told they owed France money, and to this day, the Malagasy people are still held to owe France money, and the rest of the world accepts the justice of this arrangement. When the “international community” does perceive a moral issue, it’s usually when they feel the Malagasy government is being slow to pay their debts.

“No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.”16

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. To this day, this loan has never been paid back. It cannot be. If it ever were, the entire monetary system of Great Britain would cease to exist.

Faced with the potential for complete social breakdown, Sumerian and later Babylonian kings periodically announced general amnesties: “clean slates,” as economic historian Michael Hudson refers to them. Such decrees would typically declare all outstanding consumer debt null and void (commercial debts were not affected), return all land to its original owners, and allow all debt-peons to return to their families. Before long, it became more or less a regular habit for kings to make such a declaration on first assuming power, and many were forced to repeat it periodically over the course of their reigns.

“Up in our country we are human!” said the hunter. “And since we are human we help each other. We don’t like to hear anybody say thanks for that. What I get today you may get tomorrow. Up here we say that by gifts one makes slaves and by whips one makes dogs.”13

(ironically enough, considering the conventional wisdom that “communism just doesn’t work”): if you really care about getting something done, the most efficient way to go about it is obviously to allocate tasks by ability and give people whatever they need to do them.11

One might even say that it’s one of the scandals of capitalism that most capitalist firms, internally, operate communistically.

In fact, communism is the foundation of all human sociability.

The sociology of everyday communism is a potentially enormous field, but one which, owing to our peculiar ideological blinkers, we have been unable to write about because we have been largely unable to see it.

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.

In the seventeenth and eighteenth centuries, Bali had not yet obtained this reputation. At the time, it was still divided among a dozen tiny, squabbling kingdoms in an almost perpetual state of war. In fact, its reputation among the Dutch merchants and officials ensconced in nearby Java was almost exactly the opposite of what it is today. Balinese were considered a rude and violent people ruled by decadent, opium-addicted nobles whose wealth was based almost exclusively on their willingness to sell their subjects to foreigners as slaves. By the time the Dutch were fully in control in Java, Bali had been turned largely into a reservoir for the export of human beings—young Balinese women in particular being in great demand in cities through the region as both prostitutes and concubines.83 As the island was drawn into the slave trade, almost the entire social and political system of the island was transformed into an apparatus for the forcible extraction of women.

The Interesting Narrative of the Life of Olaudah Equiano: or, Gustavus Vassa, the African,

In the very earliest Sumerian texts, particularly those from roughly 3000 to 2500 BC, women are everywhere. Early histories not only record the names of numerous female rulers, but make clear that women were well represented among the ranks of doctors, merchants, scribes, and public officials, and generally free to take part in all aspects of public life.

As much as it flies in the face of our stereotypes about the origins of “Western” freedoms, women in democratic Athens, unlike those of Persia or Syria, were expected to wear veils when they ventured out in public.

Finally, similar ideas have become the basis of that most basic, dominant institution of our present economic life: wage labor, which is, effectively, the renting of our freedom in the same way that slavery can be conceived as its sale.121

Karl Jaspers.

Geoffrey Ingham calls the resulting system a “military-coinage complex”—though I think it would be even better to call it a “military-coinage-slavery complex.”

Alexander’s army, which numbered some 120,000 men, required half a ton of silver a day just for wages. For this reason, conquest meant that the existing Persian system of mines and mints had to be reorganized around providing for the invading army; and ancient mines, of course, were worked by slaves.

At least within the communities that created them, ancient coins were always worth more than the gold, silver, or copper of which they were composed.

Buddha admired the democratic organization of their public assemblies and adopted it as the model for his followers.82 Buddhist monasteries are still called sangha, the ancient name for such republics, and continue to operate by the same consensus-finding process to this day, preserving a certain egalitarian democratic ideal that would otherwise have been entirely forgotten.

IF THE AXIAL AGE saw the emergence of complementary ideals of commodity markets and universal world religions, the Middle Ages were the period in which those two institutions began to merge. Everywhere, the age began with the collapse of empires. Eventually, new states formed, but in these new states, the nexus between war, bullion, and slavery was broken; conquest and acquisition for their own sake were no longer celebrated as the end of all political life. At the same time, economic life, from the conduct of international trade to the organization of local markets, came to fall increasingly under the regulation of religious authorities.

What we now see as traditional Hindu-village India appears to have been largely a creation of the early Middle Ages. We do not know precisely how it happened.

Debt peonage, it would appear, is far more likely to inspire outrage and collective action than is a system premised on pure inequality.

There were decades in Chinese history when the rate of recorded peasant uprisings was roughly 1.8 per hour.

Unlike later European princes, Chinese rulers systematically refused to team up with would-be Chinese capitalists (who always existed). Instead, like their officials, they saw them as destructive parasites—though, unlike the usurers, ones whose fundamentally selfish and antisocial motivations could still be put to use in certain ways.

For most of its history, China maintained the highest standard of living in the world—even England only really overtook it in perhaps the 1820s, well past the time of the Industrial Revolution.

Since people who live in Western Europe have so long been in the habit of thinking of Islam as the very definition of “the East,” it’s easy to forget that, from the perspective of any other great tradition, the difference between Christianity and Islam is almost negligible. One need only pick up a book on, say, medieval Islamic philosophy to discover disputes between the Baghdad Aristoteleans and the neo-Pythagoreans in Basra, or Persian Neo-Platonists—essentially, scholars doing the same work of trying to square the revealed religion tradition beginning with Abraham and Moses with the categories of Greek philosophy, and doing so in a larger context of mercantile capitalism, universalistic missionary religion, scientific rationalism, poetic celebrations of romantic love, and periodic waves of fascination with mystical wisdom from the East.

It meant that the Caliphate, and later Muslim empires, could operate in many ways much like the old Axial Age empires—creating professional armies, waging wars of conquest, capturing slaves, melting down loot and distributing it in the form of coins to soldiers and officials, demanding that those coins be rendered back as taxes—but at the same time, without having nearly the same effects on ordinary people’s lives.

One much-repeated story held that the Prophet himself had refused to force merchants to lower prices during a shortage in the city of Medina, on the grounds that doing so would be sacrilegious, since, in a free-market situation, “prices depend on the will of God.”82 Most legal scholars interpreted Mohammed’s decision to mean that any government interference in market mechanisms should be considered similarly sacrilegious, since markets were designed by God to regulate themselves.83 If all this bears a striking resemblance to Adam Smith’s “invisible hand” (which was also the hand of Divine Providence), it might not be a complete coincidence. In fact, many of the specific arguments and examples that Smith uses appear to trace back directly to economic tracts written in medieval Persia.

“Do we read the classics or do the classics read us?” Almost all the great intellectual debates of the age turned on this question in one way or another. Is the world created by our minds, or our minds by the world?

The legal idea of a corporation as a “fictive person” (persona ficta)—a person who, as Maitland, the great British legal historian, put it, “is immortal, who sues and is sued, who holds lands, has a seal of his own, who makes regulations for those natural persons of whom he is composed”166—was first established in canon law by Pope Innocent IV in 1250 AD, and one of the first kinds of entities it applied to were monasteries—as also to universities, churches, municipalities, and guilds.167

Any number of civilizations have probably been in a position to wreak havoc on the scale that the European powers did in the sixteenth and seventeenth centuries (Ming China itself was an obvious candidate), but almost none actually did so.12

And as Augustine already anticipated, infinite desires in a finite world means endless competition, which in turn is why, as Hobbes insisted, our only hope of social peace lies in contractual arrangements and strict enforcement by the apparatus of the state.

The story of the origins of capitalism, then, is not the story of the gradual destruction of traditional communities by the impersonal power of the market. It is, rather, the story of how an economy of credit was converted into an economy of interest; of the gradual transformation of moral networks by the intrusion of the impersonal—and often vindictive—power of the state. English

Just about everyone agrees, however, that capitalism is a system that demands constant, endless growth.

It is the secret scandal of capitalism that at no point has it been organized primarily around free labor.

In Chicago, for instance, a friend once took me on a drive down a beautiful old street, full of mansions from the 1870s: the reason, he explained, that it looked like that, was that most of Chicago’s rich industrialists of the time were so convinced that the revolution was immanent that they collectively relocated along the road that led to the nearest military base.

The essence of U.S. military predominance in the world is, ultimately, the fact that it can, at will, with only a few hours’ notice, drop bombs at absolutely any point on the surface of the planet.13 No other government has ever had anything remotely like this sort of capability. In fact, a case could well be made that it is this very cosmic power that holds the entire world monetary system, organized around the dollar, together.

What’s more, Hudson notes, over time, the combined effect of low interest payments and the inflation is that these bonds actually depreciate in value—adding to the tax effect, or, as I preferred to put it in the first chapter, “tribute.” Economists prefer to call it “seigniorage.” The effect, though, is that American imperial power is based on a debt that will never—can never—be repaid. Its national debt has become a promise, not just to its own people, but to the nations of the entire world, that everyone knows will not be kept.

At the same time, U.S. policy was to insist that those countries relying on U.S. treasury bonds as their reserve currency behaved in exactly the opposite way: observing tight money policies and scrupulously repaying their debts.

As I’ve already observed, since Nixon’s time, the most significant overseas buyers of U.S. treasury bonds have tended to be banks in countries that were effectively under U.S. military occupation. In Europe, Nixon’s most enthusiastic ally in this respect was West Germany, which then hosted more than three hundred thousand U.S. troops. In more recent decades the focus has shifted to Asia, particularly t...

When Saddam Hussein made the bold move of singlehandedly switching from the dollar to the euro in 2000, followed by Iran in 2001, this was quickly followed by American bombing and military occupation.

The earlier markets that we are able to observe appear to be spillovers, more or less; side effects of the elaborate administrative systems of ancient Mesopotamia. They operated primarily on credit. Cash markets arose through war: again, largely through tax and tribute policies that were originally designed to provision soldiers, but that later became useful in all sorts of other ways besides. It was only the Middle Ages, with their return to credit systems, that saw the first manifestations of what might be called market populism: the idea that markets could exist beyond, against, and outside of states, as in those of the Muslim Indian Ocean—an idea that was later to reappear in China with the great silver revolts of the fifteenth century.