Debt, The First 5000 Years

David Graeber

Mitchell-Innes was an exponent of what came to be known as the Credit Theory of money [..] 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 [..]. 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 [short for I-Owe-You, meaning debt..].

Say, for example, that [an imaginery person] Joshua were to give his shoes to Henry, and, rather than Henry owing him a fa­vor, Henry promises him something of equivalent value. 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 is money born [..].

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. 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 [..]

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. To be able to guarantee all of them, Henry would have to be al most unimaginably rich. 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.

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 [..].

Modern banknotes actually work on a similar principle, except in reverse. 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 £1,2oo,ooo 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.

[On taxes]

Why did they make subjects pay taxes at all? This is not a question we're used to asking [..].

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 . 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.

The Islamic Wall

Medieval Islam [..] enthusiastically embraced law, which was seen as a religious institution derived from the Prophet, but tended to view government, more often than not, as an unfortunate necessity, an institution that the truly pious would do better to avoid.

In part this was because of the peculiar nature of Islamic govern­ment. The Arab military leaders who, after Mohammed's death in 632 AD, conquered the Sassanian empire and established the Abbasid Caliphate, always continued to see themselves as people of the desert, and never felt entirely part of the urban civilizations they had come to rule. This discomfort was never quite overcome - on either side. It took the bulk of the population several centuries to convert to the conqueror's religion, and even when they did, they never seem to have really identified with their rulers. Government was seen as military power -- necessary, perhaps, defend the faith, but fundamentally exte­rior to society.

In part, too, it was because of the peculiar alliance between mer­chants and common folk that came to be aligned against them. After Caliph al-Ma'mum's abortive attempt to set up a theocracy in 832 AD, the government took a hands-off position on questions of religion. The various schools of Islamic law were free to create their own educational institutions and maintain their own separate system of religious justice. Crucially, it was the ulema, the legal scholars, who were the principal agents in the conversion of the bulk of the empire's population to Islam in Mesopotamia, Syria, Egypt, and North Africa in those same years. But like the elders in charge of guilds, civic associations, commercial sodalities, and religious brotherhoods they did their best to keep the government, with its armies and ostentation, at arm's length.

"The best princes are those who visit religious teachers," one proverb put it, "the worst religious teachers are the those who allow themselves to be visited by princes."

This disjuncture had profound economic effects . It meant that the Caliphate, and later Muslim empires, could operate in many ways much like [old ones ..] We can, perhaps, speak of a kind of "military­ coinage-slavery" complex here-but it existed in a kind of bubble.

Wars of expansion, and trade with Europe and Africa, did produce a fairly constant flow of slaves, but in dramatic contrast to the ancient world, very few of them ended up laboring in farms or workshops. Most ended up as decoration in the houses of the rich, or, increasingly over time, as soldiers. Over the course of the Abbasid dynasty (750-1258 AD) in fact, the empire came to rely, for its military forces , almost exclusively on Mamluks, highly trained military slaves captured or purchased from the Turkish steppes.

The policy of employing slaves as soldiers was [..] unprecedented. In most times and places slaves are, for obvious reasons, the very last people to be allowed anywhere near weapons. Here it was systematic. But in a strange way, it also made perfect sense: if slaves are, by definition, people who have been severed from society, this was the logical consequence of the wall created between society and the Medieval Islamic state.

Religious teachers appear to have done everything they could to prop up the wall. One reason for the recourse to slave soldiers was their tendency to discourage the faithful from serving in the military (since it might mean fighting fellow believers) . The legal system that they created also ensured that it was effectively impossible for Muslims - or for that matter Christian or Jewish subjects of the Caliphate - to be reduced to slavery. Here al-Wahid seems to have been largely correct. Islamic law took aim at just about all the most notorious abuses of earlier, Axial Age societies. Slavery through kidnapping, judicial punishment, debt, and the exposure or sale of children, even through the voluntary sale of one's own person-all were forbidden, or rendered unenforceable.

In a way, one can see the establishment of Islamic courts as the ultimate triumph of the patriarchal rebellion that had begun so many thousands of years before: of the ethos of the desert or the steppe, real or imagined , even as the faithful did their best to keep the heavily armed descendants of actual nomads confined to their camps and pal­aces . It was made possible by a profound shift in class alliances. The great urban civilizations of the Middle East had always been dominat­ed by a de facto alliance between administrators and merchants, both of whom kept the rest of the population either in debt peonage or in constant peril of falling into it. In converting to Islam, the commercial classes, so long the arch-villains in the eyes of ordinary farmers and townsfolk, effectively agreed to change sides, abandon all their most hated practices, and become instead the leaders of a society that now defined itself against the state.