Debt: The First 5,000 Years

Debt: The First 5,000 Years, by David Graeber, is a very ambitious book, which attempts to tell the entire story of human economic systems from the very beginnings of human society until the present day. It is written by an anthropologist, not an economist, and he challenges many of the basic assumptions that the modern economics profession takes for granted. In addition, the author is extremely liberal. He participated in the social justice movement of the 1990s, which is more widely-known as the anti-globalization movement.

The main point that Graeber is trying to make, I think, is that the economics profession has built its entire theory on a simplistic model of humanity that is completely wrong. Mainstream economics posits that there was a time in our early history when people bartered with each other: “You have some eggs and I have a pair of moccasins, let’s trade.” Even in early hunter-gatherer societies, the economists say, everyone was looking out for their own self-interest.

Graeber says this image of human societies doesn’t match anything that anthropologists or historians have discovered. It’s a complete fantasy, and has led economists to propose some very strange theories.

Usually when I have read a history on a particular topic like this, the book has turned out to be very European-centric. This one is not that way at all. China and India are addressed as much as the West, and, in fact, he talks about how backwards Europe was in the Middle Ages compared to China and the Islamic world.

What becomes clear is that human beings have had a sophisticated grasp of money for many thousands of years. For example, people in ancient Sumer were creating debt instruments to finance trading expeditions, long before currencies were invented.

What also becomes clear is that there are alternatives to our modern form of market capitalism. In China during the Middle Ages they had markets but no capitalism—the Confucian ethos underlying Chinese society said that making money from money was wrong; the moral use of money is to produce something useful.

In the same era, the Islamic world created the “first free-market ideology.” But this system was based on the assumption that markets were a form of mutual aid—markets existed to benefit the entire society—rather than the capitalist assumption that markets are based on the self-interest and profit of the individual. Islamist theorists understood the need for competition, but stressed that the foundation for an economy was cooperation. Islamic laws strictly forbid usury, even with commercial loans, but this did not stop commerce from thriving, or stop the development of complicated credit instruments.

I was disappointed when I got to the modern era, however. In the first chapter Graeber had given a succinct critique of the Third-World debt crisis of the 1980s and 90s (the basis for the social justice movement), and I really expected that he would bring this same kind of analysis to the contemporary, post-2008 financial-collapse world economy (the book was published in 2011). But instead the book just peters out.

He merely says someone needs to come up with a new idea for how economies should work. His only specific suggestion is a biblical-style jubilee—a general global debt-cancellation.

If you are interested in economics, and would like an alternative to the capitalist dogma that currently serves as mainstream economic thought, this is definitely a book worth reading. [This is a short version of my review, to read the full one click more]

I’m not an economist, so I don’t have any basis for evaluating Graeber’s claims. I’m sure any economist of the University of Chicago school would hate everything he says, and I’m not sure what Paul Krugman or Joseph Stiglitz (my two favorite economists) would say about it, but from my perusal of critiques of the book online, it appears that Graeber has not said anything that can be easily dismissed. In addition, his position is fully within the anthropological tradition.

The New York Times review of Debt, written by a doctoral student in history, says, “The discipline [of anthropology] has always taken pride in undermining the assumptions of classical economics. In 1925 the French anthropologist Marcel Mauss published his classic essay ‘The Gift,’ which argued that contrary to the textbook account of primitive man merrily trading beaver pelts for wampum, no society was ever based on barter.” 

The reviewer in the London Review of Books called it an “extraordinary book, at once learned and freewheeling.”

What Graeber says is true about our distant past is that we shared with each other without thought of paying for what we received. There wasn’t even any need to say “thanks.” He quotes the Danish writer Peter Freuchen, from his Book of the Eskimo: “Freuchen tells how one day, after coming home hungry from an unsuccessful walrus-hunting expedition, he found one of the successful hunters dropping off several hundred pounds of meat. He thanked him profusely. The man objected indignantly: ‘”Up in our country we are human!” said the hunter. “And since we are human we help each other. We don’t like to hear anybody say thanks for that. What I get today you may get tomorrow. Up here we say that by gifts one makes slaves and by whips one makes dogs.”’

Graeber quotes stories by many different anthropologists of elaborate exchanges that went on between neighboring tribes that could be described as barter, but Graeber’s point is that within groups barter did not exist.

Money exists in hunter-gatherer societies, but these “primitive” currencies are “never used to buy or sell anything at all. Instead they are used to create, maintain, and otherwise reorganize relations between people: to arrange marriages, establish the paternity of children, head off feuds, console mourners at funerals, seek forgiveness in the case of crimes, negotiate treaties, acquire followers—almost anything but trade in yarns, shovels, pigs, or jewelry.”

This has made me think differently about the Native Americans trading Manhattan to the Dutch for beads. All around the world people used things like brass rods, whale’s teeth, salt, and cowrie shells for this relationship-organizing currency. The Native Americans may just have thought this was what the Europeans used for ceremonial negotiation.

People in hunter-gatherer societies shared common necessities without thought of charging for them. In fact, sharing necessities is the basis of their morality. “Early missionary accounts of native North Americans almost invariably include awestruck remarks on generosity in times of famine, often to total strangers.” In fact, Graeber asserts, “communism is the foundation of all human sociability. It is what makes society possible. There is always an assumption that anyone who is not actually an enemy can be expected [to act] on the principle of ‘from each according to his abilities, to each according to their needs.’”

An example of this still exists in our modern society: sliding price scales. In some places doctors charge the rich more (I saw this for myself in the small town of Highlands); in third world countries merchants charge tourists more.

When agriculture was developed and humans moved away from hunter-gatherer societies, people invented credit systems. What becomes clear is that people had a much more abstract understanding of money thousands of years ago than I thought possible. We act as if all our modern forms of credit are something new. That is completely wrong. Trading and loans existed before currency. Credit instruments were created to keep track of who owed what.

For example, in ancient Sumer temple administrators advanced loans to merchants. The loan was recorded in a clay tablet, which was smashed when the loan was repaid.

In other places the two parties to the loan broke something in two and each person kept a half. It could be a piece of pottery, or a notched branch. In England a notched hazel stick was split down the middle. The “stock” was held by the person who made the loan (hence “stockholder”), and the “stub” was the piece held by the person who took out the loan (hence “ticket stub”).

Usually when I have read a history on a particular topic like this, the book has turned out to be very European-centric. This one is not that way at all. China and India are addressed as much as the West, and, in fact, he talks about how backwards Europe was in the Middle Ages compared to China and the Islamic world.

Graeber bases his analysis on cycles of history, and it’s amazing how the first coins appeared at almost exactly the same time (600 BC) in three different parts of the world: the Mediterranean area, India, and China. This was the beginning of what some historians call the “Axial Age,” which Graeber dates between 600 BC and 600 AD. People like Pythagoras (570-495 BC), the Buddha (563-483 BC), and Confucius (551-479 BC) were all alive at the beginning of this era. Greece, India, and China all saw a sudden explosion of intellectual debate. This era saw the birth not only of all the world’s major philosophical traditions, but also all of today’s major world religions: Zoroastrianism, Judaism, Buddhism, Jainism, Hinduism, Confucianism, Taoism, Christianity, and Islam.

The Axial Age was a period of great empires built on warfare in all three regions, and then they all disappeared at about the same time, in 600 AD.

Coins came into existence as a solution to the common problem faced by these early empires: how to provision their standing armies. Obviously that wasn’t a problem when the armies were on the march—they could take what they needed from the conquered population. But when the army was home, how do you feed and house all those soldiers?

The solution was to create coins, pay the soldiers with the coins, and then demand those coins back in the form of taxes from the citizens. The people were forced to come up with ways to feed, house, and provision the soldiers to get their hands on the coins. This is the origin of the market economy.

The usual belief about the origin of taxation is that rulers live off their subjects, and taxation is how they do it. But, Graeber says, kings and emperors could always grab gold and silver mines. They had riches. They didn’t need the people under their power to pay them anything. Taxation was a mechanism to create a market economy.

In fact, Graeber asserts, governments are the source of markets. All we hear nowadays is how governments are an impediment to the operation of the market, but Graeber says this is just another example of the historical ignorance underlying current economic dogma. Nowhere in the world has a market economy come into being without some form of government prodding.

Graeber uses a recent example from Madagascar where he has personally done research. The French colonial government in the mid-20^th century minted a new currency and required everyone to pay these coins in taxes. In order to get the coins the people had to work on plantations at least some of the year, and slowly this drew the people away from their traditional village economies into a modern market system.

In the older hunter-gatherer economies, people assumed that other people’s motives in any transaction are complex. But the Axial Age was an era of war, and as a result markets became more impersonal—when you’re interacting with a foreign soldier it’s better not to ask too many questions. Graber writes that, “The result, 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…Certainly this picture of humanity does begin to appear, with startling consistency, across Eurasia, wherever we also see coinage and philosophy appear.”

In other words, in earlier societies people assumed that your motivation was the combination of your self-interest with the interests of your group and family. During the Axial Age that motivation was simplified to be just an individual’s self-interest.

The section on Rome during the Axial Age was fascinating. Graeber says that our current system of law is based on Roman law. (This was new to me; I thought it was based on English law.) He says, “Roman law provides almost all our basic conceptions about contract, obligation, torts, property, and jurisdiction—and, in a broader sense, of citizenship, rights, and liberties on which political life, too, is based.” Property—dominium—was central, and Roman law insisted that the most basic form of property is private property, and that private property is the owner’s absolute power to do anything he wants with his possessions.

By the second century AD, Roman jurists were interpreting the concept of liberty—libertas—to mean the right to do absolutely anything. These two ideas of dominium and libertas became intertwined—which meant that freedom was equated with being rich and powerful.

These ideas survived the barbarian destruction of Rome, and in Medieval Europe the “Roman concept of freedom remained. Freedom was simply power. When Medieval political theorists spoke of ‘liberty,’ they were normally referring to a lord’s right to do whatever he wanted within his own domains.”

At the end of the Axial Age, the great empires collapsed, not just in Rome, but in India and China also. As the empires and armies disappeared, coins were no longer circulated and people went back to systems of credit. Another thing that disappeared in these three areas at this same time was slavery.

The Middle Ages were not a time of darkness, Graeber says. We only think this because we are so European-centric. Europe lagged far behind China and the Islamic world and didn’t start catching up until 1400 or so.

During this period, the Islamic world created the “first free-market ideology.” But this system was based on the assumption that markets were a form of mutual aid—markets existed to benefit the entire society—rather than the capitalist assumption that markets are based on the self-interest and profit of the individual. Islamist theorists understood the need for competition, but stressed that the foundation for an economy was cooperation. Islamic laws strictly forbid usury, even with commercial loans, but this did not stop commerce from thriving, or stop the development of complicated credit instruments.

China, under the sway of Confucianism, had markets without capitalism—in other words the Confucian ethos said making money from money was wrong; the moral use of money is to produce something useful.

The dawn of capitalism was heralded by the publication in 1651 of Thomas Hobbes’ Leviathan, which was, Graeber writes, “in many ways an extended attack on the very idea that society is built on any sort of prior ties of communal solidarity.” People at the time were horrified at Hobbes’ cynical view of human nature. Hobbes’ ultimate argument was that “humans, being driven by self-interest, cannot be trusted to treat each other justly of their own accord, and therefore that society only emerges when they come to realize that it is to their long-term advantage to give up a portion of their liberties and accept the absolute power of the King.” This is a completely incorrect account of history, but over the next century Hobbes’ analysis came to be considered a basic truth about human nature.

In the late 1700s, Adam Smith attempted to establish economics as a science in his now-classic work The Wealth of Nations. The concept of something called an “economy” was a completely new idea for people of that time, and Smith argued that it followed the same sort of laws as those physical laws that Newton had described. Graeber writes, “Newton had represented God as a cosmic watchmaker who had created the physical machinery of the universe in such a way that it would operate for the ultimate benefit of humans, and then let it run on its own. Smith was trying to make a similar, Newtonian argument. God—or Divine Providence, as he put it—had arranged matters in such a way that our pursuit of self-interest would nonetheless, given an unfettered market, be guided ‘as if by an invisible hand’ to promote the general welfare. Smith’s famous invisible hand was, as he says in his Theory of Moral Sentiments, the agent of Divine Providence. It was literally the hand of God.” Maybe that’s why they’re called market fundamentalists—capitalism is based on a religious view of the world!

The discovery of the Americas led to the beginning of the third age delineated by Graeber, the “Age of the Capitalist Empires.” This era had a lot in common with the Axial Age: empires built on war, coins based on gold and silver, a return of slavery, and social upheaval connected with indebtedness.

Even during this capitalist age, most people did not use money in their day-to-day transactions with local merchants until relatively recently. For example, in England in the 1700s, “those frequenting the local butcher, baker, or shoemaker would simply put things on a tab…In a typical village, the only people likely to pay cash were passing travelers, and those considered riffraff…Since everyone was involved in selling something, just about everyone was both creditor and debtor; most family income took the form of promises from other families; everyone knew and kept account of what their neighbors owed one another; and every six months or year or so, communities would hold a general public ‘reckoning,’ cancelling debts out against each other in a great circle, with only those differences then remaining when all was done being settled by use of coin or goods.” This information helped me make sense of some novels I’ve read of this time, for example Middlemarch, by George Eliot.

I was disappointed when I got to the last chapter however. In the first chapter Graeber had given a succinct critique of the Third-World debt crisis of the 1980s and 90s (the basis for the social justice movement), and I really expected that he would bring this same kind of analysis to the contemporary, post-2008 financial-collapse world economy. But instead the book just peters out.

He just says someone needs to come up with a new idea for how economies should work. His only specific suggestion is a biblical-style jubilee—a general global debt-cancellation.

“Forgive Us Our Debts,” by Benjamin Kunkel, the London Review of Books review, provides not only an excellent summary of the book, but a glimpse of an ending Graeber could have written about the effect that economic orthodoxy had on the response to the recent global financial melt-down:

The response of Western officials to the economic crisis, with its proximate cause in unsustainable consumer debt, has been to ensure that banks suffer as few losses as possible, while relying on the same indebted consumers – in their role as taxpayers – to keep the bankers whole. The Fed and now the ECB have loaned banks money at virtually no cost, encouraging those same banks to purchase government bonds paying much higher rates of interest: a direct subsidy of finance by the public, while millions sink into unemployment and bankruptcy. A far simpler and more effective monetary policy would have been for the government to print a new batch of money, distribute an equal amount to everyone, then sit back and watch as stagnant economies were stirred to life by the spending and debts were paid down and eroded by temporarily higher inflation. The inconceivability of such a policy is a mark not of any impracticability, but of the capture of governments by a financial oligarchy.