Debt: The First 5,000 Years

by David Graeber

A debt is, by definition, a record, as well as a relation of trust. Someone accepting gold or silver in exchange for merchandise, on the other hand, need trust nothing more than the accuracy of the scales, the quality of the metal, and the likelihood that someone else will be willing to accept it. In a world where war and the threat of violence are everywhere—and this appears to have been an equally accurate description of Warring States China, Iron Age Greece, and pre-Mauryan India—there are obvious advantages to making one’s transactions simple. This is all the more true when dealing with soldiers.

On the one hand, soldiers tend to have access to a great deal of loot, much of which consists of gold and silver, and will always seek a way to trade it for the better things in life. On the other, a heavily armed itinerant soldier is the very definition of a poor credit risk. The economists’ barter scenario might be absurd when applied to transactions between neighbors in the same small rural community, but when dealing with a transaction between the resident of such a community and a passing mercenary, it suddenly begins to make a great deal of sense.

In the great temple and palace complexes, not only did money serve largely as an accounting measure rather than physically changing hands, merchants and tradespeople developed credit arrangements of their own. Most of these took the physical form of clay tablets, inscribed with some obligation of future payment, that were then sealed inside clay envelopes and marked with the borrower’s seal. The creditor would keep the envelope as a surety, and it would be broken open on repayment. In some times or places, at least, these bullae appear to have become what we would now call negotiable instruments, since the tablet inside did not simply record a promise to pay the original lender, but was designated “to the bearer”—in other words, a tablet recording a debt of five shekels of silver (at prevailing rates of interest) could circulate as the equivalent of a five-shekel promissory note—that is, as money.5

Promissory notes usually circulated within merchant guilds, or between inhabitants of the relatively well-off urban neighborhoods where people knew their neighbors well enough to trust them to be accountable, but not so well that they could rely on one another for more traditional forms of mutual aid.

The answer seems to be that profit-sharing partnerships were typically contracted between merchants, or anyway people of similar background and experience who had ways of keeping track of one another. Palace or temple bureaucrats and world-roaming merchant adventurers had little in common, and the bureaucrats seem to have concluded that one could not normally expect a merchant adventurer returned from a far-off land to be entirely honest about his adventures. A fixed interest rate would render irrelevant whatever elaborate tales of robbery, shipwreck, or attacks by winged snakes or elephants a creative trader might have concocted. The return was fixed in advance.

Herodotus remarked about the Persians: “To tell a lie is considered by them the greatest disgrace, and next to that to be in debt … especially because they think that one in debt must of necessity tell lies.”

In 2402 BC, for instance, a royal inscription by King Enmetena of Lagash—one of the earliest we have—complains that his enemy, the King of Umma, had been, for decades, occupying a huge stretch of farmland that had rightfully belonged to Lagash. He announces: if one were to calculate the rental fees for all that land, then the interest that would have been due on that rent, compounded annually, it would reveal that Umma now owes Lagash four and a half trillion liters of barley. The sum was, as in the parable, intentionally preposterous.12 It was just an excuse to start a war. Still, he wanted everyone to know that he knew exactly how to do the math.

Similar declarations are to be found again and again, in Sumerian and later Babylonian and Assyrian records, and always with the same theme: the restoration of “justice and equity,” the protection of widows and orphans, to ensure—as Hammurabi was to put it when he abolished debts in Babylon in 1761 BC—“that the strong might not oppress the weak.”14

Over the next several thousand years, this same list—canceling the debts, destroying the records, reallocating the land—was to become the standard list of demands of peasant revolutionaries everywhere.

The history of debt and sin was wiped out, and it was time to begin again. But it’s also clear what they saw as the alternative: the world plunged into chaos, with farmers defecting to swell the ranks of nomadic pastoralists, and ultimately, if the breakdown continued, returning to overrun the cities and destroy everything.

Egypt represents an interesting contrast, since, for most of its history, it managed to avoid the development of interest-bearing debt entirely.

The pharaoh was a god, and the state and temple bureaucracies had their hands in everything: there were a dazzling array of taxes and a continual distribution of allotments, wages, and payments from the state. Here, too, money clearly arose as a means of account. The basic unit was the deben, or “measure”—originally referring to measures of grain, and later of copper or silver.

To state the matter simply: in Mesopotamia, interest-bearing loans by palace and temple officials largely substituted for the lack of a comprehensive system of taxation. In Egypt this was not necessary.

Greek sources, for instance, record that the Pharaoh Bakenranef (reigned 720–715 BC) issued a decree abolishing debt bondage and annulling all outstanding liabilities, since “he felt it would be absurd for a soldier, perhaps at the moment when he was setting forth to fight for his fatherland, to be hauled off to prison by his creditor for an unpaid loan”—which, if true, is also one of the earliest mentions of a debt prison.

It’s well known that the Rosetta Stone, written both in Greek and Egyptian, proved to be the key that made it possible to translate Egyptian hieroglyphics. Few are aware of what it actually says. The stela was originally raised to announce an amnesty, both for debtors and for prisoners, declared by Ptolemy V in 196 BC.

There being no centralized temple or palace system with priests and administrators managing the storerooms and recording inputs and outputs, there was also little incentive to create a single, uniform unit of account.

Later sources recall that early rulers “used pearls and jade as their superior method of payment, gold as their middle method of payment, and knives and spades as their lower method of payment.”24 The author can only be talking about gifts here, and hierarchical ones at that: kings and great magnates rewarding their followers for services in theory rendered voluntarily.

In ancient times, during the floods of Yu and the droughts of Tang, the common people became so exhausted that they were forced to borrow from one another in order to obtain food and clothing. [Emperor] Yu coined money for his people from the gold of Mount Li and [Emperor] Tang did likewise from the copper of Mount Yan. Therefore the world called them benevolent.

Could it be that trade-dependant economies (those economies dependant on trading with other tribes/nations, both through exports and imports) - not to forget foreign direct investment - were likelier to be using cash and bullion rather than gifts and credit, due to lower trust with outsiders => decreased reliability of credit-based instruments for trade relative to bullion?

The Guanzi later goes on to explain that these same rulers instituted the custom of retaining 30 percent of the harvest in public granaries for redistribution in emergencies, so as to ensure that no one would ever be reduced to such desperate straits again. In other words, they began to set up just the kind of bureaucratic storage facilities that, in places like Egypt and Mesopotamia, had been responsible for creating money as a unit of account to begin with.

The attentive reader may have noticed that the core period of Jasper’s Axial age—the lifetimes of Pythagoras, Confucius, and the Buddha—corresponds almost exactly to the period in which coinage was invented. What’s more, the three parts of the world where coins were first invented were also the very parts of the world where those sages lived; in fact, they became the epicenters of Axial Age religious and philosophical creativity: the kingdoms and city-states around the Yellow River in China, the Ganges valley in northern India, and the shores of the Aegean Sea.

In both India and China, we can observe the same pattern: invented by private citizens, coinage was quickly monopolized by the state.

Where there are people who want to buy there will be people willing to sell, as innumerable tracts on black markets, drug dealing, and prostitution point out … The constant warfare of the archaic age of Greece, of the Janapadas of India, of the Warring States of China, was a powerful impetus for the development of market trade, and in particular for market trade based on the exchange of precious metal, usually in small amounts. If plunder brought precious metal into the hands of the soldiers, the market will have spread it through the population.9

But unlike the Homeric retainers, who could simply be ignored, an army of trained mercenaries needs to be rewarded in some meaningful way. One could perhaps provide them all with livestock, but livestock are hard to transport; or with promissory notes, but these would be worthless in the mercenaries’ own country. Allowing each a tiny share of the plunder does seem an obvious solution.

These new armies were, directly or indirectly, under the control of governments, and it took governments to turn these chunks of metal into genuine currency. The main reason for this is simple capacity: to create enough coins that the people could begin to use them in everyday transactions required mass production on a scale far beyond the abilities of local merchants or smiths.10

By insisting that only their own coins were acceptable as fees, fines, or taxes, governments were able to overwhelm the innumerable social currencies that already existed in their hinterlands, and to establish something like uniform national markets.

In brief, one might say that these conflicts over debt had two possible outcomes. The first was that the aristocrats could win, and the poor remain “slaves of the rich”—which in practice meant that most people would end up clients of some wealthy patron. Such states were generally militarily ineffective.16 The second was that popular factions could prevail, institute the usual popular program of redistribution of lands and safeguards against debt peonage, and thus create the basis for a class of free farmers whose children would, in turn, be free to spend much of their time training for war.17

Coinage played a critical role in maintaining this kind of free peasantry—secure in their landholding, not tied to any great lord by bonds of debt.

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.”

When Alexander set out to conquer the Persian Empire, he borrowed much of the money with which to pay and provision his troops, and he minted his first coins, used to pay his creditors and continue to support the money, by melting down gold and silver plundered after his initial victories.21 However, an expeditionary force needed to be paid, and paid well: 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. In turn, most slaves in mines were war captives.

His armies not only destroyed Tyre; they also dethesaurized the gold and silver reserves of Babylonian and Persian temples, the security on which their credit systems were based, and insisted that all taxes to his new government be paid in his own money. The result was to “release the accumulated specie of century onto the market in a matter of months,” something like 180,000 talents, or in contemporary terms, an estimated $285 billion.23

Its early history, as recorded by official chroniclers like Livy, is one of continual struggles between patricians and plebians, and of continual crises over debt. Periodically, these would lead to what were called moments of “the secession of the plebs,” when the commoners of the city abandoned their fields and workshops, camped outside the city, and threatened mass defection—an interesting halfway point between the popular revolts of Greece and the strategy of exodus typically pursued in Egypt and Mesopotamia. Here, too, the patricians were ultimately faced with a decision: they could use agricultural loans to gradually turn the plebian population into a class of bonded laborers on their estates, or they could accede to popular demands for debt protection, preserve a free peasantry, and employ the younger sons of free farm families as soldiers.24 As the prolonged history of crises, secessions, and reforms makes clear, the choice was made grudgingly.25

Important note!

It seems significant, in this light, that the traditional date of the first Roman coinage—338 BC—is almost exactly the date when debt bondage was finally outlawed (326 BC).26 Again, coinage, minted from war spoils, didn’t cause the crisis. It was used as a solution.

In fact, the entire Roman empire, at its height, could be understood as a vast machine for the extraction of precious metals and their coining and distribution to the military—combined with taxation policies designed to encourage conquered populations to adopt coins in their everyday transactions.

Important note!

In Greece, as in Rome, attempts to solve the debt crisis through military expansion were always, ultimately, just ways of fending off the problem—and they only worked for a limited period of time. When expansion stopped, everything returned to as it had been before.

Important note!

In cities that were not successful military powers, without any source of income to set up welfare policies, debt crises continued to flare up every century or so—and they often became far more acute than they ever had in the Middle East, because there was no mechanism, short of outright revolution, to declare a Mesopotamian-style clean slate.

By the waning days of the empire, most people in the countryside who weren’t outright slaves had become, effectively, debt peons to some rich landlord, a situation in the end legally formalized by imperial decrees binding peasants to the land.31 Without a free peasantry to form the basis for the army, the state was forced to rely more and more on arming and employing Germanic barbarians from across the imperial frontiers—with results that need hardly be recalled here.

Important note!

Magadha, which ultimately came out on top, did so largely because it controlled most of the mines. Kautilya’s Arthasastra, a political treatise written by one of the chief ministers for the Mauryan dynasty that succeeded it (321–185 BC), stated the matter precisely: “The treasury is based upon mining, the army upon the treasury; he who has army and treasury may conquer the whole wide earth.”34

“The treasury is based upon mining, the army upon the treasury; he who has army and treasury may conquer the whole wide earth.”34

Important note!

Whether on campaign or in garrison, they were inevitably accompanied by a range of different sorts of camp followers—petty traders, prostitutes, and hired servants—which, with the soldiers, seems to have been the very medium through which a cash economy had originally taken form.35 By Kautilya’s time, a few hundred years later, the state was inserting itself into every aspect of the process: Kautilya suggests paying soldiers apparently generous wages, then secretly replacing hawkers with government agents who could charge them twice the normal rates for supplies.

Thus was the market economy, born of war, gradually taken over by government. Rather than stifle the spread of currency, the process seems to have doubled and even tripled it: the military logic was extended to the entire economy, the government systematically setting up its granaries, workshops, trading houses, warehouses, and jails, staffed by salaried officials, and all selling products on the market so as to collect the pieces of silver paid off to soldiers and officials and put them back into the royal treasuries again.36 The result was a monetarization of daily life unlike anything India was to see for another two thousand years.37

Important note!

As time went on, however, the war machine began to sputter. It’s not clear exactly why this happened. By the time of emperor Aśoka (273–232 BC), the Mauryan dynasty controlled almost all of present-day India and Pakistan, but the Indian version of the military-coinage-slavery complex was showing definite signs of strain. Perhaps the clearest sign was the debasement of the coinage, which over the course of two centuries or so had gone from almost pure silver to about fifty percent copper.39

Important note!

Aśoka might have replaced sacrificial ritual with vegetarian feasts, but he didn’t abolish the army, abandon capital punishment, or even outlaw slavery. But his rule marked a revolutionary shift in ethos. Aggressive war was abandoned, and much of the army does seem to have been demobilized, along with the network of spies and state bureaucrats, with the new, proliferating mendicant orders (Buddhists, Jains, and also world-renouncing Hindus) given official state support to preach to the villages on questions of social morality. Aśoka and his successors diverted substantial resources to these religious orders, with the result that, over the next centuries, thousands of stupas and monasteries were built across the subcontinent.41

Important note!

On the one hand, monks could not own property as individuals; they were expected to live an austere communistic life with little more than a robe and begging bowl as personal possessions, and they were strictly forbidden to so much as touch anything made of gold or silver. On the other hand, however suspicious of precious metals, Buddhism had always had a liberal attitude toward credit arrangements.

It makes perfect sense for a religious movement that rejected violence and militarism, but that was in no way opposed to commerce.44 As we shall see, while Aśoka’s own empire was not long to endure, soon to be replaced by a succession of ever weaker and mostly smaller states, Buddhism took root. The decline of the great armies eventually led to the near-disappearance of coinage, but also to a veritable efflorescence of increasingly sophisticated forms of credit.

We also see the same government policies designed to encourage the development of markets, chattel slavery on a scale not seen before or since in Chinese history, the appearance of itinerant philosophers and religious visionaries, battling intellectual schools, and eventually, attempts by political leaders to transform the new philosophies into religions of state.46

The Axial Age was the first time in human history when familiarity with the written word was no longer limited to priests, administrators, and merchants, but had become necessary to full participation in civic life. In Athens, it was taken for granted that only a country bumpkin would be entirely illiterate.

No doubt the growth of markets played a role too, not only helping to free people from the proverbial shackles of status or community, but encouraging a certain habit of rational calculation, of measuring inputs and outputs, means and ends, all of which must inevitably have found some echoes in the new spirit of rational inquiry that begins to appear in all the same times and places.

To understand what had changed, we have to look, again, at the particular kind of markets that were emerging at the beginning of the Axial Age: impersonal markets, born of war, in which it was possible to treat even neighbors as if they were strangers.

Cash transactions between strangers were different, and all the more so when trading is set against a background of war and emerges from disposing of loot and provisioning soldiers; when one often had best not ask where the objects traded came from, and where no one is much interested in forming ongoing personal relationships anyway. Here, transactions really do become simply a figuring-out of how many of X will go for how many of Y, of calculating proportions, estimating quality, and trying to get the best deal for oneself. The result, during the Axial Age, was a new way of thinking about human motivation, a radical simplification of motives that made it possible to begin speaking of concepts like “profit” and “advantage”—and imagining that this is what people are really pursuing, in every aspect of existence, as if the violence of war or the impersonality of the marketplace has simply allowed them to drop the pretense that they ever cared about anything else. It was this, in turn, that allowed human life to seem like it could be reduced to a matter of means-to-end calculation, and hence something that could be examined using the same means that one used to study the attraction and repulsion of celestial bodies.54 If the underlying assumption very much resembles those of contemporary economists, it’s no coincidence—but with the difference that, in an age when money, markets, states, and military affairs were all intrinsically connected, money was needed to pay armies to c...

Important note!

As a general principle, when an enemy’s army comes, it seeks some profit. Now if they come and find the prospect of death instead, they will consider running away the most profitable thing to do. When all one’s enemies consider running to be the most profitable thing to do, no blades will cross. This is the most essential point in military matters.57