Wednesday, November 30, 2011

David Graeber's reflections on money, debt, and violence

David Graeber's Debt: The First 5,000 Years has hit a chord with a lot of people who are concerned about rising inequalities in the United States and elsewhere.  Graeber is an economic anthropologist, a discipline that pays close attention to the ways that material arrangements worked in detail in pre-state societies. One of the great works in this field is Marshall Sahlins' book, Stone Age Economics, which paid very close ethnographic attention to how the social arrangements worked in hunter-gatherer societies when it came to gathering and consuming food and other necessities of life. (My main recollection is that Sahlins found that hunter-gatherers worked much shorter days than their successors, the farmers, and had much more time to enjoy the finer things of life, including stories and jokes.)  Graeber is also described as one of the intellectual sources of the Occupy Wall Street movement, and anti-globalization activism has been an important part of his life for a long time.  (Here is a story in Bloomberg that gives a lot of interesting background.)

The book is difficult to characterize.  It's about debt and money through history, but it's really not a work in economic history.  It offers a lot of ethnographic detail about borrowing, lending, gifting, and reciprocating, but it's not really a work of anthropology.  And it offers morally valenced language to describe debt and credit, but it's not really a polemical critique of the present financial system.  It is certainly an engaging, interesting, and thought-provoking book, and Graeber appears to know a great deal about the social and institutional histories of the main civilizations of Eurasia.

One line of thought is perfectly clear in the book: Graeber wants to demolish the myth of the truck-and-barter origins of money.  This is the standard story within classical and neoclassical economics. But Graeber thinks it is a complete fiction.  He regards this as a just-so story that doesn't make any sense ethnographically, and has never been observed in real pre-state societies.
The story, then, is everywhere. It is the founding myth of our system of economic relations. It is so deeply established in common sense, even in places like Madagascar, that most people on earth couldn't imagine any other way that money could possibly have come about.
The problem is there's no evidence that it ever happened, and an enormous amount of evidence suggesting that it did not. (28)
Graeber's case for this position seems to be a sound one.  But why exactly does it matter?  It seems to be a bit analogous to literal-minded social contract arguments: that the state is legitimate because it descends from a primordial agreement among all citizens to create its authority.  But discrediting the origins story doesn't really tell us anything about the functioning system.  We have an economic system today that coordinates activity through money and credit, and it doesn't really matter very much if we know exactly how it came about.  I think that Graeber is focused on the issue because he thinks the myth helps to convey the view that the contemporary economist's view of human activity -- self-serving actions designed to maximize one's own utility -- is in fact an historical universal, applying to pre-modern and non-western social settings as well as to the New Orleans cotton exchange.
It's money that had made it possible for us to imagine ourselves in the way economists encourage us to do: as a collection of individuals and nations whose main business is swapping things. (44)
Graeber's view, by contrast, is that most human activity doesn't conform to this model; that the gift relation and the practice of open-ended reciprocity are much more characteristic of the human condition.

There are many startling facts and descriptions that Graeber produces as he tells his story of the development of the ideologies of money, credit, and debt.  One of the most interesting to me has to do with The Wonderful Wizard of Oz.
L. Frank Baum's book The Wonderful Wizard of Oz, which appeared in 1900, is widely recognized to be a parable for the Populist campaign of William Jennings Bryan, who twice ran for president on the Free Silver platform -- vowing to replace the gold standard with a bimetallic system that would allow the free creation of silver money alongside gold. ... According to the Populist reading, the Wicked Witches of the East and West represent the East and West Coast bankers (promoters of and benefactors from the tight money supply), the Scarecrow represented the farmers (who didn't have the brains to avoid the debt trap), the Tin Woodsman was the industrial proletariat (who didn't have the heart to act in solidarity with the farmers), the Cowardly Lion represented the political class (who didn't have the courage to intervene). ... "Oz" is of course the standard abbreviation for "ounce." (52)
(This is roughly as startling to me as an interpretation of Star Wars as an extended allegory on Reaganism (intervention in Nicaragua, scary military officers in the background, etc.). This doesn't quite work, though, since Star Wars appeared in 1977, three years before Reagan's first election as president.)

One of Graeber's recurring themes is that money and debt are reciprocals of each other.  He tells many stories about IOU's being passed around within a community: John promises to give X to Alice; Alice passes on the IOU to Robbie in exchange for a beer; Robbie takes the IOU to the nail shop and exchanges it for a pound of nails from Bert; and Bert eventually comes back to John to redeem the IOU. In this circuit, the statement of debt serves as a basis for folk currency within a local society.  But Graeber argues that the establishment of Bank of England resulted in bank notes that were no more or less than IOU's from the state (49).

Another theme that comes into the book is the close connection that Graeber draws between money and currency, and violence and war.  He argues that trust and extended credit arrangements work very well during periods of peace; whereas a period of extended warfare puts a premium on the portability and anonymity of precious metals.  So warfare pushes societies (and monarchs) towards the use of currency made out of precious metals.  He goes further: monarchs needed to pay their armies, in Europe, central Asia, and East Asia; and precious metals (coins) work best for the heavily armed and footloose soldiers who made up those armies.
As a result, while credit systems tend to dominate in periods of relative social peace, or across networks of trust (whether created by states or, in most periods, transnational institutions like merchant guilds or communities of faith), in periods characterized by widespread war and plunder, they tend to be replaced by precious metal. (213)
The Atlantic Slave Trade as a whole was a gigantic network of credit arrangements. Ship-owners based in Liverpool or Bristol would acquire goods on easy credit terms from local wholesalers, expecting to make good by selling slaves (also on credit) to planters int he Antilles and America, with commission agents in the city of London ultimately financing the affair through the profits of the sugar and tobacco trade. (149)
Graeber has a preferred alternative to a society based on barter, market exchange, debt, warfare, slavery, and peonage.  It is what he calls a "human economy":
This is why I developed the concept of human economies: ones in which what is considered really important about human beings is the fact that they are each a unique nexus of relations with others -- therefore, that no one could ever be considered exactly equivalent to anything or anyone else.  In a human economy, money is not a way of buying or trading human beings, but a way of expressing just how much one cannot do so. (207)
An intriguing, and somewhat perplexing, part of Graeber's analysis is his effort to link the value systems of Eurasia's great civilizations to the social creation of money, credit, and debt.  A central thrust here is his analysis of the "Axial Age" -- the period from 800 bc to 600 ad when there was great creativity in the emergence of new spiritual leaders and movements.  There was, simultaneously, extensive warfare; and there was the simultaneous invention of currency in several widely separated places.  He illustrates this nexus with the case of China:
The golden age of Chinese philosophy was the period of chaos that preceded unification [during the Warring States period], and this followed the typical Axial Age pattern: the same fractured political landscape, the same rise of trained, professional armies and the creation of coined money largely in order to pay them. We also see the same government policies designed to encourage the development of markets, chattel slavery on a scale not seen before or since in Chinese history, the appearance of itinerant philosophers and religious visionaries, battling intellectual schools, and eventually, attempts by political leaders to transform the new philosophies into religions of state. (235)
So what is the connection he wants to draw between value systems, social violence, and money?  It is unclear to me; somehow Graeber weaves together a fascinating narrative involving each of these. He does think there is a connection, but it's difficult to see what is thought to be causal in the story.
In fact, some of the historical connections are so uncannily close that they are very hard to explain any other way. Let me give an example. After the first coins were minted around 600 bc in the kingdom of Lydia, the practice quickly spread to Ionia, the Greek cities of the adjacent coast. The greatest of these was the great walled metropolis of Miletus, which also appears to have been the first Greek city to strike its own coins.  It was Ionia, too, that provided the bulk of the Greek mercenaries active in the Mediterranean at the time, with Miletus their effective headquarters. Miletus was also the commercial center of the region, and perhaps, the first city in the world where everyday market transactions came to be carried out primarily in coins instead of credit. Greek philosophy, in turn, begins with three men: Thales, of Miletus (c. 624 bc- c546 bc), "Anaximander, of Miletus (c. 610 bc- c546 bc), and Anaximenes, of Miletus (c. 585 bc- c525 bc) -- in other words, men who were living in that city at exactly the time that coinage was first introduced. (244)
He pulls out "materialism" as a thread in the philosophical systems that emerged in the Axial Age -- China as well as Greece -- and suggests an analogy between the idea of an abstract fundamental physical substance that is the substrate of everything physical, and the idea of an abstract unit of measure of all commodities, money (245); but it's hard to see a consistent and compelling idea here about the intertwining development of philosophy and economics.  Here is the closest he comes to a statement of the nature of the connection he finds:
What we see then is a strange kind of back-and-forth, attack and riposte, whereby the market, the state, war, and religion all continually separate and merge with one another. (248)
Where does it all lead?  After a walk through the Middle Ages (major improvement in quality of life over the Axial Age, according to Graeber), we get to capitalism:
Starting from our baseline date of 1700, then, what we see at the dawn of modern capitalism is a gigantic financial apparatus of credit and debt that operates -- in practical effect -- to pump more and more labor out of just about everyone with whom it comes into contact, and as a result produces an endlessly expanding volume of material goods. (346)
Does he bring this parable to a practical piece of advice?  He does, actually:
In this book I have largely avoided making concrete proposals, but let me end with one. It seems to me that we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt. It would be salutary not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one's debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to all agree to arrange things in a different way. (390)
As I mentioned at the start, Graeber is also an activist who has been strongly involved in anti-globalization protests in the past fifteen years.  His Direct Action: An Ethnography is an interesting cross-over book bringing together his anthropologist's training and his activist experience; it is an ethnography of the anarchist activism movement as he has experienced it.  I'll discuss this work in a future post.

Here are two interviews with Graeber that give a pretty good idea of his style and critical views about the present (link, link).  Both are very interesting to listen to.


Brett said...

A Global Wipe-out of any and all debt would be a complete financial disaster. You'd effectively destroy the financial system, which would then create the biggest economic depression in history.

It wouldn't end there, either. The risk of it happening would result in interest rates remaining high compared to what they were before, like how interest rates from medieval bankers were very high in a period when rulers could and did default on their debts.

Doc Merlin said...

"This is why I developed the concept of human economies: ones in which what is considered really important about human beings is the fact that they are each a unique nexus of relations with others -- therefore, that no one could ever be considered exactly equivalent to anything or anyone else. In a human economy, money is not a way of buying or trading human beings, but a way of expressing just how much one cannot do so. (207)"

This statement, is devoid of meaning.

Dan Little said...

Hello, Doc Merlin,

I don't think the statement is devoid of meaning. A commodity economy depends upon the idea that objects are fully interchangeable; it doesn't matter whether you buy this loaf of bread or that loaf of bread. Therefore the commodity is defined by its price. Graeber's point is, basically, that in pre-state societies activities, objects, and persons are not treated in this abstract way, but are rather treated as concrete particulars with unique characteristics. Whether it's true or not, I can't say; but I think it's a meaningful idea.

Skip said...

Yeah, and i'm sure all of the poor people would be delighted to appreciate the finer qualities and uniqueness of a loaf of bread before they promptly starved to death because society destroyed the credit system and mass production.

This book seems to be typical bourgeois lefty utopian intellectualism. The kind of thing that only happy, wealthy and well fed westerners could ever have the luxury of considering.

But remember how dreamy and egalitarian everything was when society consisted of a teeming, squabbling, starving impoverished mess? People were treated as people, as individuals!

russell1200 said...

Niall Ferguson in Cash Nexus pretty much said that the finance economy was created to fund war. So I think even he is in agreement there.

Denis said...

"This is why I developed the concept of human economies.."

This not an attack on, or a suggested replacement for the commodity economy. Its an idea to encourage thinking out of the box. This is what intellectuals do.

sourcreamus said...

The idea of the Wizard of Oz as a parable of populism is not true. See this article

Dan Little said...

sourcreamus: Thanks very much for this link to the back story on the Wizard of Oz. I'm not sure it demonstrates that "the idea of W of O as a parable of populism is not true," though. What it seems to demonstrate is that there is now disagreement about the interpretation (contrary to Graeber's statement that "it is commonly agreed"), and that there is no longer compelling reason to believe that Baum was himself a populist. All that said -- it's a piece of literary interpretation, and it's intriguing. Wouldn't you agree?

TGGP said...

I heard the same wizard of oz story in high school history class. Nobody made such arguments in Baum's time, it was invented much later. Sort of like arguments that Shakespeare wasn't Shakespeare (the earlier proposed alternative was Francis Bacon, which nobody believes today).

Tom Hickey said...

Graeber's investigation of the origin of money in debt is a contribution to a long standing dispute about this in economics. The classical economists accepted the barter account, which was elaborated by Carl Menger, and popularized by the Robinson Crusoe-Friday story told in Econ 101.

In opposition to the barter theory, Georg Friedrich Knapp proposed the state theory of money, aka chartalism, in which money is the state's liability, which is accepted by the public in that the state creates tax liabilities that can only be satisfied in its money. Therefore, the public must obtain state money to satisfy their tax obligations and in doing so they transfer goods and services to the state in exchange for the state's money.

This theory was elaborated by Alfred Mitchell-Innes as the credit theory of money. It has been picked up by contemporary neo-chartalists and developed as Modern Monetary Theory.

Modern Monetary Theory is a Post Keynesian macroeconomic theory based on a description of the monetary system. This is significant because other contemporary macro theories are based on a gold standard views of monetary economics, whereas the US has not been on the gold standard since 1933, and the global monetary system has been off gold since Nixon closed the gold window in 1971.

So, yes, Graeber's work is quite significant to the current economic debate, especially since the financial crisis and the inability of mainstream economics to foresee, explain, resolve it, and prevent a recurrence. Modern Monetary accomplishes all of these, based on a correct understanding of monetary theory.

Graeber provides historical evidence corroborating this view and contradicting the mainstream view that is hold the world back from crisis resolution.

Anonymous said...

"But remember how dreamy and egalitarian everything was when society consisted of a teeming, squabbling, starving impoverished mess?"

yeah. unlike,

Anonymous said...

It seems as though non-market societies are treated as some kind of ideal. But non-market transaction based on reciprocity have enormous problems. I know this because I visit my relatives in India. They live in a market society but one in which non-market transactions (having relatives over, visiting people, parties, cooking food for others, etc) are important. Generally family infighting is acrimonius and very common. People fight over small problems and hold grudges for long periods of time. There is a very acute sense of fairness..too acute. Its really quite easily to slight someone and often you don't even know it. People have to parse what others say to figure out their behaviour. A lot of time is wasted thinking about this. Jealously and envy are normal and ubiquitous.

Its is not some nirvana. Its a society of pettiness and spite. But its also a society where people have a lot of very close relationships.

Anonymous said...

"One line of thought is perfectly clear in the book: Graeber wants to demolish the myth of the truck-and-barter origins of money. This is the standard story within classical and neoclassical economics. But Graeber thinks it is a complete fiction...The problem is there's no evidence that it ever happened, and an enormous amount of evidence suggesting that it did not"

So far neither you nor Graeber has presented a shred of evidence against the barter origins of money. The argument appears to be that because it was never observed in tribal societies therefore money didn't evolve from barter. BUT most tribal societies never evolved into States. The evolution of the State itself is unusual so why shouldn't its origins be exceptional. For most of history most people did not live in States. The evolution of the State was an exceptional circumstance so why should we believe it evolved from something common?

In addition there are indications that barter and even commodity money is quite a common phenemenon when money systems break down such as:

1) use of cigarettes as money in concentration camps
2) extensive barter in communist countries
3) widespread existence of commodity money systems.

I don't get why the commodity and barter theory has been so clearly disproven. It hasn't.

Unknown said...


Anonymous said...

you're asking to prove a negative; additionally graeber addresses you by pointing out that barter is only ever observed among populations that already had a monetary system that has collapsed or is unuseable