Debt: the First 5,000 Years

by David Graeber

Pearls in Bullshit
That’s the best short summary of this book. It has a great many good ideas, but they’re buried in such rank BS that I cannot recommend it to anybody who doesn’t already know a great deal about the subject. If you are willing to accept everything in this book as truthful, then you will be badly misled. If you can see past the many mistakes, then there’s some useful content.

The first few chapters demolish the decrepit notion that money was invented to grease the wheels of commerce by making it easier to break transactions down into manageable pieces. If you wanted to barter for a horse, you’d need to find something very expensive that the seller wanted in order to make the deal. If the seller didn’t happen to want a hundred bushels of barley, you couldn’t close a deal. But by making transactions in a standard medium — money — the deal could work because the seller would always be certain that the money he got from you would be usable for some other transaction involving property that the seller *did* want.

That was the standard textbook explanation of the development of money for many years. My impression is that historians never took it very seriously; there were just too many real-world complexities to confute that explanation. But Mr. Graeber assaults the explanation furiously. He offers a different explanation: debt as a social construct. Here he is dead right: small-scale societies do indeed rely on debt as a means for regulating transactions between people. Transactions do not have to be immediately symmetric: Fred can give Mary something today, and she can acknowledge a debt that she pays off at some later date. The system is powerful, simple to implement, and flexible.

While Mr. Graeber delves deeply into the concepts of debt in small-scale societies, he is apparently unaware of three crucial facts that control the operation of debt in such societies.

The first of these is Dunbar’s Number: the number of people with whom you can maintain a stable relationship. This was elucidated by Robin Dunbar in the 1990s; when comparing the sizes of social groups of various primates with their brain sizes, he found a rough correlation which, when applied to Homo Sapiens, suggests that our ideal social group should consist of about 150 people. We seem to have a natural proclivity to cluster in groups of about 150 people. Above that number, we have difficulty keeping track of all the various social relationships. 

Keeping track of debt relationships in such a group is easy enough, and Mr. Graeber adduces lots of evidence of such groups utilizing debt systems to manage economic relationships among people. What he doesn’t realize — and this is a huge blunder on his part — is that such debt systems start to break down when the economic group exceeds 150 people. Indeed, once an economic grouping exceeds a thousand people, the personal debt systems that Mr. Graeber extols are completely useless.

The second fact the Mr. Graeber misses is the power of “cheater detection” in human social relationships. There has been plenty of research on this topic, and the phenomenon is well-established. See this scholarly paper for an explanation, and especially Figure 1 for an example. A less technical explanation can be found here. This phenomenon demonstrates that people are especially sensitive to debt violations, which makes enforcement of debt systems more reliable — but only in the context of small groups where pre-existing social relationships are in place.

The third fact that Mr. Graeber misses is the intermediate role played by “money of account”. This is a standard term from economics that I cannot recall Mr. Graeber using, but he dances all around the concept. Money of account is an imaginary form of money that is used only to keep track of debts. For example, the shekel was an ancient unit of weight (about 11 grams) that predated coinage. Long before any coins were in use, the shekel of silver or gold was used as a money of account. For example, consider some of Hammurabi’s Laws:

201. If he knock out the teeth of a freed man, he shall pay one-third of a gold mina.
203. If a free-born man strike the body of another free-born man or equal rank, he shall pay one gold mina.
204. If a freed man strike the body of another freed man, he shall pay ten shekels in money.
208. If he was a freed man, he shall pay one-third of a mina.
209. If a man strike a free-born woman so that she lose her unborn child, he shall pay ten shekels for her loss.

These were written around 1750 BC, a thousand years before coins were invented, yet they reference weights of precious metals as payments. Shekels of precious metals constituted “money of account” — which was invented before coins were invented. Yet Mr. Graeber never directly addresses the use of money of account, preferring to impose his hypothesis that all economic transactions were conducted via debt systems. 

There’s a much better explanation of how money developed. Small-scale societies did indeed rely on debt mechanisms, as Mr. Graeber correctly points out. However, once civilization developed and economic systems embraced more than a few hundred people, debt was confined to sub-societies within the larger societies. Inside a village, debt systems continued to play the dominant role in economic relationships, and it continues to play that role even today in small-scale social clusters. 

But in larger economic units, debt relationships could not be enforced, and such groups developed an alternate system based on the one commodity that was universally valued: metals. Metal of any kind was useful for such a wide range of applications; it didn’t rot or wear, and it was small enough to be easily transportable. Thus, metals became the money of account for civilizations the world over. 

Mr. Graeber refuses to recognize this simple explanation. Instead, he offers an absurd explanation for the development of money: nasty militaristic tyrants invented money to pay their soldiers, permitting them to build huge armies with which to wage imperialistic wars. They then required taxes to be paid in coinage so that they could keep the money flowing and the armies fighting.

Anybody with any knowledge of history should ask, “How did the Hittites, Egyptians, Babylonians, Assyrians, Medes, etc pay their armies before 700 BC, when coinage was invented?” The existence of large armies fighting imperialistic wars before the invention of coinage blows Mr. Graeber’s explanation right out of the water. 

Then there are the many, many historical bloopers; my copy of the book bristles with little note-tags marking the pages containing factual errors. For example, on page 214 of the paperback edition, Mr. Graeber claims that the Mesopotamian system using hollow balls called bullae were a form of IOU to record debt obligations. He claims that clay tablets were sealed inside the bullae. How he could make such a blunder escapes me. The contents of the bullae were not clay tablets, they were clay shapes representing various commodities: bushels of barley, sheep, oxen, etc. They were not records of debt, they were bills of lading. The Mesopotamians had to solve the classic problem of preventing goods from disappearing during shipment from farm to temple. If a farmer’s annual taxes were, say, thirty bushels of barley, then the tax agent went to the farm, collected the grain, and, in the presence of the farmer, sealed three pyramidal clay tokens (representing the thirty bushels of barley) inside a hollow bulla and placed his own identifying mark on the exterior. When the cart carrying the grain reached the temple, the accountant there could check the contents of the bulla against the contents of the cart.

On pages 225 - 227 Mr. Graeber mangles history. According to him, all the metals were squirreled away in temples and ornaments, and then, starting around 800 BC, war erupted all over Eurasia and armies pillaged all that gold and silver, distributing it to the common people. I find it hard to believe that any educated person could swallow this ridiculous nonsense. War is a constant of human history; there were plenty of wars long before 800 BC, and plenty of temples were looted. 

He then goes on to declare that these wars provided the impetus for the development of markets. I am at a loss for a suitable imprecation to express my reaction to this absurd claim. Markets existed long before 800 BC. It’s true that international trade grew during that period, but it had grown long before then, and continued to grow long afterwards. The only special development in trade during that time period is the Greek innovation, which I describe here

Here’s another howler on page 226:

“The period when the Greeks began to use coinage, for instance, was also the period when they developed their famous phalanx tactics, which required constant drill and training of the hoplite soldiers.” 

First, there is no direct connection between the development of coinage and the development of the phalanx; it is a mere coincidence, as anybody with a knowledge of military history can tell you. Moreover, the ‘constant drill and training’ is just plain wrong: hoplites were citizen-soldiers. Hasn’t Mr. Graeber even read the Phaedo, in which Socrates refers to his participation in the Battle of Delium, where he saved the life and armor of Alcibiades? And no, Socrates was never a professional soldier.

On page 227, Mr. Graeber refers to Athens as an aggressive military power rather than a great trading nation. { snorts of disbelief } Athens was the pre-eminent trading nation of the Greek world; its military power was an effect of its trading power. Why do you think that the Athenians extended their Long Walls from Athens all the way to the Piraeus, the port of Athens six miles away from the city?

On page 293 Mr. Graeber manages to demonstrate ignorance of two different topics in a single discussion. His explanation of the development of the Arthurian romances is, to say the least, garbled. At the same time, he dismisses knights as mere gangs of armed robbers, when in fact the mounted man-at-arms was the centerpiece of all warfare in Middle Age Christendom. The Crusades were led by knights; all the major battles of the period were fought with knights as the core force. He also manages to screw up the history of the Fourth Crusade. Reading his version, I did not at first recognize the Fourth Crusade; only after he mentioned Byzantium (which he misnames Constantinople) did I recognize what he was talking about. 

On page 296 he comes up with the screwiest explanation of the Grail story that I have ever read. Many scholars think that the Grail derives from ancient Celtic mythology of a kind of cornucopia; others think that it is derived from the Christian sacrement of holy communion. If only Mr. Graeber had taken the time to look it up on Wikipedia! Sheesh!

Here’s yet another glorious blooper, on page 308: In describing the effects of the Black Death, Mr. Graeber writes “…whole cities went bankrupt, defaulting on their bonds…” Very few cities in the 14th century were corporations. Many were ruled by a tyrant, and the tyrant may have gone bankrupt. Others were run by oligarchies. Yes, they all had their own treasuries, but these were never substantial components of the economy. More important, there were no municipal bonds back then; the first municipal bond was issued by the city of Amsterdam in 1517.

As he comes closer to modern times, Mr. Graeber drifts off into Cloud-Cuckoo Land, describing a world in which evil bankers, merchants, and governments conspire to cheat the population. Here’s a representative example of his fevered imagination at work:

“What really caused the inflation is that those who ended up in control of the bullion — governments, bankers, large-scale merchants — were able to use that control to begin changing the rules, first by insisting that gold and silver *were* money, and second by introducing new forms of credit-money for their own use while slowly undermining and destroying the local systems of trust that had allowed small-scale communities across Europe to operate largely without the use of metal currency.”

Golly gee, if all those evil people were responsible for defining gold and silver as money, howcum people long beforehand were using gold and silver as money? And how does continuing a tradition several thousand years old constitute “changing the rules”? 

As I mentioned earlier, Mr. Graeber refuses to recognize the fact that economies were extending their range through trade. As the world became more tightly integrated economically, the small-scale economic systems that he prefers were made obsolete. He bemoans that development. Does he realize that a small-scale village of a few hundred people cannot manufacture steel, glass, or any of the products of the modern world? Economic integration permits the specialization that makes it possible to provide smartphones so cheaply. 

After page 330, Mr. Graeber goes so far off into the ozone that I lost interest in reading his rants. He is a romantic who longs for the good old days when everybody lived in tiny self-sufficient villages, everybody knew and trusted each other, there was no money to corrupt their souls, and everybody enjoyed the simple life. I hope he finds that life for himself. I will point out, however, that without money and loans and interest and banks and publishers and all the other paraphernalia of modern economic systems, he would not be able to carry on his research, teaching, and writing. He’d be too busy hoeing the weeds on his farmland.