Crawl Across the Ocean

Thursday, December 06, 2012

108. Debt, The First 5,000 Years

Note: This post is the one hundred and eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Well, that was a slightly longer break than I planned, and I can't really promise a return to regular posting, but at any rate, this week's topic is the book, "Debt: The First 5,000 Years' by David Graeber. I was expecting this book to be interesting, but not too relevant to this series of posts, but I was quite wrong about that, as Graeber spends as much or more time talking about ethics as he does talking about money and debt (generally he talks about the two topics together).

In fact, Graeber argues that our current society is so dominated by the morality and logic of exchange that we don't can't even talk about morality without using the language of exchange.

One drawback of the book is that it is not particularly orderly, with Graeber wandering from topic to topic without offering much in the way of summaries or argument structure - so this post will likely suffer from the same deficiencies.

Early on (page 29), Graeber makes the point that barter is a form of economic transaction that is used between strangers and/or enemies, not amongst people who know each other well who would typically either share or use gifts instead of bargaining and negotiating to decide who gets what.  Later (page 68), Graeber notes that a commercial transaction (exchange) imply both separation and equality. On page 81, Graeber characterizes the 20th century as a situation where,

"on one side is the logic of the market, where we like to imagine we all start out as individuals who don't owe each other anything. On the other side is the logic of the state, where we all being with a debt we can never truly pay. We are constantly told that they are opposites, and that between them they contain the only real human possibilities. But it's a false dichotomy. States created markets. Markets require states. Neither could continue without the other, at least, in anything like the forms we would recognize today."

In the fifth chapter of the book, 'The Moral Grounds of Economic Relations, Graeber talks about the different moral systems we have for regulating economic activity,

"Anthropology has shown just how different and numerous are the ways in which humans have been known to organize themselves. But it also reveals some remarkable commonalities - fundamental moral principles that appear to exist everywhere, and that will always tend to be invoked, wherever people transfer objects back and forth or argue about what other people owe them.

One of the reasons that human life is so complicated, in turn, is because many of these principles contradict one another. ... The moral logic of exchange, and hence of debt, is only one; in any given situation, there are likely to be completely different principles that could be brought to bear. ...moral thought is founded on this very tension."

Graeber continues on to argue that we have 3 different ways of relating to each other, and that exchange is just one of these three ways.  The other two ways described by Graeber are Communism and Hierarchy.

Graeber describes communism as the 'default' mode of interaction, in which, for example, if two people are working on a car and one asks the other to hand him a wrench, the other person won't ask what they are getting in return. Graeber notes that even in clearly commercial contexts, such as a local store, there is a tendency towards a communistic approach in which what people are expected to pay depends on their means. He notes that this is why shopkeepers in poor neighbourhoods are almost always from a non-local ethnic group. Someone local would face too much pressure to cut prices for their poor customers who are also their neighbours.

After communism, Graeber discuss exchange, noting that , "what marks commercial exchange is that it's 'impersonal.'" Graeber notes that commercial relations are impermanent and can be broken off at any time, and whether in a bargaining session where both parties are trying to pay each other as little as possible or in a gift-exchange where both parties are trying to outdo one another in generosity, people feel a need to maintain equality. 

Next, Graeber describes hierarchy as a system where adherence to custom and tradition is the primary virtue and this appeal to custom is used to justify the use of force in maintaining a hierarchical social structure. The pattern of custom also takes precedence over any notion of reciprocity, "If you give some coins to a panhandler,  and that panhandler recognizes you later, it is unlikely that he will give you any money - but he well consider you more likely to give him money again."

"This is what I mean when I say that hierarchy operates by a principle that is the very opposite of reciprocity. Whenever the lines of superiority and inferiority are clearly drawn and accepted by all parties as the framework of a relationship, and relations are sufficiently ongoing that we are no longer simply dealing with arbitrary force, then relations will be seen as being regulated by a web of habit or customer."

After describing the three different modes, Graeber notes that these modes always co-exist, "We are all communists with our closest friends and feudal lords when dealing with small children."


Later, Graeber devotes a chapter to the slippery concept of 'Honour'.  Jane Jacobs classified 'Treasure Honour' as a guardian virtue in 'Systems of Survival' but Graeber sees two sides to honour, "to this day, 'honour' has two contradictory meanings. On the one hand we can speak of honour as simple integrity. Decent people honour their commitments ... to be an honourable man meant to be one who speaks the truth, obeys the law, keeps his promises, is fair and conscientious in commercial dealings ... [but] honour simultaneously meant something else, which had everything to do with ...violence"

Although Graeber sees honour as existing in both a commercial and a guardian sense, he repeatedly notes how violent (guardian-minded)  men are particularly obsessed with honour.

Graeber describes an Irish system of honour in which "one's honour was the esteem one had in the eyes of others, one's honesty integrity and character, but also one's power, in the sense of the ability to protect oneseld, and one's family and followers, from any sort of degradation or insult." This system was strictly hierarchical with greater honour assigned to people of higher rank.

In a key passage, Graeber notes the Irish system seems strange because they precisely quantified the 'price' of honour (it took 21 cows to pay for insulting the king's honour, fewer if you insulted someone of lower rank).

"What makes Medieval Irish laws seem so peculiar from our perspective is that their exponents had not the slightest discomfort with putting an exact monetary price on human dignity. For us, the notion that the sanctity of a priest or the majesty of a king could be held equivalent to a million fried eggs or a hundred thousand haircuts is simply bizarre. These are precisely the things that ought to be considered beyond all possibility of quantification. If Medieval Irish juries felt otherwise, it was because people at that time did not use money to buy eggs or haircuts. It was the fact that it was still a human economy, in which money was used for social purposes, that it was possible to create such an intricate system whereby it was possible not just to mesaure but to add and subtract specific quantities of human dignity - and in doing so, provide us with a unique window into the true nature of honour itself.

The obvious question is: What happens to such an economy when people do begin to use the same money used to measure measure dignity to buy eggs and haircuts? As the history of Mesopotamia and the Mediterranean world reveals, the result was a profound - and enduring - moral crisis."

Further on (page 260), Graeber notes the historical success of China resulting from maintaining a clear line of separation between the hierarchical and commercial spheres,

"In Confucian terms, merchants were like soldiers. Those drawn to a career in the military were assumed to be largely driven by a love of violence. As individuals, they were not good people; but they were also necessary to defend the frontiers. Similarly, merchants were driven by greed and basically immoral; yet if kept under careful administrative supervision, they could be made to serve the public good. Whatever one might think of the principles, the results are hard to deny. For most of its history, China maintained the highest standard of living in the world - even England only really overtook it in perhaps the 1820's"
For the thesis of Jane Jacob's 'Systems of Survival', the most challenging aspect of "Debt: The First 5,000 Years" is that Graeber sees medieval/enlightenment Europe as a place where there was a lot of mixing of Commercial and Guardian roles (on page 346 he refers to the 'familiar but particularly European entanglement of war and commerce"), which according to Jane Jacobs, should lead only to corruption and suffering, but instead, as Graeber notes, the countries of medieval Europe eventually attained the world's highest standards of living. Graeber dwells on the negatives caused by this mixture, the slave trade and all the ills of colonialism, but the fact remains that it was Europe that developed the means to impose their will on the rest of the world through the development of new technology and social forms of organization.

Leaving this challenge aside for now, the main thrust of Graeber's work seems to be the harm caused by the notion of debt when it crosses the boundaries of moral systems. If a commercial debt is just a commercial debt, then if a business venture fails, you declare bankruptcy and move on. If a debt is non-commercial in nature, then it is governed by human relations that take into account the relative status and ability to pay of the people involved. When commercial debts become treated as debts of honour, then people are forced to do anything to pay, no matter how horrific or unpleasant. For example, Graeber describes the depredations of Spanish soldiers in Central America as driven by their own need to pay debts back home.

This distinction between commercial debts and non-commercial ones is perhaps most noticeable in the sheer number of times that Graeber refers to some historical debt forgiveness scheme that was implemented for all debts except commercial debts.To take just a few examples:
Page 256, "where earlier codes had established a 15-percemt annual rate of interest, with exceptions for commercial loans..."

Page 290, "the revival of Roman law ... put new weapons in the hands of those who wished to argue that, at least in the case of commercial loans, usury laws should be relaxed"

Page 390, "It seems to me that we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt"

Digging around on the internet, it seems I'm not the only person who noticed this. Here's a quote from a post by Daniel Davies at Crooked Timber:

"The argument I found myself having again and again related to this particular point – on more than one occasion during the history of debt, it was noted almost parenthetically that a particular debt reform was carried out on the basis “except commercial debts”, and I found myself saying “No! Hang on! Tell me more about these exceptions!”.

And I think this because commercial debts between merchants are a really important part of the story here.


In general in the commercial world, the ability to put yourself in debt is a privilege, not an obligation – one of the most important aspects of corporate legal personhood, as an introductory legal textbook will tell you, is not the right to sue other people, but the right to be sued. If you can be sued, then you can enter into agreements with other people that they have confidence that the courts will enforce.


Although the parallel track of debt as obligation, religion and morality has certainly been there, and is described expertly in the book, from day one it has been recognised among merchants and men of commerce that the point of the debt relation is to serve the organisation and arrangement of commercial need."


Debt as per Graeber’s book is an example of this – the debt contract is basically a tool of industrial organisation that escaped from the laboratory and ran wild.


Having said that, there are some situations where Graeber’s analysis seems completely accurate. Countries don’t have bankruptcy codes governing them, and so in the sphere of international debt negotiations, one can see all the pernicious aspects of the “folk-economics” version of the debt contract that Graeber describes. Looking at the relationship between the European Union and Greece, or even Ireland, one can see that the debt relation is being specifically shaped into a tool for exercising power in a way which would not have been possible through democratic means.

...’s a very salutary reminder of what happens when people forget that debt is really only (or really only ought to be) the legal system’s best guess at what kind of arrangements would best serve the general purposes of commerce. It is, as Graeber intimates, when the debt relation takes on an independent life of its own that the problems all start."

As Davies notes, aside from providing a supporting voice to the notion of economic relations being governed by Guardian or Commercial (or Communistic) values, and aside from enumerating the many ways in which societies throughout history have separated commerce from governance and violence, Graeber ultimately makes the argument that debt in particular is a human relation that needs to be carefully regulated so that we do not mistake commercial debts for moral debts.

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