Debt: The First 5,000 Years

by David Graeber

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.

Is it to be assumed that debt is without risk to the lender encouraging lenders to make bad loans ?

Tell people that they are potential equals who have failed and that therefore, even what they do have they do not deserve, that it isn’t rightly theirs, and you are much more likely to inspire rage. Certainly this is what history would seem to teach us.

one finds that the majority of human beings hold simultaneously that (1) paying back money one has borrowed is a simple matter of morality, and (2) anyone in the habit of lending money is evil.

Credit system, tabs, even expense accounts, all existed long before cash.

we also find that history tends to move back and forth between periods dominated by bullion—where it’s assumed that gold and silver are money—and periods where money is assumed to be an abstraction, a virtual unit of account.

Chapter Two

A history of debt, then, is thus necessarily a history of money—and the easiest way to understand the role that debt has played in human society is simply to follow the forms that money has taken, and the way money has been used,

The definitive anthropological work on barter, by Caroline Humphrey, of Cambridge, could not be more definitive in its conclusions: “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money;

there is good reason to believe that barter is not a particularly ancient phenomenon at all, but has only really become widespread in modern times.

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 fact, our standard account of monetary history is precisely backwards.

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

Chapter Three

Smith was trying to make a similar, Newtonian argument.3 God—or Divine Providence, as he put it—had arranged matters in such a way that our pursuit of self-interest would nonetheless, given an unfettered market, be guided “as if by an invisible hand” to promote the general welfare.

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

Credit Theorists insisted that money is not a commodity but an accounting

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

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.

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.”)

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.

only worked as long as the original loan remained outstanding.

So what exactly was the point of extracting the gold, stamping one’s picture on it, causing it to circulate among one’s subjects—and then demanding that those same subjects give it back again?

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.

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.

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.

This meant in effect that all national currencies were henceforth, as neoclassical economists like to put it, “fiat money” backed only by the public trust.

Note our experience in Argentina which had a nearly 100% rate of inflation and we were told people would try to convert their pesos to dollars because the value of the dollar would hold its value. Also the issue with gas stations forced to sell gas at a set price which did not allow the stations to make money. The stations closed on weekends creating long lines at the few that stayed open.

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.

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. Hence

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.

Chapter Four

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.

The most famous of these is the Law of Jubilee: a law that stipulated that all debts would be automatically canceled “in the Sabbath year” (that is, after seven years had passed), and that all who languished in bondage owing to such debts would be released.

After all, most Christians reciting the prayer are aware that they do not generally forgive their debtors. Why then should God forgive them their sins?26

What makes debt different is that it is premised on an assumption of equality.

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.

Chapter Five

One of the reasons that human life is so complicated, in turn, is because many of these principles contradict one another.

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.

I will provide a rough-and-ready way to map out the main possibilities, by proposing that 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.

Communism

I will define communism here as any human relationship that operates on the principles of “from each according to their abilities...

But all social systems, even economic systems like capitalism, have always been built on top of a bedrock of actually-existing communism.

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.

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.

I will call this “baseline communism”: the understanding that, unless people consider themselves enemies, if the need is considered great enough, or the cost considered reasonable enough, the principle of “from each according to their abilities, to each according to their needs” will be assumed to apply.

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,

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.

Exchange is all about equivalence.

Hierarchy

A debt, then, is just an exchange that has not been brought to completion.