Debt: The First 5,000 Years

by David Graeber

There are innumerable studies of, say, the use of cattle as money in eastern or southern Africa, of shell money in the Americas (wampum being the most famous example) or Papua New Guinea, bead money, feather money, the use of iron rings, cowries, spondylus shells, brass rods, or woodpecker scalps.43 The reason that this literature tends to be ignored by economists is simple: “primitive currencies” of this sort are only rarely used to buy and sell things, and even when they are, never primarily to buy and sell everyday items such as chickens or eggs or shoes or potatoes. Rather than being employed to acquire things, they are mainly used to rearrange relations between people. Above all, to arrange marriages and to settle disputes, particularly those arising from murders or personal injury.

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.

THE READER MAY have noticed that there is an unresolved debate between those who see money as a commodity and those who see it as an IOU. So which one is it? By now, the answer should be obvious: it’s both.

In a similar way, English shops, for many centuries, would issue their own wood or lead or leather token money. The practice was often technically illegal, but it continued until relatively recent times.

Throughout most of history, even where we do find elaborate markets, we also find a complex jumble of different sorts of currency. Some of these may have originally emerged from barter between foreigners: the cacao money of Mesoamerica or salt money of Ethiopia are frequently cited examples.

If so, “redemption” is no longer about buying something back. It’s really more a matter of destroying the entire system of accounting. In many Middle Eastern cities, this was literally true: one of the common acts during debt cancellation was the ceremonial destruction of the tablets on which financial records had been kept, an act to be repeated, much less officially, in just about every major peasant revolt in history.

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.

The obvious question is: If we are all ordinarily moving back and forth between completely different systems of moral accounting, why hasn’t anybody noticed this? Why, instead, do we continually feel the need to reframe everything in terms of reciprocity?

I’ve already mentioned the tendency of gift exchange to turn into games of one-upmanship, and how in some societies this potential is formalized in great public contests. This is typical, above all, of what are often called “heroic societies”: those in which governments are weak or nonexistent and society is organized instead around warrior noblemen, each with his entourage of loyal retainers and tied to the others by ever-shifting alliances and rivalries. Most epic poetry—from the Iliad to the Mahabharata to Beowulf—harkens back to this sort of world, and anthropologists have discovered similar arrangements among the Maori of New Zealand and the Kwakiutl, Tlingit, and Haida of the American Northwest coast. In heroic societies, the throwing of feasts and resulting contests of generosity are often spoken of as mere extensions of war: “fighting with property” or “fighting with food.”

What, then, is debt? Debt is a very specific thing, and it arises from very specific situations. It first requires a relationship between two people who do not consider each other fundamentally different sorts of being, who are at least potential equals, who are equals in those ways that are really important, and who are not currently in a state of equality—but for whom there is some way to set matters straight.

In the case of gift-giving, as we’ve seen, this requires a certain equality of status. That’s why our economics professor didn’t feel any sense of obligation—any debt of honor—if taken out to dinner by someone who ranked either much higher or much lower than himself. With money loans, all that is required is that the two parties be of equal legal standing. (You can’t lend money to a child, or to a lunatic. Well, you can, but the courts won’t help you get it back.) Legal—rather than moral—debts have other unique qualities. For instance, they can be forgiven, which isn’t always possible with a moral debt.

This means that there is no such thing as a genuinely unpayable debt. If there was no conceivable way to salvage the situation, we wouldn’t be calling it a “debt.” Even the French villager could, conceivably, save his patron’s life, or win the lottery and buy the factory. Even when we speak of a criminal “paying his debt to society,” we are saying that he has done something so terrible that he has now been banished from that equal status under the law that belongs by natural right to any citizen of his count...

Bali, the famous “land of ten thousand temples”—an island often pictured in anthropological texts and tourist brochures as if it were inhabited exclusively by placid, dreamy artists who spend their days arranging flowers and practicing synchronized dance routines. 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. Even within villages, ordinary marriages took the form of “marriage by capture”—sometimes staged elopements, sometimes real forcible kidnappings, after which the kidnappers would pay a woman’s family to let the matter drop.84 If a woman was captured by someone genuinely important, though, no compensation would be offered. Even in the 1960s, elders recalled how attractive young women used to be hidden away by their parents,

On one level, al-Wahid’s argument is just an extended apologia for the role of slavery in Islam—widely criticized, since Islamic law never eliminated slavery, even when the institution largely vanished in the rest of the Medieval world. True, he argues, Mohammed did not forbid the practice, but still, the early Caliphate was the first government we know of that actually succeeded in eliminating all these practices (judicial abuse, kidnappings, the sale of offspring) that had been recognized as social problems for thousands of years, and to limit slavery strictly to prisoners of war.

Some of the most genuinely archaic forms of money we know about appear to have been used precisely as measures of honor and degradation: that is, the value of money was, ultimately, the value of the power to turn others into money. The curious puzzle of the cumal—the slave-girl money of medieval Ireland—provides one dramatic illustration.

The first four chapters of this book describe a dilemma. We don’t really know how to think about debt. Or, to be more accurate, we seem to be trapped between imagining society in the Adam Smith mode, as a collection of individuals whose only significant relations are with their own possessions, happily bartering one thing for another for the sake of mutual convenience, with debt almost entirely abolished from the picture, and a vision in which debt is everything, the very substance of all human relations—which, of course, leaves everyone with the uncomfortable sense that human relations are somehow an intrinsically tawdry business, that our very responsibilities to one another are already somehow necessarily based in sin and crime. It’s not an appealing set of alternatives.

In the last three chapters I have tried to show that there is another way of looking at things, and then to describe how it is that we got here. This is why I developed the concept of human economies: ones in which what is considered really important about human beings is the fact that they are each a unique nexus of relations with others—therefore, that no one could ever be considered exactly equivalent to anything or anyone else. In a human economy, money is not a way of buying or trading human beings, but a way of expressing just how much one cannot do so.

I then went on to describe how all this can begin to break down: how humans can become objects of exchange: first, perhaps, women given in marriage; ultimately, slaves captured in war. What all these relations have in common, I observed, was violence. Whether it is Tiv girls being tied up and beaten for running away from their husbands, or husbands being herded into slave ships to die on faraway plantations, that same principle always applies: it is only by the threat of sticks, ropes, spears, and guns that one can tear people out of those endlessly complic...

All of this, it is important to emphasize, can happen in places where markets in ordinary, everyday goods—clothing, tools, foodstuffs—do not even exist. In fact, in most human economies, one’s most important possessions could never be bought and sold for the same reasons that people can’t: th...

a cynic might argue that we haven’t really abolished slavery; we’ve just relabeled it. The cynic would have a point: an ancient Greek would certainly have seen the distinction between a slave and an indebted wage laborer as, at best, a legalistic nicety.

As a starting point to any attempt to discern the great rhythms that define the current historical moment, let me propose the following breakdown of Eurasian history according to the alternation between periods of virtual and metal money. The cycle begins with the Age of the First Agrarian Empires (3500–800 BC), dominated by virtual credit money. This is followed by the Axial Age (800 BC–600 AD), which will be covered in the next chapter, and which saw the rise of coinage and a general shift to metal bullion. The Middle Ages (600–1450 AD), which saw a return to virtual credit money, will be covered in Chapter Ten; Chapter Eleven will cover the next turn of the cycle, the Age of Capitalist Empires, which began around 1450 with a massive planetary switch back to gold and silver bullion, and which could only really be said to have ended in 1971, when Richard Nixon announced that the U.S. dollar would no longer be redeemable in gold.

Let us designate this period as the “axial age.” Extraordinary events are crowded into this period. In China lived Confucius and Lao Tse, all the trends in Chinese philosophy arose … In India it was the age of the Upanishads and of Buddha; as in China, all philosophical trends, including skepticism and materialism, sophistry and nihilism, were developed. — Karl Jaspers, Way to Wisdom

THE PHRASE “THE AXIAL AGE” was coined by the German existentialist philosopher Karl Jaspers.1 In the course of writing a history of philosophy, Jaspers became fascinated by the fact that figures like Pythagoras (570–495 BC), the Buddha (563–483 BC), and Confucius (551–479 BC) were all contemporaries, and that Greece, India, and China, in that period, all saw a sudden efflorescence of debate between contending intellectual schools, each group apparently unaware of the others’ existence.

Each case witnessed the development of something akin to a drop-out culture, with ascetics and sages fleeing to the wilderness or wandering from town to town seeking wisdom; in each, too, they were eventually reabsorbed into the political order as a new kind of intellectual or spiritual elite, whether as Greek sophists, Jewish prophets, Chinese sages, or Indian holy men.

For Jaspers, the period begins with the Persian prophet Zoroaster, around 800 BC, and ends around 200 BC, to be followed by a Spiritual Age that centers on figures like Jesus and Mohammed.

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.

At the same time, insisting that the same coins served as legal tender for all payments due to the state guaranteed that they would be in sufficient demand that markets would soon develop.

when “cutthroat competition” often did involve the literal cutting of throats, it never occurred to anyone to imagine that selfish ends could be pursued by peaceful means. Certainly, this picture of humanity does begin to appear, with startling consistency, across Eurasia, wherever we also see coinage and philosophy appear.

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

Greek philosophy, in turn, begins with three men: Thales, of Miletus (c. 624 BC–c. 546 BC), Anaximander, of Miletus (c. 610 BC–c. 546 BC), and Anaximenes, of Miletus (c. 585 BC–c. 525 BC)—in other words, men who were living in that city at exactly the time that coinage was first introduced.

What we see then is a strange kind of back-and-forth, attack and riposte, whereby the market, the state, war, and religion all continually separate and merge with one another. Let me summarize it as briefly as I can: 1) Markets appear to have first emerged, in the Near East at least, as a side effect of government administrative systems. Over time, however, the logic of the market became entangled in military affairs, where it became almost indistinguishable from the mercenary logic of Axial Age warfare, and then, finally, that logic came to conquer government itself, to define its very purpose. 2) As a result, everywhere we see the military-coinage-slavery complex emerge, we also see the birth of materialist philosophies. They are materialist, in fact, in both senses of the term: in that they envision a world made up of material forces, rather than divine powers, and in that they imagine the ultimate end of human existence to be the accumulation of material wealth, with ideals like morality and justice being reframed as tools designed to satisfy the masses. 3) Everywhere, too, we find philosophers who react to this by exploring ideas of humanity and the soul, attempting to find a new foundation for ethics and morality. 4) Everywhere, some of these philosophers made common cause with social movements that inevitably formed in the face of these new and extraordinarily violent and cynical elites. The result was something new to human history: popular movements that were also...

If it was only China that developed paper money in the Middle Ages, this was largely because only in China was there a government large and powerful enough, but also, sufficiently suspicious of its mercantile classes, to feel it had to take charge of such operations itself.

The level of trust thereby created between merchants in the great Malay entrepôt Malacca, gateway to the spice islands of Indonesia, was legendary. The city had Swahili, Arab, Egyptian, Ethiopian, and Armenian quarters, as well as quarters for merchants from different regions of India, China, and Southeast Asia. Yet it was said that its merchants shunned enforceable contracts, preferring to seal transactions “with a handshake and a glance at heaven.”

The Genoese republic was also the inventor of a unique mode of military financing, which might be known as war by subscription, whereby those planning expeditions sold shares to investors in exchange for the rights to an equivalent percentage of the spoils. It was precisely the same galleys, with the same “merchant adventurers” aboard, who would eventually pass through the pillars of Hercules to follow the Atlantic coast to Flanders or the Champagne fairs, carrying cargoes of nutmeg or cayenne, silks and woolen goods—along with the inevitable bills of exchange.135

Why this happened has been a matter of intense historical debate for centuries. This much we know: it began with a massive inflation. Between 1500 and 1650, for instance, prices in England increased 500 percent, but wages rose much more slowly, so that in five generations, real wages fell to perhaps 40 percent of what they had been. The same thing happened everywhere in Europe. Why? The favorite explanation, ever since a French lawyer named Jean Bodin first proposed it in 1568, was the vast influx of gold and silver that came pouring into Europe after the conquest of the New World. As the value of precious metals collapsed, the argument went, the price of everything else skyrocketed, and wages simply couldn’t keep up.

Huge amounts of silk, porcelain, and other Chinese products had to be exported to pay for it. Many of these Chinese products, in turn, ended up in the new cities of Central and South America. This Asian trade became the single most significant factor in the emerging global economy, and those who ultimately controlled the financial levers—particularly Italian, Dutch, and German merchant bankers—became fantastically rich.

In the Axial Age, money was a tool of empire. It might have been convenient for rulers to promulgate markets in which everyone would treat money as an end in itself; at times, rulers might have even come to see the whole apparatus of government as a profit-making enterprise; but money always remained a political instrument. This is why when the empires collapsed and armies were demobilized, the whole apparatus could simply melt away. Under the newly emerging capitalist order, the logic of money was granted autonomy; political and military power were then gradually reorganized around it.

“Not to rob and to return what they borrow”—a telling juxtaposition, considering that in Scholastic theory, lending money at interest had itself been considered theft. And Luther was referring to interest-bearing loans here. The story of how he got to this point is telling. Luther began his career as a reformer in 1520 with fiery campaigns against usury; in fact, one of his objections to the sale of Church indulgences was that it was itself a form of spiritual usury. These positions won him enormous popular support in towns and villages. However, he soon realized that he’d unleashed a genie that threatened to turn the whole world upside-down. More radical reformers appeared, arguing that the poor were not morally obliged to repay the interest on usurious loans, and proposing the revival of Old Testament institutions like the sabbatical year. They were followed by outright revolutionary preachers who began once again questioning the very legitimacy of aristocratic privilege and private property.

Soon afterward, Calvin was to reject the blanket ban on usury entirely, and by 1650, almost all Protestant denominations had come to agree with his position that a reasonable rate of interest (usually five percent) was not sinful, provided the lenders act in good conscience, do not make lending their exclusive business, and do not exploit the poor.28 (Catholic doctrine was slower to come around, but it did ultimately accede by passive acquiescence.)

Note here how it was the most sober, cautious, responsible capitalist regimes—the seventeenth-century Dutch Republic, the eighteenth-century British Commonwealth—the ones most careful about managing their public debt—that saw the most bizarre explosions of speculative frenzy, the tulip manias and South Sea bubbles.

The immediate effect of Nixon’s unpegging the dollar was to cause the price of gold to skyrocket; it hit a peak of $600 an ounce in 1980. This of course had the effect of causing U.S. gold reserves to increase dramatically in value. The value of the dollar, as denominated in gold, plummeted. The result was a massive net transfer of wealth from poor countries, which lacked gold reserves, to rich ones, like the United States and Great Britain, that maintained them. In the United States, it also set off persistent inflation.

While I was growing up in New York, I would hear occasional rumors of secret gold vaults underneath the Twin Towers in Manhattan. Supposedly, these vaults contained not just the U.S. gold reserves, but those of all the major economic powers.

Apparently, a lot of people had heard these stories. At least, right after the Towers were destroyed on September 11, 2001, one of the first questions many New Yorkers asked was: What happened to the money? Was it safe? Were the vaults destroyed? Presumably, the gold had melted. Was this the real aim of the attackers? Conspiracy theories abounded.

The United States Treasury’s gold reserves are indeed kept at Fort Knox, but the Federal Reserve’s gold reserves, and those of more than one hundred other central banks, governments, and organizations, are stored in vaults under the Federal Reserve building at 33 Liberty Street in Manhattan, two blocks away from the Towers. At roughly five thousand metric tons (266 million troy ounces), these combined reserves represent, according to the Fed’s own website, somewhere between one-fifth and one-quarter of all the gold that has ever been taken from the earth.

“The gold stored at the Federal Reserve Bank of New York,” according to the promotional literature, “is secured in a most unusual vault. It rests on the bedrock of Manhattan Island—one of the few foundations considered adequate to support the weight of the vault, its door, and the gold inside—eighty feet below street level and fifty feet below sea level … To reach the vault, bullion-laden pallets must be loaded into one of the Bank’s elevators and sent down five floors below street level to the vault floor … If everything is in order, the gold is either moved to one or more of the vault’s 122 compartments assigned to depositing countries and official international organizations or placed on shelves. ‘Gold stackers,’ using hydraulic lifts, do indeed shift them back and forth between compartments to balance credits and debts, though the vaults have only numbers, so even the workers don’t know who is paying whom.”

There is no reason to believe, however, that these vaults were in any way affected by the events of September 11, 2001.

In America, the banking system since the days of Thomas Jefferson has shown a remarkable capacity to inspire paranoid fantasies: whether centering on Freemasons, or Elders of Zion, or the Secret Order of the Illuminati, or the Queen of England’s drug-money-laundering operations, or any of a thousand other secret conspiracies and cabals. It’s the main reason why it took so long for an American central bank to be established to begin with. In a way there’s nothing surprising here. The United States has always been dominated by a certain market populism, and the ability of banks to “create money out of nothing”—and even more, to prevent anyone else from doing so—has always been the bugaboo of market populists, since it directly contradicts the idea that markets are a simple expression of democratic equality.

Nixon floated the dollar in order to pay for the cost of a war in which, during the period of 1970–1972 alone, he ordered more than four million tons of explosives and incendiaries dropped on cities and villages across Indochina—causing one senator to dub him “the greatest bomber of all time.”7 The debt crisis was a direct result of the need to pay for the bombs, or, to be more precise, the vast military infrastructure required to deliver them. This was what was causing such an enormous strain on the U.S. gold reserves.

In that case, one could well argue that U.S. military power was now the only thing backing up the currency. In a certain sense this is true, but the notion of “fiat money” assumes that money really “was” gold in the first place. Really we are dealing with another variation of credit money.