Debt: The First 5,000 Years

by David Graeber

How could credit money come about? Let us return to the economics professors’ imaginary town. Say, for example, that Joshua were to give his shoes to Henry, and, rather than Henry owing him a favor, Henry promises him something of equivalent value.10 Henry gives Joshua an IOU. Joshua could wait for Henry to have something useful and then redeem it. In that case Henry would rip up the IOU and the story would be over. But say Joshua were to pass the IOU on to a third party—Sheila—to whom he owes something else. He could tick it off against his debt to a fourth party, Lola—now Henry will owe that amount to her. Hence, money is born, because there’s no logical end to it. Say Sheila now wishes to acquire a pair of shoes from Edith; she can just hand Edith the IOU and assure her that Henry is good for it. 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.