Every once in a while I read a book that feels like opening a windows to the world, insofar as reading books about our world, presumably (can be debated, in another day) increases our knowledge of it, since apart from the oral tradition it has consistently been the best way to transfer information through the ages.
Debt is one of these books. Written by David Graeber, an anthropologist by trade, it delves into the History of Humanity and explores relationships about debt, money, slavery, war and capitalism. This is not, by any means, a light book, since it has an extensive bibliography and many notes, but the good news are that it’s very well written, to the point that I don’t feel like I’m reading a university worthy tome (it certainly is). I actually came out the other side feeling like this can probably belong on a curriculum of books that everyone should read. It’s also a book that should prove it’s value on a reread, since many of the concepts and relationships that the author uncovers will take some time to settle.
The author starts by examining the story of how debt and money came to exist. Typical assumptions have that primitive economies worked on barter and trading goods directly, and that only when this system outgrew it’s boundaries people became concerned with creating artificial instruments to carry value (i.e. money, usually in the form of coins) and when these were developed enough, more complex financial instruments such as credit and debt came to be.
Barter -> Money -> Credit -> Debt
What the author exposes is then, an inverse of the traditional story. What if the reality is that debt came at the very beginning and is the root of all economies? An example of this can be evidenced by the fact that the Bank of England, one of the first central banks in the world, came to the be after a £1.2 million loan from a group of wealthy bankers to the then King.
In a fascinating journey throughout all corners of the world, we learn about how the Abbasid Caliphate had a standing army of slaves, and how the Islamic souks could well possibly be the original free markets that libertarians today talk about. We spend some time in Medieval China too, where we learn about Buddhist monks that used financial instruments in their temples to the point that we would now call them corporations.
The author identifies periods of History which alternate between virtual and bullion currency, that is periods where systems of credit were the main currency in use and periods where gold, silver and other metals were the main currency (or backing of that currency) circulating.
These major periods of History end in 1971 with the US president Richard Nixon announcing that the US dollar will be no longer redeemable in gold, effectively dropping what had become known as the gold standard. This recent age is then a mix of what happened throughout History, with no clear conclusion on what is going to happen, but the evidence of the last 40 years stands to say that the US dollar, the de facto world currency, is again a virtual one, but this time backed by the military power of the US:
“If history holds true, an age of virtual money should mean a movement away from war, empire-building, slavery and debt peonage (waged or otherwise), and toward the creation of some sort of overarching institutions, global in scale, to protect debtors. What we have seen so far is the opposite. The new global currency is rooted in military power even more firmly than the old was. Debt peonage continues to be the main principle of recruiting labor globally: either in the literal sense, in much of East Asia or Latin America, or in the subjective sense, whereby most of those working for wages or even salaries feel that they are doing so primarily to pay off interest-bearing loans.”
It’s a frightful ending to the book, but it’s not the only conclusion. There are many more the reader should be aware of, and not all as dark as the paragraph above. It’s a great read, and one that should get better with the years.