Tuesday, November 8, 2011

Debt: The First 5000 years

David Graeber, in a recent article, provides a brief chronicle of the evolution of debt through credit, monetization and bartering. In his view, the idea that bartering preceded credit is a myth. This is likely because bartering was a fluid, on-the-spot negotiation which didn't generally result in an equal exchange but an "I owe you one" agreement. He asks then, "how does that broad sense of ‘I owe you one’ turn into a precise system of measurement – that is: money as a unit of account?"

By the time historical records are written in ancient Mesopotamia, around 3200 BC, it’s already happened. There’s an elaborate system of money of account and complex credit systems. (Money as medium of exchange or as a standardized circulating units of gold, silver, bronze or whatever, only comes much later.)

So really, rather than the standard story – first there’s barter, then money, then finally credit comes out of that – if anything its precisely the other way around. Credit and debt comes first, then coinage emerges thousands of years later and then, when you do find “I’ll give you twenty chickens for that cow” type of barter systems, it’s usually when there used to be cash markets.

Graeber proposes the onset of credit from one of two places. One is what was found in Egypt: a strong centralized state and administration extracting taxes from everyone else. For most of Egyptian history they never developed the habit of lending money at interest. Mesopotamia was different because the state emerged unevenly and incompletely. At first there were giant bureaucratic temples, then also palace complexes, but they weren’t exactly governments and they didn’t extract direct taxes – these were considered appropriate only for conquered populations. Rather they were huge industrial complexes with their own land, flocks and factories. This is where money begins as a unit of account; it’s used for allocating resources within these complexes.

Interest-bearing loans, in turn, probably originated in deals between the administrators and merchants who carried, say, the woollen goods produced in temple factories (which in the very earliest period were at least partly charitable enterprises, homes for orphans, refugees or disabled people for instance) and traded them to faraway lands for metal, timber, or lapis lazuli. The first markets form on the fringes of these complexes and appear to operate largely on credit, using the temples’ units of account. But this gave the merchants and temple administrators and other well-off types the opportunity to make consumer loans to farmers, and then, if say the harvest was bad, everybody would start falling into debt-traps.

Eventually the Egyptian approach (taxes) and Mesopotamian approach (usury) fuse together, people have to borrow to pay their taxes and debt becomes institutionalized.

(Excerpt above from an interview conducted by Philip Pilkington, a journalist and writer based in Dublin, Ireland.) For a full read of the article visit What is Debt from Naked Capitalism

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