Graeber and Debt (5)

During times of war or social tumult, trust naturally declined. Coins become more important to support trade during a time when no one knew who could be trusted.

If we look at Eurasian history over the course of the last five thousand years, what we see is a broad alternation between periods dominated by credit money and periods in which gold and silver come to dominate—that is, those during which at least a large share of transactions were conducted with pieces of valuable metal moving from hand to hand. Why? The single most important factor would appear to be war. Bullion predominates, above all, in periods of generalised violence. There’s a very simple reason for that. God and silver coins are distinguished from credit arrangements by one spectacular feature, they can be stolen. A debt is, by definition, a record as well as a relation of trust. Someone accepting gold or silver in exchange for merchandise, on the other hand, need trust nothing more than the accuracy of the scales, the quality of the mental, and the likelihood that some will be willing to accept it. In a world where war and the threat of violence are everywhere, there are obvious advantages to making ones transactions simple. (Graeber p.213)

An unrelated comment about tally sticks is very interesting.

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 hazel wood twig, notch to indicate the amount owed and then split in half. The creditor would keep one half, called “the stock” (hence the origin of the term stockholder) and the debtor kept the other, called “the stub” (hence the origin of the term “ticket stub”. (Graeber p.45)

Overall, an interesting book.

Graeber and Debt (4)

In the context of the development of money, Graeber notes that the unit that debts are recorded in does not matter, provided everyone understands it and uses it. He describes how pounds shillings and pence were used as units of account in Western Europe hundreds of years after these coins had stopped circulating. Coins in these denominations did not exist, but people still used these units for recording debts and other market valuations.

The period began much as it did elsewhere with the disappearance of coinage. Money retreated into virtuality. Everyone continued to calculate costs in Roman currency, then, later in Carolingian “imaginary money”= the purely conceptual system of pounds, shillings and pence used across Western European to keep accounts well into the seventeenth century. (Graeber p.283)

Within a community- a town, a city, a guild or religious society-pretty much anything could function as money, provided everyone know there was some willing to accept it to cancel out a debt (Graeber p.74).

Trust within a community is important for the development of money. Another interesting comment is the following quote.

A debt is just an exchange that has not been brought to completion. (Graeber p.121)

This is not quite right. Debt is a complete exchange, of the ability to buy goods in the present for payments of interest in the future. I make a different point in Trade. Money indicates an exchange that has not been brought to completion.

Graeber and Debt (3)

I like David Graeber’s description of the way money emerged, partly because it fits with the approach taken in my article on Money. Graeber suggest that money functioned in two different ways in parallel in traditional societies.

1. Travellers moving outside their communities always carried gold and silver. This enabled them to purchase goods and services when they were travelling among people who did not know them and therefore could not trust them. Coins were not much use in this situation, because even if their genuineness was authenticated by the mark of a banker or king, they would be trusted outside their own territory. Travellers would use scales to measure the gold or silver they used to make purchases while on their journeys.

2. Most trade within local communities was undertaken with credit. Most people would be quite self-sufficient for food. If they wanted to buy shoes from a local cobbler or clothing from a local garment maker, they would often buy it on credit, because, they might not be able to pay for it until the harvest had come. The cobbler would know his neighbours, so he would only give credit to those he knew to be creditworthy, ie those he trusted. The garment maker might buy some shoes by swapping some debts with the cobbler. Trade emerged with local traders keeping a slate of those who owed payment to them. Banking would emerge when responsibility for recording uncompleted exchanges was taken over by a specialist. This is very similar to the process described in my parable called Beeble.

Very little of the American gold and silver that reached Europe actually ended up in the pockets of ordinary farmers, mercers or haberdashers. The lion’s share stayed in the coffers of either the aristocracy or the great London merchants, or else in the royal treasury. Small change was almost non-existent. In the poorer neighbourhoods of cities or large towns, shopkeepers would issue their own lead, leather, or wooden token money; in the sixteenth century, this became something of a fad, with artisans and even poor widows producing their own currency as a way to make ends meet. Elsewhere, those frequenting the local butcher, baker, or shoemaker would simply put things on the tab. The same was true of those attending weekly markets, or selling neighbours milk or cheese or candle-wax. In a typical village, the only people likely to pay cash were passing travellers and those considered rif-raff, paupers and ne’er do wells so notoriously down on their luck that no one would extend credit to them. Since everyone was was involved in selling something, however just about everyone was both creditor and debtor; most family income to the form of promises from other families. Everyone knew and kept count of what their neighbours owned one another; and every six months or year or so, communities would hold a general public “reckoning” cancelling debts out against each other in a great circle, with only those differences then remaining when all was done being settled by use of coin or goods. (Graeber p.327)

Cash was employed largely between strangers, or when paying rents, tithes, and taxes to landlords, bailiffs, priests, and other superiors. The landed gentry and wealthy merchants, who eschewed hand-shake deals, would often use cash with one another, especially to pay off bills of exchange drawn on London markets. Above all gold and silver were used by the government to purchase arms and pay soldiers, and amongst the criminal classes themselves. This meant that coins were most likely to be used both by the sort of people who ran the legal system-the magistrates, constables , and justices of the peace-and by those violent elements of society they saw it as their business to control. (Graeber p.329)

Graeber and Debt (2)

David Graeber has some interesting things to say about money. He demonstrates that the classic economics textbook explanation of the origins of money is wrong. Money did not emerge from barter, with a popular commodity being held to deal with the double coincidence of needs. Money began as credit. He could be right about the order of development, but that does not prove much. The important concept that he seems to miss is that the division of labour, which is essential to economic development, requires the exchange of goods and services. It does not matter much whether this began with money or with barter, but the division of labour was an important step for human society.

Graeber does not distinguish clearly enough between relationships in a community and more distant trading contacts. In a local community, people know each other and understand who can be trusted. Credit transactions can be undertaken easily in this environment.

When trade and exchange take place between people in different communities and nations, the transactors do know each other, so they will not usually be able to trust each other sufficiently got give credit. Gold and silver were always important for people travelling to different countries, because it enabled them to make payment for purchases from people who did not trust them.

Graeber and Debt (1)

I have just completed reading a book called "Debt: The First 5000 Years" by David Graeber. The interesting feature of this book is that it is written by an anthropologist, but deals with the issues of economics. If this is good anthropology, I am puzzled by it. I am not sure if all anthropologists write like this, but this book rambles from topic to topic in a very disjointed way for nearly 500 pages. I felt like a thorough editing would have reduced it to a more readable size.

I also found his approach economics quite strange. He seemed to create a lot of straw men and knocked them down without much point. He would state an economic theory, in a slightly twisted way, and then show that things did not operate in that way in some society.

Graeber’s approach to markets and the free exchange of goods and services is odd. He assumes that in most exchanges one person is ripping the other off. He does not understand that a free exchange only takes place, if both parties get something. That want more than what they had before. If that is not the case, it was not a free exchange.

Graeber puts a lot of effort into showing that Adam Smith ignored credit transactions and over emphasised cash transactions, without seeming to understand that cast is critical to what Smith was saying about free markets.