Debt: The First 5,000 Years

by David Graeber

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.

China was unusual because philosophy there began with debates about ethics and only later turned to speculations about the nature of the cosmos. In both Greece and India, cosmological speculation came first.

For Seaford, what was genuinely new about coins was their double-sidedness: the fact that they were both valuable pieces of metal and, at the same time, something more.

So already in any materialist philosophy, we are dealing with an opposition between form and content, substance and shape; a clash between the idea, sign, emblem, or model in the creator’s mind, and the physical qualities of the materials on which it is to be stamped, built, or imposed, from which it will be brought into reality.

The problem is that this collective power is not unlimited. It only really applies within the city. The farther you go outside, into places dominated by violence, slavery, and war—the sort of place where even philosophers taking a cruise might end up on the auction block—the more it turns into a mere lump of precious metal.

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.

Everywhere, too, there seems to have been an initial impulse to use the new intellectual tools provided by impersonal markets to come up with a new basis for morality, and everywhere, it foundered.

To put the matter crudely: if one relegates a certain social space simply to the selfish acquisition of material things, it is almost inevitable that soon someone else will come to set aside another domain in which to preach that, from the perspective of ultimate values, material things are unimportant, that selfishness—or even the self—are illusory, and that to give is better than to receive. If nothing else, it is surely significant that all the Axial Age religions emphasized the importance of charity, a concept that had barely existed before.

As for the religious movements: it would be easy enough to write them off as escapist, as promising the victims of the Axial Age empires liberation in the next world as a way of letting them accept their lot in this one, and convincing the rich that all they really owed the poor were occasional charitable donations.

Popular uprisings in the ancient world usually ended in the massacre of the rebels. As I’ve already observed, physical escape, such as via exodus or defection, has always been the most effective response to oppressive conditions since the earliest times we know about. Where physical escape is not possible, what, exactly, is an oppressed peasant supposed to do? Sit and contemplate her misery? At the very least, otherworldly religions provided glimpses of radical alternatives. Often they allowed people to create other worlds within this one, liberated spaces of one sort or another.

Politically, it is never a particularly good idea to first tell people they are your equals, and then humiliate and degrade them. This is presumably why peasant insurrections, from Chiapas to Japan, have so regularly aimed to wipe out debts, rather than focus on more structural issues like caste systems, or even slavery.

Debt peonage, it would appear, is far more likely to inspire outrage and collective action than is a system premised on pure inequality.

Whereas Persian and Arab thinkers assumed that the market emerged as an extension of mutual aid, Christians never completely overcame the suspicion that commerce was really an extension of usury, a form of fraud only truly legitimate when directed against one’s mortal enemies. Debt was, indeed, sin—on the part of both parties to the transaction. Competition was essential to the nature of the market, but competition was (usually) nonviolent warfare.

Aristotle had argued that gold and silver had no intrinsic value in themselves, and that money therefore was just a social convention, invented by human communities to facilitate exchange. Since it had “come about by agreement, therefore it is within our power to change it or render it useless” if we all decide that that’s what we want to do.146 This position gained little traction in the materialist intellectual environment of the Axial Age, but by the later Middle Ages, it had become standard wisdom.

Ghazali was among the first to embrace it. In his own way, he took it even further, insisting that the fact that a gold coin has no intrinsic value is the basis of its value as money, since this very lack of intrinsic value is what allows it to “govern,” measure, and regulate the value of other things.

for Aristotle, not only worthless bronze coins that we agree to treat as if they were worth a certain amount, but all money, even gold, is just a symbolon, a social convention.

Here Chinese ideas did grow a bit closer to the Christian ones. But Chinese conceptions of the cosmos had one crucial difference: since there was no emphasis on the absolute gulf between our world and the one beyond it, contractual relations with the gods were by no means out of the question.

Second, Islam also took seriously the principle, later enshrined in classical economic theory but only unevenly observed in practice, that profits are the reward for risk.

Legally, our notion of the corporation is very much a product of the European High Middle Ages. The legal idea of a corporation as a “fictive person” (persona ficta)—a person who, as Maitland, the great British legal historian, put it, “is immortal, who sues and is sued, who holds lands, has a seal of his own, who makes regulations for those natural persons of whom he is composed”166—was first established in canon law by Pope Innocent IV in 1250 AD, and one of the first kinds of entities it applied to were monasteries—as also to universities, churches, municipalities, and guilds.

All this is worth emphasizing because while we are used to assuming that there’s something natural or inevitable about the existence of corporations, in historical terms, they are actually strange, exotic creatures. No other great tradition came up with anything like it.170 They are the most peculiarly European addition to that endless proliferation of metaphysical entities so characteristic of the Middle Ages—as well as the most enduring.

The 1400s are a peculiar period in European history. It was a century of endless catastrophe: large cities were regularly decimated by the Black Death; the commercial economy sagged and in some regions collapsed entirely; whole cities went bankrupt, defaulting on their bonds; the knightly classes squabbled over the remnants, leaving much of the countryside devastated by endemic warfare.

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One of the perverse effects of the bubonic plague, which killed off about one-third of the European workforce in the years after it first struck in 1347, was that wages increased dramatically. It didn’t happen immediately, but this was largely because the first reaction of the authorities was to enact legislation freezing wages, or even attempting to tie free peasants back to the land again. Such efforts were met with powerful resistance, culminating in a series of popular uprisings across Europe—the famous English peasant revolt of 1381 being only the most famous example. All these were squelched, but the authorities were also forced to compromise.

Money always has the potential to become a moral imperative unto itself. Allow it to expand and it can quickly become a morality so imperative that all others seem frivolous in comparison. For the debtor, the world is reduced to a collection of potential dangers, potential tools, and potential merchandise.23 Even human relations become a matter of cost-benefit calculation.

The peasants’ visions of communistic brotherhood did not come out of nowhere. They were rooted in real daily experience: of the maintenance of common fields and forests, of everyday cooperation and neighborly solidarity. It is out of such homely experience of everyday communism that grand mythic visions are always built.38 Obviously, rural communities were also divided, squabbling places, since communities always are—but insofar as they are communities at all, they are necessarily founded on a ground of mutual aid. The same, incidentally, can be said of members of the aristocracy, who might have fought endlessly over love, land, honor, and religion, but nonetheless still cooperated remarkably well with one another when it really mattered (most of all, when their position as aristocrats was threatened); just as the merchants and bankers, much as they competed with one another, managed to close ranks when it really mattered too. This is what I refer to as the “communism of the rich,” and it is a powerful force in human history.

In this world, trust was everything. Most money literally was trust, since most credit arrangements were handshake deals. When people used the word “credit,” they referred above all to a reputation for honesty and integrity;

Saying we are all really pursuing our own self-interest provides a way to cut past the welter of passions and emotions that seem to govern our daily existence, and to motivate most of what we actually observe people to do (not only out of love and amity, but also envy, spite, devotion, pity, lust, embarrassment, torpor, indignation, and pride) and discover that, despite all this, most really important decisions are based on the rational calculation of material advantage—which means that they are fairly predictable as well. “Just as the physical world is ruled by the laws of movement,” wrote Helvétius, in a passage reminiscent of Lord Shang, “no less is the moral universe ruled by laws of interest.”57 And, of course, it was on this assumption that all the quadratic equations of economic theory could ultimately be built.

The story of the origins of capitalism, then, is not the story of the gradual destruction of traditional communities by the impersonal power of the market. It is, rather, the story of how an economy of credit was converted into an economy of interest; of the gradual transformation of moral networks by the intrusion of the impersonal—and often vindictive—power of the state.

Under Elizabeth, for example, the punishment for vagrancy (unemployment) was, for first offense, to have one’s ears nailed to a pillory; for repeat offenders, death.

The criminalization of debt, then, was the criminalization of the very basis of human society.

It’s unsurprising, then, that Newtonian economics (if we may call it that)—the assumption that one cannot simply create money, or even, really, tinker with it—came to be accepted by almost everyone. Everyone concluded there had to be some solid, material foundation to all this, or the entire system would go insane.

Politics, after all, is the art of persuasion; the political is that dimension of social life in which things really do become true if enough people believe them.

The problem is that in order to play the game effectively, one can never acknowledge this: it may be true that, if I could convince everyone in the world that I was the King of France, I would in fact become the King of France; but it would never work if I were to admit that this was the only basis of my claim. In this sense, politics is very similar to magic—one reason both politics and magic tend, just about everywhere, to be surrounded by a certain halo of fraud.

Even, he argued, if we are all rational enough to understand that it’s in our long-term interest to live in peace and security, our short-term interests are often such that killing and plundering are the most obviously profitable courses to take, and all it takes is a few to cast aside their scruples to create utter insecurity and chaos.

It would seem that almost all elements of financial apparatus that we’ve come to associate with capitalism—central banks, bond markets, short-selling, brokerage houses, speculative bubbles, securization, annuities—came into being not only before the science of economics (which is perhaps not too surprising), but also before the rise of factories, and wage labor itself.

All this raises the question of what “capitalism” is to begin with, a question on which there is no consensus at all. The word was originally invented by socialists, who saw capitalism as that system whereby those who own capital command the labor of those who do not. Proponents, in contrast, tend to see capitalism as the freedom of the marketplace, which allows those with potentially marketable visions to pull resources together to bring those visions into being. Just about everyone agrees, however, that capitalism is a system that demands constant, endless growth.

What was once an impersonal mechanism that compelled people to look at everything around them as a potential source of profit has come to be considered the only objective measure of the health of the human community itself.

what we see at the dawn of modern capitalism is a gigantic financial apparatus of credit and debt that operates—in practical effect—to pump more and more labor out of just about everyone with whom it comes into contact, and as a result produces an endlessly expanding volume of material goods. It does so not just by moral compulsion, but above all by using moral compulsion to mobilize physical force.

If one is to believe MacKay, the entire population of London conceived the simultaneous delusion, not that money could really be manufactured out of nothing, but that other people were foolish enough to believe that it could—and that, for that very reason, they actually could make money out of nothing after all.

In reality, then, the Indians had been reduced to slavery; it’s just that, by 1907, no one could openly admit this. A legitimate enterprise had to have some moral basis, and the only morality the company knew was debt.

It is the secret scandal of capitalism that at no point has it been organized primarily around free labor.96 The conquest of the Americas began with mass enslavement, then gradually settled into various forms of debt peonage, African slavery, and “indentured service”—that is, the use of contract labor, workers who had received cash in advance and were thus bound for five-, seven-, or ten-year terms to pay it back.

The first thing that “proletarianization” came to mean was that millions of young men and women across Europe found themselves effectively stuck in a kind of permanent adolescence. Apprentices and journeymen could never become “masters,” and thus, never actually grow up. Eventually, many began to give up and marry early—to the great scandal of the moralists, who insisted that the new proletariat were starting families they could not possibly support.

both the relation between master and slave, and between employer and employee, are in principle impersonal: whether you’ve been sold or you’re simply rented yourself out, the moment money changes hands, who you are is supposed to be unimportant; all that’s important is that you are capable of understanding orders and doing what you’re told.

To understand the history of capitalism, however, we have to begin by realizing that the picture we have in our heads—of workers who dutifully punch the clock at 8:00 a.m. and receive regular remuneration every Friday on the basis of a temporary contract that either party is free to break off at any time—began as a utopian vision, was only gradually put into effect even in England and North America, and has never, at any point, been the main way of organizing production for the market, ever, anywhere.

The problem with such models—at least, it always seems to happen when we model something called “the market”—is that, once created, we have a tendency to treat them as objective realities, or even fall down before them and start worshipping them as gods. “We must obey the dictates of the market!”

Karl Marx, who knew quite a bit about the human tendency to fall down and worship our own creations, wrote Das Capital in an attempt to demonstrate that, even if we do start from the economists’ utopian vision, so long as we also allow some people to control productive capital and, again, leave others with nothing to sell but their brains and bodies, the results will be in many ways barely distinguishable from slavery, and the whole system will eventually destroy itself.

Presented with the prospect of its own eternity, capitalism—or anyway, financial capitalism—simply explodes. Because if there’s no end to it, there’s absolutely no reason not to generate credit—that is, future money—infinitely.

Whatever Nixon’s reasons, though, once the global system of credit money was entirely unpegged from gold, the world entered a new phase of financial history—one that nobody completely understands.

In part, these systems work because no one knows how they really work.

Contrary to popular belief, the U.S. government can’t “just print money,” because American money is not issued by the Federal government at all, but by private banks, under the aegis of the Federal Reserve System. The Federal Reserve, in turn, is a peculiar sort of public-private hybrid, a consortium of privately owned banks whose Governing Board is appointed by the U.S. president, with Congressional approval, but which otherwise operates autonomously.

(Henry Ford once remarked that if ordinary Americans ever found out how the banking system really worked, there would be a revolution tomorrow.)