Debt: The First 5,000 Years

David Graeber “Debt: The First 5,000 Years”  Melville House, 2011, 391 pp. plus 101 pages of notes and bibliography.

Every economics textbook says the same thing: Money was invented to replace complicated barter systems—to relieve ancient people from having to haul their goods to market. The problem with this version of history: There’s not a shred of evidence to support it.  Pg. 40:  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.  What we now call virtual money came first.  Coins came much later, never completely replacing credit systems.  Barter, in turn appears to be largely a kind of accidental byproduct of the use of coinage or paper money: historically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency.

My Notes:

Pg. 8:  The history of debt reveals moral confusion: 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.

Pg. 21:  H.L Mencken “For every subtle and complicated question, there is a perfectly simple and straightforward answer, which is wrong.”

Pg. 40:  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.  What we now call virtual money came first.  Coins came much later, never completely replacing credit systems.  Barter, in turn appears to be largely a kind of accidental byproduct of the use of coinage or paper money: historically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency.

Pg. 46:  Credit Theorists insist that money is not a commodity but an accounting tool.  It is not a thing at all, you cannot touch it any more than you can touch an hour or a cubic centimeter.  Units of currency are merely abstract units of measurement.  What does it measure? It measures debt.  In this sense, the value of a unit of currency (even a gold coin) is not the measure of the value of an object, but the measure of one’s trust in other human beings (and governments).

Pg. 94: The author proposes that there are three main moral principles on which economic relations can be founded, all of which occur simultaneously to varying degrees in any human society, which he labels communism, hierarchy, and exchange.  He defines communism as any human relationship that operates on the principles of “from each according to their abilities, to each according to their needs.”  Exchange is all about equivalence (p. 103).  It is a back-and-forth process involving two sides in which each side gives as good as it gets.  So it is a process of interaction tending toward equivalence.  Hierarchy is re3lations between at least two parties in which one is considered superior to the other.  (The peasants provide food, the lords provide protection).  In practice, hierarchy tends to work by a logic of precedent. 

Pg. 145:  Money almost always arises first from objects that are used primarily as adornment of the person.  Beads, shells, feathers, gold, and silver are all well-known cases in point.  Most are useless for any purpose other than making people look more interesting, and hence, more beautiful.  It is only when governments, and then markets, enter the picture that we begin to see currencies like barley, cheese, tobacco, or salt.

Pg. 214:  Eurasian history can be analyzed according to the alternation between periods of virtual and metal money.  The cycle begins with the Age of the first Agrarian Empires (500-800 BC), dominated by virtual credit money.  This is followed by the Axial Age (800 BC-600 AD), which saw the rise of coinage and a general shift to metal bullion.  The Middle Ages (600 -1450 AD) saw a return to virtual credit money.  The Age of Capitalist Empires, which began around 1450 with a massive planetary switch back to gold and silver bullion, and which could be said to have ended in 1971, when Richard Nixon announced that the U.S. dollar would no longer be redeemable in gold.  This ended a policy that had been effective since 1931 in which all U.S. currency held outside the country was to be redeemable at the rate of $35 an ounce.  Thus began  our present phase which returns again to virtual money.

Pg. 223:  In the course of writing a history of philosophy, Karl Jaspers coined the phrase “The Axial Age” ( 800 BC-600AD) when he became fascinated by the fact that figures like Pythagoras (570-495 BC), the Buddha (563-483 BC), and Confucius (551-479 BC), were all alive at exactly the same time, 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.  Like the simultaneous invention of coinage. 

Pg. 304:  Legally, our notion of the corporation as a “fictive person” was first established by Pope Innocent IV in 1250 AD and one of the first kinds of entities it applied to were monasteries, universities, churches, municipalities, and guilds.

Pg. 309:  If we really want to understand the origins of the modern world economy, the place to start is not in Europe.  The real story is of how China abandoned the use of paper money.  After the Mongols conquered China in 1271, they kept the system of paper money in place.  In 1368, however, they were overthrown by another of China’s great popular insurrections, and a former peasant leader was once again installed in power.  This new Ming dynasty were suspicious of previous existing commerce in any form, and they promoted a romantic vision of self-sufficient agrarian communities. When this didn’t work out so well, they went back to the old policy of encouraging markets and merely intervening to prevent any undue concentrations of capital. This proved spectacularly successful.  The problem was that the new policy meant that the regime had to ensure an abundant supply of silver which backed the currency.  So China had to turn to Europe for silver; the European conquest of Mexico and Peru had led to the discovery of enormous sources of precious metal.  By the late sixteenth century, China was importing 90 percent of its silver, by the seventeenth century it was over 97 percent.

Pg. 342:  Newtonian economics: the assumption that one cannot simply create money.  The belief that there has to be some solid, material foundation to money or the entire system would go insane.  True, economists were to spend centuries arguing about what that foundation might be (was it rally gold, or was it land, human labor, the utility or desirability of commodities in general?).

Pg. 345:  We are led to believe that modern capitalism as emerging with the Age of Revolutions—the industrial revolution, the American and French revolutions.  However almost all elements of financial apparatus that we’ve come to associate with capitalism-central banks, bond markets, short-selling, brokerage houses, speculative bubbles, securitization, annuities—came into being not only before the science of economics, but also before the rise of factories, and wage labor itself.  This is a genuine challenge to familiar ways of thinking and raised 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.

Pg. 364:  Contrary to popular belief, the U.S. government cannot ‘just print money,’ because American money is not issued by the government, but by private banks, under the aegis of the Federal Reserve System.  Despite its name, the Federal Reserve is technically not part of the government, but a peculiar sort of public-private hybrid, a consortium of privately owned banks whose chairman is appointed by the U.S. president but which otherwise operates without public oversight.  All dollar bills in circulation are ‘Federal Reserve Notes’—the Fed issues them as promissory notes and commissions the U.S. mint to do the actual printing, paying it four cents for each bill.  The Fed ‘loans’ money to the U.S. government by purchasing treasury bonds, and then monetizes the U.S. debt by lending the money thus owed by the government to other banks.