Then, when the rubble had stopped bouncing, it turned out that many if not most of them had been nothing more than very elaborate scams. They consisted of operations like selling poor families mortgages crafted in such a way as to make eventual default inevitable; taking bets on how long it would take the holders to default; packaging mortgage and bet together and selling them to institutional investors (representing, perhaps, the mortgage-holders’ retirement accounts) claiming that it would make money no matter what happened, and allow said investors to pass such packages around as if they were money; turning over responsibility for paying off the bet to a giant insurance conglomerate that, were it to sink beneath the weight of its resultant debt (which certainly would happen), would then have to be bailed out by taxpayers (as such conglomerates were indeed bailed out).11 In other words, it looks very much like an unusually elaborate version of what banks were doing when they lent money to dictators in Bolivia and Gabon in the late ’70s: make utterly irresponsible loans with the full knowledge that, once it became known they had done so, politicians and bureaucrats would scramble to ensure that they’d still be reimbursed anyway, no matter how many human lives had to be devastated and destroyed in order to do it.
The difference, though, was that this time, the bankers were doing it on an inconceivable scale: the total amount of debt they had run up was larger than the combined Gross Domestic Products of every country in the world—and it threw the world into a tailspin and almost destroyed the system itself.
Armies and police geared up to combat the expected riots and unrest, but none materialized. But neither have any significant changes in how the system is run. At the time, everyone assumed that, with the very defining institutions of capitalism (Lehman Brothers, Citibank, General Motors) crumbling, and all claims to superior wisdom revealed to be false, we would at least restart a broader conversation about the nature of debt and credit institutions. And not just a convwersation.
It seemed that most Americans were open to radical solutions. Surveys showed that an overwhelming majority of Americans felt that the banks should not be rescued, whatever the economic consequences, but that ordinary citizens stuck with bad mortgages should be bailed out. In the United States this is quite extraordinary. Since colonial days, Americans have been the population least sympathetic to debtors. In a way this is odd, since America was settled largely by absconding debtors, but it’s a country where the idea that morality is a matter of paying one’s debts runs deeper than almost any other. In colonial days, an insolvent debtor’s ear was often nailed to a post. The United States was one of the last countries in the world to adopt a law of bankruptcy: despite the fact that in 1787, the Constitution specifically charged the new government with creating one, all attempts were rejected on “moral grounds” until 1898.12 The change was epochal. For this very reason, perhaps, those in charge of moderating debate in the media and legislatures decided that this was not the time. The United States government effectively put a three-trillion-dollar Band-Aid over the problem and changed nothing. The bankers were rescued; small-scale debtors—with a paltry few exceptions—were not.13 To the contrary, in the middle of the greatest economic recession since the ’30s, we are already beginning to see a backlash against them—driven by financial corporations who have now turned to the same government that bailed them out to apply the full force of the law against ordinary citizens in financial trouble. “It’s not a crime to owe money,” reports the Minneapolis-St. Paul StarTribune, “But people are routinely being thrown in jail for failing to pay debts.” In Minnesota, “the use of arrest warrants against debtors has jumped 60 percent over the past four years, with 845 cases in 2009 … In Illinois and southwest Indiana, some judges jail debtors for missing court-ordered debt payments. In extreme cases, people stay in jail until they raise a minimum payment. In January [2010], a judge sentenced a Kenney, Ill., man ‘to indefinite incarceration’ until he came up with $300 toward a lumber yard debt.”14
In other words, we are moving toward a restoration of something much like debtors’ prisons. Meanwhile, the conversation stopped dead, popular rage against bailouts sputtered into incoherence, and we seem to be tumbling inexorably toward the next great financial catastrophe—the only real question being just how long it will take.
We have reached the point at which the IMF itself, now trying to reposition itself as the conscience of global capitalism, has begun to issue warnings that if we continue on the present course, no bailout is likely to be forthcoming the next time. The public simply will not stand for it, and as a result, everything really will come apart. “IMF Warns Second Bailout Would ‘Threaten Democracy’ ” reads one recent headline.15 (Of course by “democracy” they mean “capitalism.”) Surely it means something that even those who feel they are responsible for keeping the current global economic system running, who just a few years ago acted as if they could simply assume the current system would be around forever, are now seeing apocalypse everywhere.
In this case, the IMF has a point. We have every reason to believe that we do indeed stand on the brink of epochal changes.
Admittedly, the usual impulse is to imagine everything around us as absolutely new. Nowhere is this so true as with money. How many times have we been told that the advent of virtual money, the dematerialization of cash into plastic and dollars into blips of electronic information, has brought us to an unprecedented new financial world? The assumption that we were in such uncharted territory, of course, was one of the things that made it so easy for the likes of Goldman Sachs and AIG to convince people that no one could possibly understand their dazzling new financial instruments. The moment one casts matters on a broad historical scale, though, the first thing one learns is that there’s nothing new about virtual money. Actually, this was the original form of money. Credit system, tabs, even expense accounts, all existed long before cash. These things are as old as civilization itself. True, we also find that history tends to move back and forth between periods dominated by bullion—where it’s assumed that gold and silver are money—and periods where money is assumed to be an abstraction, a virtual unit of account. But historically, credit money comes first, and what we are witnessing today is a return of assumptions that would have been considered obvious common sense in, say, the Middle Ages—or even ancient Mesopotamia.
But history does provide fascinating hints of what we might expect. For instance: in the past, ages of virtual credit money almost invariably involve the creation of institutions designed to prevent everything going haywire—to stop the lenders from teaming up with bureaucrats and politicians to squeeze everybody dry, as they seem to be doing now. They are accompanied by the creation of institutions designed to protect debtors. The new age of credit money we are in seems to have started precisely backwards. It began with the creation of global institutions like the IMF designed to protect not debtors, but creditors. At the same time, on the kind of historical scale we’re talking about here, a decade or two is nothing. We have very little idea what to expect.
This book is a history of debt, then, but it also uses that history as a way to ask fundamental questions about what human beings and human society are or could be like—what we actually do owe each other, what it even means to ask that question. As a result, the book begins by attempting to puncture a series of myths—not only the Myth of Barter, which is taken up in the first chapter, but also rival myths about primordial debts to the gods, or to the state—that in one way or another form the basis of our common-sense assumptions about the nature of economy and society. In that common-sense view, the State and the Market tower above all else as diametrically opposed principles. Historical reality reveals, however, that they were born together and have always been intertwined. The one thing that all these misconceptions have in common, we will find, is that they tend to reduce all human relations to exchange, as if our ties to society, even to the cosmos itself, can be imagined in the same terms as a business deal. This leads to another question: If not excha
nge, then what? In chapter five, I will begin to answer the question by drawing on the fruits of anthropology to describe a view of the moral basis of economic life; then return to the question of the origins of money to demonstrate how the very principle of exchange emerged largely as an effect of violence—that the real origins of money are to be found in crime and recompense, war and slavery, honor, debt, and redemption. That, in turn, opens the way to starting, with chapter eight, an actual history of the last five thousand years of debt and credit, with its great alternations between ages of virtual and physical money. Many of the discoveries here are profoundly unexpected: from the origins of modern conceptions of rights and freedoms in ancient slave law, to the origins of investment capital in medieval Chinese Buddhism, to the fact that many of Adam Smith’s most famous arguments appear to have been cribbed from the works of free-market theorists from medieval Persia (a story which, incidentally, has interesting implications for understanding the current appeal of political Islam). All of this sets the stage for a fresh approach to the last five hundred years, dominated by capitalist empires, and allows us to at least begin asking what might really be at stake in the present day.
For a very long time, the intellectual consensus has been that we can no longer ask Great Questions. Increasingly, it’s looking like we have no other choice.
Chapter Two
THE MYTH OF BARTER
For every subtle and complicated question, there is a perfectly simple and straightforward answer, which is wrong.
—H.L. Mencken
WHAT IS THE DIFFERENCE between a mere obligation, a sense that one ought to behave in a certain way, or even that one owes something to someone, and a debt, properly speaking? The answer is simple: money. The difference between a debt and an obligation is that a debt can be precisely quantified. This requires money.
Not only is it money that makes debt possible: money and debt appear on the scene at exactly the same time. Some of the very first written documents that have come down to us are Mesopotamian tablets recording credits and debits, rations issued by temples, money owed for rent of temple lands, the value of each precisely specified in grain and silver. Some of the earliest works of moral philosophy, in turn, are reflections on what it means to imagine morality as debt—that is, in terms of money.
A history of debt, then, is thus necessarily a history of money—and the easiest way to understand the role that debt has played in human society is simply to follow the forms that money has taken, and the way money has been used, across the centuries—and the arguments that inevitably ensued about what all this means. Still, this is necessarily a very different history of money than we are used to. When economists speak of the origins of money, for example, debt is always something of an afterthought. First comes barter, then money; credit only develops later. Even if one consults books on the history of money in, say, France, India, or China, what one generally gets is a history of coinage, with barely any discussion of credit arrangements at all. For almost a century, anthropologists like me have been pointing out that there is something very wrong with this picture. The standard economic-history version has little to do with anything we observe when we examine how economic life is actually conducted, in real communities and marketplaces, almost anywhere—where one is much more likely to discover everyone in debt to everyone else in a dozen different ways, and that most transactions take place without the use of currency.
Why the discrepancy?
Some of it is just the nature of the evidence: coins are preserved in the archeological record; credit arrangements usually are not. Still, the problem runs deeper. The existence of credit and debt has always been something of a scandal for economists, since it’s almost impossible to pretend that those lending and borrowing money are acting on purely “economic” motivations (for instance, that a loan to a stranger is the same as a loan to one’s cousin); it seems important, therefore, to begin the story of money in an imaginary world from which credit and debt have been entirely erased. Before we can apply the tools of anthropology to reconstruct the real history of money, we need to understand what’s wrong with the conventional account.
Economists generally speak of three functions of money: medium of exchange, unit of account, and store of value. All economic textbooks treat the first as primary. Here’s a fairly typical extract from Economics, by Case, Fair, Gärtner, and Heather (1996):
Money is vital to the working of a market economy. Imagine what life would be like without it. The alternative to a monetary economy is barter, people exchanging goods and services for other goods and services directly instead of exchanging via the medium of money.
How does a barter system work? Suppose you want croissants, eggs and orange juice for breakfast. Instead of going to the grocer’s and buying these things with money, you would have to find someone who has these items and is willing to trade them. You would also have to have something the baker, the orange juice purveyor and the egg vendor want. Having pencils to trade will do you no good if the baker and the orange juice and egg sellers do not want pencils.
A barter system requires a double coincidence of wants for trade to take place. That is, to effect a trade, I need not only have to find someone who has what I want, but that person must also want what I have. Where the range of traded goods is small, as it is in relatively unsophisticated economies, it is not difficult to find someone to trade with, and barter is often used.1
This latter point is questionable, but it’s phrased in so vague a way that it would be hard to disprove.
In a complex society with many goods, barter exchanges involve an intolerable amount of effort. Imagine trying to find people who offer for sale all the things you buy in a typical trip to the grocer’s, and who are willing to accept goods that you have to offer in exchange for their goods.
Some agreed-upon medium of exchange (or means of payment) neatly eliminates the double coincidence of wants problem.2
It’s important to emphasize that this is not presented as something that actually happened, but as a purely imaginary exercise. “To see that society benefits from a medium of exchange” write Begg, Fischer and Dornbuch (Economics, 2005), “imagine a barter economy.” “Imagine the difficulty you would have today,” write Maunder, Myers, Wall, and Miller (Economics Explained, 1991), “if you had to exchange your labor directly for the fruits of someone else’s labor.” “Imagine,” write Parkin and King (Economics, 1995), “you have roosters, but you want roses.”3 One could multiply examples endlessly. Just about every economics textbook employed today sets out the problem the same way. Historically, they note, we know that there was a time when there was no money. What must it have been like? Well, let us imagine an economy something like today’s, except with no money. That would have been decidedly inconvenient! Surely, people must have invented money for the sake of efficiency.
The story of money for economists always begins with a fantasy world of barter. The problem is where to locate this fantasy in time and space: Are we talking about cave men, Pacific Islanders, the American frontier? One textbook, by economists Joseph Stiglitz and John Driffill, takes us to what appears to be an imaginary New England or Midwestern town:
One can imagine an old-style farmer bartering with the blacksmith, the tailor, the grocer, and the doctor in his small town. For simple barter to work, however, there must be a double coincidence of wants … Henry has potatoes and wants shoes, Joshua has an extra pair of shoes and wants potatoes. Bartering can make them both happier. But if Henry has firewood and Joshua does not need any of that, then bartering for Joshua’s shoes requires one or both of them to go searching for more people in the hope of making a multilateral exchange. Money provides a way to make multilateral exchange much simpler. Henry sells his firewood to someone else for money and uses the money to buy Joshua’s shoes.4
Again this is just a make-believe land much like the present, except with money somehow plucked away. As a result it makes no sense: Who in their right mind would
set up a grocery in such a place? And how would they get supplies? But let’s leave that aside. There is a simple reason why everyone who writes an economics textbook feels they have to tell us the same story. For economists, it is in a very real sense the most important story ever told. It was by telling it, in the significant year of 1776, that Adam Smith, professor of moral philosophy at the University of Glasgow, effectively brought the discipline of economics into being.
He did not make up the story entirely out of whole cloth. Already in 330 bc, Aristotle was speculating along vaguely similar lines in his treatise on politics. At first, he suggested, families must have produced everything they needed for themselves. Gradually, some would presumably have specialized, some growing corn, others making wine, swapping one for the other.5 Money, Aristotle assumed, must have emerged from such a process. But, like the medieval schoolmen who occasionally repeated the story, Aristotle was never clear as to how.6
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