A new perspective on debt and currency

Yesterday I read an interesting and rather unusual article titled Debt: The first 5,000 years. The author, David Graeber, has apparently expanded his thesis into a full-length book, as well.

I will attempt here to summarize the basic argument and add my own reflections, because I find it fascinating. The idea turns the conventional assumption about the relationship between debt and money on its head.

First of all, the common-sense, conventional view is that "money comes first" and debt is a kind of secondary development, which occurs when one party owes money to another. Graeber's theory, however, reverses this understanding. To grasp this, we have to look very far back in history.

Before there was actual money, people related to goods and services in a loose sense of doing favors for one another and helping each other survive in the earliest tribal proto-societies. If somebody saved your life from a sabre-tooth tiger, for example, you would probably feel a natural sense of debt to the person, and would help them out in some way later. All early hunter-gatherer societies depended on such reciprocity. So-called "big men" or tribal chieftains would show their wealth and power by holding massive feasts where they would give away food and other forms of wealth. This in turn would motivate other strongmen to similarly reciprocate or compete in generosity. Thus, we can see that a certain type of moneyless reciprocity of favors is at the root of human material relationships. This reciprocity does, indeed, resemble "debt" (in the sense of natural compassion and obligations) more than it does "money" or "trade." Thus, it can be said that debt (in its most primal form) came before money or the concept of stored value.

According to Graeber, money entered the picture when different societies established more complex relationships both with each other and within themselves. In such cases, treasures, precious metals, jewels, and other rare commodities served to cement relationships between different tribes and settlements, as well as between strangers in growing settled societies (which became too large for everybody to know each other personally and do each other natural favors).

Another seminal turning point in the creation of money was the development of warfare, slavery, and advanced governments. In war, if a man is taken prisoner, the victor exercises an absolute power over the prisoner's life or death. He can kill the prisoner, torture him, or make him a slave. When this happens, whatever forms of debt or favor the prisoner may happen to owe to other individuals are erased, and the prisoner enters a state of ABSOLUTE DEBT to his conqueror. However, when such prisoners were sold or traded as slaves, a kind of economic paradox entered the picture. In such situations, ABSOLUTE DEBT was quantified in the form of a commodity (such as gold or silver ingots or coinage). This paradox strengthened the role of precious metals and money, giving these materials a power that was both absolute and relative...elusive yet indispensable.

The author goes on to note that dependence on coinage and money tended to flourish in times of chaos, warfare, or strife, when conventional relationships of trust and natural credit break down. In the article linked to above, he analyzied the past 5,000 years in terms of an oscilating cycle of reliance on debt versus reliance on currency or precious metals. When there is relative peace, there is more trust, and hence willingness to extend favors and credit of various types. When societies break down or enter periods of crisis, such trust evaporates and people typically demand more concrete forms of wealth: Gold, silver, jewels, treasure, booty, paper money, land and titles, etc.

To me, the most interesting thing about this theory is the way it reverses common assumptions about the roles of debt and money. Debt comes first, wealth comers second -- a very counterintuitive idea, yet one that makes sense if you think about it carefully. Debt under the theory is associated with peace and prosperity, while demand for hard assets is seen as a replacement for debt that must be resorted to in harder times. We can see this in our own era, as a long period of relative peace and abundance is giving way to more global turbulence and instability. In this climate, it would make sense to expect a shift away from a debt-based system (which is a large part of the unerpinnings of modern hypercapitalism) and towards a system demanding more immediate claims on commodities and tangible money/precious items.

Whether or not you agree with Graeber's thesis completely, I think it makes for compelling food for thought. In times of change, it is very important to examine basic assumptions. However, in times of change, people are often too panicked or busy to do this. I think this is an excellent opportunity to mull over the philosophical relationship between debt and tangible goods, and to examine what got us into this mess and, perhaps, to find ways out of it.

Not sure if I quite understand the theory as described, but it definately merits further consideration tomorrow, when my tires mind is refreshed.

I will say this though, that the most primative and natural system of favors and obligations (which is what I think is meant by 'debt' in this theory) did serve as the basis for everything that came afterwards. The only thing that changed along the way, is the mechanism we use to facilitate or gain a favor, or extinguish a debt.

I also want to explore more about the relationships of gold and silver here, as I believe its more than key, but a fundemental aspect of human nature (the actual metals, not just the idea). But alas, I am done for the night. WIllbe back tomorrow to discuss more.

reply to post by silent thunder

In times of change, it is very important to examine basic assumptions. However, in times of change, people are often too panicked or busy to do this. I think this is an excellent opportunity to mull over the philosophical relationship between debt and tangible goods, and to examine what got us into this mess and, perhaps, to find ways out of it.

Excellent point. This is exactly what got me thinking about the nature of scarcity. In re-evaluating this concept, I have to say, it drastically changed my view of reality.

If I had to identify the leading problem in the world today it's that people don't have a direct vote on how money is used.

Imagine a system where people not only vote for their representatives, but they also vote on their funding priorities.

For gaming aficionados simply envision a 4X turn-based strategy game like Civilization and how money is allotted by the player in percentage buckets for research, culture, religion, manufacturing, and military. In effect the standard citizen would, finally, have a direct say in determining how much of the budget could be used for military expense over say education or helping to rebuild infrastructure.

Obviously a large bulk of money would be needed to keep basic government functions running, but any excess money would be directly limited by the ratios and volumes as directly specified by the citizenry. The power of such a system is that it doesn’t involve the citizens in the details it simply allows the people to express priorities in terms of financial limits in relation to other high-level budgetary priorities.

So if the people voted for more spending for the Department of Education over say the Department of Defense and the DOD required a minimum of $400 billion (and an average of $500 billion) to operate while the Department of Education needed a minimum of $30 (and an average of $35) billion. Then the $664 billion DOD budget chosen by the President and his cabinet, that without voter opposition would be allocated to the DOD, would be reviewed by the Department of Education less $400 billion. If the Department of Education could offer a compelling reason for using a portion of this extra $264 billion, and assuming the DOD couldn’t convince the American public it would be better spent on their programs, then a portion of the money would be redirected to the Department of Education.

The process would continue for every other Department in order of least priority evaluated first up to the dollar limit of the “average budget.” Should the “average budget” be exhausted across all departments then more rounds would follow perhaps dividing the difference from the average and the minimum so as to not over-penalize the lowest-ranked department.

If less than 50% of the voting population could come to agreement on a given policy the President’s budgetary position would override the public’s indecision, but as a matter of good faith there would be the expectation that as a public servant the voting data would factor in to the decision making.

Obviously there are many other considerations that need to be factored in, but this illustrates one way that all people could be directly involved in policy making without having to lobby those with power.

[edit on 19-11-2009 by Xtraeme]

reply to post by Xtraeme


I quite like your idea, and had a quick think about it and developed a way to implement it democratically.

Each member of congress gets assigned a certain amount of tax dollars, either simply divide the expected tax revenues by the number of congressmen - or divide it according the number of people they represent.

The congressmen then individually develop a distribution of that money, and a certain percentage is allowed for them to earmark for the benefit of their electorate.

The aggregate of this distribution is then the national budget, and is presented to tax payers. Tax payers then fill out their tax forms, and are able to go on the net and look at the distributions of each elected member, their earmarks, and the overall distribution.

The taxpayer then assigns a percentage to each of the spending area's of their own choosing.

When their tax is paid - it is divided according to the tax payers own distribution - if they don't fill anything in - then it is distributed according the overall distribution.

That means their is an overall plan that people can see, they can have a look what their local rep wants - and they can then assign their own tax money however they want.

The overall plan has the spending budget allocated in order of priority - so as money comes in it fills in the top of the list - and so on.

This would mean govts could not spend in advance, because they would not know what revenue was available - but as each line item on the budget was filled, then they could allocate that spending.

The congress would be responsible for determing the order of priority on the budget - earmarks could be put on the top (I think thats preferable) or on the bottom.

I think this would be a fairly nice system - so people would spend their tax dollars exactly how they wanted to.

Sashromi, I don't think the metals themselves have any special significance. The willingness of the people to participate is what gives currency its worth.

Standard U.S. coins and paper would work the same in a total societal/network/electricity breakdown. At least at the local U.S. level. Everybody would still respect the coins and bills. Gold might let a third uninterested party bargain between countries, but locally the people are still the people and they have expectations of things getting back to normal as soon as possible. The banks would probably ration the currency they would let you take out of your account, and the money supply itself would become very incredibly tight. Prices would drop like a rock as people attempted to cash out of goods for some precious U.S. Dollars. I suppose counterfeiting might become a concern. Gold might actually plummet if gold holders had a particular political and military power to influence the value of the Dollar. You might get $100 gold if somebody was trying to buy up all the Dollars. Foreign Dollar holders could come be like kings in America, or they could do the opposite and drain the gold supply and go back home. Economics is an endless pseudo-science trumped only by lethal warfare.

Yes, I think the U.S. physical money supply is ''good as gold''. I think the resources, both human and capital, in this country more than account for the worth of the paper and metal coins. You can get a lot for the money here and you would get a dream for the same money if the steady supply was suddenly stopped -- all tokens out on the table, no more coming any time soon.



[edit on 19-11-2009 by Cabaret Voltaire]

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