Debt

You probably remember this story from introductory economics. Originally, people exchanged things through barter. I needed grain but had a cow. You had a farm but needed milk. I gave you milk for your grain. But this was tedious and awkward, and required finding the right combination of people who needed something the other person had on hand. Then, people invented money: small objects with an agreed-upon value that you could keep and use later when you needed something else. In other words, both a medium of exchange and a store of value. And that improved matters for a long time, although war-torn societies or societies that collapsed (the supposed "Dark Ages" often raises its head) would sometimes "revert to barter" for some period of time until things were stable enough for currency to reappear.

Following that story was usually some story about the emergence of money based on credit: goldsmith shops that started a side business in storing other people's coins and giving them receipts, leading to the receipts trading like the coins since the shops were trustworthy, and from there into the Bank of England and eventually the fractional reserve banking system, fiat money, and all the modern machinery of finance. All of this was dated from the early Enlightenment and the development of modern finance in Europe.

It's a very neat story, and it makes a great deal of intuitive sense. That barter system does feel like what you'd have to do without money, but one can immediately see how obnoxious and limiting it would be. These stories play into our intuitive sense of history: people started with emergent properties of the physical world (different people have different goods and different skills and want to exchange them) and then develop layers of abstraction on top of them, eventually leading to the sophistication of modern societies.

However, David Graeber is not an economist. He's an anthropologist: the profession devoted to understanding how people actually do things rather than how we've reconstructed our history based on our modern perspective. And, as he points out, engagingly and comprehensively, in chapter two of Debt, there is no evidence that this story about economic history has anything whatsoever to do with reality. And quite a bit of evidence that it does not. As best as we've been able to determine, not only is there no society in the world that deals with routine, day-to-day needs like grain and milk through barter, there never has been such a society in human history.

Instead, history and anthropology shows that credit is, in a sense, older than currency: the earliest recorded economic transactions were built on a rich system of credit, but in the form of purchases from shopkeepers on credit, or credit clearinghouses through the local government or temple. Those credit records were often denominated in some standardized commodity — so many cattle or bushels of grain — that could create the impression that the economy worked on barter. But the anthropological evidence indicates that this was more an accounting technique than a practical currency. People rarely brought the named commodity to the temple to pay off some debt. Rather, there was an agreed conversion from various other goods to that standardized commodity, and its primary purpose was consistent bookkeeping. Specie — minted coins — appear to come later, and wax and wane throughout history depending on local circumstance. For example, Europe did not "revert to barter" after the collapse of the Roman Empire, but the inhabitants did stop using specie and returned to a system of credit and record-keeping... records that continued to be denominated in Roman currency, even though few people still used the actual coins.

That's one fascinating observation with which Graeber begins this book. The other is the question of why we have such a strong social and moral belief that people must pay their debts. This moral belief is ever-present in discussions about the 2008 financial collapse, and more broadly in discussions about the modern economy, but it's not as obvious of a belief as it might appear on the surface. After all, the banking and investment system is founded on the principle that not everyone will repay their debts, and therefore lenders receive a risk premium based on the likelihood that the debt won't be repaid. But, despite building the possibility of non-repayment into the system, debt forgiveness or intentional default is almost unthinkable and considered a huge moral problem. To this, Graeber brings the perspective of historical anthropology: human societies have struggled with the problems of debt and repayment from the beginning of recorded history, and have attempted a wide variety of solutions to those problems, including massive debt forgiveness. The jubilee described in the Bible was not novel; rather, it reflected a common practice to keep abuses of debt under control in ancient Sumer.

The subtitle of Debt is The First 5,000 Years, and this book is a historical survey. But Graeber puts off the history to first lay an intellectual groundwork for our understanding of debt, and I found that preliminary discussion extremely valuable. Most memorable was the way Graeber divides human economic relationships into communism (in the old sense, not the political sense), exchange, and hierarchy. Capitalism has consumed our economic analysis to such a degree that exchange is the only economic basis that gets much discussion, but the other two are both obvious and pervasive once Graeber points them out. Human civilization could not exist without all three. And Graeber also points out one aspect of exchange-based economics that had not previously occurred to me: it's the economic relationship that one creates with strangers. Debt has the unique characteristic that it can be discharged, at which point the relationship ceases. This has far more complex and far-reaching moral and social implications than one might initially realize, and Graeber did a wonderful job opening my eyes to some of the subtleties.

Debt is clearly a scholarly work, but Graeber's writing is clear and engaging. I found most of this book to be surprisingly easy reading. The hardest going was Graeber's discussion of societies that use a form of currency to arrange relationships between people (marriages, births, and deaths, primarily), but not day-to-day economic transactions. I suspect this area is closer to Graeber's areas of personal research and field work, which resulted in more technical detail. I'm still not sure I completely grasp the principles that Graeber was trying to communicate. But I was struck by the observation of alienation's role in turning a human being into a commodity, and how that links with debt's role as the economic transaction one has with strangers. Graeber covers slavery only glancingly, but makes some memorable points about the use of violence to rip someone out of their social context, and how that is necessary in human cultures before humans can be reduced to a commodity.

There's a lot here, and I've only scratched the surface. I haven't mentioned, for example, the fascinatingly elegant theory that coining money and then requiring taxes be paid in the same money is a simple and highly effective way of funding armies, an explanation for specie that is largely unproven but that I find more compelling than the ones I've previously heard. Approaching debt from an anthropological instead of economic perspective is surprisingly enlightening. Debt is primarily a historical and cultural discussion rather than a set of proposed solutions, but Graeber does effectively show that debt as a moral obligation is not an unquestionable moral stance, but rather has a long history as one side of a two-sided political debate. I also came away from this book more conscious of the social implications and costs of debt-structured interactions, and wanting to push more of the language of debt out of my day-to-day dealings.

Graeber is well known as one of the supporters of Occupy Wall Street, and Debt, while a well-defended academic work, certainly does advocate a position. But the academic analysis is more prominent than the advocacy, and I found his positions well-defended and well-argued. I do need to give the caveat that I don't have the anthropological background to distinguish the statements from Graeber that are well-established common knowledge in anthropology from the ones that are more controversial, and I would be a bit leery of taking this book as the final word on the topic. But it fully deserves its popularity and reputation as a thought-provoking and valuable contribution to the conversation. It's another book that I want to re-read someday to digest further, and the sort of book whose observations keep occurring to me in subsequent discussions or news stories.

If you're at all interested in the way in which we construct the morality around economics and debt, I think this is a book that you should read. It's thoughtful, challenging, and surprising, and it passes my acid test for books of this sort with flying colors: after reading it, you realize that many things are more complicated, more historical, and less novel than you had originally thought. Highly recommended.

Rating: 9 out of 10

Reviewed: 2014-06-01