debt

by David Graeber
ISBN: 1612194192
Finished 2/24/16
Amazon page for details and reviews

Recap:

Before debt, there was money. And before that, barter. That’s the conventional wisdom, but David Graeber’s compelling argument shows us we never had barter, and debt came before money. Our system of credit was not created in 1971 – when the Gold Standard was abolished – it is as old as society itself. In this fascinating piece, we learn how society created debtors and creditors, how religions formed the early credit markets, how language surrounding money involves guilt, and how China and Italy played major roles in developing the modern economic system. We also learn how morality and debt are fundamentally intertwined, such that our basic interactions are shaped by debts to one another.


Notes:

Debt:
1. Sum of money owed
2. State of owing money
3. Feeling of gratitude for a favor or service

If you owe the bank $100K, the bank owns you. If you owe the bank $100MM, you own the bank – American proverb

International Monetary Fund: World’s debt enforcers

According to standard economics theory, there is always some risk. Not all debt should be repaid

If a bank was guaranteed to get its money back, the system wouldn’t work because nobody would take any risk

Paying debt is more about morality than economics

No better way to justify violent relations than debt, because the victim is wrong

Debt is used to punish winners who weren’t supposed to win

US foreign investment: treasury bonds

For the last 5,000 years, Creditors vs. debtors has been defined as rich vs. poor

Historically, money lenders (usurers) have had a poor, even evil, reputation

Even those who “don’t owe anything to anybody” are hardly considered virtuous, because morality says we must fulfill our obligations to others

Money has the capacity to turn morality into simple arithmetic
– But violence and quantification are intimately linked

Pre-2008, astrophysicists had to run complex algorithms that even financiers did not understand
– Many of these products had been nothing more than elaborate scams
– This time, the debt was higher than world GDP. Huge debt to principal imbalance
– Banks were bailed out, debtors were not

The U.S. has always had issues with debtors. One of the last countries to adopt the concept of bankruptcy

There is nothing new about virtual money. Credit money is older than physical money

Money and debt appeared at the same time

3 functions of money:
– Medium of exchange
– Unit of account
– Store of value

The alternative is barter
– Requires double coincidence of wants
– Money enables multilateral exchange

But barter never really existed in recorded history. Money is the foundation of society

Traditional economy: Medium started as spices, salt, etc. but transitioned to metals. Issuage of coinage by governments

Barter truly only existed between distant cultures, since money as a medium of exchange would have been useless

In reality, credit systems were common but physical money was not widespread

Barter really only happened when there was no access to physical money or a credit system

The myth of barter can’t go away because it forms the basis of economic theory

History shows that without money, barter does not occur

Money and credit measure debt

Early form was the IOU but these can’t create a full blown currency systems

The IOU can act as money only as long as a debt is unpaid

States and markets are intimately linked

Money was no more ever invented than music or math of jewelry

The Wonderful Wizard of Oz is a populist campaign propaganda for the silver standard

Keynes assumed capitalist governments would not work without the capitalists playing nanny
– States enforce agreement of money and dictate legal terms, but not necessarily credit

Primordial Debt Theory: Any attempt to separate monetary and social policy is ultimately wrong

German “Geld” = money
English “Guilt”
And other Germanic translations

In ancient societies people often didn’t pay taxes. Sometimes citizens were even paid

The only way to free oneself from debt was to prove that we were one with humanity, the cosmos, etc, such that the debt did not exist

Society – not as the state but all of humanity

Nationalists often appeal to the concept of social debt, attempting to trap people who try to emigrate because they were raised by the original state

Money is both an IOU and a commodity

In historical markets, we find many different kinds of currency. Sign of government structures and interests of the time

Neitzsche: Buying and selling are older than any other social organization
– Obligations: comparing ourselves with others
– Credit and debit formed these higher social structures

German “Schuld” means both debt and guilt

Even Adam and Eve are debtors, passing along original sin

Christianity’s redemption and salvation are framed in the language of financial transactions

Contemporary social language still reflects ancient concepts of debt

The assumption of reciprocity is fundamental in nearly all interactions

3 main moral principles upon which economies are founded:
1. Communism
2. Hierarchy
3. Exchange

No society was ever one of these completely

There is a baseline communism in all societies
– All about mutuality

Exchange is about equivalence
Most impersonal but not completely

There is even a communism within the most capitalistic organizations

Artists historically had a rich sponsor

Gifts make slaves, whips make dogs

Debt:
– Requires a relationship between two people who do not consider themselves fundamentally different sorts of being
– Who are at least potential equals
– Who are equals in the matters that are important
– Who are not currently in equality, but for whom there is some way to set matters straight

Not all human interactions are forms of exchange
– Exchange implies equality but also a separation
– Debt is carried out in the shadow of eventual equality

“Please” is short for “if you please to do this”, such that you are under no obligation
– Even though you imply it is not an order, you apply an obligation

“Thank you” implies that you are in debt

“You’re welcome” again implies implicit, not debit-based, reward

Social currencies and human economies: The creation, destruction, and rearranging of human beings

Primitive money was a recognition of debt that cannot be paid

Society is our debts: Everyone has debt to someone else

These are similar in many European languages

Middle class etiquette implies we are equals, but:
1. It pretends nobody is giving others orders
2. It treats baseline communism as if it were a form of exchange

Women were used as a form of currency, especially in the form of blood compensation

Some villages made women available to all the men of the same age group. Children were considered not belonging to the individual women or men, but to the entire village

Slaves and outlaws were assigned value

Atlantic slave trade: Giant system of credits

Social currencies are never quite equal to people. Money is a way of acknowledging that the debt cannot really be paid. People are never truly equal

Slavery is just a harsh manifestation of an overall concept of debt

The notion of honor cannot exist without the concept of degradation

Even slave owners believed the system was disreputable and perverse, but a fact of life

Only capture from war was considered a legitimate source of enslavement. Otherwise, kidnapping and sale of offspring was illegal

One becomes a slave only in cases where he would have otherwise died

Honor is surplus dignity that must be defended

Honor is integrity, but also something else requiring violence

Some of the most archaic forms of money were used as measures of honor and degradation

In Ireland, fines were based on honor ranking of the injured party

When money meant for honor started to be used for eggs and haircuts, a moral crisis occurred

Prostitutes developed credit relationships with their clients

Virginity of daughters was considered a cultural asset. Poor daughters often became prostitutes

Sexuality went from being divine to corruption and guilt

Transition from wanting to needing money

In Mediterranean languages, “interest” also means offspring
– Repay with something better

Life was debt to the gods, but people did not live in morality

Property is an understanding concerning things
– Relationship between a person and a thing, based off formerly considering people as things (slaves)

In Rome, slaves were quite arbitrary. Could even have been smarter or more cultured than their masters. Slaves could buy their way back into citizenship

Liberty: Freedom go do what one likes with one’s own property, except what is not allowed

Our bodies and minds make us both masters and slaves to ourselves. Even though modern psychology does not support this, our concept of debt is based upon it

Kings and slaves are mirrors, defined only by extremes of power

Work: Alienating your liberty temporarily

Slavery has disappeared and reemerged multiple times

Coinage emerged between 600 and 500 BC in China, Lydia (Mediterranean), and India

In 600 AD we transitioned from coinage back to credit

Gold and silver coins can be stolen

Axial age: 800 BC to 600 AD
– Period that saw the birth of all major world religions and psychological tendencies
– This corresponds to the invention of coinage, and the city states associated with religion also were the places where coins developed

Military-Coinage-Slavery Complex

Buddhism was the only major religion non-opposed to commerce

Rationalism: taking numbers and ratios and applying them to everything

Transactions between strangers: Human life could be reduced to a means to an end and profit calculations

Axial age spirituality is built on a bedrock of materialism

Ancient currencies were almost always worth more than the material they were made of

Images stamped on coins meant that anyone within the jurisdiction would accept and agree that it is currency

The market, state, war, and religion all continually separate and merge with one another:

– Markets appear to have emerged as a side effect of government administrative systems. Over time, governments became involved in military affairs. Military came to define government itself
– Everywhere, the military-coinage-slavery complex emerged. Materialist philosophies also emerged
– Philosophers try to find new explanations for ethics and morality
– Out of these new philosophies grew social movements that challenged the ruling elite. These popular movements were based in theories on the nature of reality
– These movements were peace movements, as they rejected violence and war as the foundation of politics
– There was an impulse to come up with a new basis for morality, but this did not last
– Rulers’ attitudes changed from bemused tolerance to rebuilding society on new moral principles
– The ultimate effect was the division of market and religion

Middle ages: 600 to 1400 AD

Middle ages saw commodity markets and new world religions merge

Despite the disappearance of coinage, credit markets did not disappear

In the Hindu caste system, lower castes could not really be indebted to higher castes because they were not socially equal

The Confucian state promoted markets, and commercial life became far more sophisticated than anywhere in the world. Despite that, Confucian orthodoxy was pro-market but anti-capitalist.

Distinction between markets and capitalism:
– Markets: Means of exchanging goods through the medium of money
– Capitalism: The art of using money to get more money

For most of its history, China maintained the highest standard of living in the world

Religions started managing treasuries, tying moral obligation to materiality

When monasteries ran out of money, they were razed in an attempt to normalize the money supply and annhialate the debt

Islam forbade their citizens to become slaves, as well as usury

In Islamic society, there were partnerships of good reputation, and this may have served as a form of credit

At first, the Catholic attitude toward usury was as harsh as Islam, and toward merchants harsher

Charity is a matter of maintaining, not undermining, hierarchy

In Christianity, both sides of a transaction involving usury were considered sinful

All money, even gold, was universally considered to be a symbol

By creating tallies and systems of debt, individuals agree to be no longer equal until the debt is settled

From Islam, large-scale capitalism did not emerge because:
1. They took the free market seriously
2. Profits were considered rewards for risks

Buddhist monasteries were the opposite extreme: Inexhaustible Treasuries nearly eliminated risk. This was close to modern corporations

Corporations are mostly the product of the European High Middle Ages. First applied to monasteries, then churches, universities, and guilds
– However these were not profit-seeking in the modern sense

Merchant adventurers were the first to seek profit by traveling and trading overseas

1450 to 1971 AD: Age of the great capital empires

China abandoned paper money with the onset of the Ming Dynasty after much of the industry went underground
– When paper money was gone and industries made legal again, the economy boomed

China sought more silver and found a mine in Japan but then had to look to Europe

Discovery of Mexican and Portuguese mines satisfied the immense demand for silver in Asia

But ordinary Europeans did not have newfound wealth
– Governments demanded payment in metals, instead of the existing systems of agreement

In Mexico and South America, forced labor in mines contributed to widespread death and disease

East India companies: structured to remove all concerns except maximizing profit

Protestants began allowing interest on loans

Two separate modes of operation developed:
1. Credit and debt was normal
2. Cash was normal, debt was bad

But the latter didn’t last because people realized all relationships involved some kind of debt

Fear of debtors’ prison was becoming widespread, because everyone was a creditor and debtor
– Criminalization of debt was thus the criminalization of basic human society

The essence of modern banking: providing notes when not all the capital is immediately available

Origins of modern finance: municipal bonds in Venice in the 12th century.

People became to view this as owning the government

Government debt bonds started to be circulated as general currency

Now money was no longer a debt owed to the king but by the king

The Bank of London became first national Bank that circulated money
– 1717: Adopted the gold standard

Other central bank experiments failed

Most every system was based on some kind of material standard

Still, there was a lot of criticism because bankers were creating something out of nothing. Trading of government bonds and notes

The next major problem: greed

Money has created the democratization of desire

Capitalism was never organized around free labor, but they did take advantage of former slaves as contract laborers

1971: No longer had the gold standard in U.S.

The U.S. can’t just print money. The Fed is a public private hybrid. All dollars are promissory notes. The Fed is effectively the one that prints money, and it loans money to the government

U.S. deficit is mostly due to military spending

Dollar is the only currency used in oil exchange

Debit and credit cards are only very recent

Unless one is the US Treasury, all have to pay their debts

But the new system is young

China has historically given gifts they don’t expect repayment on as sign of their global power. May explain Chinese ownership of U.S. debt. May be the first step in a long process to treat US as Chinese client state

Lobbying: Legal bribing of politicians

The Evangelical right strongly supports supply side economics

We can’t foresee capitalism existing forever because it seems implausible to endlessly create debt

If we don’t set future limits, speculation runs haywire

History is not over, and the next great idea will likely come from a place we don’t expect

Communism – love – between people is the essential human relationship

Impersonal commercial markets began with theft

Our system can only work by converting love into debt

Debt is just the perversion of a promise – nobody has the right to tell us what we truly know