Debt: The First 5,000 Years

by David Graeber

Why debt? What makes the concept so strangely powerful? Consumer debt is the lifeblood of our economy. All modern nation-states are built on deficit spending. Debt has come to be the central issue of international politics. But nobody seems to know exactly what it is, or how to think about it. The very fact that we don’t know what debt is, the very flexibility of the concept, is the basis of its power. If history shows anything, it is that there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt—above all, because it immediately makes it seem that it’s the victim who’s doing something wrong.

But debt is not just victor’s justice; it can also be a way of punishing winners who weren’t supposed to win.

even China finds that the fact it holds so many U.S. treasury bonds makes it to some degree beholden to U.S. interests, rather than the other way around.

Terms like “reckoning” or “redemption” are only the most obvious, since they’re taken directly from the language of ancient finance. In a larger sense, the same can be said of “guilt,” “freedom,” “forgiveness,” and even “sin.” Arguments about who really owes what to whom have played a central role in shaping our basic vocabulary of right and wrong.

After all, to argue with the king, one has to use the king’s language, whether or not the initial premises make sense.

Historically, there have been only two effective ways for a lender to try to wriggle out of the opprobrium: either shunt off responsibility onto some third party, or insist that the borrower is even worse.

What, precisely, does it mean to say that our sense of morality and justice is reduced to the language of a business deal? What does it mean when we reduce moral obligations to debts? What changes when the one turns into the other? And how do we speak about them when our language has been so shaped by the market?

One does not need to calculate the human effects; one need only calculate principal, balances, penalties, and rates of interest. If you end up having to abandon your home and wander in other provinces, if your daughter ends up in a mining camp working as a prostitute, well, that’s unfortunate, but incidental to the creditor. Money is money, and a deal’s a deal.

However, when one looks a little closer, one discovers that these two elements—the violence and the quantification—are intimately linked. In fact it’s almost impossible to find one without the other.

Those of us who do not have armed men behind us cannot afford to be so exacting. The way violence, or the threat of violence, turns human relations into mathematics will crop up again and again over the course of this book. It is the ultimate source of the moral confusion that seems to float around everything surrounding the topic of debt.

The assumption that we were in such uncharted territory, of course, was one of the things that made it so easy for the likes of Goldman Sachs and AIG to convince people that no one could possibly understand their dazzling new financial instruments.

Credit system, tabs, even expense accounts, all existed long before cash. These things are as old as civilization itself.

The new age of credit money we are in seems to have started precisely backwards. It began with the creation of global institutions like the IMF designed to protect not debtors, but creditors.

This book is a history of debt, then, but it also uses that history as a way to ask fundamental questions about what human beings and human society are or could be like—what we actually do owe each other, what it even means to ask that question.

The difference between a debt and an obligation is that a debt can be precisely quantified. This requires money.

The existence of credit and debt has always been something of a scandal for economists, since it’s almost impossible to pretend that those lending and borrowing money are acting on purely “economic” motivations (for instance, that a loan to a stranger is the same as a loan to one’s cousin); it seems important, therefore, to begin the story of money in an imaginary world from which credit and debt have been entirely erased.

Certainly no one reported discovering a land of barter.

Smith expanded on the argument, insisting that property, money, and markets not only existed before political institutions but were the very foundation of human society. It followed that insofar as government should play any role in monetary affairs, it should limit itself to guaranteeing the soundness of the currency. It was only by making such an argument that he could insist that economics is itself a field of human inquiry with its own principles and laws—that is, as distinct from, say ethics or politics.

Tellingly, this story played a crucial role not only in founding the discipline of economics, but in the very idea that there was something called “the economy,” which operated by its own rules, separate from moral or political life, that economists could take as their field of study. “The economy” is where we indulge in our natural propensity to truck and barter. We are still trucking and bartering. We always will be. Money is simply the most efficient means.

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.”

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. This is why a direct one-on-one exchange is appropriate: each side makes their trade and walks away.

Recall here the language of the economics textbooks: “Imagine a society without money.” “Imagine a barter economy.” One thing these examples make abundantly clear is just how limited the imaginative powers of most economists turn out to be.

Economics assumes a division between different spheres of human behavior that, among people like the Gunwinngu and the Nambikwara, simply does not exist. 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).

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? If, on the other hand, one cares enough about someone—a neighbor, a friend—to wish to deal with her fairly and honestly, one will inevitably also care about her enough to take her individual needs, desires, and situation into account. Even if you do swap one thing for another, you are likely to frame the matter as a gift.

In any of these scenarios, the problem of “double coincidence of wants,” so endlessly invoked in the economics textbooks, simply disappears.

This in turn means that the need to stockpile commonly acceptable items in the way that Smith suggested disappears as well. With it goes the need to develop currency. As with so many actual small communities, everyone simply keeps track of who owes what to whom.

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. However, this doesn’t help us at all with the problem of the origin of money. Actually, it makes it infinitely worse. Why stockpile salt or gold or fish if they can only be exchanged for some things and not others?

happening. 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.

The primary examples, then, were ones in which people were improvising credit systems because actual money—gold and silver coinage—was in short supply.

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.

Merchants (who sometimes worked for the Temples, sometimes operated independently) were among the few people who did, often, use silver in transactions; but even they mostly did much of their dealings on credit, and ordinary people buying beer from “ale women,” or local innkeepers, once again, did so by running up a tab, to be settled at harvest time in barley or anything they might have had at hand.

We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, never completely replacing credit systems. Barter, in turn, appears to be largely a kind of accidental byproduct of the use of coinage or paper money: historically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency.

The answer seems to be that the Myth of Barter cannot go away because it is central to the entire discourse of economics.

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.

The problem is that history shows that without money, such vast barter systems do not occur. Even when economies “revert to barter,” as Europe was said to do in the Middle Ages, they don’t actually abandon the use of money. They just abandon the use of cash. In the Middle Ages, for instance, everyone continued to assess the value of tools and livestock in the old Roman currency, even if the coins themselves had ceased to circulate.

Credit Theorists insisted that money is not a commodity but an accounting tool. In other words, it is not a “thing” at all.

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

even when gold and silver coins were in use, they almost never circulated at their bullion value.

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. 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.

But systems like these cannot create a full-blown currency system, and there’s no evidence that they ever have.

If money is simply a unit of measure, it makes sense that emperors and kings should concern themselves with such matters. Emperors and kings are almost always concerned to established uniform systems of weights and measures throughout their kingdoms.

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 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.

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.

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.

officials no longer had to requisition everything they needed directly from the populace or figure out a way to produce it on royal estates or royal workshops.

In other words, Gallieni did indeed print money and then demand that everyone in the country give some of that money back to him.

It was crucial that they develop new tastes, habits, and expectations; that they lay the foundations of a consumer demand that would endure long after the conquerors had left, and keep Madagascar forever tied to France.

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.

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.