Property, debt and the money supply

I have just finished reading David Graeber’s book “Debt: The First 5000 Years“. It is somewhat relevant to our topic here, and in any case it is interesting, so let me summarize it and give a brief review.

In the first part of the book, Graeber, who is an anthropologist, takes to task the traditional notion of economics whereby cash was invented to reduce the transaction costs inherent in a system of barter. I am not sure how original his thesis is, but it is persuasive. In a nutshell, Graeber says that we know very well this is not true. In fact, the ability of cash to serve as a general means of engaging in daily economic transactions is no earlier than the 19th century and even postdates Adam Smith’s Wealth of Nations. Apparently he knew this very well. Graeber says that Smith’s notion of the relationship between salaried worker and capitalist employer is not descriptive at all, but prescriptive, indeed utopian. In traditional societies, and Graeber quotes many examples, cash, when it exists, serves ceremonial, not transactional purposes. Rather, everyday transactions are carried out on credit.

Credit may mean a number of things. It may simply be a general expectation of reciprocity over time, which indeed may not even presuppose a predisposition to think in terms of personal or kin benefit at all (as per E.O.Wilson’s theory of multilevel selection). I have argued elsewhere that the role of emotions and empathy, and more particularly of shame, is to be understood against this background. On the other hand, in more complex societies, especially against the backdrop of taxation, as well as the standardization of weights and measures, credit becomes a matter of accounting records and ultimately transferable bearer instruments. Credit in this case can be standardized in terms of a commodity unit of account, even if the commodity itself is not exchanged. Official tables of correspondance between one commodity and another can also be promulgated by state authorities. Graeber argues that this antedates coinage, and a fortiori the general use of coinage, by a considerable margin. Thus the story of money is the story of debt.

This account occupies the first four chapters. As of chapter five, the book for me starts to come apart. In that chapter, Graeber attempts a moral philosophy of debt, but is clearly out of his depth in doing so. There are interesting elements in relation to slavery in chapters six and seven, but the point Graeber is trying to make is never clear. The rest of the book attempts a world history of money, and is disappointing. There is an omnipresent ideological underpinning to what Graeber says, and a disappointing lack of critical distance vis-a-vis the international financial economy. Regardless of its origins, one would have wanted an account which assessed its strengths and weaknesses in terms of serving the well-being of the human race today. Possibly even some thought-through proposals for change. Graeber is a long way from rising to this challenge; so much so that one is left wondering what the point in fact was of the analysis of slavery and of the moral nature of debt which he belabors.

That the book was going to fail in any such enterprise was for me obvious already from the title. Why 5000 years? Graeber argues that everything started, or at least starting going wrong, with the first agrarian empires. It is not at all clear why the fact of empire (however it is defined) is relevant. Humankind has been organizing itself into agriculturally based communities for at least twice this period. Such communities enabled community size to exceed the tribal unit for which our brain seems preprogrammed (known as Dunbar’s number). Once this happened, hierarchy and specialization became possible, property become a key issue, and it was no longer possible to keep track of a network of implied reciprocal obligations. There is every reason to date the development of formal credit systems, guaranteed by a central authority, to this date, rather than arbitrarily to begin at the dawn of written records.

Why does Graeber make what seems such an obvious mistake? In one sense, it is not of particular importance to his thesis. But there is, I think, a deeper reason. Graeber seeks to promulgate a romantic notion of the “human economy” in primitive societies (although he protests he does not). A “human economy” is an “economic system primarily concerned not with the accumulation of wealth, but with the creation, destruction and rearranging of human beings”. Logically, one supposes that “human economies” evolved, under the force of state formation (“empires”), into credit economies. Ignoring the fact that the purpose of the latter is hardly, per se, “the accumulation of wealth”, what type of society would be expected to be characterized by a “human economy”?

Graeber does not answer this question, but the examples he gives concern both hunter-gatherer and sedentary populations. And therein lies the rub, for these are organized on fundamentally different principles, and their economic systems reflect this.

Graeber says of this type of economy that “some are quite humane, others extraordinarily brutal”. Since, however, it is his own argument that the means of exchange relates directly to the exercise of violence, he should be more attentive to this distinction. In fact, what he misses is quite as basic as what Smith misses also. In the sedentary populations, property and intra-group violence have already arisen; and both credit and currency are used in a way which intrinsically recognizes and reinforces this, whatever their form and regardless of the keeping of written records. Graeber is blind to this because he accepts uncritically the monogamy myth, failing to see it as a primal form of violence, and this despite the rich variety in the sexual organization of the societies he mentions. He fails to see that monogamy is an outgrowth of property systems and not intrinsic to the human condition.

This matters, because human economies, according to his own definition, are about “organizing” human beings. Later, this means slaves. Before this, it means women in reproductive age. It is because property rights are already asserted by men over women that “human economies” have anything to ceremonially exchange. Absent this feature, the notion has no sense or raison d’etre.

Strangely enough, Graeber describes at length in his book rituals of exchange witnessed amongst Australian aborigines, whose social organization remained (or more probably returned to) one of hunter-gatherers. These economies therefore have a reasonable claim to incarnate principles which arose prior to “human economies”. And guess what: attitudes to sex are much more relaxed; indeed, sexual exchange plays a key part in the overall ritual of economic exchange between the tribal groups. In fact barter occurs in primitive societies only in an inter-group setting, and always within an overall context of socialization between the groups.

Rather than an inspiration for an economic theory truer to mankind’s basic nature, the “human economy” therefore seems to me to mark the beginning of where things went wrong. It would be hugely naive to appeal to such a model as a solution for the world’s economic woes.

Things certainly got for a long time worse before they started to get better. This, however, is no indictment of credit or currency as such. The behavioral assumptions of classical economics have been under attack for decades, and Graeber does contribute something. We are still lacking a better model. But the models of classical economies are perfectly good for most of the purposes to which they are put, and distinctly better than any guide to practical action which might emerge from Graeber’s views. We do not have to believe the myth of homo economicus, and we certainly do not have to accept the distribution of wealth and opportunity which history has bequeathed us. We can acknowledge the embedded violence in the economic system as it exists, and still use the science to improve the happiness of human beings – which is its foremost goal.


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