Debt: The First 5,000 Years

“I was walking down the street with a friend the other day and a guy with a gun jumps out of an alley and says “Stick ’em up.’ As I pull out my wallet, I figure ‘Shouldn’t be a total loss.’ So I pull out some money, turn to my friend and say, ‘Hey, Fred, here’s that fifty bucks I owe you.’ The robber was so offended he took out a thousand dollars of his own money, forced Fred to lend it to me at gunpoint, and then took it back again.”

This old joke illustrates one of the key rules of economic relationships: whoever holds the gun or has the strongest military will always hold the power even if they owe other entities money. Violence turns human relationships into mathematics. The creditor has the means to specify how much the debtor owes them through this threat of violence. In the passage, the robber should have easily acquired the money from the two men because he controlled the gun. Yet, one of the men threw a wrench in his plans by ignoring the very rule that governs economic relationships.

“Once upon a time, there was barter. It was difficult. So people invented money. Then came the development of banking and credit.”

This passage summarizes the founding myth of the modern economic system. Adam Smith was the first economist to argue that barter was the primordial form of exchange. To Smith, bartering was innate to humans. However, barter systems faced two main challenges: “a double coincidence of wants” and stockpiling. To overcome these challenges, people invented money. Governments came about to protect the supply of money. Credits and banking only develop much later. Economic textbooks around the world recount this money origins story. Yet, Graeber, alongside other anthropologists and archaeologies, points out that this account is simply a myth. There is no evidence that supports this economic account.

“In fact, our standard account of monetary history is precisely backwards. We did not begin with barter, discover money, and then eventual develop credit systems. It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, 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.”

Graeber summarizes the central tenet of Chapter 2 in this passage. Based on archaeological evidence from ancient Mesopotamia and Egypt, credit represents the original form of exchange. Communities and societies did eventually invent money. Since money was often not available to the masses, credit remained the primary system of exchange. Barter, rather than being innate to human nature as Smith and other economists suggest, is a byproduct of the use of money. It appears in very specific situations often when people who are used to markets do not have access to currency or when people do not expect to have a prolonged relationship with the person they are engaging in exchange.

“To return to Madagascar for a moment: I have already mentioned that one of the first things that the French general Gallieni, conqueror of Madagascar, did when the conquest of the island was complete in 1901 was to impose a head tax. Not only was this tax quite high, it was also only payable in newly issued Malagasy francs. In other words, Gallieni did indeed print money and then demand that everyone in the country give some of that money back to him.

Most striking of all, though, was the language he used to describe this tax. It was referred to as the ‘impôt moralisateur,’ the ‘educational’ or ‘moralizing tax.’ In other words, it was designed—to adopt the language of the day—to teach the natives the value of work. Since the ‘educational tax’ came due shortly after harvest time, the easiest way for farmers to pay it was to sell a portion of their rice crop to the Chinese or Indian merchants who soon installed themselves in small towns across the country. However, harvest was when the market price of rice was, for obvious reasons, at its lowest; if one sold too much of one’s crop, that meant one would not have enough left to feed one’s family for the entire year, and thus be forced to buy one’s own rice back, on credit, from those same merchants later in the year when prices were much higher. As a result, farmers quickly fell hopelessly into debt (the merchants doubling as loan sharks)”

This historical example from Madagascar illustrates the power that taxation brings to states. The French colonial government invented the money they used to collect taxes and required this money back. Thus, the purpose of the tax collection was not to collect money or value from the Malagasy. Rather, the French colonial government intentionally created a system that would force Malagasy to adopt European norms. On the surface, this example seems like a simple attempt by the French colonial government to exploit the Malagasy workers. While it was this, it was also something more. The government wanted the Malagasy workers to have some money left over after they paid the educational tax so that they would purchase small luxuries, such as lipstick or cookies, available in the Chinese and Indian shops. Markets would thus emerge. With these markets, the Malagasy would adopt new tastes and habits more in line with European tastes and habits, forever keeping the Malagasy tied to the French even if French rule over the country ended. Thus, the educational tax was a sinister way that the French colonial power tried to ensure their dominance over the Malagasy in perpetuity.

“Sumerian kings rarely went so far as to declare themselves gods, but they often came very close. However, when they did interfere in the lives of their subjects in their capacity as cosmic rulers, they did not do it by imposing public debts, but rather by canceling private ones.”

Despite ancient Mesopotamia being the home of the first states as well as inventing the practice of loaning money at interest, primordial-debt theorists rarely say much about Mesopotamian history. Graeber suggests the reason for this is that Mesopotamian history contradicts primordial-debt theory. States are supposed to be guardians of the debt that their people owe, including to the gods. This reasoning legitimizes states’ ability to collect taxes. States should never clear commercial debt for this reason (since it is debt owed to the gods). This is not what happens in the ancient Mesopotamian cities of Sumer or Babylon. Instead, Babylonian and Sumerian kings were known to wipe public debt, called declarations of freedom. Kings often did this when they first took power and then periodically throughout their reign to prevent their people from rebelling. Under primordial-debt theory, declarations of freedom never should occur.

“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. Here is an example from the seventeenth century, by a certain Henry, who had a store at Stony Stratford, Buckinghamshire: [drawing of Henry’s token].

This is clearly a case of the same principle: Henry would provide small change in the form of IOUs redeemable at his store. As such, they might circulate broadly, at least among anyone who did regular business at that shop. But they were unlikely to travel very far from Stony Stratford—most tokens, in fact, never circulated more than a few blocks in any direction. For larger transactions, everyone, including Henry, expected money in a form that would be acceptable anywhere, including in Italy or France.”

Here, Graeber demonstrates that people use a complex mix of currency where there are markets. The currency only works as money, however, if people knew there was someone willing to accept it to clear debt. People in Henry’s community used his tokens since he accepted them at his shop. They did not use them in transactions outside his shop, however, since other shop owners or merchants would not accept them. Instead, people would use forms of money accepted everywhere. Money hovers between a commodity and a debt-token. It is rarely one or the other in most places throughout history, although one form often dominates over another.

This leads to another problem: What is possible in the meantime, before that final redemption comes? In one of his most disturbing parables, the Parable of the Unforgiving Servant, Jesus seemed to be explicitly playing with the problem:

Therefore, the kingdom of heaven is like a certain king, who wanted to settle accounts with his servants. As he began the settlement, a man who owed him ten thousand talents was brought to him. Since he was not able to pay, the master ordered that he and his wife and his children all that he had be sold to repay the debt.

The servant fell on his knees before him. ‘Be patient with me,’ he begged. ‘and I will pay back everything.’ The servant’s master took pity on him, canceled the debt, and let him go.

But when the servant went out, he found one of his fellow servants who owed him a hundred denarii. He grabbed him and began to choke him. ‘Pay back what you owe me!’ he demanded.

His fellow servant fell to his knees and begged him, ‘Be patient with me, and I will pay you back.’

But he refused. Instead, he went off and had the man thrown into prison until he could pay his debt. When the other servants saw what happened, they were greatly distressed and went and told their master everything that had happened.

Then the master called the servant in. ‘You wicked servant,’ he said, ‘I canceled all that debt of yours because you begged me to. Shouldn’t you have had mercy on your fellow servant just as I had on you?’ In anger his master turned him over to the jailers to be tortured, until he should pay back all he owed.

Theologians traditionally interpret this parable as teaching two things about sin. The first is that we are unable to repay our sin, and the second is that our sin is greater than any offence caused by others. We can never truly appreciate God’s grace because we cannot see ourselves as sinners and cannot truly forgive others’ debts. Graeber uses the parable to show how world religion’s use of commercial terminology creates contradictions around morality. An inherent Christian belief is that God will someday forgive all debts, representing the end of the world as we know it. To Graeber, the parable suggests that such forgiveness is impossible. If everyday people (like the servant in the parable) cannot forgive one another’s debts, then how do we expect God to forgive the debts of sinners (since we are all sinners by being unable to forgive one another). While many world religions rail against markets, they also frame relationships with morality and God in commercial terms, despite this not being a good deal for humankind since it makes us seem inherently corrupt. To Graeber, this reinforces the notion that commercial relations (i.e., debt and exchange) do not explain all our moral relationships.

“On one occasion I asked the way to a certain place and was deliberately deceived. I returned in chagrin to camp and asked the people why they had told me the wrong way. One of them replied ‘You are a foreigner, why should we tell you the right way? Even if a Nuer who was a stranger asked us the way we would say to him, ‘You continue straight along that path,’ but we would not tell him that the path forked. Why should we tell him? But you are now a member of our camp, and you are kind to our children, so we will tell you the right way in future.’”

Famous anthropologist E.E. Evans-Pritchard, who studied the pastoralist group known as the Nuer from southern Sudan, recounts in this passage his embarrassment at realizing that one of the Nuer had intentionally given him wrong directions. This example illustrates the relation of communism in action. Because the Nuer, at the time of giving Evans-Pritchard directions, did not feel a shared identity with him (i.e., he was not a member of their camp), he had no issues giving Evans-Pritchard wrong information. The Nuer considered Evans-Pritchard an enemy. Since the Nuer were constantly engaged in feuds, they were deeply suspicious of outsiders. Once they establish a shared identity with him, however, the Nuer’s perception of Evans-Pritchard changes. He goes from enemy to member of the camp. Therefore, he becomes someone who can be trusted with directions.

“Debt is what happens in between: when the two parties cannot yet walk away from each other, because they are not yet equal.”

One of the most peculiar features of debt is that it only exists when one party has transacted but not the other. Debt, simply put, only exists when the exchange between two parties remains uncomplete. Exchange implies both equality and separation. There is no equality in relations when both parties have not transacted. It is only once both parties exchange goods or services that equality is restored and both parties can go their separate ways without having to deal with one another again (unless they start a new relationship).

“Halfway around the world, one finds Lewis Henry Morgan describing the elaborate mechanisms set up by the Six Nations of the Iroquois to avoid precisely this state of affairs. In the event one man killed another,

Immediately on the commission of a murder, the affair was taken up by the tribes to which the parties belonged, and strenuous efforts were made to effect a reconciliation, lest private retaliation should lead to disastrous consequences.

The first council ascertained whether then offender was willing to confess his crime, and to make atonement. If he was, the council immediately sent a belt of white wampum, in his name, to the other council, which contained a message to that effect. The latter then endeavored to pacify the family of the deceased, to quiet their excitement, and to induce them to accept the wampum as condonation.”

In this passage, famous anthropologist Lewis Henry Morgan describes how the Iroquois handled bloodwealth. As in the case of the Nuer, the presentation of the wampum does not wipe any debts. Rather, the wampum symbolizes that the one paying bloodwealth admits the existence of the debt, insists that they wish they could pay it, but understands that it is impossible since no object equates to a human life. The paying of the wampum is the only want to prevent further escalation of the violence (i.e., the victim’s family retaliating against the family of the person paying bloodwealth).

“In a human economy, each person is unique, and of incomparable value, because each is a unique nexus of relations with others. A woman may be a daughter, sister, lover, rival, companion, mother, age-mate, and mentor to many different people in different ways. Each relation is unique, even in a society in which they are sustained through the constant giving back and forth of generic objects such as raffia cloth or bundles of copper wire.”

This passage describes the central tenet of human economies: money can never substitute for a person. Rather, money acknowledges the life-debt, or a debt that can never be repaid. It is for this reason that people will continue to give items to their bride’s family or the family of whom they have harmed since there is no way they can ever truly repay either family. It is only with the introduction of violence that human economies begin to breakdown and people become quite literally part of the economy (i.e., they can be bought and sold).

“If a Roman soldier was captured and lost his liberty, his family was expected to read his will and dispose of his possessions. Should he later regain his freedom, he would have to start over, even to the point of remarrying the woman who was now considered his widow.”

Graeber uses this passage to show how slavery utterly degrades a person. Like in many other places, Roman law considered an enslaved person legally dead (even if the person was not always a slave). The enslaved person lost everything: all their relationships and possessions. They became honorless. If the enslaved person gained their freedom, then they had to start over from scratch, including remarrying their wife (who became a widow when the enslaved person “died”).

“In either case, between the push of commoditization, which fell disproportionately on daughters, and the pull of those trying to reassert patriarchal rights to ‘protect’ women from any suggestion that they might be commoditized, women’s formal and practical freedoms appear to have been gradually but increasingly restricted and effaced.”

Graeber uses numerous examples to show the tie between the decline of women’s freedom and the introduction of markets. In market economies, relationships are impersonal. Therefore, the goods and services being exchanged are too. This means that commoditizing women can now repay debt. Women’s liberties (or lack thereof) are now tied to their male relative’s honor. Governments come to enforce this commoditization through various legal codes and norms.

“As a result, while credit systems tend to dominate in periods of relative social peace, or across networks of trust (whether created by states or, in most periods, transnational institutions like merchant guilds or communities of faith), in periods characterized by widespread war and plunder, they tend to be replaced by precious metal.”

Here, Graeber describes the central idea behind his cyclical story of credit versus bullion. Coinage dominates in periods of war and instability, whereas credit systems are prevalent in periods of peace and stability. Coinage in credit systems often appear in specific institutions (like temples or palaces), becoming the unit of measure rather than the medium of exchange.

“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 BCE—‘that the strong might not oppress the weak.’”

This list of canceling debt, destroying records associated with debt, and reallocating land becomes the standard list of revolutionaries everywhere. Mesopotamian rulers act like they are a great beneficiary of the public who are interested in recreating the social universe with these reforms. The reality is that the rulers are simply trying to prevent unrest. They often need to forgive public debt several times during their reign.

“Recent scholarship has shed a great deal of light on how this must have had happened. Gold, silver, and bronze—the materials from which coins were made—had long been the media of international trade; but until that time, only the rich actually had much in their possession. A typical Sumerian farmer may well have never had occasion to hold a substantial piece of silver in his hand, except perhaps at his wedding. Most precious metals took the form of wealthy women’s anklets and heirloom chalices presented by kings to their retainers, or it was simply stockpiled in temples, in ingot form, as sureties for loans. Somehow during the Axial Age, all this began to change. Large amounts of silver, gold, and copper were dethesaurized, as the economic historians like to say; it was removed from the temples and houses of the rich and placed in the hands of ordinary people, was broken into tinier pieces, and began to be used in everyday transactions.”

The use of coinage in markets represents one of the hallmarks of the Axial Age. What is most interesting about this usage is how it began. Prior to the Axial Age, during the Age of Agrarian Empires, gold, silver, and copper were primarily used as status symbols for the wealthy. This raises the question of how these metals ended up in the hands of everyday people to create coins at the start of the Axial Age. According to Graeber, most of it was stolen. Governments were incentivized to take control over these chunks of metal and to turn them into genuine currency to fuel their military campaigns.

“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 participant in civic life.”

While there were many negative consequences of the Axial Age (slavery and violence on a scale never seen), one of the most positive consequences was mass literacy. For the first time in human history, people at all levels of society had the opportunity to learn to read and write. In fact, the government created educational campaigns to ensure a literature populace. The reason for this is that governments at the time believed literate people made better soldiers and tradespeople.

“With coins this rises to an even more abstract level because that emblem can no longer be conceived as the model in one person’s head but is rather the mark of a collective agreement.”

Throughout Debt, Graeber discusses the dual nature of coins. Coins are both something physical and something abstract. Coins are physical pieces of metal with images stamped on them of rulers or gods. These items are valuable in part because of the metal that imbues them. However, their value also comes from something more abstract. Coins are only accepted as currency because there is a promise between citizens that these items will be acceptable payments of debt.

“Both the Psalms (15:5, 54:12) and Prophets (Jeremiah 9.6, Nehemiah 5:11) were explicit in assigning usurers to death and hellfire. What’s more, the early Christian Fathers, who laid the foundation of Church teachings on social issues in the waning years of the Roman empire, were writing amidst the ancient’s world last great debt crisis, one that was effectively in the process of destroying the empire’s remaining free peasantry. While few were willing to condemn slavery, all condemned usury.”

Graeber wrestles with this issue of why people view debt as less bearable compared to other hierarchical institutions (such as slavery). Christian theology represents one area where this paradox shows up. Christians should view slavery and debt similarly since both result in the degradation of human beings. Yet, Christianity only condemns debt.

“In part, this was due to the habit of Christian princes of exploiting, for their own purposes, the fact that Jews did sit slightly outside the system. Many encouraged Jews to operate as moneylenders, under their protection, simply because they also knew that protection could be withdrawn at any time. The kings of England were notorious in this regard.”

In the early Middle Ages in Western Europe, religious and philosophical thinkers grappled with whether a merchant could be a good Christian and whether lending was even moral. To solve this problem, they instituted laws so that Jewish people could only become lenders. Jewish people were barred from merchant and craft guilds. Thus, moneylenders were outside the Christian faith. This had horrendous impacts on the relationship between Christians and Jewish people. Jewish people faced tension since they were the creditors in their communities. Kings often fueled this tension by using Jewish people as scapegoats and turning a blind eye to pogroms. This view of Jewish people as other continues to inform modern antisemitism.

“Capital, then, is not simply money. It is not even just wealth that can be turned into money. But neither is it just the use of political power to help one use one’s money to make more money.”

Money was a tool of the empire in the Axial Age. This is not the case for money in the age of capitalism. For the first time in history, political and military powers organize around money. Profit is at the heart of what drives people and institutions. For this reason, capital takes on an autonomous form since it is no longer a political instrument.

“Capitalism is a system that enshrines the gambler as an essential part of its operation, in a way that no other ever has; yet at the same time, capitalism seems to be uniquely incapable of conceiving of its own eternity.”

Graeber argues that capitalism endures because of its reliance on debt. He suggests this reliance represents a double-edged sword. On the one hand, debt puts more power in the hands of government officials and politicians. Yet, it also suggests that the government owes something to its people since their money is an extension of the public debt. The endless debt makes it seem like capitalism will endure in perpetuity. Graeber argues that this is unlikely. In fact, since the Victorian era, the implosion of the capitalist system has been top of mind for people. Moreover, he posits that believing in capitalism’s own eternity could be its downfall since people will believe they can create and borrow money forever. As the 2008 economic recession illustrated, this notion is far from the reality.

“Because of United States trade deficits, huge numbers of dollars circulate outside the country; and one effect of Nixon’s floating of the dollar was that foreign central banks have little they can do with these dollars except to use them to buy U.S. treasury bonds. This is what is meant by the dollar becoming the world’s ‘reserve currency.; These bonds are, like all bonds, supposed to be loans that will eventually mature and be repaid, but as economist Michael Hudson, who first began observing the phenomenon in the early ‘70s, noted, they never really do:

To the extent that these Treasury IOUs are being built into the world’s monetary base they will never not have to be repaid but are to be rolled over indefinitely. This feature is the essence of America’s free financial ride, a tax imposed at the entire globe’s expense.”

In the concluding chapter, Graeber is extremely critical of the role of the US in maintaining the financial imbalances of the global community. Graeber seems to suggest that part of the reason for the new financial order not following the historical pattern is actors, like the US, have not changed their behavior. The global currency is controlled by the power of the US military. Treasury bonds act like tribute. While the US should be repaying these bonds, we do not. Instead, we continue to make more and more imaginary money (increasing our debt). Graeber agrees with Hudson that the US has imposed a global tax, one that is furthering unjustness and conflict.