What is Debt?

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Submitted by Arraya on May 28, 2012 - 9:09pm

http://www.nakedcapitalism.com/2011/08/what-is-debt-–-an-interview-with-economic-anthropologist-david-graeber.html David Graeber currently holds the position of Reader in Social Anthropology at Goldsmiths University London. Prior to this he was an associate professor of anthropology at Yale University. He is the author of ‘Debt: The First 5,000 Years’ which is available from Amazon.

Interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.

Philip Pilkington: Let’s begin. Most economists claim that money was invented to replace the barter system. But you’ve found something quite different, am I correct?

David Graeber: Yes there’s a standard story we’re all taught, a ‘once upon a time’ — it’s a fairy tale.

It really deserves no other introduction: according to this theory all transactions were by barter. “Tell you what, I’ll give you twenty chickens for that cow.” Or three arrow-heads for that beaver pelt or what-have-you. This created inconveniences, because maybe your neighbor doesn’t need chickens right now, so you have to invent money.

The story goes back at least to Adam Smith and in its own way it’s the founding myth of economics. Now, I’m an anthropologist and we anthropologists have long known this is a myth simply because if there were places where everyday transactions took the form of: “I’ll give you twenty chickens for that cow,” we’d have found one or two by now. After all people have been looking since 1776, when the Wealth of Nations first came out. But if you think about it for just a second, it’s hardly surprising that we haven’t found anything.

Think about what they’re saying here – basically: that a bunch of Neolithic farmers in a village somewhere, or Native Americans or whatever, will be engaging in transactions only through the spot trade. So, if your neighbor doesn’t have what you want right now, no big deal. Obviously what would really happen, and this is what anthropologists observe when neighbors do engage in something like exchange with each other, if you want your neighbor’s cow, you’d say, “wow, nice cow” and he’d say “you like it? Take it!” – and now you owe him one. Quite often people don’t even engage in exchange at all – if they were real Iroquois or other Native Americans, for example, all such things would probably be allocated by women’s councils.

So the real question is not how does barter generate some sort of medium of exchange, that then becomes money, but rather, how does that broad sense of ‘I owe you one’ turn into a precise system of measurement – that is: money as a unit of account?

By the time the curtain goes up on the historical record in ancient Mesopotamia, around 3200 BC, it’s already happened. There’s an elaborate system of money of account and complex credit systems. (Money as medium of exchange or as a standardized circulating units of gold, silver, bronze or whatever, only comes much later.)

So really, rather than the standard story – first there’s barter, then money, then finally credit comes out of that – if anything its precisely the other way around. Credit and debt comes first, then coinage emerges thousands of years later and then, when you do find “I’ll give you twenty chickens for that cow” type of barter systems, it’s usually when there used to be cash markets, but for some reason – as in Russia, for example, in 1998 – the currency collapses or disappears.

Submitted by Arraya on May 29, 2012 - 12:49pm.

Interest-bearing loans, in turn, probably originated in deals between the administrators and merchants who carried, say, the woollen goods produced in temple factories (which in the very earliest period were at least partly charitable enterprises, homes for orphans, refugees or disabled people for instance) and traded them to faraway lands for metal, timber, or lapis lazuli. The first markets form on the fringes of these complexes and appear to operate largely on credit, using the temples’ units of account. But this gave the merchants and temple administrators and other well-off types the opportunity to make consumer loans to farmers, and then, if say the harvest was bad, everybody would start falling into debt-traps.

This was the great social evil of antiquity – families would have to start pawning off their flocks, fields and before long, their wives and children would be taken off into debt peonage. Often people would start abandoning the cities entirely, joining semi-nomadic bands, threatening to come back in force and overturn the existing order entirely. Rulers would regularly conclude the only way to prevent complete social breakdown was to declare a clean slate or ‘washing of the tablets,’ they’d cancel all consumer debt and just start over. In fact, the first recorded word for ‘freedom’ in any human language is the Sumerian amargi, a word for debt-freedom, and by extension freedom more generally, which literally means ‘return to mother,’ since when they declared a clean slate, all the debt peons would get to go home.

One could tell the history like this: eventually the Egyptian approach (taxes) and Mesopotamian approach (usury) fuse together, people have to borrow to pay their taxes and debt becomes institutionalized.

Taxes are also key to creating the first markets that operate on cash, since coinage seems to be invented or at least widely popularized to pay soldiers – more or less simultaneously in China, India, and the Mediterranean, where governments find the easiest way to provision the troops is to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again. Thus we find that the language of debt and the language of morality start to merge.

In Sanskrit, Hebrew, Aramaic, ‘debt,’ ‘guilt,’ and ‘sin’ are actually the same word. Much of the language of the great religious movements – reckoning, redemption, karmic accounting and the like – are drawn from the language of ancient finance. But that language is always found wanting and inadequate and twisted around into something completely different. It’s as if the great prophets and religious teachers had no choice but to start with that kind of language because it’s the language that existed at the time, but they only adopted it so as to turn it into its opposite: as a way of saying debts are not sacred, but forgiveness of debt, or the ability to wipe out debt, or to realize that debts aren’t real – these are the acts that are truly sacred

And the Debtocalypse marches on....

What’s been happening since Nixon went off the gold standard in 1971 has just been another turn of the wheel – though of course it never happens the same way twice. However, in one sense, I think we’ve been going about things backwards. In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly? And how do you prevent the poor from falling into debt traps and becoming effectively enslaved to the rich? That’s why you had Mesopotamian clean slates, Biblical Jubilees, Medieval laws against usury in both Christianity and Islam and so on and so forth.

Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.

Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

Submitted by briansd1 on May 29, 2012 - 1:27pm.

force and overturn the existing order entirely. Rulers would regularly conclude the only way to prevent complete social breakdown was to declare a clean slate or ‘washing of the tablets,’ they’d cancel all consumer debt and just start over.

Makes sense.

We could wipe the slate clean, or arbitrarily come to an agreement and assign assets and liability to different parties... and could go on with a new monetary system.

I don't see how a currency collapse would mean the end of the world.

One example: Mexico defaulted on its loans to European banks and France and England invaded and installed Maximillian as emperor. The USA was on the side of the Republicans.

Also interestingly, the world used to be be made up of countless tribes in places that we consider strong nation-states today. Very simply speaking, as those tribes became indebted to each others, they conquered and assimilated one another.

Submitted by davelj on May 29, 2012 - 1:41pm.

I actually read Graeber's book - "Debt: The first 5,000 years" - recently. I enjoyed it. Very well-researched and some interesting, counterintuitive insights. (Favorite chapter title: "Honor and Degradation: Or, on the Foundations of Contemporary Civilization") Having said that, among other issues, two things that nagged at me after reading it were:

(1) Graeber makes no attempt to come up with an alternative to the financial system we have now. Basically, he points out the problems with debt and our financial system but offers no suggestions on how to improve things. I read an interview with him and this criticism came up and he said, in so many words, "That wasn't the purpose of the book. I'm an anthropologist, not an economist." Fair enough, but... when one criticizes something, isn't it fair to ask what that person's alternative would look like? In Graeber's eyes, clearly it's not.

(2) Debt jubilees - which Graeber is clearly fond of - already exist, in effect, at the individual, corporate and government levels. It's called bankruptcy in the first two instances, and default in the last. We don't have debtors prisons so when someone declares bankruptcy it results in, essentially, a "personal debt jubilee." The debt disappears (for the most part) and the main penalty is that that person has difficulty obtaining more debt in the future (and might lose some of the goods accumulated through the use of the debt). But this shouldn't be an issue in Graeber's eyes because, well... debt, as we have come to define it, is bad. Likewise, if an African nation that has borrowed too much wants to default, it can. The only penalty will be that no one's going to lend it more money for quite some time. But, again, that should be fine with Graeber - the debt was bad in the first place so we shouldn't be loading them down with more of it. My point is that we already have a very fair and humane way of dealing with people who accumulate too much debt, so this notion of a wide-scale debt jubilee seems unnecessary. After all, the vast majority of people out there have no problems either financially or morally with paying back what they owe.

So, while I enjoyed Graeber's book, it was kind of a head scratcher in a few ways. Other than showing how our notions of money, debt, and trade have changed over time - and disproving some long-held beliefs - it offered little in the way of enlightenment regarding how we should be dealing with things differently going forward. Of course, perhaps one shouldn't expect much in this regard from a self-described anarchist. But it is a pretty good book.

Submitted by briansd1 on May 29, 2012 - 2:22pm.

Anthropologists don't have solutions for the future.

But they do examine the past and describe it pretty well.

Here's an interested recent article.
http://www.washingtonpost.com/national/h...

Submitted by Allan from Fallbrook on May 29, 2012 - 2:33pm.

davelj wrote:

So, while I enjoyed Graeber's book, it was kind of a head scratcher in a few ways. Other than showing how our notions of money, debt, and trade have changed over time - and disproving some long-held beliefs - it offered little in the way of enlightenment regarding how we should be dealing with things differently going forward. Of course, perhaps one shouldn't expect much in this regard from a self-described anarchist. But it is a pretty good book.

Dave: Graeber's writings on anarchy are quite good and do offer certain solutions, or, more correctly, alternatives to the status quo ante.

One has to be careful in handling the term "anarchist", largely because it can mean many things, but in Graeber's case, he's of the kinder, gentler variety (meaning, not a bomb-throwing anarcho-syndicalist.)

He riffs somewhat on Jared Diamond and Kropotkin, in the sense that modern societies are simply too large, too complex and too fast to be managed competently, even by the "best and brightest" and thus he advocates for a simpler and slower organization of people, labor and compensation.

It's very interesting stuff, especially when you happen to look at our hyperactive, interconnected, globalized world and how well that seems to be functioning.

Submitted by scaredyclassic on May 29, 2012 - 2:38pm.

There is no debt jubilee for student loans.

If young people are the future the future is in economic chains.

Submitted by dumbrenter on May 29, 2012 - 2:55pm.

"Rulers would regularly conclude the only way to prevent complete social breakdown was to declare a clean slate or ‘washing of the tablets,’"

Can we get one example of this in last 3000 years from either China or India or Europe? I doubt it.

I seriously doubt this ever happened in Mesopotamia, but have not read much about them.

Submitted by dumbrenter on May 29, 2012 - 3:09pm.

Disclaimer: I have not read his book.

But I did spend time reading the content of the link.
But some of the claims he makes are false. And for an anthropologist to make such claims is equivalent to professional cheating.

I know for a fact that 'debt', 'guilt' and 'sin' are not the same word. Wonder where this anthropologist gets his information from. Now that I know this is wrong, I question everything else he passes off as facts, especially relating to Mesopotamia and Medieval Ireland and the slave girls.

Sad thing is that the did not have to go this far to make his point. The first recorded written information has to do with some merchant making accounts of who owes him what (or so). It is enough to claim writing was invented essentially to keep track of who owes whom and how much.

Submitted by The-Shoveler on May 29, 2012 - 3:33pm.

To get rid of Debt, first you need to get rid of Credit. (Just kidding sort of).
As for student loans, Most college level training can now be had on the internet for free or near free, the only thing you will need college for in the future is if you want a gov job or need connections.
If you plan on being an entrepreneur, you should take your notes form Steve Jobs, and Bill Gates.

Submitted by The-Shoveler on May 29, 2012 - 3:40pm.

Google "entrepreneur"

Few finished college before they gained success

Submitted by briansd1 on May 30, 2012 - 12:09pm.

There will always be borrowing and debts because debts allow the borrower to accelerate consumption; and who doesn't want that?

Do you want a house now so you can enjoy it, or do you want to save your money and buy a house when you're near death?

When you see you neighbors leveraging and enjoying life, and becoming rich, it's hard to resist the lure of debts.

I do think that Arraya is right in that financial systems have flaws. Financial systems eventually need to be patched, bailed out, and recreated. But life goes on.

Finance accelerates disparity of income and allow those who control it to gain immense wealth very fast. That's why princelings in China are no longer content to take bribes... They now want "legitimate" shares in new companies and financial transactions, the same way we do it here in America.

Submitted by davelj on May 30, 2012 - 3:16pm.

Allan from Fallbrook wrote:
davelj wrote:

So, while I enjoyed Graeber's book, it was kind of a head scratcher in a few ways. Other than showing how our notions of money, debt, and trade have changed over time - and disproving some long-held beliefs - it offered little in the way of enlightenment regarding how we should be dealing with things differently going forward. Of course, perhaps one shouldn't expect much in this regard from a self-described anarchist. But it is a pretty good book.

Dave: Graeber's writings on anarchy are quite good and do offer certain solutions, or, more correctly, alternatives to the status quo ante.

One has to be careful in handling the term "anarchist", largely because it can mean many things, but in Graeber's case, he's of the kinder, gentler variety (meaning, not a bomb-throwing anarcho-syndicalist.)

He riffs somewhat on Jared Diamond and Kropotkin, in the sense that modern societies are simply too large, too complex and too fast to be managed competently, even by the "best and brightest" and thus he advocates for a simpler and slower organization of people, labor and compensation.

It's very interesting stuff, especially when you happen to look at our hyperactive, interconnected, globalized world and how well that seems to be functioning.

I don't doubt for a moment that Graeber has some interesting alternatives in his other missives. He's clearly a very clever guy. Of course, I think Ayn Rand and Marx (among many others on opposing sides of the political spectrum) also make some very interesting - and correct - observations. I suppose I'm just wary of all of the extremes at this point.

Submitted by Arraya on May 30, 2012 - 3:34pm.

it offered little in the way of enlightenment regarding how we should be dealing with things differently going forward

That is an important discussion that IS happening all over the globe. There is no shortage of ideas.

http://rt.com/programs/interview/capitalism-end-system-replace/“Modern capitalism has reached the end of its rope. It cannot survive as a system,” Wallerstein said. “And what we are seeing is the structural crisis of the system. The structural crisis goes on for a long time. It really started more or less in the 1970s and will go on for another 20, 30, 40 years. It is not a crisis of a year or of a short moment, it is the major structural unfolding of a system. And we are in transition to another system and, in fact, the real political struggle that is going on in the world that most people refuse to recognize is not about capitalism – should we have or should we not have it – but about what should replace it.

Immanuel Wallerstein also explained there are two different views on what should replace capitalism.

“I would like a more relatively democratic, more relatively egalitarian world – that is one view,” he said. “We never had that in the history of the world, but it is possible. The other view is that you have a very unequal, polarizing, exploitative system. It does not have to be capitalism. Capitalism is that. But you can do that in many other ways, some of which may be far worse than capitalism.”

Order out of chaos

http://en.wikipedia.org/wiki/Spontaneous...

Submitted by flyer on May 30, 2012 - 3:52pm.

Since "A population of debtors skating at the edge of disaster," seems to be a very probable reality for our society in future years, all the more reason to make sure one has provided in all possible ways for one's immediate and extended family.

My feeling is, that since I can't control the actions of others who have brought us to this point in our history, I can use all of my extensive resources to make sure all of my family will be well taken care of in the near and distant future, so they can enjoy their lives to the greatest extent possible. For me, this is the greatest gift I can give them.

Eventually, and, may I say, sadly, it may come to every person for him or herself.

Submitted by Arraya on May 30, 2012 - 4:35pm.

flyer wrote:
Since "A population of debtors skating at the edge of disaster," seems to be a very probable reality for our society in future years, all the more reason to make sure one has provided in all possible ways for one's immediate and extended family.

lf.

. The debt data is pretty daunting. Another contraction would be catastrophic to a large portion of the population. We have roughly 70 percent of households that don't have a thousand dollars for an emergency but they are inundated with debt. Student loans are at 27 percent delinquency rate now. Which, generation of, skyrocketed during the recession. That is a lot of people banking on a recovery that may never come

Submitted by flyer on May 30, 2012 - 4:46pm.

Completely aware of the stats, but I will proceed as planned to provide for their futures, and enjoy whatever time we have left with my wonderful family!

Submitted by davelj on May 30, 2012 - 5:41pm.

Arraya wrote:
flyer wrote:
Since "A population of debtors skating at the edge of disaster," seems to be a very probable reality for our society in future years, all the more reason to make sure one has provided in all possible ways for one's immediate and extended family.

lf.

. The debt data is pretty daunting. Another contraction would be catastrophic to a large portion of the population. We have roughly 70 percent of households that don't have a thousand dollars for an emergency but they are inundated with debt. Student loans are at 27 percent delinquency rate now. Which, generation of, skyrocketed during the recession. That is a lot of people banking on a recovery that may never come

While we're neck-deep in debt, what we're not neck-deep in is debt SERVICE (thank you, Fed! - I'm being facetious), a huge chunk of it at long-term fixed rates. The government and corporate graphs are not dissimilar.

http://research.stlouisfed.org/fred2/ser...

Japan's been dealing with high and rising debt - with concomitant low debt service - for 30+ years now.

So, while I agree that we've got way too much debt, that Day of Reckoning can be put off for many decades using all manner of mechanisms (re: shenanigans). I'm sure we'll try them all and invent some new ones as well. In the meantime, folks just continue to live their lives...

Submitted by scaredyclassic on May 30, 2012 - 11:22pm.

i've come to the conclusion that although the end is near, the time scale is pretty long, and "near" probably means sometime after I'm dead.

the primary focus should of course be on building personal strength and power in the time we have.

may has been an incredible month, the best of my nine months lifting. the focus is amazing. the squat jumped up to 205, a 35 lb gain in one single month. highest gain in a month for me. 205 was done vigorously and commandingly and confidently yesterday. I see 250 by early summertime and I am hoping for 300 by year's end.

No alcohol. Sweets have been eliminated. Basically it's no booze, no sugar, nothing but nuts, meat, salads, fruit and protein powder.

Although the world is falling apart, we can control our selves.

Submitted by briansd1 on May 30, 2012 - 11:37pm.

That's called personal responsibility, squat.

Combine the debt burden and the obesity epidemic and we know that the American way will come to an end eventually. I know people who can't bend down to pick up after themselves else they can't get up.

Still better to patch things as we go rather than let it all collapse. As we see with Europe, austerity is causing a lot human suffering.

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