Monday, March 18, 2013

Debt: The First 5,000 Years: A Review, of Sorts

In an earlier post on Hope for the 99 Percent (or words to that effect), I argued that today's workers need to focus on accumulating wealth and improving their educations, and not expect any assistance from the state, except in the form of minimal social-insurance payouts.  What I did not say, because I hadn't thought to say it at the time, is that it is rather difficult for modern workers to accumulate wealth because they are usually heavily in debt, and difficult for them to educate themselves without accumulating additional debt.  Indebtedness, it would seem, is one of the principal factors keeping the 99 Percent down and ensuring that wealth continues to flow upward to our oligarchs.  And that debt would appear to be inescapable, unless we make some effort to restructure it (at much lower interest rates) or abolish it.  To do so, I think we first need to ask how legitimate modern private debt actually is.  Perhaps the best place to start answering this question is David Graeber's Debt: The First 5,000 Years, which I read last year and will now endeavor to review.

The long blog entry that follows is my summary of Graeber's powerful, but rather convoluted, argument. In a future blog post, I will provide some analysis of the book and of Graeber's suggestions for how we can move forward from our current socio-economic mess.


Graeber, as an anthropologist, avoids approaching the problem of debt with the assumptions of an economist. In the early chapters of his book, he notes that modern debt involves a double fiction: the idea that people who contract a debt are autonomous equals – hence the modern belief that people who cannot pay their debts brought their problems on themselves – and that a creditor has a feudal right of dominion over a debtor until the debt, plus interest, is paid. Debt also depends on the ability of creditors and debtors to enumerate their obligations precisely, using monetary values; this in turn depends on the invention of money. The double-fiction of equality and absolute dominion, however, could not apply to pre-modern (or “heroic”) societies, like the Celts or the African Lele. These societies were usually hierarchical, and they could readily conceive of social obligations between dependents and lords; indeed, a lord's or patriarch's honor stemmed from his control of the bodies and labor of others. However, they did not accept that lords had absolute control over their dependents: they could not readily alienate or sell their bondsmen, female relatives, or children. Heroic societies understood the concept of a medium of exchange, and of placing a monetary value (measured in oxen or precious metals) on people and their labor, but in practice they only allowed elites to exchange people or their labor for other people, to strengthen existing human relationships or pay blood debts. 

States interfered with these arrangements when they introduced currency and open markets, which, Graeber provocatively argues, were largely a byproduct of the creation of professional armies in the so-called “Axial Age” (800 BCE – 600 CE). A state could most efficiently supply its armies by taxing its subjects, then stipulating that they had to pay the tax with money, which they could obtain by selling goods or services. Money usually took the form of precious metals because they were portable and easy to steal – Alexander's armies, for example, looted the equivalent of $285 billion from the temples and palaces of Persia. Once currency, taxes, and markets came into being, however, it became possible to convert labor and social obligations into goods and money; it thus became possible for even non-elite persons to buy human beings, either as slaves or debt-peons. (Debt peonage, a modern reader might argue, was voluntary, but in fact people were usually driven to it by hunger, misfortune, or taxes.) Elites found this threatening to their honor, one of the reasons, Graeber unhappily observes, that Greek aristocrats began confining women to the home (to demonstrate that their bodies still belonged to their husbands); peasants, of course, found this more personally threatening, and would periodically revolt or flee. Early states proved less interested in preserving the honor of elites than in preventing rebellion or defection by debt-ridden peasants. Some did so through periodic debt amnesties, a practice that preceded the Axial Age: the Sumerians, who invented interest-bearing debts, also invented the concept of debt forgiveness; Egyptian monarchs also used debt amnesties, and in fact a piece of one of their 2nd-century stele announcing a general debt amnesty became the Rosetta Stone. Other states, like the Roman Republic and the ksatriya republics of early India, avoided peasant revolts by recruiting peasants into their armies, paying them sufficient wages to avoid indebtedness, and relying on war captives for labor. The latter solution, we should note, merely externalized the problem, and perpetuated the connection between debt, violence, and enslavement.

The Axial Age also gave rise to several religions which opposed usury or offered indebted peasants an otherworldly escape from debt. These religions became pervasive and influential in the Middle Ages (600-1400). Chinese Buddhists argued that the most important debts were those owed to one's parents and to the universe itself, and that these were only payable through temple donations, but also that such donations would permanently cancel existential debt. Muslims, while they honored trade and enabled it through sophisticated credit arrangements, forbade usury and were skeptical of the value of physical money. Medieval Christians were both anti-debt and anti-trade, but they did develop the idea of the merchant adventurer, who was willing to use bravery and violence to open new markets.

In the early modern era (ca. 1450-1971), Europeans' drive to conquer the world was financed by the aforementioned merchant adventurers, whose primary economic pursuits were bullion (most of which they exported to China and India), weapons, slaves, and drugs (coffee, sugar, tobacco, opium). Theologians, religious reformers, and scholars came to accept usury, with Protestants leading the way and Catholics following a short distance behind; by the 1700s Europeans argued that humans were motivated primarily by interest, which is etymologically related to the concept that “money [must] never cease to grow.” European states had also come to harness this concept of interest by creating national debts, which yielded regular dividends for the state's wealthy creditors, and national banks, whose notes could circulate as money – an important consideration in an era when elites had come to distrust fiat money and private credit certificates, but could not always obtain the gold and silver they did trust.  From these sources. Graeber argues, came modern capitalism, an ideological structure placing morality, money, and state power at the service of the idea that economic output must always grow, no matter the cost. And “it is the secret scandal of capitalism that at no point has it been organized primarily around free labor” (Ch. 11). European capitalists' incessant need for labor drove the African slave trade, the enserfment of Eastern European peasants, and colonial regimes' use of taxes to draw commoners into debt peonage. Debt and interest forced capitalists to create an economy that would always grow, and in turn they forced free persons into debt or bondage to provide the labor necessary to realize that vision. Only at the very end of the period, during the nineteenth and early twentieth centuries, did European states and capitalists begin to create a limited wage-labor economy wherein workers could accumulate enough money to imagine themselves free of debt, and therefore respectable.

By the mid-20th century, though, the only thing that backed state currency was state debt, which in turn was backed by the state's warmaking power. The United States' current economic power is based on its dollar's position as the world's reserve currency; on the inability of countries holding dollars to exchange them for gold; on the ability of the U.S. to project deadly force anywhere in the world; and in the use of dollars to purchase oil. (I highly doubt, incidentally, Graeber's assertion that Saddam Hussein's switch to the Euro to denominate oil sales was a cause of Operation Iraqi Freedom; George W. Bush and his advisers weren't that calculating. Well, maybe Dick Cheney was, and screw him.) Meanwhile, the idea that workers could accumulate enough money and assets to propel themselves into the middle class, never a widespread one beyond a few industrialized countries, was abandoned in the 1980s, as conservative governments smashed labor unions, adopted tight-money monetary policies, and allied themselves with evangelical Christians who endorsed their policies as divinely-inspired. Workers were now offered the opportunity to enrich themselves through speculation (401ks, for instance) and debt (mortgages, credit cards, student loans, microcredit), but that opportunity vanished, probably for good, in 2008, leaving behind only the idea that there were no alternatives to capitalism, that individual debt was a sin, and that a person's worth could be measured in commodities. There is nothing natural, however, about this grim state of affairs; it is instead the product of centuries of violence, which ripped normal human obligations from their social context and transformed them into arithmetical equations of debt and interest.


Coming soon: Graeber's concluding remarks and my own thoughts.

(Images above are of the cover of Graeber's book, the Rosetta Stone, and an eighteenth-century ceramic painting of European trading factories at Canton, from the collection of San Jose State University.)

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