Wednesday, September 26, 2012

Book Review: 'Debt: the first 5000 years' by David Graeber

File under: the library

Just finished reading “Debt: The first 5000 years” by David Graeber. A very interesting book for anyone interesting in getting some perspective on the financial crisis and generally our modern world of economics. The book does this not by discussing the current crisis, but by taking a historical perspective on debt.

Being an anthropologist (and apparently one of the inspirations behind the occupy movement, something I was totally unaware of until I checked him on the Net to look for other books written by him), David Graeber takes the reader on a tour de force through the last 5000 years of human history, starting with the ancient civilizations in Mesopotamia, covering ancient Greece, the Roman empire, the Middle Ages in Europe, Arabia, and China, finally arriving in the industrial revolution and the present time.

The first thing the book does is to discuss the usual myth that money was invented to make barter and exchange of goods easier. You’ve probably all heard about this at some point of your life. While in a barter economy, people (hypothetically speaking) would have to have an exact match of needs in order to do an exchange, money made this much easier. So instead of Bob having to find someone to give him meat in exchange for leather, he could just pay someone money, and everything is fine.

The point is that since Adam Smith, the founding father of economics, has told this story, anthropologists failed to find a single community of humans where money has been invented in this way. Even more interestingly, the problem of an exact match of needs simply does not occur. In reality, people are usually in some form of relationship, say as members of the same village, and what invariably happens throughout human history is that people work with some form of keeping track of who owns what to whom. So if Bob needs meat, he simply gets the meat from Frank, but he will then owe Bob some equivalent of meat. Often goods are roughly divided into a hierarchy of objects to keep track of who owes what to whom, and that seems to work quite fine most of the time.

The first conclusion of the book is therefore that debt predates money, contrary to what we normally believes.

The book then explores how debt and money have developed over the ages. I found it a very interesting read. As it turns out, history has seen cycles of going from very money intensive times (in the sense that people were using coins) to times of virtual money and credit. For example, at the beginning of the middle ages, coins practically disappeared because it was used to pay for chinese luxuray goods or hoarded in churches and temples. People kept on counting their debts in Roman currencies, but otherwise people reverted back to the book-keeping of who owes what, balancing the debts every few months.

Finally, the book also argues that the usual economic point of view that everything is an exchange and humans always just try to maximize their personal gain is plainly wrong. Instead, there are at least two other ways in which people usually interact, one being what Graeber calls “communism”, that is, people more or less freely helping out each other as best as they can, and the other being “hierarchy”, as in the middle ages.

Concerning our current situation, the book also doesn’t have any final answers, but Graeber points out that we’re at the beginning of a new age of virtual money, which started when the US abandond the gold standard in 1971, and the question is whether we can learn from our past and find some new answers. One of the outspoken goals of the book is to free us from common misconceptions on the origin of money and the meaning of debt, and I think the book does a very good job at this.

Posted by Mikio L. Braun at 2012-09-26 16:11:00 +0200

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