Thursday, August 9, 2018
Debt: The First 5,000 Years, by David Graeber
The main argument of Graeber's text is that humanity has used debt and virtual currency for most of recorded history and the usage of hard money, specifically coinage, is actually an aberration rather than the standard. He begins with the assumption made in many economic textbooks that barter as a system of exchange existed before money, with the problems involved as economies became more complex and the issue of a coincidence of needs became harder to fill. Graeber argues that barter as a system is actually fairly rare and usually only occurs when people used to a cash economy no longer have money to do business. Instead, Graeber argues that trade has mostly used virtual currency even before physical currency existed. The units of currency, such as talents, minas, and shekels, were merely a way for people to keep track of exchanges and overall balances of credits and debits, rather than actual units of coinage that passed from hand to hand. When gold and silver entered the equation at all it was for international trade rather than local transactions.
Graeber then argues that for a period of about 800 B.C.E. to 600 C.E. we see the emergence of a cash-based economy and coinage with coins becoming part of the day-to-day economy. Graeber's explanation for this is the creation of large, professional standing armies which, inevitably, require equipment, food, medicine, and a thousand other things that makes armies function. To streamline the process, governments issued coins to the soldiers as pay, and then collected the coins from their subjects as taxes. This meant that the subjects had to find a way to get the coins from the soldiers to pay their taxes, and the easiest way was to sell the soldiers something the soldiers needed. There is a certain elegance to this explanation so it makes a decent amount of sense, and explains why coinage was able to circulate at a purchasing price well above the market price of the metals. In addition, armies are interested in portable wealth, one of the largest benefits of using coinage instead of credit-based systems. Graeber goes into a lot more detail, obviously, but this is his main argument. Once the program of imperial expansion ended, most of the world reverted to a credit-based system until the fifteenth century.
Graeber also argues that we only returned to a cash-based economy in the late eighteenth and early nineteenth centuries because of ideas by people such as John Locke and Adam Smith who idealized a cash economy and people entirely free of debt. This also ties with an expansion of European empires across the globe which brought European ideas and institutions, incredibly violently, to the rest of the globe. Because this sees another increase in militarization and violence, Graeber argues that this was merely a repeat of what happened in the Mediterranean, Middle East, India, and China for over a millennium. However the fact that the U.S. dollar, and all currencies, are now backed by credit rather than precious metals, means to Graeber at least that we are entering a new era of currency.
The biggest problem I have with this book is that Graeber gets far too tied down in the philosophical questions behind currency. This is an age-old debate, especially during the nineteenth century, when people questioned what exactly counted as money. There were hard-money advocates who strongly supported that only gold and silver could serve as money because of their intrinsic value. This, however, causes a problem for several reasons. First, gold and silver have no intrinsic value aside from what we give them. In fact, aside from ornamentation, electrical conductors, or tokens of value, they have no real use. This led to credit-based explanations for money, that really money is just a token of value that stands in for other things and it doesn't matter what we use for currency as long as we all agree to accept and use it. The problem is that Graeber seems to accept the credit-based position throughout most of his book, with his argument that credit-based systems of accounting have been used for most of human history. However when he gets to the decision to abandon the gold standard in 1971 he seems to then turn on credit-based systems because they can manufacture money from nothing There is room here to make a sophisticated argument, but Graeber simply leaves insufficient time to build such an argument and left me disappointed with the result.
Overall the result was kind of disappointing. Graeber makes arguments which are so broad it's difficult to refute them because of their own generality. Although there are times where Graeber gets into the history of credit institutions throughout the world, for the most part he seems to get bogged down in the philosophical questions about money which for me were a lot less interesting. The result is a fragmentary book at best and fails to examine perhaps the most important developments in the past two centuries which have created our current economic and financial system.