DEBT

David Graeber

Subtitle: The First 5,000 Years, Melville House Publishing, Brooklyn NY., 2011, 534 pgs., index, bibliography, notes

Reviewer comment:

Dr. Deirdre McCloskey provides a summary of Dr. Graeber's thought on page 432-3 of Bourgeois Equality. She complains that - "He is 'grumbling that 'arguments about who really owes what to whom have played a central role in shaping our basic vocabulary of right and wrong. His sole intellectual tool is Amos-like indignation against sellers and bosses and owners and creditors. He does not notice that the poor buyers and employees and renters and debtors also gain from such transactions, which after-all are under taken by mutual consent. And on the matter of loans Graeber does not notice the obvious economic logic that if we forthwith cancel all debts, as he repeatedly advises, no creditor will ever lend again."

All possibly true analysis in her context. But Graeber shows examples from even prehistoric tribal communities that debtors are NOT in debt due to 'mutual consent', but by various social conventions or even force. And he is thinking of debt as a broader concept than as the result of market exchanges as one can see from his first chapters. But Graeber does provide useful information about the real nature of money, currency and credit. He is especially strong in his discussions of primitive and ancient societies, not surprising since he is a professional anthropologist. In my opinion he devotes rather more space than necessary (about 6 or 7 chapters) to primitive societies, but he wants to show the deeply entrenched basis for the social concept of debt rather than only the modern concept of debt generated in markets. He is possibly almost an anarchist, at least in his views on government, again not totally wrong. His opinion on this is based on a highly moral view that debt is intrinsically wrong.
I consider his book one of the most important references on the real nature of money - that throughout history it has been based on credit at least as much as on monetary currency. His historical account is a powerful refutation to the idea that somehow gold has been always a reliable 'standard of value'. Gold has not even been the main token surrogate for 'money' throughout history.
As for debt cancelation, I believe he is focused on the ancient use of a 'jubilee' year, in which debts were canceled by order of the rulers. We are reading more advocacy for that recently among the several ideas being promoted to solve the continual and massive debt problem of welfare states.

But there is a fundamental difference between the debt canceled by ancient rulers during their "jubilee' years and today's public debt. Those ancient Mesopotamian rulers (palace and temple officials) were the creditors and the workers were in debt to them, easy for the ruler to cancel that debt, especially since it interfered with the rulers conscripting those same debtors as their army. But in today's economy it is the rulers who owe the debt to the workers - rulers are consuming massive production from productive workers and in exchange giving them credit promises for the future.

Dr. Graeber's book and his discussions on the Internet naturally generated a strong attack by some, including libertarian, economists. It has been a very contentious verbal conflict. Some economists of course contend that anthropologists simply do not understand economic theory. But today's economists rely on the opinions expressed by Adam Smith, Carl Menger, Ludwig von Mises, Murray Rothbard and similar theoreticians. Economists frequently also deny that historians could understand history without formulating theories. Facts simply are not enough. George Selgin, at Cato Institute has been a strong adversary of Graeber and historians.
Unfortunately the positions on the issues held by the individuals are clearly related (if not the actual result) of their broader political and personal agendas.
A principle issue of conflict is the existence of 'barter' and its role in early and even modern societies. And linked to that is the controversy over the origin and control of 'money' or even what 'money' actually is. This issue then becomes related to the controversy between those who claim gold is the only real money and our dollar should be based on gold and those who oppose. And also the controversy over central banks and 'free banks' and over bank use of 'fractional reserves'. But these actually are separate subjects from the role of barter in economic transactions.
I append links to some of these authors having opposing theories.

Chapter 1 - On the Experience of Moral Confusion

Dr. Graeber begins with an extended discussion of the IMF as enforcer of international repayment of debts. His example is the process in which the huge profits in dollars by the Middle East oil countries were cycled through American banks to Latin American and other countries as loans which ultimately were unpayable. He presents his opposition to the very concept that debts must be repaid. But actually the financial system itself presumes that at least some debts will not be repaid. But the IMF short circuits this fundamental presumption by insisting that the credit (loans) to obviously incapable countries be repaid even if that requires drastic austerity programs that harm to their people.

He changes to concept 'one has to repay his debts' from an economic idea to a moral one. He contemplates this standard basic concept that repayment of debts is a moral duty. He notes that, indeed, credit created debt is the central basis of modern society. He notes that: "Consumer debt is the lifeblood of our economy. All modern nation-states are built on deficit spending. Debt has come to be the central issue of international politics. But nobody seems to know exactly what it is, or how to think about it."

He continues by linking the concept of 'debt' that some one or group owes something to a violent predator including foreign armies which use this as a justification for their conquest. He in particular claims that the "Third World' countries are being forced to pay debts to their former colonial masters. His personal experience and observation of this process was in Madagascar. Another example, he uses, is Haiti.
But next he turns to the United States and compares and contrasts the massive debt the U.S. owes voluntarily so many foreign governments with seeming impunity and the debt forced on other countries which is then demanded to be repaid.
Next he expands the concept of debt historically, noting that: "Arguments about debt have been going on for at least five thousand years. For most of human history -- at least, the history of states and empires -- most human beings have been told that they are debtors."
Next is his basic point for researching and writing the book. "If one looks at the history of debt, then, what one discovers first of all is profound moral confusion. Its most obvious manifestation is that most everywhere, one finds that the majority of human beings hold simultaneously that (1) paying back money one has borrowed is a simple mater of morality, and (2) anyone in the habit of lending money is evil." He provides various specific examples from both actual historical accounts, religious precepts and literature.

There is much more in this chapter expressing his moral position. This is his summary. "Here we come to the central question of this book. What, precisely, does it mean to say that our sense of morality and justice is reduced to the language of a business deal? What does it mean when we reduce moral obligations to debts? What changes when the one turns into the other? And how do we speak about them when our language has been to shaped by the market?" He is concerned about how money itself has distorted thinking about this. "From this perspective, the crucial factor, and a topic that will be explored at length in these pages, is money's capacity to turn morality into a matter of impersonal arithmetic -- and by doing so, to justify things that would otherwise seem outrageous or obscene."
He was already deeply concerned with these issues, but with the financial collapse of 2008 and govenment responses, he sees an epochal change is coming. He cites even IMF predictions that the current credit=debt regime cannot survive. Thus, in this book, the author sets out to explore the whole history of 'debt', 'credit', and 'money' from a moral view point.

Chapter 2 - The Myth of Barter -

This is a very significant chapter, since the use of barter in market exchange during ancient eras is so commonly claimed by economists and economic historians as the basic method, but without any proof.

This is one of Graeber's most significant corrections to standard economic theory. Adam Smith wrote that prior to the invention of coinage societies conducted market exchange by barter. Of course in Smith's time no one knew what ancient societies did. Graeber, as an anthropologist shows this idea is a myth. We need to distinguish between internal social exchange of goods and services and external exchanges between individuals from two entirely different societies. Smith and his contemporaries observed that trade between, for instance Europeans and American Indians amounted to barter exchange of manufactured goods (such as metal ware) and beaver pelts. This was due to the absence of any recognized form of mutually acceptable money. But Indians within their tribe exchanged goods by sharing and not by barter. Moreover, these exchanges were not between end users of the products exchanged, but by intermediate merchants who knew the relative 'value' of the exchanged products in later retail markets.
But so many economists today continue to write elaborate descriptions of the difficulties ancient societies went through trying to exchange their goods within a social group by impossible barter methods which they claim led to the creation of coinage. They universally conjure up mythical pictures of individuals seeking to exchange directly one product for another and being unable to find easily the ability to consummate such a direct exchange. Examples are Rothbard, Selgin and von Mises. Selgin, in particular, attacks Graeber by simply acerbicly writing that he knows nothing about economics. Actually it is Selgin who knows nothing about anthropology or ancient history.

Moreover, only in the last 100 years or less historians of ancient Mesopotamia and Egypt have studied the tens of thousands of documents in cuneiform tablets to describe the reality of money, credit, debt, banking and trade in those societies.

But the fundamental source of disagreement is that secular materialist economists simply cannot believe that ancient peoples (or anyone else) could believe in such metaphysical concepts as a god who dictated their economic behavior.

But Graeber's concept of debt itself includes the concept that debt can be measured in terms called money, but besides currency (the typical presumption of so many theoriticians today - for instance 'gold bugs'. He believes that 'debt' can only be conceived in a 'precisely quantified' requiring the role of 'money', but what constituted 'money'. "Not only is it money that makes debt possible: money and debt appear on the scene at exactly the same time." He describes this 'money' in Mesopotamian terms - that is quantities of grain.
He generalizes: "A history of debt, then , is thus necessairly a history of money - and the easiest way to understand the role that debt has played in human society is simply to follow the forms that money has taken, and the way money has been used, across the centuries -- and the arugments that inevitably ensued about what all that means."

What he is defining here is the role of 'money' as the standard of account and measure of relative value - appart from its role as a medium of exchange.
He correctly points out that in standard text books about the history of money "debt is an afterthought'. "First comes barter, then money; credit only developes later. 'what one generally gets is a history of coinage, with barely any discussion of credit arrangements at all." He remarks that for a century anthropologists have been pointing out that this concept is wrong. In real markets, he notes, "most transactions take place without the use of currency." He quotes extensively from a standard Economics book in which the authors describe this impossible mythical scene of individuals trying unsuccessfully to exchange their good directly with an individual counter party. Recognizing this impossibility the economist then must presume such direct barter HAD to be replaced by currency. The authors, themselves, urge their students to Imagine the scene and the difficulty.
He comments: "The story of money for economists always begins with a fanTasy world of barter." I can quote the extensive chapters from Rothbard, Selgin, von Mises, Morgan, Stiglitz, andAdam Smith of course as an authority the others love to cite. And it is Smith whom Graeber cites as the originator of the myth. And Smith, he points out, was determined to oppose the concept that money was created by governments. Moreover, Smith was determined to claim that economics as an human activity was separate from other activities such as politics and ethical behaviour.
Graeber clains that: "Smith's argument is worth laying out in detail because it is, as I say, the great founding myth of the discipline of economics." Myth it is and Smith played an important part, but he was not the founder. He cribbed on Cantilon and other French theoriticians.
But Graeber has more to say. "Tellingly, this story played a cricial role not only in founding the discipline of economics, but in the very idea that there was something called 'the economy.' which operated by its own rules, separate from moral or political life, that ceonomists could take as their field of study." He specifically fingers Carl Menger aned Stanley Jevons with expanding the myth.

Is it any wonder that so many economists today denounce Graeber?

He continues with extensive discussion of what anthropoligists have actually found is the process of exchange in primitive societies and Between such socities. And in his description he points out that the entire concept of 'economics' as a separate sphere of human activity is false. "Economics assumes a division between different spheres of human behavior that, among people like the Nambikwara and Gnwinngu simply does not exist." He continues with examples of exchange by gift or by credit. When currency disappears people continue to use the old definitions in the monetary system as the measures of account in credit systems. He also descibes in some detail the actual economies of ancient Sumer - somthing about which Adam Smith had no inkling.

Chapter 3 - Primordial Debts

Dr. Graber suggests that: "The reason that economics textbooks now begin with imaginary villages is because it had been impossible to talk about real ones." He notes that other of Smith's conceptions have been discarded (such as his labor theory of value) while the myth of barter persists. He believes that is because this myth "is central to the entire discourse of economics."

Chapter 4 - Cruelty and Redemption

Chapter 5 - A Brief Treatise on the Moral Grounds of Economic Relations

Chapter 6 - Games with Sex and Death

Chapter 7 - Honor and Degradation, or, On the Foundations of Contemporary Civilization

Chapter 8 - Credit Versus Bullion, And the Cycles of History

Chapter 9 - The Axial Age (800 BC - 600 AD)

Chapter 10 - The Middle Ages (600 AD - 1450 AD)

Chapter 11 - Age of the Great Capitalist Empires (1450 - 1970)

Chapter 12 - (1971 - The Beginning of Something yet to Be Determined)

Hudson, Michael - ...and forgive them their debts

Hudson, Michael - Finance as Warfare

Hudson, Michael -A Travesty of Financial History - which bank lobbyists will applaud

Hudson, Michael - The Archeology of Money

Hudson, Michael - Privatization in the Ancient Near East and Classical World

Hudson, Michael - Debt and Economic Renewal in the Ancient Near East

Landes, David & Joel Mokyr & William Baumol - The Invention of Enterprise

Podany, Amanda - Ancient Mesopotamia: Life in the Cradle of Civilization

Podany, Amanda - Brotherhood of Kings

Facts and Details - Mesopotamian Economics and Money

money value

Smith, Adam - Wealth of Nations

Mises, Ludwig von - The Theory of Money and Credit

Rothbard, Murray - What has Government Done to Our Money?

Rothbard, Murray - The Essential von Mises

Selgin, George - The Myth of the Myth of Barter

Selgin, George - Graeber, Once More