Debt: it’s back to the future

Image of Gillian Tett

Another week, another bout of wailing about global debt woes. In Europe, there is panic about the finances of places such as Italy or Greece. In America, the US debt headache gets ever worse. And, on a more mundane level, millions of people (like me) have just returned from holiday feeling uneasy about their next credit card bill; if, that is, they were lucky enough to have gone on holiday at all.

If you want to get a fresh perspective on the issue, take a look at a fascinating new book called Debt: The First 5,000 Years by David Graeber, a social anthropologist who teaches at the University of London. Admittedly, Graeber is not typical fare for your average Financial Times reader, let alone an economist or banker. A self-avowed “anarchist”, Graeber holds radical political views and has previously published books with titles such as Direct Action: An Ethnography and Fragments of an Anarchist Anthropology.

Still, Graeber’s book is not just thought-provoking, but also exceedingly timely. His sweeping narrative history essentially argues that many of our existing ideas about money and credit are limited, if not wrong. Take how we think that money evolved. In modern society, Graeber argues, economists often assume that money emerged as a medium of exchange to replace barter, while virtual credit developed after that. After all, gold is easier to carry around than sacks of potatoes or cows – and credit cards are a very recent invention.

However, Graeber asserts this sequencing is wrong: his reading of history suggests that complex debt relations, in the widest sense, emerged before coins circulated (and before complex systems of barter, too). Back in 3,000BC in Mesopotamia, people were keeping records of who owed what to whom – but were barely using coins. And today, numerous non-western societies operate with fiendishly complex debt systems, which blur social and economic obligations, even if they barely use “currency”. Indeed, anthropologists spend a considerable amount of time looking at how these “debts” bind groups together. “There is nothing new about virtual money. Actually this was the original form of money,” Graeber argues. “Credit systems were interspersed with a period of bullion, but credit came first.”

At different points in history, the balance between cash and virtual credit has shifted. Graeber views the Roman empire and some of the Chinese dynasties as moments when bullion was widespread (partly because it was used to pay soldiers). But virtual credit was more prevalent during the Middle Ages in Europe, and has come to predominate in the west since it abandoned the gold standard in 1971. The one constant in all these swings, Graeber insists, is that debt is intrinsically linked to power, since credit can be used to exploit or control people. And the power is doubly effective, he adds, because debt is so overlaid with moral context. There is no better way to justify unequal power relations than “by reframing them in the language of debt … because it immediately makes it seem that it’s the victim which is doing something wrong”. Or to put it another way, just as debtors in Mesopotamia used to end up as slaves, so too, American subprime mortgage borrowers – or third world nations – become in effect enslaved to credit systems.

Graeber is certainly not the only person to have made these points. A small tribe of (largely ignored) economic anthropologists have made similar arguments about the degree to which social relations are embedded in debt. Keith Hart, Marcel Mauss, or Karl Polanyi spring to mind. But what makes Graeber’s ideas particularly intriguing now is something that might be called the great “safety valve” question.

Graeber believes that precisely because a world of “virtual credit” tends to become profoundly exploitative, societies have often been forced to create safety-valve mechanisms to prevent social explosions; say, by forgiving debts when they became too large to repay. Mesopotamia, for example, periodically protected debtors by “wiping the tablets clean”. But in the western world today, governments are intent on protecting creditors, not debtors. What makes the west an outlier, in other words, is not just the presence of credit cards or the existence of virtual credit, but the reluctance of leaders to countenance programmes of widespread debt-forgiveness of the type that used to be found in Mesopotamia.

Could this change in the coming years? Should it? Graeber himself does not try to predict the future. But the question is an intriguing one, and I suspect it will soon hit the radar. Those debts keep piling up in the west, creating social strains – and there is no real solution in sight. Looking back to the future – even 5,000 years – may not be as crazy as it seems. Not least because it reminds us that debt is fundamentally a social construct, not a cold number; even when it relates to your post-holiday credit card bill.

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