TURMEL: David Graeber's DEBT: The First 5,000 Years Chap03 ISBN: 978-1-61219-129-4 https://www.amazon.com/Debt-Updated-Expanded-First-Years/dp/1612194192/ref=sr_1_2?ie=UTF8 All reports at http://SmartestManOnEarth.Ca/debt5000 Chapter Three P43: PRIMORDIAL DEBTS Let us drive away the evil effects of bad dreams, just as we pay off debts. - Rig Veda 8.47.17 THE REASON THAT economics textbooks now begin with imaginary villages is because it has been impossible to talk about real ones. Even some economists have been forced to admit that Smith's Land of Barter doesn't really exist.1 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. JCT: "People must have run tabs" is that hard to figure? 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 (1996:11-13) thus describes even Kwakiutl potlatches as "barter." JCT: Treating the word "barter" as "exchange" never bothered me though some insist it means immediate equitable swap. DG: The question is why the myth has been perpetuated anyway. Economists have long since jettisoned other elements of The Wealth of Nations - for instance, Smith's labor theory of value JCT: The one think I always liked was the "labor" theory of value. Every energy resource reaped needed the energy of a reaper. Human Manpower*Time + Material M*c^2 = Goods DG: and disapproval of joint-stock corporations. Why not simply write off the myth of barter as a quaint Enlightenment parable and instead attempt to understand primordial credit arrangements - or anyway, something more in keeping with the historical evidence? The answer seems to be that the Myth of Barter cannot go away because it is central to the entire discourse of economics. JCT: Because Economics is a cover story rationalizing loansharking, need something central to its discourse even if it's false. P45: Call this the final apotheosis of economics as common sense. Money is unimportant. Economies - "real economies" - are really vast barter systems. JCT: They are really vast systems that do effect "barter" over time. DG: The missing element is in fact exactly the thing Smith was attempting to downplay: the role of government policy. In England, in Smith's day, it became possible to see the market, the world of butchers, ironmongers, and haberdashers, as its own entirely independent sphere of human activity because the British government was actively engaged in fostering it. This required laws and police, but also specific monetary policies which liberals like Smith were (successfully) advocating.7 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 institutions first, was dramatically disproved when free-market ideologues tried to impose this model in the former Soviet Union in the 1990s. JCT: Actually, huge "barter" trading networks did arise and I've reported how 750 State and Municipal Governments paid their employees with their own bonds. DGL The century before The Wealth of Nations had seen at least two attempts to create state-supported central banks, in France and Sweden, that had proven to be spectacular failures. In each case, the would - be central bank issued notes based largely on speculation that collapsed the moment investors lost faith. JCT: What, they couldn't be used to pay taxes like King Henry's Tallies. You have to wonder how they could screw it up. DG: Smith supported the use of paper money, JCT: As if material of which chips are made matters. DG: but like Locke before him, he also believed that the relative success of the Bank of England and Bank of Scotland had been due to their policy of pegging paper money firmly to precious metals. JCT: Locke thinks we need yellow rock for our chips... Har har har. DG: This became the mainstream economic view, so much so that alternative theories of money as credit - the one that Mitchell-Innes advocated - were quickly relegated to the margins, their proponents written off as cranks, and the very sort of thinking that led to bad banks and speculative bubbles in the first place. JCT: Pro inflatable-orthodox-currency advocates shouted "Funny Money." If their own system wasn't working, you have to wonder what they were laughing at. DG: It might be helpful, then, to consider what these alternative theories actually were. P46: DEBT State and Credit Theories of Money Mitchell-Innes was an exponent of what came to be known as the Credit Theory of money, a position that over the course of the nineteenth century had its most avid proponents not in Mitchell-Innes's native Britain but in the two up-and-coming rival powers of the day, the United States and Germany. Credit Theorists insisted that money is not a commodity but an accounting tool. In other words, it is not a "thing" at all. You can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter. Units of currency are merely abstract units of measurement, and as the credit theorists correctly noted, historically, such abstract systems of accounting emerged long before the use of any particular token of exchange.8 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 9. Note that this does assume 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. The obvious next question is: If money is a just a yardstick, what then does it measure? The answer was simple: debt. A coin is, effectively, an IOU. Whereas conventional wisdom holds that a banknote is, or should be, a promise to pay a certain amount of "real money" (gold, silver, whatever that might be taken to mean), Credit Theorists argued that a banknote is simply the promise to pay something of the same value as an ounce of gold. But that's all that money ever is. There's no fundamental difference in this respect between a silver dollar, a Susan B. Anthony dollar coin made of a copper-nickel alloy designed to look vaguely like gold, a green piece of paper with a picture of George Washington on it, or a digital blip on some bank's computer. Conceptually, the idea that a piece of gold is really just an IOU is always rather difficult to wrap one's head around, but something like this must be true, because even when gold and silver coins were in use, they almost never circulated at their bullion value. JCT: At this point, I would specify that the "Credit Theorist" political movement in the Commonwealth, America and Germany were Social Credit Theorists advocating the State run the chips which didn't have to be made of metal. DG: How could credit money come about? JCT: Give them some poker chips and they'll figure it out. DG: Let us return to the economics professors' imaginary town. Say, for example, that Joshua were to give his shoes to Henry, and, rather than Henry owing him a favor, Henry promises him something of equivalent value. JCT: In a Local Employment-Trading System, it can be recorded at central or you can write him an IOU. LETS is also a directory of goods and traders. DG: Henry gives Joshua an IOU. Joshua could wait for Henry to have something useful and then redeem it. In that case Henry would rip up the IOU and the story would be over. But say Joshua were to pass the IOU on to a third party - Sheila - to whom he owes something else. He could tick it off against his debt to a fourth party, Lola - now Henry will owe that amount to her. Hence, money is born, because there's no logical end to it. Say Sheila now wishes to acquire a pair of shoes from Edith; she can just hand Edith the IOU and assure her that Henry is good for it. In principle, there's no reason that the IOU could not continue circulating around town for years - provided people continue to have faith in Henry. In fact, if it goes on long enough, people might forget about the issuer entirely. Things like this do happen. The anthropologist Keith Hart once told me a story about his brother, who in the '50s was a British soldier stationed in Hong Kong. Soldiers used to pay their bar tabs by writing checks on accounts back in England. Local merchants would often simply endorse them over to each other and pass them around as currency: once, he saw one of his own checks, written six months before, on the counter of a local vendor covered with about forty different tiny inscriptions in Chinese. P47: What credit theorists like Mitchell-Innes were arguing is that even if Henry gave Joshua a gold coin instead of a piece of paper, the situation would be essentially the same. JCT: Did it ever matter if we used clay or plastic poker chips? Paper or computer credits are easier to transfer for Star Trek use. DG: A gold coin is a promise to pay something else of equivalent value to a gold coin. After all, a gold coin is not actually useful in itself. One only accepts it because one assumes other people will. In this sense, the value of a unit of currency is not the measure of the value of an object, but the measure of one's trust in other human beings. This element of trust of course makes everything more complicated. Early banknotes circulated via a process almost exactly like what I've just described, except that, like the Chinese merchants, each recipient added his or her signature to guarantee the debt's legitimacy. JCT: The Mexico City Tlaloc system had 10 spots on the back of each note issued that had to be signed by the current owner at transfer and only when all 10 member signatures were on a note was it deemed verifiable enough for further use. I think 10 is heavy but all those signatures on the back sure make it had to forge and easy for members (10 possible) to spot. DG: But generally, the difficulty in the Chartalist position - this is what it came to be called, from the Latin charta, or token - is to establish why people would continue to trust a piece of paper. JCT: Because the network has 10 people's signatures promising to accept it back is pretty good reason in Mexico City. DG: After all, why couldn't anyone just sign Henry's name on an IOU? True, this sort of debt-token system might work within a small village where everyone knew one another, or even among a more dispersed community like sixteenth-century Italian or twentieth-century Chinese merchants, where everyone at least had ways of keeping track of everybody else. But systems like these cannot create a full-blown currency system, and there's no evidence that they ever have. Providing a sufficient number of IOUs to allow everyone even in a medium-sized city to be able to carry out a significant portion of their daily transactions in such currency would require millions of tokens.10 10. To give some sense of scale, even the relatively circumscribed 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. To be able to guarantee all of them, Henry would have to be almost unimaginably rich. JCT: Only if he tried to use an expensive medium for his chips. King Henry used sticks of wood and didn't need to be rich to print up all the regal IOUs (with stubs for verification) he wanted. Who'd want to get caught with a "supposed" tally that didn't have a corresponding stub in the King's Treasury? Pretty good reason to just work for the Tally rather than try to counterfeit it. DG: All this would be much less of a problem, however, if Henry were, say, Henry II, King of England, Duke of Normandy, Lord of Ireland, and Count of Anjou. The real impetus for the Chartalist position, in fact, came out of what came to be known as the "German Historical School," whose most famous exponent was the historian G.F. Knapp, whose State Theory of Money first appeared in 1905.11 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. JCT: I didn't know this history. Of course, there were money reformers in all countries. Bet these guys were on Social Credit's Major Douglas's reading list. http://SmartestManOnEarth.Ca/dougtxts DG: If money is simply a unit of measure, it makes sense that emperors and kings should concern themselves with such matters. Emperors and kings are almost always concerned to established uniform systems of weights and measures throughout their kingdoms. It is also true, as Knapp observed, that once established, such systems tend to remain remarkably stable over time. During the reign of the actual Henry II (1154- 1189), just about everyone in Western Europe was still keeping their accounts using the monetary system established by Charlemagne some 350 years earlier - that is, using pounds, shillings, and pence - despite the fact that some of these coins had never existed (Charlemagne never actually struck a silver pound), JCT: Notice how many civilizations use the Pound. The Mina was a pound! About a pound is always part of every measuring system. DG: According to the Chartalists, this doesn't really matter. What matters is that there is a uniform system for measuring credits and debts, and that this system remains stable over time. The case of Charlemagne's currency is particularly dramatic because his actual empire dissolved quite quickly, but the monetary system he created continued to be used for keeping accounts within his former territories for more than 800 years. It was referred to, in the sixteenth century, quite explicitly as "imaginary money," and deniers and livres were only completely abandoned as units of account around the time of the French Revolution.13 13. Einaudi 1936. Cipolla (1967) calls it "ghost money." JCT: "In-head" accounting with "ghost money." DG: According to Knapp, whether or not the actual, physical money stuff in circulation corresponds to this "imaginary money" is not particularly important. It makes no real difference whether it's pure silver, debased silver, leather tokens, or dried cod - provided the state is willing to accept it in payment of taxes. Because whatever the state was willing to accept, for that reason, became currency. JCT: That's the holy grail for any community currency system. DG: One of the most important forms of currency in England in Henry's time were notched "tally sticks" used to record debts. Tally sticks were quite explicitly IOUs: both parties to a transaction would take a hazelwood twig, notch it to indicate the amount owed, and then split it in half. The creditor would keep one half, called "the stock" (hence the origin of the term "stock holder") and the debtor kept the other, called "the stub" (hence the origin of the term "ticket stub.") Tax assessors used such twigs to calculate amounts owed by local sheriffs. Often, though, rather than wait for the taxes to come due, Henry's exchequer would often sell the tallies at a discount, and they would circulate, as tokens of debt owed to the government, to anyone willing to trade for them.14 P49: Recall here the little parable about Henry's IOU. The reader might have noticed one puzzling aspect of the equation: the IOU can operate as money only as long as Henry never pays his debt. In fact this is precisely the logic on which the Bank of England - the first successful modern central bank - was originally founded. In 1694, a consortium of English bankers made a loan of L1,200,000 to the king. In return they received a royal monopoly on the issuance of banknotes. What this meant in practice was they had the right to advance IOUs for a portion of the money the king now owed them to any inhabitant of the kingdom willing to borrow from them, or willing to deposit their own money in the bank - in effect, to circulate or "monetize" the newly created royal debt. This was a great deal for the bankers (they got to charge the king 8 percent annual interest for the original loan and simultaneously charge interest on the same money to the clients who borrowed it), but it only worked as long as the original loan remained outstanding. To this day, this loan has never been paid back. It cannot be. If it ever were, the entire monetary system of Great Britain would cease to exist.16 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. JCT: Isn't the history you didn't know fascinating? DG: So what exactly was the point of extracting the gold, stamping one's picture on it, causing it to circulate among one's subjects - and then demanding that those same subjects give it back again? This does seem a bit of a puzzle. But if money and markets do not emerge spontaneously, it actually makes perfect sense. Because this is the simplest and most efficient way to bring markets into being. Let us take a hypothetical example. Say a king wishes to support a standing army of fifty thousand men. Under ancient or medieval conditions, feeding such a force was an enormous problem - unless they were on the march, one would need to employ almost as many men and animals just to locate, acquire, and transport the necessary provisions.17 On the other hand, if one simply hands out coins to the soldiers and then demands that every family in the kingdom was obliged to pay one of those coins back to you, one would, in one blow, turn one's entire national economy into a vast machine for the provisioning of soldiers, since now every family, in order to get their hands on the coins, must find some way to contribute to the general effort to provide soldiers with things they want. Markets are brought into existence as a side effect. p50: As one might imagine, state theories of money have always been anathema to mainstream economists working in the tradition of Adam Smith. JCT: We're anathema they run from while they're the butt of jokes we seek out. DG: In fact, Chartalism has tended to be seen as a populist underside of economic theory, favored mainly by cranks.18 JCT: Seen by whom? Establishment shills. DG: 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. JCT: Or a Zero-Inflation policy. DG: To return to Madagascar for a moment: I have already mentioned that one of the first things that the French general Gallieni, conqueror of Madagascar, did when the conquest of the island was complete in 1901 was to impose a head tax. Not only was this tax quite high, it was also only payable in newly issued Malagasy francs. In other words, Gallieni did indeed print money and then demand that everyone in the country give some of that money back to him. Most striking of all, though, was language he used to describe this tax. It was referred to as the "impot moralisateur," the "educational" or "moralizing tax." In other words, it was designed - to adopt the language of the day - to teach the natives the value of work. Since the "educational tax" came due shortly after harvest time, the easiest way for farmers to pay it was to sell a portion of their rice crop to the Chinese or Indian merchants who soon installed themselves in small towns across the country. However, harvest was when the market price of rice was, for obvious reasons, at its lowest; if one sold too much of one's crop, that meant one would not have enough left to feed one's family for the entire year, and thus be forced to buy one's own rice back, on credit, from those same merchants later in the year when prices were much higher. As a result, farmers quickly fell hopelessly into debt (the merchants doubling as loan sharks). The easiest ways to pay back the debt was either to find some kind of cash crop to sell - to start growing coffee, or pineapples - or else to send one's children off to work for wages in the city or on one of the plantations that French colonists were establishing across the island. The whole project might seem no more than a cynical scheme to squeeze cheap labor out of the peasantry, and it was that, but it was also something more. The colonial government was also quite explicit (at least in their own internal policy documents) about the need to make sure that peasants had at least some money of their own left over, and to ensure that they became accustomed to the minor luxuries - parasols, lipstick, cookies- available at the Chinese shops. It was crucial that they develop new tastes, habits, and expectations; that they lay the foundations of a consumer demand that would endure long after the conquerors had left, and keep Madagascar forever tied to France. P52: Such examples could be multiplied endlessly. Something like this occurred in just about every part of the world conquered by European arms where markets were not already in place. Rather than discovering barter, they ended up using the very techniques that mainstream economics rejected to bring something like the market into being. JCT: To steal the resources of the residents. DG: In Search of a Myth Anthropologists have been complaining about the Myth of Barter for almost a century. Occasionally, economists point out with slight exasperation that there's a fairly simple reason why they're still telling the same story despite all the evidence against it: anthropologists have never come up with a better one.20 This is an understandable objection, but there's a simple answer to it. The reasons why anthropologists haven't been able to come up with a simple, compelling story for the origins of money is because there's no reason to believe there could be one. Money was no more ever "invented" than music or mathematics or jewelry. What we call "money" isn't a "thing" at all; it's a way of comparing things mathematically, as proportions: of saying one of X is equivalent to six of Y. As such it is probably as old as human thought. In 1894, the Greenbackers, who pushed for detaching the dollar from gold entirely to allow the government to spend freely on job-creation campaigns, invented the idea of the March on Washington - an idea that was to have endless resonance in U.S. history. L. Frank Baum's book The Wonderful Wizard of Oz, which appeared in 1900, is widely recognized to be a parable for the Populist campaign of William Jennings Bryan, who twice ran for president on the Free Silver platform - vowing to replace the gold standard with a bimetallic system that would allow the free creation of silver money alongside gold.21 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.) JCT: What's "free credit?" "Interest-free credit?" bP53: As with the Greenbackers, one of the main constituencies for the movement was debtors: particularly, Midwestern farm families such as Dorothy's, who had been facing a massive wave of foreclosures during the severe recession of the 1890s. According to the Populist reading, the Wicked Witches of the East and West represent the East and West Coast bankers (promoters of and benefactors from the tight money supply), the Scarecrow represented the farmers (who didn't have the brains to avoid the debt trap), the Tin Woodsman was the industrial proletariat (who didn't have the heart to act in solidarity with the farmers), the Cowardly Lion represented the political class (who didn't have the courage to intervene). The yellow brick road, silver slippers, emerald city, and hapless Wizard presumably speak for themselves.22 22. They only became ruby slippers in the movie. "Oz" is of course the standard abbreviation for "ounce."23 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. As an attempt to create a new myth, Baum's story was remarkably effective. As political propaganda, less so. William Jennings Bryan failed in three attempts to win the presidency, the silver standard was never adopted, and few nowadays even remember what The Wonderful Wizard of Oz was originally supposed to be about.24 JCT: The changing from silver slippers to ruby shows intent to misinform so the censors thought he meant it that way too. DG: For state-money theorists in particular, this has been a problem. Stories about rulers using taxes to create markets in conquered territories, or to pay for soldiers or other state functions, are not particularly inspiring. German ideas of money as the embodiment of national will did not travel very well. all national currencies were henceforth, as neoclassical economists like to put it, "fiat money" backed only by the public trust. And "fiat" money created by private banks is backed by the collateral pledged, usually in excess. JCT: The collateral for "fiat currency" is actually the tax- redemption value. So not backed by the public trust but backed by the public need. P54: John Maynard Keynes.. conclusion was more or less the only conclusion one could come to if one started not from first principles but from a careful examination of the historical record: that the lunatic fringe was, essentially, right. Whatever its earliest origins, for the last four thousand years money has been effectively a creature of the state. To-day all civilized money is, beyond the possibility of dispute, chartalist.27 This does not mean that the state necessarily creates money. Money is credit, it can be brought into being by private contractual agreements (loans, for instance). The state merely enforces the agreement and dictates the legal terms. Hence Keynes' next dramatic assertion: that banks create money, and that there is no intrinsic limit to their ability to do so: since however much they lend, the borrower will have no choice but to put the money back into some bank again, and thus, from the perspective of the banking system as a whole, the total number of debits and credits will always cancel out.28 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 assets 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 assets, perfectly balancing each other out. JCT: But it doesn't work. That's the paradox. They forgot the trillion in debt grew with interest while the trillion in deposits did not, not perfectly balancing out. Forgetting the growth of debt unmatched by money causes the paradox. 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. JCT: Where does the interest come from to pay your interest. From someone else's Principal borrowed in the mort-gage. 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. P55: The real weak link in state-credit theories of money was always the element of taxes. It is one thing to explain why early states demanded taxes (in order to create markets). It's another to ask "By what right?" Assuming that early rulers were not simply thugs and that taxes were not simply extortion - and no Credit Theorist, to my knowledge, took such a cynical view even of early government - one must ask how they justified this sort of thing. JCT: Contribute or leave? P56: Hindu texts constitute the earliest known historical reflections on the nature of debt. Actually, even the very earliest Vedic poems, composed sometime between 1500 and 1200 BC, evince a constant concern with debt - which is treated as synonymous with guilt and sin.32 There are numerous prayers pleading with the gods to liberate the worshipper from the shackles or bonds of debt. Sometimes these seem to refer to debt in the literal sense - Rig Veda 10.34, for instance, has a long description of the sad plight of gamblers who "wander homeless, in constant fear, in debt, and seeking money." Elsewhere it's clearly metaphorical. JCT: Not gamblers who play blackjack, those who signed up for the mort-gage death-gamble are the gamblers running away. P59: Why were cattle so often used as money? The German historian Bernard Laum long ago pointed out that in Homer, when people measure the value of a ship or suit of armor, they always measure it in oxen - even though when they actually exchange things, they never pay for anything in oxen. It is hard to escape the conclusion that this was because an ox was what one offered the gods in sacrifice. Hence they represented absolute value. If you start from the barter theory of money, you have to resolve the problem of how and why you would come to select one commodity to measure just how much you want each of the other ones. If you start from a credit theory, you are left with the problem I described in the first chapter: how to turn a moral obligation into a specific sum of money, how the mere sense of owing someone else a favor can eventually turn into a system of accounting in which one is able to calculate exactly how many sheep or fish or chunks of silver it would take to repay the debt. JCT: That's what a free market is for. It's basically putting your product on the market and letting people bid on it. And you get what you're worth. Just like in a LETS timebank. Better producers command more Hours/hour. DG: Or in this case, how do we go from that absolute debt we owe to God to the very specific debts we owe our cousins, or the bartender? The answer provided by primordial-debt theorists is, again, ingenious. If taxes represent our absolute debt to the society that created us, then the first step toward creating real money comes when we start calculating much more specific debts to society, systems of fines, fees, and penalties, or even debts we owe to specific individuals who we have wronged in some way, and thus to whom we stand in a relation of "sin" or "guilt." This is actually much less implausible than it might sound. One of the puzzling things about all the theories about the origins of money that we've been looking at so far is that they almost completely ignore the evidence of anthropology. Anthropologists do have a great deal of knowledge of how economies within stateless societies actually worked - how they still work in places where states and markets have been unable to completely break up existing ways of doing things. There are innumerable studies of, say, the use of cattle as money in eastern or southern Africa, of shell money in the Americas (wampum being the most famous example) or Papua New Guinea, bead money, feather money, the use of iron rings, cowries, spondylus shells, brass rods, or woodpecker scalps.42 The reason that this literature tends to be ignored by economists is simple: "primitive currencies" of this sort are only rarely used to buy and sell things, and even when they are, never primarily to buy and sell everyday items such as chickens or eggs or shoes or potatoes. Rather than being employed to acquire things, they are mainly used to rearrange relations between people. Above all, to arrange marriages and to settle disputes, particularly those arising from murders or personal injury. P61: Barbarian Law Codes," established by many Germanic peoples after the destruction of the Roman Empire in the 600s and 700s - Goths, Frisians, Franks, and so on - soon followed by similar codes published everywhere from Russia to Ireland, make it abundantly clear just how wrong are conventional accounts of Europe around this time "reverting to barter." Almost all of the Germanic law codes use Roman money to make assessments; penalties for theft, for instance, are almost always followed by demands that the thief not only return the stolen property but pay any outstanding rent (or in the event of stolen money, interest) owing for the amount of time it has been in his possession. Compensation in the Welsh laws is reckoned primarily in cattle and in the Irish ones in cattle or bondmaids (cumal), with considerable use of precious metals in both. In the Germanic codes it is mainly in precious metal . . . In the Russian codes it was silver and furs, graduated from marten down to squirrel. P63: We don't even know if interest-bearing loans existed in Vedic India - which obviously has a bearing on whether priests really saw sacrifice as the payment of interest on a loan we owe to Death.47 JCT: Of course interest-bearing loans have existed since the dawn of man when two guys both wanted to borrow another's abundance and first offered the incentive of a little more than the next guy. 47. Interest-bearing loans certainly existed in Mesopotamia, but they only appear in Egypt in Hellenistic times, and in the Germanic world even later. JCT: I've written how interest always arises naturally in times of scarcity: HOW INTEREST ARISES One tale to show how interest occurs quite easily, Especially when humans find themselves in scarcity: A father leaving his estate, his sons he has but four, To each of them he gives a sac of seed to grow some more. The first son had misfortune due to natural event, The loss of crop to a tornado, the predicament. The second son, he suffered too, with locusts in his field, His children soon would starve after an insufficient yield. The third son had a tiny crop, but it was touch-and-go, He had eight kids who ate most everything that he could grow. The fourth son's crop was bountiful, his granaries were full. His brothers asked if some spare seeds might be available. In his right ear he heard advice that he knew to be true, "Do help them out and should you fail, they'll be there helping you." But in his wrong ear he heard words so greedy in their tone, "Don't risk security for your success was all your own. But if you rent your seeds to them and gain from what they reap, You soon won't have to work with interest to earn your keep." At some point in man's history, a brother chose that way, Enslaved with debt all of the others lasting to this day. JCT: As soon as you have some spare and there are others short, they'll compete to offer you interest. The only possible reason there might have been no interest-bearing loans in such cultures is if the ruler was providing his own interest-free loans. Who would go to the loanshark Bank of Montreal when I can go to the interest-free Bank of Canada? DG: in the ancient world free citizens didn't usually pay taxes. Generally speaking, tribute was levied only on conquered populations. Subject cities, however, did have to pay tribute. Even within the Persian Empire, Persians did not have to pay tribute to the Great King, but the inhabitants of conquered provinces did.51 None of this, however, deals a mortal blow to the state theory of money. Even those states that did not demand taxes did levy fees, penalties, tariffs, and fines of one sort or another. But it is very hard to reconcile with any theory that claims states were first conceived as guardians of some sort of cosmic, primordial debt. P64: It's curious that primordial-debt theorists never have much to say about Sumer or Babylonia, despite the fact that Mesopotamia is where the practice of loaning money at interest was first invented, probably two thousand years before the Vedas were composed - and that it was also the home of the world's first states. But if we look into Mesopotamian history, it becomes a little less surprising. Again, what we find there is in many ways the exact opposite of what such theorists would have predicted. JCT: Perhaps monopolizing all the seeds in the hands of one brother, or cousin, or tribe helped create the big empires. Maybe usury was necessary for monopoly of resources necessary for conquest. DG: We don't know precisely when and how interest-bearing loans originated, since they appear to predate writing. Most likely, Temple administrators invented the idea as a way of financing the caravan trade. This trade was crucial because while the river valley of ancient Mesopotamia was extraordinarily fertile and produced huge surpluses of grain and other foodstuffs, and supported enormous numbers of livestock, which in turn supported a vast wool and leather industry, it was almost completely lacking in anything else. Stone, wood, metal, even the silver used as money, all had to be imported. From quite early times, then, Temple administrators developed the habit of advancing goods to local merchants - some of them private, others themselves Temple functionaries - who would then go off and sell it overseas. Interest was just a way for the Temples to take their share of the resulting profits.54 54. Hudson's interpretation (2002) suggest that interest may have instead originated in rental fees. JCT: Interest isn't just a "way" to take their share but a trap of a way. However, once established, the principle seems to have quickly spread. Before long, we find not only commercial loans, but also consumer loans - usury in the classical sense of the term. By c. 2400 BC it already appears to have been common practice on the part of local officials, or wealthy merchants, to advance loans to peasants who were in financial trouble on collateral and begin to appropriate their possessions if they were unable to pay. It usually started with grain, sheep, goats, and furniture, then moved on to fields and houses, or, alternately or ultimately, family members. Servants, if any, went quickly, followed by children, wives, and in some extreme occasions, even the borrower himself. These would be reduced to debt-peons: not quite slaves, but very close to that, forced into perpetual service in the lender's household - or, sometimes, in the Temples or Palaces themselves. In theory, of course, any of them could be redeemed whenever the borrower repaid the money, but for obvious reasons, the more a peasant's resources were stripped away from him, the harder that became. P65: The effects were such that they often threatened to rip society apart. If for any reason there was a bad harvest, large proportions of the peasantry would fall into debt peonage; families would be broken up. Before long, lands lay abandoned as indebted farmers fled their homes for fear of repossession and joined semi - nomadic bands on the desert fringes of urban civilization. JCT: These are the infamous "Habiru," outlaws populating most nations at the time. DG: Faced with the potential for complete social breakdown, Sumerian and later Babylonian kings periodically announced general amnesties: "clean slates," as economic historian Michael Hudson refers to them. Such decrees would typically declare all outstanding consumer debt null and void (commercial debts were not affected), return all land to its original owners, and allow all debt-peons to return to their families. Before long, it became more or less a regular habit for kings to make such a declaration on first assuming power, and many were forced to repeat it periodically over the course of their reigns. JCT: But leaving the positive feedback on debts on kept causing the same problems over and over and over again. DG: In Sumeria, these were called "declarations of freedom" - and it is significant that the Sumerian word amargi, the first recorded word for "freedom" in any known human language, literally means "return to mother" - since this is what freed debt-peons were finally allowed to do.56 56. In ancient Egypt there were no loans at interest, and we know relatively little about other early empires, so we don't know how unusual this was. JCT: I heard Egypt used glass money for local currency so Pharaoh could have been a wise ruler. But by the time of Akhenaten's father, Amenhotep III, they were getting short of gold and besieged by pleas from other empires to buy their goods by sending gold. So whether they had interest-bearing loans internally, by the time of Pharaoh Phlower Child, I'd bet they had amassed a huge foreign debt in gold. Even reduced to sending metal with gold. Probably Horemheb gave Solomon his daughter to wife, better terms on his loan. DG: But the Chinese evidence is at the very least suggestive. Chinese theories of money were always resolutely Chartalist; and in the standard story about the origins of coinage, since at least Han times, the mythic founder of the Shang dynasty, upset to see so many families having to sell their children during famines, created coins so that the government could redeem the children and return them to their families (see chapter 8, below). JCT: Genghis and Kublai known for using bark bucks. P67: evidence as we do have suggests that the crucial documents date from sometime between 500 and 400 BC - that is, roughly the time of Socrates - which in India appears to have been just around the time that a commercial economy and institutions like coined money and interest-bearing loans were beginning to become features of everyday life. The intellectual classes of the time were, much as they were in Greece and China, grappling with the implications. P70: The only way to redeem ourselves is to dedicate ourselves to the service of Humanity as a whole. In his lifetime, Comte was considered something of a crackpot, but his ideas proved influential. His notion of unlimited obligations to society ultimately crystallized in the notion of the "social debt," a notion taken up among social reformers and, eventually, socialist politicians in many parts of Europe and abroad.62 "We are all born as debtors to society" JCT: And Major Douglas says we are all born share-holders in society with a due dividend from investment of our forefathers' achievements. Quite the polar views, debtor and inheritor.
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