Debt: The First 5000 Years Part 12

Much of the existing economic literature on credit and banking, when it turns to the kind of larger historical questions treated in this book, strikes me as little more than special pleading. True, earlier figures like Adam Smith and David Ricardo were suspicious of credit systems, but already by the midnineteenth century, economists who concerned themselves with such matters were largely in the business of trying to demonstrate that, despite appearances, the banking system really was profoundly democratic. One of the more common arguments was that it was really a way of funneling resources from the "idle rich," who, too unimaginative to do the work of investing their own money, entrusted it to others, to the "industrious poor"-who had the energy and initiative to produce new wealth. This justified the existence of banks, but it also strengthened the hand of populists who demanded easy money policies, protections for debtors, and so on-since, if times were rough, why should the industrious poor, the farmers and artisans and small businessmen, be the ones to suffer?

This gave rise to a second line of argument: that no doubt the rich were the major creditors in the ancient world, but now the situation has been reversed. So Ludwig von Mises, writing in the 1930s, around the time when Keynes was calling for the euthanasia of the rentiers: Public opinion has always been biased against creditors. It identifies creditors with the idle rich and debtors with the industrious poor. It abhors the former as ruthless exploiters and pities the latter as innocent victims of oppression. It considers government action designed to curtail the claims of the creditors as measures extremely beneficial to the immense majority at the expense of a small minority of hardboiled usurers. It did not notice at all that nineteenth-century capitalist innovations have wholly changed the composition of the cla.s.ses of creditors and debtors. In the days of Solon the Athenian, of ancient Rome's agrarian laws, and of the Middle Ages, the creditors were by and large the rich and the debtors the poor. But in this age of bonds and debentures, mortgage banks, saving banks, life insurance policies, and social security benefits, the ma.s.ses of people with more moderate income are rather themselves creditors.39 Whereas the rich, with their leveraged companies, are now the princ.i.p.al debtors. This is the "democratization of finance" argument and it is nothing new: whenever there are some people calling for the elimination of the cla.s.s that lives by collecting interest, there will be others to object that this will destroy the livelihood of widows and pensioners.

The remarkable thing is that nowadays, defenders of the financial system are often prepared to use both arguments, appealing to one or the other according to the rhetorical convenience of the moment. On the one hand, we have "pundits" like Thomas Friedman, celebrating the fact that "everyone" now owns a piece of Exxon or Mexico, and that rich debtors are therefore answerable to the poor. On the other, Niall Ferguson, author of The Ascent of Money, published in 2009, can still announce as one of his major discoveries that: Poverty is not the result of rapacious financiers exploiting the poor. It has much more to do with the lack of financial inst.i.tutions, with the absence of banks, not their presence. Only when borrowers have access to efficient credit networks can they escape from the clutches of loan sharks, and only when savers can deposit their money in reliable banks can it be channeled from the idle rich to the industrious poor.40 Such is the state of the conversation in the mainstream literature. My purpose here has been less to engage with it directly than to show how it has consistently encouraged us to ask the wrong questions. Let's take this last paragraph as an ill.u.s.tration. What is Ferguson really saying here? Poverty is caused by a lack of credit. It's only if the industrious poor have access to loans from stable, respectable banks-rather than to loan sharks, or, presumably, credit card companies, or payday loan operations, which now charge loan-shark rates-that they can rise out of poverty. So actually Ferguson is not really concerned with "poverty" at all, just with the poverty of some people, those who are industrious and thus do not deserve to be poor. What about the non-industrious poor? They can go to h.e.l.l, presumably (quite literally, according to many branches of Christianity). Or maybe their boats will be lifted somewhat by the rising tide. Still, that's clearly incidental. They're undeserving, since they're not industrious, and therefore what happens to them is really beside the point.

For me, this is exactly what's so pernicious about the morality of debt: the way that financial imperatives constantly try to reduce us all, despite ourselves, to the equivalent of pillagers, eyeing the world simply for what can be turned into money-and then tell us that it's only those who are willing to see the world as pillagers who deserve access to the resources required to pursue anything in life other than money. It introduces moral perversions on almost every level. ("Cancel all student loan debt? But that would be unfair to all those people who struggled for years to pay back their student loans!" Let me a.s.sure the reader that, as someone who struggled for years to pay back his student loans and finally did so, this argument makes about as much sense as saying it would be "unfair" to a mugging victim not to mug their neighbors too.) The argument might perhaps make sense if one agreed with the underlying a.s.sumption-that work is by definition virtuous, since the ultimate measure of humanity's success as a species is its ability to increase the overall global output of goods and services by at least 5 percent per year. The problem is that it is becoming increasingly obvious that if we continue along these lines much longer, we're likely to destroy everything. That giant debt machine that has, for the last five centuries, reduced increasing proportions of the world's population to the moral equivalent of conquistadors would appear to be coming up against its social and ecological limits. Capitalism's inveterate propensity to imagine its own destruction has morphed, in the last half-century, into scenarios that threaten to bring the rest of the world down with it. And there's no reason to believe that this propensity is ever going to go away. The real question now is how to ratchet things down a bit, to move toward a society where people can live more by working less.

I would like, then, to end by putting in a good word for the non-industrious poor.41 At least they aren't hurting anyone. Insofar as the time they are taking time off from work is being spent with friends and family, enjoying and caring for those they love, they're probably improving the world more than we acknowledge. Maybe we should think of them as pioneers of a new economic order that would not share our current one's penchant for self-destruction.

In this book I have largely avoided making concrete proposals, but let me end with one. It seems to me that we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt. It would be salutary not just because it would relieve so much genuine human suffering, but also because it would be our way of reminding ourselves that money is not ineffable, that paying one's debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability to all agree to arrange things in a different way. It is significant, I think, that since Hammurabi, great imperial states have invariably resisted this kind of politics. Athens and Rome established the paradigm: even when confronted with continual debt crises, they insisted on legislating around the edges, softening the impact, eliminating obvious abuses like debt slavery, using the spoils of empire to throw all sorts of extra benefits at their poorer citizens (who, after all, provided the rank and file of their armies), so as to keep them more or less afloat-but all in such a way as never to allow a challenge to the principle of debt itself. The governing cla.s.s of the United States seems to have taken a remarkably similar approach: eliminating the worst abuses (e.g., debtors' prisons), using the fruits of empire to provide subsidies, visible and otherwise, to the bulk of the poulation; in more recent years, manipulating currency rates to flood the country with cheap goods from China, but never allowing anyone to question the sacred principle that we must all pay our debts.

At this point, however, the principle has been exposed as a flagrant lie. As it turns out, we don't "all" have to pay our debts. Only some of us do. Nothing would be more important than to wipe the slate clean for everyone, mark a break with our accustomed morality, and start again.

What is a debt, anyway? A debt is just the perversion of a promise. It is a promise corrupted by both math and violence. If freedom (real freedom) is the ability to make friends, then it is also, necessarily, the ability to make real promises. What sorts of promises might genuinely free men and women make to one another? At this point we can't even say. It's more a question of how we can get to a place that will allow us to find out. And the first step in that journey, in turn, is to accept that in the largest scheme of things, just as no one has the right to tell us our true value, no one has the right to tell us what we truly owe.

NOTES.

Chapter One.

1. With the predictable results that they weren't actually built to make it easier for Malagasy people to get around in their own country, but mainly to get products from the plantations to ports to earn foreign exchange to pay for building the roads and railways to begin with.

2. The United States, for example, only recognized the Republic of Haiti in 1860. France doggedly held on to the demand and the Republic of Haiti was finally forced to pay the equivalent of $21 billion between 1925 and 1946, during most of which time they were under U.S. military occupation.

3. Hallam 1866 V: 26970. Since the government did not feel it appropriate to pay for the upkeep of improvidents, prisoners were expected to furnish the full cost of their own imprisonment. If they couldn't, they simply starved to death.

4. If we consider tax responsibilities to be debts, it's the overwhelming majority-and if nothing else the two are closely related, since over the course history, the need to a.s.semble money for tax payments has always been the most frequent reason for falling into debt.

5. Finley 1960:63; 1963:24; 1974:80; 1981:106; 1983:108. And these are only the ones I managed to track down. What he says for Greece and Rome would appear to be equally true of j.a.pan, India, or China.

6. Galey 1983.

7. Jacques de Vitry, in Le Goff 1990:64.

8. Kyokai, Record of Miraculous Events in j.a.pan (c. 822 ad), Tale 26, cited in LaFleur 1986:36. Also Nakamura 1996:25759.

9. ibid:36 10. ibid:37.

11. Simon Johnson, the IMF's chief economist at the time, put it concisely in a recent article in The Atlantic: "Regulators, legislators, and academics almost all a.s.sumed that the managers of these banks knew what they were doing. In retrospect, they didn't. AIG's Financial Products division, for instance, made $2.5 billion in pretax profits in 2005, largely by selling underpriced insurance on complex, poorly understood securities. Often described as 'picking up nickels in front of a steamroller,' this strategy is profitable in ordinary years, and catastrophic in bad ones. As of last fall, AIG had outstanding insurance on more than $400 billion in securities. To date, the U.S. government, in an effort to rescue the company, has committed about $180 billion in investments and loans to cover losses that AIG's sophisticated risk modeling had said were virtually impossible." (Johnson 2010) Johnson of course pa.s.ses over the possibility that AIG knew perfectly well what was eventually going to happen, but simply didn't care, since they knew the steamroller was going to flatten someone else.

12. In contrast, England already had a national bankruptcy law in 1571. An attempt to create a U.S. federal bankruptcy law in 1800 foundered; there was one briefly in place between 1867 and 1878, aimed to relieve indebted Civil War veterans, but it was eventually abolished on moral grounds (see Mann 2002 for a good recent history). Bankruptcy reform in America is more likely to make the terms harsher than the other way around, as with the 2005 reforms, which Congress pa.s.sed, on industry urgings, just before the great credit crash.

13. The mortgage relief fund set up after the bailout, for example, has only provided aid to a tiny percentage of claimants, and there has been no movement toward liberalization of bankruptcy laws that had, in fact, been made far harsher, under financial industry pressure, in 2005, just two years before the meltdown.

14. "In Jail for Being in Debt," Chris Serres & Glenin Howatt, Minneapolis-St. Paul Star Tribune, June 9, 2010, www.startribune.com/local/95692619.html.

15. "IMF warns second bailout would 'threaten democracy.' " Angela Jameson and Elizabeth Judge, business.timesonline.co.uk/tol/business/economics/

article6928147.ece#cid=OTC-RSS&attr=1185799, accessed November 25, 2009

Chapter Two.

1. Case, Fair, Gartner, & Heather 1996:564. Emphasis in the original.

2. op cit.

3. Begg, Fischer, and Dornbuch (2005:384); Maunder, Myers, Wall, and Miller (1991:310); Parkin & King (1995:65).

4. Stiglitz and Driffill 2000:521. Emphasis again in the original.

5. Aristotle Politics I.9.1257 6. Neither is it clear we are really speaking of barter here. Aristotle used the term metadosis, which in his day normally meant "sharing" or "sharing out." Since Smith, this has usually been translated "barter," but as Karl Polanyi (1957a:93) has long since emphasized, this is probably inaccurate, unless Aristotle was introducing an entirely new meaning for the term. Theorists of the origin of Greek money from Laum (1924) to Seaford (2004) have emphasized that customs of apportioning goods (e.g., war booty, sacrificial meat), probably did play a key role in the development of Greek currency. (For a critique of the Aristotelian tradition, which does a.s.sume Aristotle is talking about barter, see Fahazmanesh 2006.) 7. See Jean-Michel Servet (1994, 2001) for this literature. He also notes that in the eighteenth century, these accounts suddenly vanished, to be replaced by endless sightings of "primitive barter" in accounts of Oceania, Africa, and the Americas.

8. Wealth of Nations I.2.12. As we'll see, the line seems to be taken from much older sources.

9. "If we should enquire into the principle of human mind on which this disposition of trucking is founded, it is clearly the natural inclination every one has to persuade. The offering of a s.h.i.+lling, which to us appears to have so plain and simple meaning, is in reality offering an argument to persuade one to do so and so as it is for his interest" (Lectures on Jurisprudence, 56) It's fascinating to note that the a.s.sumption that the notion that exchange is the basis of our mental functions, and manifests itself both in language (as the exchange of words) and economics (as the exchange of material goods) goes back to Smith. Most anthropologists attribute it to Claude Levi-Strauss (1963:296).

10. The reference to shepherds implies he may be referring to another part of the world, but elsewhere his examples, for instance of trading deer for beaver, make it clear he's thinking of the Northeast woodlands of North America.

11. Wealth of Nations I.4.2.

12. Wealth of Nations I.4.3.

13. Wealth of Nations I.4.7.

14. The idea of an historical sequence from barter to money to credit actually seems to appear first in the lectures of an Italian banker named Bernardo Davanzati (15291606; so Waswo 1996); it was developed as an explicit theory by German economic historians: Bruno Hildebrand (1864), who posited a prehistoric stage of barter, an ancient stage of coinage, and then, after some reversion to barter in the Middle Ages, a modern stage of credit economy. It took canonical form in the work of his student, Karl Bucher (1907). The sequence has now become universally accepted common sense, and it reappears in at least tacit form in Marx, and explicitly in Simmel-again, despite the fact that almost all subsequent historical research has proved it wrong.

15. Though they did make an impression on many others. Morgan's work in particular (1851, 1877, 1881), which emphasized both collective property rights and the extraordinary importance of women, with women's councils largely in control of economic life, so impressed many radical thinkers-included Marx and Engels-that they became the basis of a kind of counter-myth, of primitive communism and primitive matriarchy.

16. Anne Chapman (1980) goes if anything further, noting that if pure barter is to be defined as concerned only with swapping objects, and not with rearranging relations between people, it's not clear that it has ever existed. See also Heady 2005.

17. Levi-Strauss 1943; the translation is from Servet 1982:33.

18. One must imagine the temptation for a s.e.xual variety must be fairly strong, for young men and women accustomed to spending almost all of their time with maybe a dozen other people the same age.

19. Berndt 1951:161, cf. Gudeman 2001: 12425, who provides an a.n.a.lysis quite similar to my own.

20. Berndt 1951:162.

21. Though as we will note later, it's not exactly as if international business deals now never involve music, dancing, food, drugs, high-priced hookers, or the possibility of violence. For a random example underlining the last two, see Perkins 2005.

22. Lindholm 1982:116.

23. Servet 2001:20-21 compiles an enormous number of such terms.

24. The point is so obvious that it's amazing it hasn't been made more often. The only cla.s.sical economist I'm aware of who appears to have considered the possibility that deferred payments might have made barter unnecessary is Ralph Hawtrey (1928:2, cited in Einzig 1949:375). All others simply a.s.sume, for no reason, that all exchanges even between neighbors must have necessarily been what economists like to call "spot trades."

25. Bohannan 1955, Barth 1969. cf. Munn 1986, Akin & Robbins 1998. A good summary of the concept can be found in Gregory 1982:4849. Gregory gives one example of a highland Papua New Guinea system with six ranks of valuables, with live pigs and ca.s.sowary birds on the top rank, "pearl-sh.e.l.l pendants, pork sides, stone axes, ca.s.sowary-plume headdresses, and cowrie-sh.e.l.l headbands" on the second, and so on. Ordinarily items of items of consumption are confined to the last two, which consist of luxury foods and staple vegetable foods, respectively.

26. See Servet 1998, Humphries 1985.

27. The cla.s.sic essay here is Radford 1945.

28. In the 1600s, at least, actually called the old Carolingian denominations "imaginary money"-everyone persisting in using pounds, s.h.i.+llings, and pence (or livres, deniers, and sous) for the intervening 800 years, despite the fact that for most of that period, actual coins were entirely different, or simply didn't exist (Einaudi 1936).

29. Other examples of barter coexisting with money: Orlove 1986; Barnes & Barnes 1989.

30. One of the disadvantages of having your book becomes a cla.s.sic is that often, people will actually check out such examples. (One of the advantages is that even if they discover you were mistaken, people will continue to cite you as an authority anyway.) 31. Innes 1913:378. He goes on to observe: "A moment's reflection shows that a staple commodity could not be used as money, because ex hypothesi, the medium of exchange is equally receivable by all members of the community. Thus if the fishers paid for their supplies in cod, the traders would equally have to pay for their cod in cod, an obvious absurdity."

32. The temples appear to have come first; the palaces, which became increasingly important over time, took over their system of administration.

33. Smith was not dreaming about these: the current technical term for such ingots is "hacksilber" (e.g., Balmuth 2001).

34. Compare Grierson 1977:17 for Egyptian parallels.

35. e.g., Hudson 2002:25, 2004:114 36. Innes 1913:381 37. Peter Spufford's monumental Money and Its Use in Medieval Europe (1988), which devotes hundreds of pages to gold and silver mining, mints, and debas.e.m.e.nt of coinage, makes only two or three mentions of various sorts of lead or leather token money or minor credit arrangements by which ordinary people appear to have conducted the overwhelming majority of their daily transactions. About these, he says, "we can know next to nothing" (1988:336). An even more dramatic example is the tally-stick, of which we will hear a good deal: the use of tallies instead of cash was widespread in the Middle Ages, but there has been almost no systematic research on the subject, especially outside England.

Chapter Three.

1. Heinsohn & Steiger (1989) even suggest the main reason their fellow economists haven't abandoned the story is that anthropologists have not yet provided an equally compelling alternative. Still, almost all histories of money continue to begin with fanciful accounts of barter. Another expedient is to fall back on pure circular definitions: if "barter" is an economic transaction that does not employ currency, then any economic transaction that doesn't involve currency, whatever its form or content, must be barter. Glyn Davies (1996:1113) thus describes even Kwakiutl potlatches as "barter."

2. We often forget that there was a strong religious element in all this. Newton himself was in no sense an atheist-in fact, he tried to use his mathematical abilities to confirm that the world really had been created, as Bishop Ussher had earlier argued, sometime around October 23, 4004 bc.

3. Smith first uses the phrase "invisible hand" in his Astronomy (III.2), but in Theory of Moral Sentiments IV.1.10, he is explicit that the invisible hand of the market is that of "Providence." On Smith's theology in general see Nicholls 2003:3543; on its possible connection to Medieval Islam, see chapter 10 below.

4. Samuelson 1948:49. See Heinsohn and Steiger 1989 for a critique of this position; also Ingham 2004.

5. Pigou 1949. Boianovsky 1993 provides a history of the term.

6. "We do not know of any economy in which systematic barter takes place without the presence of money" (Fayazmanesh 2006:87)-by which he means, in the sense of money of account.

7. On the government role of fostering the "self-regulating market" in general, see Polanyi 1949. The standard economic orthodoxy, that if the government just gets out of the way, a market will naturally emerge, without any need to create appropriate legal, police, and political inst.i.tutions first, was dramatically disproved when free-market ideologues tried to impose this model in the former Soviet Union in the 1990s.

8. Innes as usual puts it nicely: "The eye has never seen, nor the hand touched a dollar. All that we can touch or see is a promise to pay or satisfy a debt due for an amount called a dollar." In the same way, he notes, "All our measures are the same. No one has ever seen on ounce or a foot or an hour. A foot is the distance between two fixed points, but neither the distance nor the points have a corporeal existence" (1914:155).

9. Note that this does a.s.sume some means of calculating such values-that is, that money of account of some sort already exists. This might seem obvious, but remarkable numbers of anthropologists seem to have missed it.

10. To give some sense of scale, even the relatively circ.u.mscribed commercial city-state of Hong Kong currently has roughly $23.3 billion in circulation. At roughly 7 million people, that's more than three thousand Hong Kong dollars per inhabitant.

11. "State theory may be traced to the early nineteenth century and to [Adam] Muller's New Theory of Money, which attempted to explain money value as an expression of communal trust and national will, and culminated in [G.F.] Knapp's State Theory of Money, first published in German in 1905. Knapp considered it absurd to attempt to understand money 'without the idea of the state.' Money is not a medium that emerges from exchange. It is rather a means for accounting for and settling debts, the most important of which are tax debts" (Ingham 2004:47.) Ingham's book is an admirable statement of the Chartalist position, and much of my argument here can be found in much greater detail in it. However, as will later become apparent, I also part company with him in certain respects.

12. In French: livres, sous, and deniers.

13. Einaudi 1936. Cipolla (1967) calls it "ghost money."

14. On tallies: Jenkinson 1911, 1924; Innes 1913; Grandell 1977; Baxter 1989; Stone 2005.

15. Snell (1919:240) notes that kings while touring their domains would sometimes seize cattle or other goods by right of "preemption" and then pay in tallies, but it was very difficult to get their representatives to later pay up: "Subjects were compelled to sell; and the worst of it was that the King's purveyors were in the habit of paying not in cash down, but by means of an exchequer tally, or a beating ... In practice it was found no easy matter to recover under this system, which lent itself to the worst exactions, and is the subject of numerous complaints in our early popular poetry."

16. It is also interesting to note, in this regard, that the Bank of England still kept their own internal accounts using tally sticks in Adam Smith's time, and only abandoned the practice in 1826.

17. See Engels (1978) for a cla.s.sic study of this sort of problem.

18. Appealing particularly to debtors, who were understandably drawn to the idea that debt is simply a social arrangement that was in no sense immutable but created by government policies that could just as easily be reshuffled-not to mention, who would benefit from inflationary policies.

19. On the tax, Jacob 1987; for the Betsimisaraka village study, Althabe 1968; for a.n.a.logous Malagasy case studies, Fremigacci 1976, Rainibe 1982, Schlemmer 1983, Feeley-Harnik 1991. For colonial tax policy in Africa more generally, Forstater 2005, 2006.

20. So, for instance, Heinsohn & Steiger 1989:188189.

21. Silver was mined in the Midwest itself, and adopting bi-metallism, with both gold and silver as potential backing for currency, was seen as a move in the direction of free credit money, and to allow for the creation of money by local banks. The late nineteenth century saw the first creation of modern corporate capitalism in the United States and it was fervently resisted, with the centralization of the banking system being a major field of struggle, and mutualism-popular democratic (not profit oriented) banking and insurance arrangements-one of the main forms of resistance. The bi-metallists were the more moderate successors of the Greenbackers, who called for a currency detached from money altogether, such as Lincoln briefly imposed in wartime (Dighe (2002) provides a good summary of the historical background.) 22. They only became ruby slippers in the movie.

23. Some have even suggested that Dorothy herself represents Teddy Roosevelt, since syllabically, "dor-o-thee" is the same as "thee-o-dor", only backwards.

24. See Littlefield 1963 and Rockoff 1990 for a detailed argument about The Wizard of Oz as "monetary allegory." Baum never admitted that the book had a political subtext, but even those who doubt he put one in intentionally (e.g., Parker 1994; cf. Taylor 2005) admit that such a meaning was quickly attributed to it-there were already explicit political references in the stage version of 1902, only two years after the book's original publication.

25. Reagan could as easily be argued to be a pract.i.tioner of extreme military Keynesianism, using the Pentagon's budget to create jobs and drive economic growth; anyway, monetary orthodoxy was abandoned very quickly even rhetorically among those actually managing the system.

26. See Ingham 2000.

27. Keynes 1930: 45 28. The argument is referred to as the paradox of banking. To provide an extremely simplified version: say there was only one bank. Even if that bank were to make you a loan of a trillion dollars based on no a.s.sets of its own of any kind whatever, you would ultimately end up putting the money back into the bank again, which would mean that the bank would now have one trillion in debt, and one trillion in working a.s.sets, perfectly balancing each other out. If the bank was charging you more for the loan than it was giving you in interest (which banks always do), it would also make a profit. The same would be true if you spent the trillion-whoever ended up with the money would still have to put it into the bank again. Keynes pointed out the existence of multiple banks didn't really change anything, provided bankers coordinated their efforts, which, in fact, they always do.