Debt: The First Five Hundred Pages

An attack on economics evidently goes down well with Graeber’s target audience. It is not a hard sell to anger the average leftist about the power and arrogance of the discipline, or to flatter them that they can see through it all. But it is an unfortunate attitude. “For – though no one will believe it,” as Keynes once wrote, “economics is a technical and difficult subject.”

Modern society has a complex, impersonal structure by which goods and services are produced and distributed. Explaining this structure is economics’ primary problem. The neoclassical strategy for solving it through methodological individualism led to the unrealistic assumptions Graeber derides. He is perfectly right to reject that solution. But it still leaves the problem, which will not be solved just by thinking in terms of a wider range of human motivations. There is an economics-sized gap in Graeber’s history, which he cannot fill. The answer to bad economics is good economics, not no economics. We need a genuine political economy.

An anodyne sentiment, no doubt, and there are no shortage of critics or critiques, but, still, we seem perpetually stuck with the neoclassical economics of the marginal revolution. Paul Krugman defines it, here:
http://krugman.blogs.nytimes.com/2012/08/28/neo-fights-slightly-wonkish-and-vague/
and seems to have little inclination to abandon it. Curious.

Bruce, surely economic models run with the prevailing ruling class: we have neoliberalism because our rich people love it. I wonder what ruling class could love Keynesianism?

Me, I say money is like language: a social construct but still, somehow, real.

Thanks for the critique at the link, a good read.

Um…and I suspect theories about the origin of money are likely to be as fruitful as theories about the origin of language.

What do you mean?

From the review: If there is one argument that provides a thread through the whole narrative, it is Graeber’s view that money has its origins in debt and not exchange, and that economics has always got this the wrong way around.

…I was anticipating a very different end to that sentence and parted ways with it at the first comma. Am I alone in looking at this sort of squinty-eyed? Is this a summary of the core argument, or of the book’s broadest strokes, that others accept as satisfactory? as serviceable?

I’d say Henry’s summary of the same material was much more fair and representative (from “First though, more about the stuff I like” to “systematically fails to engage with these ideas” more or less, maybe summasummarizable as a very nice recapitulation of the substantivist tradition in economics). But I thought Henry’s whole post was pretty spot on so I’m probably not the best person to write disinterestedly about it either.

(Adding this post to the book event of five months ago was kind of oddly posthumous or something.)

The “critique” basically accuses Graeber of having fallen victim to the “genetic fallacy”, i.e. that past origins explains current function. But it’s doubtful that Graeber is as intellectually naive or unsophisticated as all that. More likely, the latter’s project is “genealogical” rather than strictly “explanatory”, i.e. re-situating current predicaments in a much larger field of past possibilities, in order to stimulate reflection on our current alternative possibilities, (rather than insisting on the fatal inevitabilities of the current “system”). And the sort of “monetary” economics that Beggs cites in counter-position to Graeber precisely doesn’t inspire confidence in the former’s “critique”.

I am not sure that you can get a history of any economic institution or feature from say 3000 BC to 1200 AD that is much better than a series of anecdotes, which leaves me wondering whether this review is really a devastating critique of Graeber or an indictment of our tendency to fabricate “history” out of minimal evidence and various assumptions. We can’t write a good history of say Diocletian’s various economic measures and their impacts, because the evidence simply isn’t available. Likewise, there’s considerable debate about exactly how the Byzantine state was configured in terms of money, markets etc in the 8th century AD. If we turn to China, good luck writing the economic history of the Qin and Han empires, not to mention the Sui and Tang. Even in the case of so well-studied an institution as the Roman empire, we can very seldom make a half-way decent guess at something as basic as its annual budget or spending priorities. How would the Roman emperors have reacted to the idea that, say, deficits don’t matter? I don’t see how you can do much more than put together an anecdotal history in the case of the earlier periods, given the lack of evidence and the lack of connections between the pieces of information that we think we possess. I am quite happy to accept that Graeber’s work is imperfect and methodologically questionable, but in this particular instance I don’t think the critique is particularly useful or informative.

I see widespread despair in the comments so far that our choices re global history of money and debt are limited to (1) standard neoclassical economics and (2) David Graeber.

I have happy news.

There is a rich literature in Post Keynesian theory, not only on the debt origins of money, but what this means in the present day. Paul Davidson, Hyman Minsky, and L. Randall Wray are names to start with. Beggs refers to some of the originary work in Keynes, though he doesn’t bring the story up to date.

There is excellent work in contemporary Marxian theory.

There is Braudel’s work, mentioned in Beggs’ piece, and various books by Wallerstein and Frank. There is Glyn Davies’ _History of Money from Ancient Times to the Present Day_, and Kindleberger’s large-scale historical writings.

Plenty more!

None of these is above criticism. All of offer the kind of rigor and thoughtful attention to evidence that makes criticism productive.

Of course with Braudel and Vilar I meant evolutionary accounts in general, not specifically about the 19th and 20th century (though Vilar goes up to 1920).

Colin (#12): Absolutely! I think Minsky is a fine example of someone who does money right – his analysis is fully conscious of finance as an evolving system. (Though most people unfortunately know him only for the hedge-speculative-Ponzi stuff.) I would add to your list Victoria Chick, another post-Keynesian structuralist, and Perry Mehrling, who writes very interesting stuff marrying Minsky and modern mainstream financial theory.

Again – and this has already been pointed out – Graeber fails to notice that evolutionary game theory and behavioural economics are very much part of the mainstream. If he had a less antagonistic view towards mainstream economics, and a more open mind, then I suspect that Debt would be a much better book. Much of what Graeber talks about can be modeled using the techniques in Bowles’ “Microeconomics: Behavior, Institutions, and Evolution.”

I don’t think Graeber’s endeavor was to replace neoclassical economics with moral tenets but rather to demonstrate (admittedly by an array of anecdotes, but still) that the intellectual and moral foundations of the current debt economy are quite unusual when compared to the anthropological, moral and philosophical viewpoint prevalent in the last (or first) 5,000 years. I think he succeeded in a large extent in this endeavor, mostly in the way Magistra at 18 alludes to.

FWIW, I also think therein lies the crux of the intellectual (not personal) strife with Henry. Graeber is not interested in building a convincing theory of the current geopolitical system, he is in showing that the current geopolitical system has exceptional anthropological characteristics. Or, to put it in a different way (with drones and spurious punctuations), his thesis (be it right or wrong) is not “Buy our bonds! Or we’ll drone you!”, it is “A state declaring they can drone anyone? Unusual! A world of virtual money in which debtors are stigmatized and paying one’s debts is a cardinal virtue? Unusual!”

Or, to put it in a different way (with drones and spurious punctuations), his thesis (be it right or wrong) is not “Buy our bonds! Or we’ll drone you!”

It’s not drones that give the US the ability to bomb anywhere. Drones are slow, clumsy, vulnerable remote-controlled aircraft that are only any good a) when you already control the airspace, as over Afghanistan and Pakistan, or b) when all you want is something to get shot down in a revealing way, as over Lebanon. If you actually want to bomb someone in a functioning state, you don’t use drones; you use cruise missiles or manned aircraft.

@Maginstra I think in the same way, what we need isn’t necessarily books that give us the right answers, but ones that creatively make us ask different questions or give us alternative perspectives. It sounds like Graeber’s book is extremely effective at doing that. Once you have that new perspective, you can refine it, even contradict it, but you’re doing so on new terms, you’re changing the framework of the debate. And that in itself is a valuable service.

Great point and this is also exactly what Graeber did with the “we are the 99%” slogan.

A couple of things here. First, as per Salient, I am more sympathetic than Beggs is to the substantivist tradition, and think that there is a lot to be garnered from it. I do think, though, that it is linked to a moral argument (certainly in Polanyi), which sees the modern economy as a disaster, precisely because it has become disembedded from the moral, human frameworks, in which people used to conduct their everyday lives, and that what we really need to do is to re-embed it again (Graeber’s account of how we should do this, from what I’ve read of him, is more politically vague and more radical than Polanyi’s). There’s a lot of potential crossover between e.g. Polanyi and Christian socialists like Tawney.

But this stands in contrast to a Marxist tradition, which is really pretty impatient with the idea of old moral codes that we ought to return to etc. As I mentioned in my original post, there’s an overly strong account of Marx, via David Miller, in which we _need_ the kind of autonomy that markets provide us in order to properly realize socialism. But even if Miller overeggs it, there is still a very clear and consistent sense within Marx that capitalism did us a favor by wrenching us out of all of the diffuse ties and obligations of previous modes of production, rural idiocy etc. When I read Beggs’ criticism here, I think it’s stemming from something like that impatience. Which is not to adjudicate between the positions in any absolute sense, but to say that I disagree with Chris’s suggestion that Beggs is being unfair – this seems to me as a legitimate disagreement, and I think that Beggs is right to detect a strong strain of moralism in Graeber, whether you like it, or whether you don’t.

On Z – I think this is wrong – Graeber has programmatic ambitions which are … rather sweeping …. To quote one of his own tweets on the topic. “I fear I’ve created an impossible standard for myself. Other day, someone said ‘sure Debt is your Grundrisse. When will u write ur Kapital?” Magistra is right though – the book is starting interesting arguments (as well as inspiring at least one very interesting sounding sf novel in the making …).

Intellectuals are drawn to structure because it engages their analytical faculties. But in the case of Economics, the structures under consideration are often ideological constructs that mask the kinds of struggle that Marx correctly described.

The central cause of instability and inequity in society is the broad distribution of value of the selfishness/altruism ratio in the human population. At one end of the distribution are the selfless saints and at the other are the killer cannibals. Politics and economics reflect struggles among large clumps of people sharing different selfishness/altruism ratios. This was as true of the conflict between the ancient Roman Optimates and Populares as it is of American “Liberals” and “Conservatives.”

Instead of addressing the relatively intractable distribution of selfishness/altruism traits, many political commentators prefer to tinker with structures, in the foolish hope that tweaking laws, regulations, and parliamentary procedures will bring the sentiments of saints and killers into harmony. The futility of structural reform is evident in the current wave of spectacular financial corruption in the highly regulated society of the USA.

History reflects the incessant tug of war between selfish and altruistic factions, and our most realistic hope is that the magnitude of these swings may eventually be moderated by a slow civilizing tendency. Placing great hopes in structural refinements, or, worse, ideological transformations, is folly.

Everyone should read the book, disagreement or no.

No doubt we do have a problem going forward, as the business types like to say. Graeber has a piece of the solution, so does Marx, and so do the ever-irritable Libertarians, much as I hate to admit it.

The heart of the problem, it seems to me, is embedded in the anecdote Graeber tells in Debt, about the father who presents his son an itemized bill for his upbringing, which, when paid, effectively frees the son from any further filial obligation. If we think of ourselves as creatures of the society (or family, or tribe, or class, or whatever) which created us, but who nevertheless, as moderns, rather fiercely retain our notions of free will, illusory or not, then the real issue is the extent to which we are to have any say over the form our debt to that society will be structured. Whatever we legitimately owe for our existence, it doesn’t seem to me that we’re obliged to pay by enslaving ourselves in either a literal or figurative sense.

The political economy is, by its nature, a virtual reality. Debt was, arguably, the ur-element in the social construction of that virtual reality, having left its traces in the first uses of written language. Economics, as an academic discipline and a conventional set of theories, supplies both a vocabulary and prescriptive grammar for talking about, and navigating, that virtual reality, and also a technocratic secular priesthood to preside over the reproduction of that social order — the maintenance of the code, that produces the virtual reality, if you will. The moralism is an inherent part of the virtual reality, telling you how to score and who to root for, and what the referees are doing and should be doing.

Social science can have some fun, pointing out the gaps between software and hardware, between social enactments as rituals and actually getting real things done, people fed, etc. The studied unreality of neoclassical economics serves some function. I suspect it is simply usefulness to the plutocrats, but regardless of my cynicism, it does help to maintain the illusion. And, a “genuine” social science of political economy would also have to apologize for whatever structure of virtual reality it put into place. Simply taking the red pill and hoping for the best is not a good idea.

I wonder what ruling class could love Keynesianism?

The British civil service in the 1950s.

or of course and rather embarrassingly, the Nazi Party.

Living a life defined by ritual hasn’t stopped B&H from being the biggest electronics retailer on in New York City. It’s probably much more productive to look at capitalism as leading to an end to sacredness, or more prosaically creating a society where ultimate ends do not divide people.

From that standpoint Graeber vs. Marx is a real tension. One wants to extend the mission of emancipation, the other to go back before it was a problem. Having been awakened to possibilities of freedom, Graeber wants to sleep.

I had the idea that Graeber’s book was mostly an account of what we might call the economics-myths from an anthropological point of view. One could do this with other sciences, but with economics it is particularly interesting because much of economics doesn’t ‘work’ in the sense that physics ‘works’, and because economics-myths have important political consequences. I did not see or expect to find a reformation or refutation of all economics in Graeber’s book, but rather a reexamination of the more popular axioms or myth-elements. An assemblage of anecdotes seems adequate for that purpose; they lay out a sort of terrain of possible investigation, if anyone were interested.

I was somewhat surprised by the following: ‘… Graeber believes that the US public debt is “a promise … that everyone knows will not be kept,” but the truth is exactly the opposite: Treasury bonds are considered the safest, surest, most liquid store of value in the world. …’. The ‘but’ does not introduce a logical contradiction. US money maybe be the safest, etc., but it is a widely-held belief among us yellow-dog swamp-dwelling pop economist-pretenders that more money (including of course all the odd instruments recently ginned up out of nothing) has been created than the working class can ever make good on. In fact, no one seems to know how much of it there actually is. In any case, it appears there is simply not enough labor in the world to account for it, unless it is grossly devalued (in terms of labor and the things that labor produces, that is, almost everything of real value), in ways which will probably have serious political consequences. I am not the only one to have come to the conclusion that the present money system is a gaseous fable, although of course we are all cranks. It might be comforting to be dissuaded.

I did not like this review. Some thoughts, not yet organized.

Chartalism, or state money, is not IMO the fundamental issue here. The fundamental issue is that Beggs, like most economists, thinks of the economy as beginning *logically* as a barter economy, with some form of money used to facilitate exchange being logically secondary. (The historical argument is just a proxy for this, on both sides.) Obviously this is the conventional view. The problem is Beggs doesn’t actually defend it. He just keeps saying “States print the money, but not the price lists” without seeming to notice that this is exactly the claim under dispute. It needs to be established, and not just asserted, that we can think of relative prices as prior to money contracts.

Again, he simply asserts that debt contracts always must eventually settle in cash. This is another one of the main claims under dispute.

The idea that banks can extend credit only insofar as they can “convert deposits into central banknotes or gold” was already clearly wrong 100 years ago when Wicksell was writing. And it’s been debated for a lot longer — at least since the “hats” and the “caps” in 17th century Sweden. The idea that of credit money has a long history, even if Beggs is not familiar with it.

That Beggs is in doubt about whether there’s a difference between “means of payment” and “means of exchange” is symptomatic. The distinction between them is precisely that means of payment refers to money’s role in settling debt contracts, as opposed to simply facilitating the exchange of goods. Of course if Beggs doesn’t get the importance of that distinction, Debt is not going to make sense to him.

Begs: “It is odd that Graeber claims that “you can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter” – because there actually are things called dollars you can touch, carry around in your wallet, and spend.” This is just silly. Like much of this review, it’s not an argument, just a refusal to engage. A central fact about modern economies is that the vast majority of money does not take the form of tokens you can touch, and it’s perfectly possible to have money that *never* takes that form.

As Perry Mehrling — among others — points out, money should really be considered an adjective in modern economies, not a noun. It’s a quality that many different assets have to different degrees. If Beggs has’t read Mehrling, well, again, that’s his problem, not Graeber’s.

“However far credit may stretch money, it still depends on a monetary base” — again, Wicksell was already writing about a pure credit money system 100 years ago.

And finally, this:

An anchor to one commodity was, in fits and starts, replaced by a moving, flexible anchor to a whole basket of commodities averaged together. It is no accident that the period since the formal gold tie was finally cut has seen inflation become the overriding priority of economic policy. States print the money, but not the price lists. We live in an era not of fiat money, but of what Keynes called “managed money.” Unemployment disciplines money-wages and central banks have become the queens of policy, technocratic institutions isolated from democracy, their jobs too important and technical for that.

Yes, monetary policy is just a technical exercise in maintaining price stability, nothing political about it. Nothing to see here, move along please! Maybe Beggs is just paraphrasing conventional wisdom here, but in the context of the piece, it sounds more like he’s endorsing it. If that’s the Jacobin line, might as well just subscribe to The Economist.

I see Beggs recommends Mehrling upthread. Which makes me even more baffled by his criticisms of Debt.

@dsquared Maybe I read it wrong, but I thought Graeber just raised a bunch of issues and dropped the mic. I don’t remember any actual solutions. Was he really advocating the abolition of debt?

Was he really advocating the abolition of debt?

He was certainly advocating a “modern jubilee” for all current bank debt. He did not seem to realise that this would mean a confiscation of everybody’s savings (or a taxpayer bailout of similar size).

This is a very odd thing to say.

No it isn’t; as is so very very often the case, JW Mason, the problem here is that you have misunderstood what you were reading.

JW Mason (#43): A few things to respond to – I’ll take them one at a time. If you think I’m ignorant of the long history of credit money, then I really haven’t explained myself very well, so I’ll have another go.

I say in the piece, just after the bit you quote about touching dollars or Deutschmarks (emphasis added):

“What circulates in this way need not be a physical thing, but it is a thing in the sense that it cannot be in two places at once: when a payment is made, a quantity is deleted from one account and added to another. That the thing that is accepted in payment may be a third party’s liability does not change this fundamental point.”

The vast bulk of what now circulates as money fits these descriptions – it’s not physical, and it’s usually a third party’s liability (a bank’s). In certain circumstances units can make payments with their own liabilities. And this situation goes a long way back. I don’t think we disagree here.

I see I made a poor choice of words when I said “however far credit may stretch money, it still depends on a monetary base” – because ‘monetary base’ carries the sense of a static pile of gold or currency in bank vaults. It could be taken that I was making a macro-level claim about quantity and velocity (when in fact I was talking about the individual unit’s relationship to credit and money – the other half of the sentence is “people ultimately expect to get paid in some form or other”). And I think we agree that it’s not useful to talk about money in terms of the velocity of some exogenously determined quantity of money.

The point I was trying to make is that the need to make ultimate payments does constrain the extension of credit and credit-money (i.e. liabilities that circulate as means-of-payment). The monetary system is layered, in the sense that non-banks make ultimate payments with bank liabilities, while banks make ultimate payments (clearing what does not cancel out) with reserves, balances (or overdrafts) with the central bank. So the constraints are complex, soft (capable of much stretching), and especially so when the central bank is passively or actively manipulating the cost of reserves.

You bring up money as an adjective – and of course, I agree that there are many kinds of instruments that fulfil monetary functions to greater or lesser degree – whereas I am thinking in terms of a verb: units are constrained by their expected cashflows, and their perception of the risk of those cashflows. Not that long ago that largely meant holding precautionary stocks of money and liquid assets (thus the perception of money as noun), whereas now there are a great diversity of position-making practices, many involving plans to borrow in the event of a shortfall.

Minsky traced the evolution of position-making on the liability side and its consequences for policy, and Mehrling has carried this history forward, showing how it focuses pressure on the money market and drove the (re)emergence of central bank as market-maker or last resort. They both help think through the nature of the flexible constraints on credit at the macro level.

I didn’t elaborate on all this in my review because it would have been out of place – Graeber’s framework just has no place for this kind of analysis, but it seems exactly what is needed to understand the subtleties of the relationship between money and credit.

JW Mason (#43): Now, Wicksell. First, don’t you think Wicksell’s position counts against Graeber’s claim about how economists think about money – especially since neo-Wicksellianism is a dominant strain in contemporary monetary policy theory?

On Wicksell’s ‘pure credit economy’ – it’s important that this was for Wicksell an ideal type and not a description of the actual monetary system he saw around him, which he thought was somewhere between his ideal types (pure cash and pure credit).

Also, we need to take care with what Wicksell meant by money, because at the time he was writing it was the norm to treat bank deposits and notes as devices for increasing the velocity of money-proper rather than as money themselves. So, e.g., he writes that “there is no real need for any money at all if a payment between two customers can be accomplished by simply transferring the appropriate sum of money in the books of the bank”. (p. 68 of ‘Interest and Prices’) Whereas today of course we consider bank deposits as money.

In creating his ideal type ‘pure credit economy’ Wicksell makes the crucial assumption that “the whole monetary system is in the hands of a single credit institution” (p. 71). Of course this gets rid of the major liquidity constraint on individual banks in the real world – that they need to be able to settle net outflows to other banks. Even so, even in Wicksell’s pure credit economy the one big bank still has to maintain a gold reserve to meet drains abroad. This was a serious real-world constraint on national banking systems under a fixed exchange rate, at least for smaller countries.

JW Mason (#43): Couple more things – and I think you’re right that we would be mostly in agreement if we could talk it through, but I hope you don’t mind if I use your helpful criticisms to flesh out my thoughts some more!

I don’t think relative prices are “prior to money contracts”. The actual circulation of money is absolutely necessary to establish relative prices. I still think Marx dealt with this pretty well – an apparent barter system with a complex, stable system of relative exchange rates is surely not really a barter system at all, but depends on some kind of de facto money.

My point is more that the system of relative prices under capitalism is opaque to government policy. The line about the state printing the money but not the price lists is pretty much straight from chapter 1 of Keynes’ ‘Treatise’, which is sympathetic to chartalism – and I think the rest of the Treatise is about thinking through the implications of that.

It’s why I think chartalism is true and trivial or interesting and false – often chartalists jump too quickly from establishing money as a creature of the state to concluding that the state therefore has a lot of latent monetary power. Instead, I think, the state is very much constrained in its policy conduct by the systemic needs for monetary stability.

By the way, while we’re talking about Perry Mehrling and this stuff, he has a great short critique of chartalism in the Journal of Post Keynesian Economics, 22:3, 2000: “Modern money: fiat or credit?”

Oddly enough it seems that during the Clinton Administration the thought that US debt was going to be payed off, something no expected, was seen as a potential disaster.{1} The reason, it seems, was the US debt was a stable commodity that payed reasonable dividends on which those with “money” relied. This would seem to be a case of a debt no one expected to be paid off because it was an integral part of the global economy.

{1} http://www.npr.org/blogs/money/2011/10/21/141510617/what-if-we-paid-off-the-debt-the-secret-government-report
http://media.npr.org/assets/img/2011/10/20/LifeAfterDebt.pdf

I do intend to respond to Mike Beggs in detail, either here or on my own blog. But let me first spell out the big picture of what I think is at stake here.

Let’s say there’s a conflict between two sequences. One (the “economics” one) goes from exchange of goods, to exchange of tokens representing goods, to exchange of commitments to give tokens representing goods. The other (the “anthropology” one) goes from a variety of incommensurable obligations of people to each other, to a single standard to measure different obligations, to tokens representing units of that standard, to the use of those tokens to allocate goods.

So wait, what do we mean by sequences? See, that’s part of the confusion, because they can be either logical or historical. Seems to me the real debate is about the logical order, with the historical order as a stand-in on both sides.

(That said, I think history does shed light on the logical relationships, in ways that are worth coming back to maybe at some point.)

So why does it matter? Because the idea of credit-money, i.e. money as a generalization of the commitments anyone can in principle can make to anyone else, has importantly different implications even in a narrow economic sense than commodity money, money as shorthand for a fixed stock of real physical goods. In the case of money-as-generalized-commodity, it’s easy to imagine a barter economy, where all resources are put to their best purposes, and then ask if the use of money distorts that in some way. In the other case, money as generalized commitment, there is no non-monetary baseline to start from. We can imagine economies with various levels of aggregate monetary commitments and none of them is necessarily natural. A simplified but I think fair simplification of this is the question of whether there is a “natural” (not scare quotes, it is a term of art) long-term interest rate, or if — as both Marx and Keynes believed — the long-term interest rate must be regarded as a historical datum that is simply indeterminate with respect to the non-monetary features of the economy.

To me, this is the real, debate, and I think Graeber made an important contribution to it.

Tom #59, the relevant distinction is between an individual bond, and the total stock of debt owed by a gov’t. There is no inconsistency between an indefinitely growing stock of gov’t debt and repayment of individual instruments. Braudel discussed this usefully in _Civilization and Capitalism_ re British gov’t debt.

JWM, it would be nice if you could acknowledge the fact that there is an *economics* literature, to which Mike B has referred, that is not only consistent with what you overgeneralize as the “anthropology” sequence, but which has made important contributions to understanding the debt origins of money. I don’t see *anyone* on this thread arguing the up-from-barter view. This bit about what you think is the “real” debate is an evasion.

Mike Beggs,

If you’re still reading I just wanted to offer you a small, blog-comment box sized thank you. The review was great and I learnt a lot from it.

Terence

Wouldn’t it make more sense to say that debt is a solution to a problem like, how to extend a commercial transaction across a long time-horizon?

Well maybe, but I think “long” is misplaced there; debt contracts or something like them are needed for any transaction more sophisticated than the sort of spot market near-as-you-can-get-to-barter exchange that we all agree isn’t typical of any economy anywhere.

One of the many reasons that I think the genealogical fallacy is a fallacy is that we have seen at least one attempt to completely redesign the basis of such commercial relationships for an entire economy so that it didn’t use debt in the same way – Soviet Communism (production quotas weren’t debts and although there was a complicated relationship between administered prices and market prices as novelised in Red Plenty, they weren’t the same thing either).

Now Soviet Communism failed, but it wasn’t obviously crazy or doomed, and so I don’t see why we should assume that there haven’t been other, less radical and more successful redesigns of the debt and credit economy; in particular, the creation of the joint-stock company and the various reforms of bankruptcy law in the nineteenth century seem to me to be a clear and conscious effort to redevelop the debt relationship for a modern society.

I am not giving an inch on the Jubilee thing btw – it is clear that Graeber wants something that would basically destroy the currently existing banking system, and he doesn’t have a plan for dealing with the consequences of that for deposits.

would quite likely end up as an inflation tax on savings, but not as obviously institutionally broken as the Graeber plan.

In the Foucauldian sense, though, has anyone done a successful genealogical account of anything on this kind of temporal and geographic scale?

There are many monies, partial monies, kind of credit with different institutional entailments.

–

JWM, we too easily end up on CT bewailing an orthodox neoclassical position which as far as I can tell is unrepresented on this blog – even sightings in the comments are rare these days. Such bewailing is safe, easy, routine. Why not instead take the opportunity Beggs presents to engage with a much more thoughtful position?

they weren’t really Keynesians, but JMK saw enough of his own ideas in (particularly) Schacht’s policies of the 1930s to write an excruciatingly embarrassing foreword to the German translation of the General Theory (Keynes was also President of the Eugenics Society)

the genetic fallacy

He does have a sweet tooth for the argument from etymology—or the insinuation from etymology—that goes “the word ‘x’ originally meant ‘y’ so the institution or practice of x is still essentially y”.

The reason for the pretense, or more charitably, the analogy, is not that we don’t know the difference, or that economics isn’t complex, or that the economy, as a system with uncountably many inputs, has unpredictable and unmanageable consequences, it’s that economists, the often hapless analysts of that system, seem to be consistently blind to their own pretense that the system simply needs better analysts, and better managers to be finally made to work properly. The implicit assertion that, as a work in progress, the discipline of economics, and the economists who describe and defend it should be immune to naive criticism, and that its acolytes should be given a pass when the system hiccups, and leaves great swaths of devastation in its wake, is precisely what Graeber rejects.

It’s not that the word ‘x’ originally meant ‘y’ so the institution or practice of x is still essentially y, but that economists are running away from the obvious relationship of x to y in their assertion that it’s okay for the Greeks to starve as long as the banks can still get their trash swept up by the ECB, or that it’s okay to abrogate the contracts governing the pay or health care benefits of GM workers, but not those governing bonuses at Goldman Sachs. Anyone who asserts that a system which routinely produces such effects is self-contained, without any external links to the social concerns which govern much of the rest of life, deserves a bashing from people who don’t think like economists now and then, if for no other reason than to remind him that for a many of those people there is a lot more at stake than their intellectual reputations.

No, it’s not really their fault, but their complacency, if not to say their arrogance, in the face of it is — or ought to be — legendary. With a few notable exceptions, of course, none of whom seem to have any more influence over events, at least in the short run, than do we naive moralists. And if Keynes was being more than a deadpan humorist when he let slip that the ideas of dead economists are what’s pulling the strings behind the scenes, then I’d say somebody’s got some ‘splainin to do, and if we’re not up to it in your estimation, then maybe prayer is what’s called for after all.

William, did you mean to refer to A.I.G rather than Goldman Sachs?

No, I meant Goldman Sachs, but I probably should have referred to A.I.G., since the public controversy surrounding A.I.G. bonuses arose largely because of the assertion tht the bonuses in question were contractual. It’s not clear — at least to me — that the Goldman bonuses, although equally controversial, were also part of Goldman’s employment contract. In any event, your correction is welcome.

Dsquared, I’m willing to stipulate that you don’t think that economics, properly understood, demands that the Greeks starve under any circumstances, even those resulting from the collapse of the mountain of clever paper no one now seems to have been responsible for, least of all economists. Still, there are economists who do give that impression — the 172 economist who wrote this letter, for example. Perhaps my impression is a mistaken one, but if so, the mistake is an honest one, one shared by enough people, I would say, that it should be engaged rather than dismissed as irrelevant.

Yes, the very ones — who presumably know full well that Greece isn’t Argentina, and what that implies for the length of a Greek recovery once its creditors have been burned. It might well be that eine kollektive Haftung für die Schulden der Banken, if offered at the price Angela Merkel has been offering it, would be worse, but what’s gone missing is any sense of responsibility for anything but the stability of the banking system.

But to the larger point: No matter what Graeber’s shortcomings as an economist may be, he — like Marx before him — is insisting primarily that the cultural subtexts which insist that some people escape the consequences of their actions, and others resign themselves to being perpetual victims, can’t be rationalized away by equating the disasters of a modern economic with those of nature, i.e., essentially random, or value free.

I am just jumping in here and not trying to comment on the issues at all, but this (from JWM, 88) is one of the all-time great typos:

“exchange of gods is not logically prior to money contracts”

(Unless it’s not a typo, and theology really is playing a role in the conversation.)

@DSquared This is my big problem with Graeber – debt is a solution to a problem (specifically, the problem of economising on the amount of information you need to collect about people in order to have a commercial relationship with them). As a solution to a problem, it’s had a lot of time and work done on it; it has both evolved and been intelligently designed. Nearly any ad hoc “because it feels right” alternative solution is going to end up being worse.

Maybe you’re not talking about debt here so much as credit ratings? The “function” of debt itself is simply to pay later for things you need now. For some (speculators in Minsky’s taxonomy) this means never paying as long as you are profitable. But if you’re saying the evolution of credit (the basis for debt and even some commercial interactions) has “evolved” to the current system and is therefore not easily replaced, I wonder what you think of the recurring financial crises or cases of fraud that are, arguably, partly attributable to our flawed credit system?

I think an “evolutionary” perspective on debt would show how, to some extent, our current system really hasn’t developed much at all in how we evaluate creditors. For individuals, we look at ability to pay, as well as various social indicators of future earnings and decisions. The use of statistics in modern credit systems has helped “refine” this process, but may not be more accurate on an individual level than older approaches were. As for companies, certainly the shift to commercial paper in the 1970s was a change, but in many countries companies still borrow from banks, and they don’t seem to be suffering for it. Certainly the expansion of the modern state and more effective enforcement of contracts have helped increase the “trust” people have in transactions, but that’s a separate subject.

I’ve been slow to pick up Graeber’s book, mostly because what I’ve read makes me skeptical about what he has much to add to more empirically-driven accounts (to those mentioned above, I’d add the debt-related sections in Cronon’s Nature’s Metropolis, Mann’s Republic of Debtors, and Halliday and Carruthers’ Bankruptcy). However, since he argues that it’s as central to the modern economy as money, I doubt he wants to eliminate debt entirely. His jubilee concept may mostly be aimed at those economists who tend to see debt as an irrevocable “promise” guaranteed by the government, which would bring the financial system tumbling down if not kept. The irony is twofold: first that the idea of default is naturally built into debt anyways; second that the government often intervenes to help creditors, often without forcing them to take haircuts on their debt (this is not new to the current crisis). It doesn’t seem particularly extreme to point out that the relationship between debtors and creditors is constantly being negotiated by the government, and that debtors often get the short end of the stick. Even if a jubilee may be a bridge too far, there is a lot of room for government action.

Ah. “Painful, difficult, and expensive” is a very different argument than “basically destroy the currently existing banking system.”

And I am accepting that it has consequences for depositors. I’m not convinced those consequences are any worse than the consequences of the status quo is all. Plus the taxpayer is “bailing somebody out” regardless. There has been quite a lot of taxpayer bailing already, to not very much effect.

dsquared @ 92

“the size of the problem doesn’t change”

The “size” of the problem also doesn’t change the nature of the problem, which are lies in the service of parasites. When every attempt to solve what is purportedly a “liquidity” problem, (but has always been a solvency problem created by previous frauds), in order to avoid an imminent apocalypse, ends in massive transfers of financial claims to people, who should be in jail, and huge dead-weight losses to masses of “innocent” people, who might otherwise be working and producing actual goods and services, . . . well, there’s a lot to be said in economics, economic policy and finance, for simply telling the truth. It doesn’t have to an anarchist’s jubilee; it could be a domesday default, in which an equitable process re-writes claims en masse to conform to something close to reality, as we now know it, and without reference to contractual claims now proven unsustainable (and without pointless inquiry into whether they were false, by reason of fraud, beyond what determinations of equity require).

I daresay a domesday default would be more expeditious than funnelling money thru the broken shell of the Greek or Spanish governments to financial claim holders, who have no discernible economic function, and the precedent would inspire future bondholders to be, how shall we say, a bit more pro-active in their due diligence. We don’t have to zero out small bank depositers. That’s just economic sadism. Central banks can gift the masses just as effectively as they have gifted the banksters, if a domesday clean-slate would be improved as a starting point for renewed “normal” economic activity.

It really doesn’t make sense to be simultaneously calling for expansionary monetary policy and for a “domesday default”. And the good thing about having an economist’s approach to economic problems, rather than one which uses “parasites” as an analytical category, is that it tells you whether the claims you’re making make any sense. It also gives you a much better shot at knowing whether, for example, the USA is currently in recession or in recovery.

Or going back to Greece — and I loved that choose-your-own-adventure things as much as everyone else! — private creditors have substantially written down their loans to Greece, which is a kind of Jubilee. Has Greece benefited form this at all, or it would the country be better off if it had been compelled to continue servicing its debts in full?

I think if we agree that the writedowns were beneficial to Greece, and to Europe in general, then we’ve established the case for Jubilee in principle. We’re all Graeberians now, the disagreements are just about the details.

I think we can agree that the costs of a such a “strong Jubilee” would outweigh the benefits, and that no one is calling for that.

Speak for yourself, capitalist running dog.

A strong Jubilee would certainly destroy a great deal of the “privatized” welfare assets, and thus the government(s) would then have to replace, for instance the defined contribution plans (IRAs, 401-ks, etc), with defined benefit government programs. In fact, I think a Jubilee is likely the only way we will ever get back to a commons that unconditionally guarantees the well-being of people, rather than leaving their retirements at the mercy of speculating banksters.

Same goes for health care, insurance, finance, utilities, transportation etc.

Neo-liberalism is about making the privatization of the commons too big to fail, and thus making democratic soc/ialism impossible, both as democracy and commons.

So/cialism will only come about coincident with a total Jubilee.

Suppose we understood a “weak Jubilee” as policies that would significantly raise those rates, for instance by relaxing bankruptcy rules.

Whoa, we started with a “biblical Jubilee” and now we’re talking about bankruptcy reform as if it were the same thing? Graeber wants to “wipe the slate clean” and make enough of a reduction in the total debt stock in the USA (or worldwide) to facilitate a wholesale change in social relations. He doesn’t have an explanation for how this wouldn’t be equivalent to a massive monetary contraction, he doesn’t explain who is going to make further credit available to replace the banks that have just gone under (presumably he doesn’t want any more credit extended) and when you ask him about how we are going to get long term projects financed after this Jubilee he tends to waffle. God knows, if you ask him what sort of transitional arrangements might be necessary and how we all avoid total economic collapse while the new order is being brought in you’re not going to get an answer.

I think you’ve got this the wrong way round JW. It’s not doing any favours to Graeber to pretend that the conclusion of D5K was meant to be a mild adjustment of bankruptcy rates. He wants to get rid of debt as it’s currently understood. He thinks that favourable economic consequences (where this might have a deeper, more anthropological, special, human meaning, rather than simply “more outputs for the same amount of inputs”) would ensure from this. He isn’t very good on the details.

Whoa, we started with a “biblical Jubilee” and now we’re talking about bankruptcy reform as if it were the same thing?

Well, they are two points on a continuum.

I guess my concern is less with Graeber’s specific political proposals — which as I recall them are fairly vague — and more with whether his general perspective contributes any thing to a viable politics. I also believe that moderate programs tend to benefit from having maximal versions in circulation. So it seems to me that if you see any value in thinking about political conflicts between debtors and creditors then you can take lots of useful stuff from Debt without having to accept the whole package.

The question really comes down to, are debtors and creditors useful political categories. Or is SmaChevre right that

“bondholders/parasites” is a bad name for a class that could also be described as “retired workers”

I am inclined to think the answer is Yes, it can be useful to talk about a systematic conflict between debtors and creditors. There are smart people I respect (like Doug Henwood, and you, I guess, for that matter) who think it’s No. Maybe you all are right and I’m wrong, maybe the politics of debt is just a distraction from the fundamental conflict between workers and owners. But I don’t think this can be settled a priori, and I don’t think it’s a mistake to explore the question.

Don’t forget German banks: A Greek default could leave many Eurozone banks short of capital to meet Basel II requirements.

As for debtor v. creditor, workers v. capitalists is better. An owner of corporate bonds is (cue MM theorem, Fisher separation) a capitalist and a creditor, as is a worker with net savings. A worker with net borrowing is a debtor, and a capitalist with stocks a debtor, as he gains from inflation by virtue of having assets, not nominal cash flows. Yet, somehow I doubt that this debtor/creditor alignment prevents the workers from having common cause against both sets of bosses.

And I am accepting that it has consequences for depositors. I’m not convinced those consequences are any worse than the consequences of the status quo is all.

Well, one consequence would be that your wages aren’t there any more (presuming you don’t get paid and conduct business purely cash in hand). This suddenly happening to several hundred million workers would, I think, be quite the event. I know it would be quite problematic for me, especially if I wasn’t allowed to borrow…

But what about partial writedowns? Note that some debt is always being written down, through defaults of various sorts.

Dsquared—correct me if I’m wrong!—is saying that no such policy could be welfare-improving, either for debtors or of society in general. Interest rates would rise by at least as much as the chargeoff, so that net debt service payments would remain the same or increase.

I am not aware he has ever said this. He has certainly gone on the record supporting both bankruptcy and inflation as means of adjusting impossible nominal claims in general, and cramdown in the specific case of the US housing market. In fact, within this thread, he has argued that non-recourse mortgages are an example of an institution that writes off unpayable debts and therefore a good thing. In general, he is strongly in favour of renegotiating economic contracts that have become unrealistic – and he said this on his blog before he stupidly decided to hide it.

First, Crooked Timber, your comments threads are the envy of the internet.

JW Mason (#61) : I really do think we are on the same page in general, if not about what Graeber’s book brings to the table.

I agree about the distinction between logical and historical order, which I think I made in my review. Where I would differ from what you put here is that I think ‘logical order’ is about the order of presentation of a model of a system, whereas you seem to be saying that it has implications for the system itself. That is, you can’t describe a complicated system all at once, you have to start somewhere and build out to the rest. I think it’s quite possible to start from different starting points and reach more or less the same picture. No doubt the starting point makes a difference in how the whole is framed, so one or another might be preferable on ideological grounds.

To use a dubious mechanical example – if we were describing a car and how it works, you might start from the engine and internal combustion, or you might start from the wheels. Eventually you’d have to get to both. But it doesn’t seem that if you start from the engine you’re committed to an engine theory of cars, and necessarily at war with the wheel theorists.

You and Graeber may be arguing that starting from debt in a vision of money is ideologically preferable to starting from exchange, that it puts the important political issues more in the centre of the frame. I would disagree, but I don’t think on that grounds it makes starting from debt wrong – ultimately we could get to the same place from either side. I don’t think starting from exchange necessarily means a conservative theory of money – it’s where the neoclassicals start, sure, but it’s also where Marx starts.

Having said all this, I do think starting a presentation about money (and what it does in capitalism) from exchange makes more intuitive sense than starting from debt. (And this is not necessarily to start from a barter model.) Graeber himself says the difference between an obligation and a debt is that the latter is quantified in terms of money. (p. 21) What meaning does this quantity have unless money is also already being used to value other things? Debts are denominated in the same money used in exchange. Both creditors and debtors make their decisions about the size of debt contracts they will enter into based on expected future monetary flows from the sale of goods or services, including labour. So it seems to me easier to start the explanation from a hypothetical world of exchange without debt, and then introduce debt, than to do it the other way around.

It seems to me that we can only talk in terms of a conflict between debtors and creditors to the extent that those two groups have distinct and conflicting interests – something that’s only trivially true. (It’s in my bank’s interest for me to take out a loan and repay it with interest; it’s not in their interest for me to go broke.) It also seems to me that a large part of what went wrong in the run-up to 2007/8 was precisely the creation of a situation in which nobody knew who owed what to whom, or quite how bad it would be if anyone defaulted.

Mike Beggs writes:

My own favourite flavour of economic analysis happens to be the modern Marxian/post-Keynesian tradition.

But in his review, he claims to refute chartalism as follows:

The mint can print any numbers on its bills and coins, but cannot decide what those numbers refer to. That is determined by countless price-setting decisions by mainly private firms, reacting strategically to the structure of costs and demand they face, in competition with other firms.

That’s a flat out religious assertion of neoclassical doctrine (and wrong, of course).

For people like me who think Marx was infected by Ricardo and imported Ricardo’s wordview into his work, that’s not too surprising, but I’d be interested to know how Beggs justifies this faith in the capitalist market value setting as “Marxian”. Certainly Keynes would not have accepted that theory as self-evident.

http://krebscycle.tumblr.com/post/30459002952/oil-economists-and-chartalism

Don’t forget German banks: A Greek default could leave many Eurozone banks short of capital to meet Basel II requirements.

Not true. (Presuming you mean Basel 3). Bank creditors wrote down their GGBs by 75% already. A Greek default is worth avoiding for all manner of reasons, but not that one.

Dsquared—correct me if I’m wrong!—is saying that no such policy could be welfare-improving, either for debtors or of society in general. Interest rates would rise by at least as much as the chargeoff, so that net debt service payments would remain the same or increase.

There are loads of such policies that could be right, although nearly all of the workable ones would involve an adjustment of real values via the price level rather than messing around with fixed nominal-terms contracts (Keynes’ big insight was the importance of fixed nominal-terms contracts). To get to a workable policy though, you would have to do a lot of hard yards with institutional arrangements. And worse, the institutional arrangements would be well-documented and currently available, so broad generalisations wouldn’t be able to do the work of specific chapter and verse, and you might find a lot of people contradicting you. And even worse, there are still enough sensible institutionalist economists left, so in your quest for the right debt policy you’d still have to be dealing with a lot of people who don’t agree with you about the importance of ancient Sumeria.

I also don’t agree that closing my blog was a bad idea, but that may be for another post …

Oh please, nobody argued that a monetary authority could set the real value of its currency by fiat. But Beggs argued that the value is set by the price setting activities of competitive firms. And that is clearly false. You cannot make the roles of states disappear by going “oh yes, they have and effect” and then dismissing their effect as inconsequential.

If the US government were to announce it had no strategic interest in supporting the continued rule of the House of Saud, what do you think would happen to the price of oil and to all the goods “produced by private sector firms … ” either from oil or depending on oil? And what about the value of the dollar?

Or consider the value of the yuan? Are you claiming that it is determined or even mostly determined by the price setting of private companies?

By asserting, as an axiom, that the value of a currency is “determined by countless price-setting decisions by mainly private firms” (on the basis of no evidence), one can rhetorically dismiss the role of states from economic analysis, but that only makes the analysis worthless.

Clearly there is some combination of state operation and non-state firm price setting, but once you admit that all sorts of political consequences follow.

I have been following the various responses to Graeber’s book since it was first released. Most of these responses, including those on this website, have arguably not been especially insightful, causing me to wonder whether the character of the entire discussion reflects less the quality of Graeber’s work and more the difficulty of coming to terms with the fact that most of the social scientific scholarship produced in the last half century has failed to account for reality as it really is. Most of the criticism of Graeber’s answers to big questions amounts simply to an admission of our own embarrassment over having consistently asked the wrong big questions.

Most of these reviews, moreover, reflect reviewers’ lack of familiarity with the relevant source material or even with historical material more generally. In this regard, I am uncertain what precisely Beggs wants out of a macro-history of debt. Does he really think that comprehensive quantitative analysis of Ancient Sumer is presently possible? A quick glance at the literature will reveal otherwise. At the present state, historians cannot agree upon, e.g., international trade volumes during the nineteenth century (A.D.).

And even if we could conduct the sort of Braudelian cliometric analysis that Beggs advocates, we still would need to consider the psychological and anthropological matters on which Graeber tends to focus. The psychology of the debtor has real historical consequences that cannot be reduced to movements of, e.g., prices and profit rates, even if these movements become, as time progresses, increasingly coordinated and globalized.

Now, there is obviously a lot that can be debated in Graeber’s work, but, alas, we are actually going to need to perform or at least to engage with empirical research in order to form pertinent arguments. Suppose you’re unconvinced by the commodity money/ credit money macro-cycles argument, or you don’t believe there’s any correlation between commodity money and systems of violence — fine, go to the literature (or to the archaeological site, etc.) and construct a positive argument, and we’ll read it.

Beggs writes that, ‘[t]he imaginary barter economy without money but somehow still with a highly developed division of labor is a counterfactual, a tool of abstraction, which in fact the textbooks are often careful not to describe as actual history.’ Again, if you consult the relevant literature, you’ll actually find economists attempting to conduct economic history and attempting to establish the historical existence of ‘mere counterfactuals’ like the barter economy as well as the profit maximization vis-a-vis interest rates. See Michael Hudson’s work on Ancient Mesopotamia, which Graeber cites (online: http://michael-hudson.com/2000/03/how-interest-rates-were-set-2500-bc-1000-ad/).

While we are at it, we should all go back and reread Michael Hudson’s tremendously clear, insightful, and indeed entertaining work Trade, Development, and Foreign Debt. Hudson does a great job of relating economic thought to its historical circumstance and ‘material base,’ if you want, and Graeber is, in many ways, attempting to build upon these insights and to incorporate a wealth of anthropological data. And, yes, thought sometimes is reflected in anecdotes, like, for instance, accounts of what people were thinking in various circumstances.

We have to deal with the reality of political economics as well as with the reality of political economic mythology, culture, and ideology. Graeber’s analysis tends toward the latter; that’s fine, since neither issue is reducible to the other. If you want the former, then go ahead — write it already!

Why should we give a damn about the calculation of interest in Assyria? We know full well that todays interest rates are actuarial and economic in nature, and in fact a great deal about how those calculations come about. That such setting is unnatural is uninteresting: agriculture and having teeth at 50 is unnatural. Lest we forget, nature is
always the language of reaction, be it Catholic or anarchistic.

Human behaviour has changed with the advent of capitalism. And that took violence, great amounts. Of course, some of that violence was the Civil War, with Abraham Lincoln and Salmon P. Chase destroying the oldest institution in human history. (although it still exists in Mauritania. They need a Lincoln, not a Graeber) This isn’t the history of the preceding eras of humanity. By seeing in the dollar nothing more then a symbol of violence, Graeber ignores the way capitalism really is the deformed offspring of a moment of freedom.

Low rates for risk-free borrowers, but most borrowers are not Uncle Sam. However, those low Fed Funds rates have reduced mortgage rates.

So I read this thread before I read the Beggs peice which was interesting becuase it seems like the basic point being made by the article kind of got lost here. I think the debate between JWM and Beggs is a sideshow and I also think it’s sort of pointless in a way since whether you are arguing logically or historically or whatever with the development of money in any, say, Money and Banking class you wind up by the end of the semester with a very clear role of government in a monetary system.

I mean, the point that money didn’t spring from some kind of Hobbeseian social contract among individuals is useful and refreshing in an age where “markets” and “governments” are considered diametrically opposed. Anyway, I’m probably just restating what you guys seemed to come to agreement on.

But I still think the basic point Beggs is making about the applicability of Debt is important. I will say, and I think it parallels the basic critique that a lot of economist types had of the book. Graeber’s analysis is not useful to us after, say, 1971 (and I think his refusal to treat the century or two before 1971 as a transitional period in one of his thousand year cycles is telling). In the large swings that Graeber describes hard money is a tool of the state and as states and empires dissolve credit money takes it’s place because the hard money apparatus is no longer there.

I don’t see how this squares with the fact that nation states have had to be unusually strong to support the kind of “official” soft money credit system we have now. Within Graeber’s argument this situation is historically unique. Which is why I guess that’s why suddenly in the last chapter we stop talking about a “peoples history of debt” carried through to 2008 but rather start talking about a tenuous connection between finance and military bases.

Also, in the libertarian tip, the parable or whatever Graeber tells about the English shop keeper and credit struck me as an argument for free banking.

One last thing: There is a lot of talk about jubilee but I feel like no one really pays attention to the subtleties to it and honestly I think that if there was any kind of useful contemporary useful stuff in Debt it was the nuance of the jubilee discussion. First, for jubilee to be feasible you have to have a sovereign with a senior claim on your body above that of your payday lender. The call for jubilee is incredibly passive and authoritarian.

There is buried in Debt about two or three paragraphs when Graeber points out that in a democracy or a republic there was no such thing as jubilee. Instead when the debt burden got out of hand there were plebeian uprisings and a new leaders were installed and that was the mechanism for righting the problem of too much debt. Anyway, I don’t know why that wasn’t the take away from the book.

“reacting strategically to the structure of costs and demand they face,”

That structure is powerfully influenced by government monetary, fiscal, regulatory, etc. policy. So, i.e., fiscal stimulus will increase demand, which will cause firms to produce more, which will cause them to employ more labor, which will yadda yadda yadda.

But influence does not equal total control. The government cannot set the price of oil at $5 dollars a barrel, not without explicit or implicit subsidies.

@rootless (#123): So I take it Beggs is wrong when he says prices are the outcome of private price-setting decisions, because those decisions are always influenced in various ways by state policy. In that case, presumably it would also be wrong to say that state policy decisions are determined by the state and its personnel, since those decisions are always “influenced” by the outcomes of decentralized private economic behavior. Nothing is responsible for anything.

The fact is that if you want to understand the value of money and how it changes, you have to understand the workings of a decentralized system of private price-setting — *even though* that system (as nobody ever denied) is always affected by state policy and lots of other things. There is a massive range of outcomes that the state would like the achieve but cannot, because it doesn’t control that decentralized system. At most it only influences it.

If Barack Obama and the Joint Chiefs decided tomorrow that they wanted the price of oil to rise (or fall) by 10%, they just would not be able to do it. Unless fortuitously a lot of people outside the US govt happened to already agree with them. And oil, however important, makes up less than 5% of production costs in the US economy.

Actually the US and EU governments did reverse gasoline price increases via essentially threats to open the strategic reserves.

If you want to understand oil prices and dollar values, then stating that “mainly” the decentralized decisions of firms “determine” such things is either incorrect or astoundingly imprecise language. The existence of the Saudi state depends on US military support and is one of the major shapers of the market. That support itself is not free in either blood or money and has a huge effect on the development of the US economy ( increasing power of oil and arms industries and their financial partners, creating market impediments for solar and wind, making imports cheaper by holding down diesel prices etc. etc. ). What I keep seeing here is an effort to wave all that away by announcing that it doesn’t explain everything.

First – Phil@70 – yes I meant genetic. And still not sure it’s a fallacy in this area.

I take Mike’s point at 111 about different approaches, but I don’t think it captures the merits of the two approaches to money. It was remarked upthread that definitions of money slide about between treating it as map and as territory. Money as means of exchange carries with it the implication that the money is the territory – we have the image of two people, each with real goods, swapping them via money, so money and goods are equivalent. Money as debt draws attention to the potential for mismatch between the money and the goods – money as map. My debts may have as collateral goods which do not exist, or which are worth less than the debt. As we currently know to our cost. And, of course, if the map and the territory do not coincide, yet the map has various legal and social standings, bringing the two into adjustment is a political process, not a question of general prices or value at all.

Interesting that Begg should say this. This is very similar to a 2002 paper in the AER called “Evil is the Root of All Money” by Kiyotaki and Moore. Which is a debt based theory of money. But not the first cut at a debt based theory of money. I believe Paul Samuelson’s 1958 JPE article “An exact consumption-loan model of interest with or without the social contrivance of money” could also be described as a debt based theory of money.

This of course doesn’t imply that economists do not think that exchange is an important function of money. I am sure that most economists would reach for the exchange story if asked for one. If pressed as to whether this was the or only story I do not think they would be willing to stake a lot on it. I also believe many would now reach for Samuelson’s story or even the Kiyotaki-Moore story.

So the argument that there is a huge latent demand for haggling in the west that is not being satisfied by anything other than e-Bay and car boot sales/yard sales strikes me as needing some evidence in itself.

Western tourists in Thailand? Arguing for 10 minutes over whether to pay 75p or £1 for a Dulce & Gabinna T-shirt is not unheard of. I’ve a feeling the locals don’t do this.

dsquared’s “debt as the solution to a problem” line is leaving me feeling a little bit unsatisfied, notwithstanding that he’s right about the naivety of Graeber’s plans for apocalyptic Jubilee. The source of my niggle is that this doesn’t do justice to the other side of the issue, namely, debt-as-a-problem, and specifically debt as a problem in creating, sustaining and legimating (through its moral force) social relations of unfreedom, domination and dependency. Graeber is actually rather good on this (at least descriptively). Bankruptcy law is one attempt to address the issue, but doesn’t really solve it (and haven’t US lawmakers made it impossible for student debt?). Jubilee might explode the system in a catastrophic way, but if we are interested in more equal society and one in which people don’t get themselves into relations of subjection to others, we’ve got to find a way of releasing many people (and countries) from the burden of obligation they’re currently under, for freedom-related (and not just for welfare) reasons. (Cf also the Bertram/Robin/Gourevitch stuff on workplace domination: the fact that people got into the hole they’re in by agreement, doesn’t silence all the worries about freedom, subjection etc.)

145: and while still allowing people to get themselves into debt if they want to. Being able to borrow money, or owe people money for services already delivered, is really useful and emphatically does not mean that you are in a relationship of subjection with your creditor. Obligation doesn’t equal subjection (you have an obligation to look after your kids).

What do you mean? Because the locals in Thailand haggle like anything.

ajay: the claim about debt and subjection is not a semantic one, but a claim that relations of indebtedness very often turn into relations of subjection. As a sociological and historical generalization that doesn’t seem to be something that anyone could object to (and, as I said, we’ve even developed institutions, such as bankruptcy, that recognize and respond to the problem).

It’s peculiar that this is what passes for left of center economics – a vigorous defense of corporate friendly bankruptcy laws and efforts to relegate any notion of the influence of state power on economics to footnotes.

Chris, the US has the friendliest bankruptcy laws in the West. If people want to get out of an underwater mortgage with lots of credit card debt they will never pay off, they can do so very easily. They will lose some assets in doing so, but it isn’t catastrophic. Subjection, in the sense that one is permanently controlled by ones creditors, doesn’t really happen, except with non-dischargeable debts.

What’s more debt is a symptom of spending greater then income. The fact that the US has responded to declining median wages by increased borrowing explains why so many people have debts: they seek to increase consumption.

rootless, of course the state is involved! The state has judges and bailiffs who enforce breach of contract. But that doesn’t mean the market is a creature of the state in the way a prison is.

Chris Bertram @ 151
debt as a problem in creating, sustaining and legimating (through its moral force) social relations of unfreedom, domination and dependency.

I think this captures my discomfort with Graeber’s analysis. As far as I can see, debts-denominated-in-money have this characteristic LESS than obligations not denominated in money. Paying taxes has LESS of a dominance/dependence component than working so many days a year for the local government.

Watson Ladd
http://www.startribune.com/investigators/95692619.html?refer=y

Compare this to the scheme by which a private equity firm can walk off from a captive corporation after paying itself a recap-dividend.

It seems that Graeber’s ideas about the psychological and ideological effects of debt follow Maurice Godelier who gave this example:
Godelier in mind: “… the Marxist view was
that-and it was not proper to Marx-that a big part of ideology is a
presentation of exploitation as reciprocity. There was a very
fantastic idea discovered in the 19th century, that the pharaoh
deserved to be given your life and your work because he is a God; so
if you breathe, if you have water for your garden, it’s because of
him and of the rituals he was performing. So the language of
exchange, and debt, not exchange only, is the seed, the milieu of
caste and class formation. It’s not in the logic of direct violence
that you understand the violence of caste or class formations, but
it’s in the milieu of debt, personal and collective indebtedness. You
cannot understand the milieu of power and the process of its
crystallization without a view of unequal exchange and imaginary
reciprocity.”

http://www.umich.edu/~iinet/journal/vol1no2/deconstruct.html

Consider how Marx develops this idea.
The real trick is not the capitalist pays the just amount for labor power
rather than labor itself. If that’s all Marx had to say about “the trick”, then why
does he return to exploitation in chapters 23 and 24 of Capital.

The real trick is that the capitalist seems to advance wages or
variable capital and appears as the fount of life. The worker thus
appears to be indebted to the capitalist, so indebted that there is
no real injustice in having sold his labor power at discount. After
all the wage has been advanced, the worker is allowed to live before
the commodities are produced, much less sold. The capitalist appears
a benefactor to whom reciprocity (if not life) is owed. The Western
capitalist has in the eyes of everday man the mystical powers of the
Asiatic despot; so much for cheap criticisms of Marx’s Orientalism. The capitalist is
lauded for his ritualized asceticism and equanimity in the face of
risk.

But if the wage is not in fact advanced but only part of the value
that has already been appropriated and then allotted only on the
condition that labor gratis again be performed–and we can only see
this if we consider the impact on classes in the course of economic
reproduction–then the worker is in no debt to his putative
benefactor. Workers may be dependent on the capitalists,
but–and this is the crucial ideological point– the capitalists not their
benefactors.

But again for the individual worker the relation is not this, for the
wage he is paid may not be part of the appropriated value he himself
produced. The individual worker is not treated unjustly; his wage is
in fact advanced by the capitalist. The working class has a claim to
unjust treatment but the concept of justice cannot be stretched to
accommodate the unjust treatment of a class. There is indeed formal
but not substantive justice just as there is formal but not
substantive reciprocal exchange.

Having deflated somewhat the capitalist claim to justice, Marx does
not then go on to base his critique of capitalism on its injustice.

He does not patiently disentangle the substance of justice from its
juridical, case by case, slow frame film form to show that capitalism
can unequivocally shown to be unjust. He seeks other motivations for
working class demands now that he has disburdened the working class
of its apparent debt to the capitalist benefactors. Free of debt, the
working class is free of guilt, free therefore to pursue its life
affirming aims, even if they may be formally unjust.

Marx thought that there were two contradictory but self
consistent ways of looking at the wage transaction which the
transaction would not allow us to resolve, objectively. That is, the
classes’ perception are contradictory. And when
right meets right or one self consistent perspective meets another on
the same objective terrain, only force can decide.

rootless, if you cannot grasp the difference between an agent and a principal, or limited liability, are you even bothering to comment here? Of course we can complain about the injustice of nondischargeable debts, and impose restrictions on how debts can be sold. But this isn’t a politics against debt. Nor does it follow that the state creates the debt collector.

Alex Springer is just as protected by the law as the publisher of Jungle World. Yet neither one of them is in any way a product of the German state.

You want to pretend that a hugely complex system of corporate law is some kind of natural law. The question of when management of a corporation is operating correctly within the limits of limited liability and when it is engaged in unlawful conveyance is one that courts and legislators debate. The current US system, in which small business owners would go to jail for behaviors that are common practice for PE firms, is one that developed over 30 years of sustained lobbying from financial concerns through such instruments as the Law and Economics groups. You can see from the epidemic of mostly unsuccessful bondholder lawsuits that this process has arrived at a situation that is a surprise to many lenders. In addition, credit card debtors, lacking the Olin Foundation’s willingness to fly judges to seminars in St. Bart have not fared as well. That’s because of a political and moral process, not because of some fundamental property of economics. The law now puts a thumb on the scale to improve the profitability of debt collectors by taking away even the last dregs of a chain of custody of a debt so that wholesale debt aggregation is cheap, and then puts the armed might of the state in service of the aggregator.

Rakesh, at this point it’s basically an accounting identity. If you hold cash, then it counts as an asset, but since it’s a financial asset, there has to be a corresponding liability somewhere in the world. So it’s treated as a liability of the central bank. This was more meaningful back when currency was backed by gold and you could redeem the money for gold, but now its just a matter of definition.

Speaking of Michael Hudson, mentioned above, whom I read instead of Graeber but is probably not as easy a target, he has a new book out at Amazon. The above is a Naked Capitalism link.

“The pace of Wall Street’s war against the 99% is quickening in preparation for the kill”

“The ground is being prepared for a neoliberal “cure”: cutting back pensions and health care, defaulting on pension promises to labor, and selling off the public sector, letting the new proprietors to put up tollbooths on everything from roads to schools. The new term of the moment is “rent extraction.”

The need for liberal political economists to stay at the extreme level of abstraction is quite literally killing and enslaving us.

Michael Hudson is an interesting scholar, but a worthless journalist. One cannot trust anything he writes about current events because he already knows how the story should be. For example
http://michael-hudson.com/2012/08/fireside-on-the-great-theft/

” The government could simply have closed down AIG, taking it over and said: We are saving all of your normal insurance policies, we are saving all of your normal business, but the gamblers we are just not paying. ”

And, no. The government had no legal authority to do that until the passage of Dodd-Frank. Of course, the Government is able to act beyond legal authority, but the Bush administration had no interest in doing that for AIG. And the following sentence is
” But in that case, Goldman Sachs would not have been paid $18 billion dollars.”

which is also misleading because (a) GS already had seized much of that in collateral (b) they had hedges that would have paid, and (c) the biggest holders of AIG derivatives and the most intransigent were the French Banks, especially SG who threatened to put AIG into bankruptcy which would have had disastrous consequences. But Hudson has a simple story to tell.

or consider a couple of lines up
“The head of the Federal Deposit Insurance Corporation, Sheila Bair, said that she argued with the Obama administration saying that she could close down Citibank and save all of the insured depositors. She could have saved all of the basic banking functions. ”

Well, here is Ms. Bair’s testimony

The absence of FDIC resolution powers for bank holding companies and their nonbank affiliates during the crisis posed insurmountable hurdles to our ability to respond to the financial difficulties of these large banking organizations through our traditional receivership process. While each of these bank holding companies had FDIC-insured depository institutions as subsidiaries, the FDIC’s receivership powers extended only to the insured institutions themselves. Had the FDIC been appointed receiver for these bank subsidiaries, the result surely would have been to trigger the failure of the holding company as well – which would have fallen under the jurisdiction of a Lehman-like commercial bankruptcy, and not an FDIC-managed receivership. Since the non-bank affiliates were not insured depository institutions, the FDIC had very little advance information about their structure, activities, and counterparty exposures, making it difficult to know what effect the failure of the holding company might have on other financial institutions and the financial markets. Under those limitations, if any of those institutions had been allowed to fail, the result could well have been a significant widening of the financial crisis. This was not a risk we were willing to take at the time.

http://www.fdic.gov/news/news/speeches/chairman/spjun2211.html

Granted that any sort of a Jubilee is going to wipe out (some) savings, anyone have an idea of what the differences in savings rates and size of deposits are between capitalists, workers, and the burgeoning underclass?

some savings? Every saving is a debt, except for capital. The most risk-free portions of everyone’s portfolio suddenly vanishing is going to be a very bad thing. Remember the debt ceiling debacle? Imagine that times ten.

The responses to Graeber seem to involve a lot of false dichotomies. Graeber nowhere insists that a Jubilee will zero out every child’s promised allowance. Why not assume he’s not necessarily insane and consider, for example, a jubilee that zeros student, credit card, and payday loans. Or all personal debt that has either been paid back plus 10% or more, or accrued more than 10% fines/fees.

177: Because national, state, county, and municipal debt are killing us, forcing communities to tear up the social contract.

Because the above, credit card debt and student loans have been securitized and are now part of everybody’s retirement savings. Student loans are now, IIRC, 2 trillion dollars of assets in somebody’s portfolio which would for a variety of reasons crash the economy if abrogated. This is by design.

Part of the design is that partial write0ffs have localized negative effects, so that “divide and conquer” can be used for austerity in Greece with Germany resisting aid.

TINA to revolution, catastrophic change: Debt Peonage for the 99% or socialism.

But, again, nobody is seriously demanding “world without debt” as a concrete policy. What is being proposed is that debt is not sacred and societies can and should choose to jubilee some level of debt away. We currently have a maximalist position in which aggregators of personal debt not only are assumed to have the right to have debtors imprisoned, but to arbitrarily levy additional fees – and where interest rates are freed from any restraints. To get a glimpse of the radical nature of this situation, note that Adam Smith argued that it was wrong for the State to permit interest rates rise above 3% and Thomas Jefferson argued that debts die with the lender:

To render this conclusion palpable by example, suppose that Louis the XIV. and XV. had contracted debts in the name of the French nation, to the amount of ten thousand milliards, and that the whole had been contracted in Genoa. The interest of this sum would be five hundred milliards, which is the whole rent-roll or net proceeds of the territory of France. Must the present generation of men have retired from the territory in which nature produces them, and ceded it to the Genoese creditors ? No; they have the same rights over the soil on which they were produced, as the preceding generations had. They derive these rights not from their predecessors, but from nature. They, then, and their soil are, by nature, clear of the debts of their predecessors.

In other words they should have LOST those savings, because they used it to bet on dross and detritus. We could hardly do otherwise, in the pinch, than to save the savings, to recapitalize the financial system–because otherwise people would have had no bank accounts, would all still be in bankruptcy court 4-1/2 years later to recover those funds. But notice that there has been no quid pro quo on this, there has been no repayment by the banksters of our largesse.

So much of the tendency of thought coming from Graeber’s book seems to me afflicted by a massive baby.bathwater problem. Debts are just obligations. Obligations are generated by social practices, and reinforced by sanctions, which are social practices that promote or inhibit other social practices.

We can criticize various kinds of social systems that allow for the creation of certain kinds of obligation. We can criticize social systems for not having established effective means for discharging or unraveling debts when they become socially destructive or horribly oppressive. But I find it hard even to imagine a social system that isn’t based on complex networks of obligations. I don’t think there is any viable alternative to replace the institutions of contracted obligation and debt with purely voluntary acts of grace or giftings. Nor do I think any kind of sophisticated society can avoid the necessity of enacting obligations that it makes binding on everyone born into the society, even though the newborn members did not contract those obligations themselves. Anarchists and libertarians seem to find this phenomenon horrifying – but it strikes me as just a universal aspect of the existence of political animals.

Several of Graeber’s anecdotes in the book struck me as fanciful attempts to reinterpret situations in which exchange relations and debt relations were present as situations in which they weren’t present – classic noble savage romanticism.

I certainly don’t think its much of a criticism of the very institution of debt relations that debt relations in aristocratic societies were grounded in hierarchy and in the social power of the superior to unilaterally create obligations binding the inferior. The type of social system makes all the difference to its moral appraisal. The democratic ideal of obligations contracted between equals, and supported by a democratically enacted rule of law is very appealing to me, even though it allows for the existence of debts and obligations. When I make an honest ordinary deal with another business person, I don’t think either of us has become objectionably subordinated. To sniff that I should not be bound by debt because I am some kind of princely being who is too good for debt strikes me as narcissistic.

I’m really dismayed by the anarchist and libertarian turn of a lot of contemporary social critique. I would prefer to see more of an emphasis on democratic and egalitarian ideals based on the recognition of human beings as social and political animals bound to each other by mutual commitments and obligations, and forming societies that inevitably involve some degree of coercive enforcement of their rules. The more equal and humane societies become, the less frequently the rules need to be enforced through coercion, as people increasingly internalize and trust the rules in appreciating the social order they generate. But the idea that there is some viable human social order of coercion-free voluntariness strikes me as fantastically deluded, and a tragic dead end for social reform.

http://www.nakedcapitalism.com/2012/09/what-is-this-money-thing-anyway.html

the claim about debt and subjection is not a semantic one, but a claim that relations of indebtedness very often turn into relations of subjection. As a sociological and historical generalization that doesn’t seem to be something that anyone could object to

hrrrmmmm … as SamChevre seems to be hinting, it does seem pretty interesting to me that with 5000 years of history and the entirety of any civilisation anywhere on the planet to work with, Graeber wasn’t actually able to come up with any model of mutual obligation and transactions which was less likely to result in relations of submission than the current developed-world bankruptcy code. It’s true that US student debt isn’t dischargeable in bankruptcy (I must say I find this inexplicable), but the clan networks of borrowing in Botswana or whatever aren’t dischargeable at all.

As for invidious comparisons between clan obligations in Botswana and modern credit markets, I don’t know. I agree that the latter are easier to quantify, which gives them certain advantages, but the power they generate, and the conditions of servitude which can result from them seem to me to be a) much more catastrophic in their scope, and b) in some ways even more implacable and opaque. A pensioner who winds up in the street in Athens, or this poor guy have almost no way to comprehend or escape from the rubble suddenly heaped on them. In Botswana you might have an uncle who can intercede for you. In the U.S., Uncle Sam is profoundly not interested.

It doesn’t seem to make sense to agitate against the student loans, just like that, out of context. If you make student loans easily dischargeable, then interest on student loans will go up, and fewer people will be able to become students. What you do, probably, want to agitate for is free college education, which would make the student loans unnecessary, end of story.

But I do not see in Graeber’s book much utopianism- far from it – he documents a lot of variety in social organization, many of which are just ugly in different ways. Certainly, one can read the book and appreciate it for an insight into how societies function and have very different ideas of what should be done and what can be done. One could, for example, think that securitization of consumer debt should be illegal – that a contract between a consumer borrower and a lender should not be assignable without demanding some utopian fantasy world. Or even more moderately, that any such assignment should require a tax be paid and the assignment be registered somewhere in order for it to be legally enforceable. Understanding how debt evolves or even how debt can be a corrosive danger to social arrangements does not require a commitment to believe that human society can dispense with government next week.

BTW: I really like the book, but think that the occupy wall street movement suffers from a deeply mistaken privileged romantic, I guess “vanguardism” is the least bad word for it.

The debtor is faced with a legal demand from some unknown party who claims to own a debt contracted, nobody knows when, and to be able to arbitrarily add fees and interest to the debt. Since there are countless such attempts arriving in the mail, the debtor has no simple means of detecting the difference between pure scams and actual holders of debt. The creditor appears to have no obligation to provide a chain of custody for the debt – indeed any such obligation would destroy the business model of debt aggregation. There are no sanctions on creditors who fail to make good faith efforts to work with the debtor or who who violate the terms of the original contract – terms which nobody has available. What is the compelling state interest that makes it important for the taxpayers to bear the cost of collecting such debts? Here you have some local government that doesn’t have enough money to hire math teachers for public schools or fix roads, but is spending tax money on subsidizing the business model of scumballs and also diverting police from protecting the public against crime so they can act as bill collectors for generally out of state entities that contribute nothing to the local economy – in fact that damage the operations of the local economy.

The democratic ideal of obligations contracted between equals, and supported by a democratically enacted rule of law is very appealing to me, even though it allows for the existence of debts and obligations. When I make an honest ordinary deal with another business person, I don’t think either of us has become objectionably subordinated. To sniff that I should not be bound by debt because I am some kind of princely being who is too good for debt strikes me as narcissistic.

Strawman much, Dan? What on earth do these comments have to do with anything found in Debt? What Graeber points out there (read ch.5 again, or the “with gifts one makes slaves” anecdote) is that while is that while this “democratic ideal” is something he is entirely in favor of, a. historically these kinds of egalitarian societies are quite hard to realize, and b., even if you are narrowly free from constraints in engaging in your business deal, you are only “free” insofar as you are not obliged by your living situation to engage in said deal. Which, I would humbly suggest, is not quite so “exotic” a secondary consideration as you apparently want us to think, because people quite often engage in deals they otherwise might not have, had they been less worried about getting bread on the table, paying for their kids’ educations, etc.
Of course, you paper over this by talking about being “unobjectionably” bound, but the fact that you yourself experience this as unobjectionable does not speak to whether this is a relevant dimension of the interaction under consideration.

I’m really dismayed by the anarchist and libertarian turn of a lot of contemporary social critique. I would prefer to see more of an emphasis on democratic and egalitarian ideals based on the recognition of human beings as social and political animals bound to each other by mutual commitments and obligations, and forming societies that inevitably involve some degree of coercive enforcement of their rules.

Again, what are you contrasting to what here? Broadly speaking, libertarians (who I would define as ‘those who refuse to talk about organizational issues at all when these concern “private” arrangements’) are quite different from anarchists, unless you still adhere to the facile “anarchists are people who eschew organization/institutionalization” critique.

It’s true that indigent people who can afford an attorney can challenge debt debt collection agents under FDCP, if they live in a state where Federal Courts have held that debt aggregator is a collector and not a creditor and where the collection does not come under attorney exceptions, if they challenge within the 30 day period of the notice (that they must have understood not to be junk mail) and then, if they prove one of the narrow exceptions, they may be able to get $1000 penalties imposed on the collector – assuming that the judge is sympathetic ( and anyone who wants to pontificate on these issues needs to spend a couple of hours watching state courts to see how deeply most judges care about the rights of poor people and the niceties of law). Or, alternatively, they could simply move to their luxury second homes in Bern and keep their assets in off shore trusts while pigs fly victoriously overhead.

The question of whether purchasers of consumer debt should be able to get the state to jail putative creditors without paying any court costs, being required to adhere to any fair billing practices, facing limits on usurious rates, or even meeting some evidence standard for being owners of the debt is easily answered in your mind. Great.

BTW: Assuming the President is re-elected the CFPB should make some improvements to the current unjust situation.

= = = nd how it would differ in practice from “primitive” societies in which people use proximity and blood relations to determine who they interact with. = = =

By “primitive”, do you mean the type of society where a Mitt Romney can set his son up in investment banking with $300 million in initial capital provided by close business associates, and a George Romney can use his friends, family members, and contacts to get his son Mitt set up and running at the highest levels of finance? Where the entire investment banking world is one large Delta Tau Chi fraternity That sort of “primitive”?

Cranky

“As to emancipation, it does not mean ‘freed from bonds’ but well-attached.”

It’s hard to be well-attached these days: too much specialization of labor. There is a reason why things got developed the way they have, and to go back to the way they used to be, the well attached way, you’d probably have to switch to a radically less complicated mode of production.

FDIC ensures banks, which are most exposed to the loans. Jubilee would either wipe out FDIC, or small bank accounts. The people with $400,000 saved have less then that in cash.

nobody is seriously demanding “world without debt” as a concrete policy. What is being proposed is that debt is not sacred and societies can and should choose to jubilee some level of debt away.

This is, in fact, what we already have. Debt in the modern world – personal, commercial, sovereign – is not regarded as sacred. Debts are written down all the time, and in extreme cases – at least for personal and commercial debt – they are written off through the bankruptcy courts, which is a far more sophisticated, more sensitive and less damaging technique than jubilee. But this discussion seems to be ignoring this crucial point. I’d be very interested, for example, in how many people on this thread believe that “the economic problems in Greece are largely happening because Greek sovereign bondholders are insisting on being repaid in full”.

Bankruptcy’s really the key bit of this process. In Mesopotamia, if you couldn’t pay your debts, and if Sargon or whoever didn’t declare a convenient jubilee, you became your creditor’s slave for seven years. No haircuts or workouts or Chapter 7 restructuring for Urtu the Bronze Age peasant.
“Bankruptcy: the first thousand years” would be a rather more interesting book…

I thought the whole point of money was that it is fungible. Now Watson, ajay and others are arguing that if some people’s debt is written off at some institutions, then those institutions must write off assets belonging to those very same people. And both miss the point that bankruptcy courts – like any courts – generally work much better for those with lawyers, money and knowledge than for those without. As if we can manage write-offs for large banks and countries, but managing write-offs for just people is somehow beyond refinement.

ajay and others are arguing that if some people’s debt is written off at some institutions, then those institutions must write off assets belonging to those very same people

No, I’m not: “If you wipe out the debts of a lot of Americans, you are going to be wiping out the assets of a lot of other Americans”. Note the use of the word “other”.

_If you wipe out the debts of a lot of Americans, you are going to be wiping out the assets of a lot of other Americans (and American financial institutions). That’s inescapable. It’s an accounting identity._

Hmm that depends. If you cancel the debts owed to foreign creditors this isn’t the effect. Cf Iceland, and German anxieties re Greece and Ireland. Not that I’m recommending this, just pointing out the possibility (which also comes with consequences, just different ones).

217: OK, that was an oversimplification. But just cancelling debts owed to foreign creditors wouldn’t do much for the average American; most of his debts are owed to US institutions. (It might do some short-term good for the average US bank, but that’s not the object of the exercise…)

How many low-paid Americans have foreign-denominated debts? Iceland, Hungary, and a few other places did the “finance a new car in yen (or Swiss francs, or whatever) at low, low rates! nothing can possibly go wrong!” thing but I don’t think it happened in the States.

@205: That was more or less my point, yes: I don’t see how such a “liberal” society would work itself out on the ground, other than as largely similar to current societies. But apparently Graeber is arguing for something “primitive” — namely, an egalitarian society? A society in which prop rights are not absolute? — whereas this “liberal” society would have people organizing on the basis of “totally free”, and presumably also “rational” choices — or something.

Several commenters are putting way too reliance on accounting identities. Yes, one person’s debt is another person’s asset. But, that’s a fundamentally trivial point, not some great insight.

The deeper point is that a society qua political economy can have too much money and too much money extended as marketable financial assets/debts, so much that it is economically unhealthy, in the sense that it promotes exchange relationships, which move away from the static mutually beneficial positive-sum ideal and/or the dynamic ideal of taking up all available positive-net-present-value investments on the frontier of a progressive path.

We all understand the simple intuition that too much currency chasing too few goods erodes the function of currency as a store of value — the inflation monster — because it is a (too) simple story, and there are propaganda resources devoted to re-telling it constantly.

Less often noticed is the problem of too much money chasing returns from pure financial assets/debts, that is, assets/debts untethered to ownership of real and productive capital or resources. This is the story, I think, Minsky was always trying to tell, about how the accumulation of money in the financial system over the course of the business cycle created a pressure on the financial system to move from prudent, productive investment toward ponzi schemes, fraud and usury.

The basic problem of the financial system is that there are rarely enough productive investment projects to absorb all of the cash being generated by economic rents on the existing stock of capital, and cash must seek out “investments” that promise a return, while trying desperately to avoid toxic, negative net present value assets/debts. When the available stock of rent-returning land and (real) capital is exhausted — i.e. priced to return nothing — there’s nothing left for money to do, but seek returns as an “insurance” product. And, on the frontiers of “insurance”, there’s fraud and usury, the former being disguised theft and the latter an exchange relationship, which is parasitical and exploitive and reduces social welfare.

Usury is the opposite of an investment, which enables a higher future income to pay back the loan; usury is the desperate acceptance of a reduced future income to solve an immediate problem.

Fraud and usury are an economic pathology, and when they become endemic, they do not leave genuinely productive investment uncorrupted. The incomes, which might have funded consumer demand for products and services of genuine value are being cannibalized to fund scams and usury, while genuine investment opportunities, whose returns are typically made minimal by market competition are disadvantaged in the continuing competition for funds, by fraudulent and/or usurious schemes, whose returns may be perversely amplified in market competition. Many products of genuine value no longer compete on price and value, but on financing schemes. Any American can look around and see many examples: credit card interest rates or payday lenders are the pure financial examples, and, slightly more subtly, the rates charged for dental procedures or vet services are rising rapidly, driven by exploitive financing schemes.

To keep up with the “competitive” returns offered by usurious schemes, owners of “real” capital assembled as businesses find themselves disinvesting, in order to generate the necessary cashflow. The pathology spreads like gangrene.

Writing off debt, bankruptcy on equitable principles, prosecution for fraud, prohibition of usury — these are all necessary tonics and remedies, which are, at base, eliminating excess money-extended-as-debt. As rootless_e points out, they are “moral” schemes. And, as economic policies, they only work to restore productive prosperity to the extent to which they correct the maldistribution of income, not just aesthetically, but functionally.

Apparently I needed a comma

student debt in the US, and sovereign debt are both considered sacred.
—————————^

And the debt limit crisis in the US was an attempted blackmail, not an assertion that sovereign debt is optional.

As for Trump – that’s the point – we have a complex legal system which allows people like Mr. Trump to profit personally while walking away from debt. Oddly enough, this system works differently for small business than for people like Mr.Trump or Mr.Romney. There is a legal doctrine called “unlawful conveyance” that is supposed to prevent people from using corporate structures to abandon debt, but courts have pretty much walked away from that doctrine for larger companies ( but not, e.g if Bob’s Plumbing LLC tries to fold while owing Chase ).

http://www.forbes.com/sites/clareoconnor/2011/04/29/fourth-times-a-charm-how-donald-trump-made-bankruptcy-work-for-him/

As for Zambia: http://www.guardian.co.uk/global-development/2011/nov/15/vulture-funds-key-players

There’s also a fascinating question of who gets to assert a collectible debt. If I fail to pay my mortgage on time, Well Fargo may decide to assess a late fee which the courts will be happy to collect at gunpoint.Yet if I find my checkstub and can prove that Wells Fargo negligently failed to credit me, can I send them a bill for $10,000 for my time and effort and have their CEO jailed if they do not respond or pay? Why not?

@224: I’m afraid I do not follow. What do you mean by debt relations being inherently ‘inhuman’? I’d say there’s lots of relationships that are exploitative, and lots of relationships in which the debtor is made unfree in various ways, but I don’t see how this relates to debt relations being categorically ‘free’ or ‘unfree’. Furthermore, I would again emphasize that to be free is not to be “free from restraints”, but to be free from having to worry about how to pay for your food and shelter, to have friends and acquaintances who allow you to behave in the ways you want, to live in a state which does not hamper you overmuch: in other words, to be negatively free is to possess a specific set of positive freedoms that allow you to think that you are an independent and “autonomous” agent. So all freedom is “rooted in community”.
Now, I imagine that when you talk about being “rooted in community” your worry about “community” is more specific, because you are presumably worried about these communities being “small” and “backwards” and whatnot. But could you please, with the above points in mind, specify why you think being rooted in communities (procedurally? substantively?) problematic? Because I do not really understand what you think Graeber is advocating, and what specific worries regarding “the amount of room for freedom” you have wrt his account.

What seems to me to drive reviews like those of Beggs is hostility to the proposition that human economics cannot be separated from politics and anthropology – or at least that those factors cannot be just politely acknowledged and dismissed as unimportant for serious work.

ajay @ 212: “If you wipe out the debts of a lot of Americans, you are going to be wiping out the assets of a lot of other Americans (and American financial institutions). That’s inescapable. It’s an accounting identity.”

That would be true if we were on the gold standard. But we’re not. Money is just numbers in a computer database. If we want to change these databases to wipe out the debt and still make creditors whole (or selectively do so in some cases but not others), we can. That’s the whole point of fiat money: we can do whatever we want with it. Accounting laws are not laws of nature; and anyway if you gave them license to be creative, the accountants could make the books say whatever you wanted them to say.

Now, wiping out people’s debts and then adding corresponding amounts to the balances of creditors out of nowhere would be an increase in the money supply and it would cause inflation. But at this time, some inflation would be a good thing.

Watson: But how on earth do you “start from freedom” unless this freedom has already been institutionally and socially guaranteed? Yes, closely knit communities generally function on the basis of social exclusion, but it is hardly as though this is only a problem in “primitive” or “religious” towns: in rich towns you find rich people (who supposedly respect “privacy” and freedom of speech or w/e you want to call it) doing exactly the same thing.
As such, I would suggest that you’re focusing far too much on the substance of the examples Graeber provides, and too little on the procedural insights that inform them. Certainly you can read the book as Graeber trying to suggest that repression did not take place in precapitalist societies, (though it’s a bit hard to square with his repeated discussion of slavery etc.) but why on earth would you? Read it as an analysis of how debt relations of various sorts inform people’s decisions and social interaction, and you can get much more out of it.

Now, wiping out people’s debts and then adding corresponding amounts to the balances of creditors out of nowhere would be an increase in the money supply and it would cause inflation. But at this time, some inflation would be a good thing.

Well, why not just, as the great philosopher Bob McManus says, print until they make us stop?

237: That’s partly an argument against those who say QE doesn’t work, like this

Robert Waldmann on Woodford in Wyoming

And I say, “10 billion a month in QE only raised interest rates 0.2 basis points (inflation expectations)? Let’s try 10 trillion a month.” It’s sort of an NGDP thing, without Sumner’s magic dust.

And I would have the Fed for instance, which legally can, buy Greek, Spanish, Italian etc bonds until the US overnight hit at least 5%. I personally would go 10% PCE for a decade.

My global point is that we seemed to have forgotten what real re-evaluations or devaluations or restructurings look like, and how well we survive them. It’s only money.

What is this ‘freedom’ you speak of? The serf had to work for someone, and you have to work for someone. And I don’t see you worrying about that; you perceive it as ‘freedom’. Same as the serf.

240: “It’s only money” is a sentiment thoroughly out of date, because money today is everything

Right, sure. I agree. Well, under conditions of post-capitalist 110% commodification, including the Facebook commodification of social and personal identity, whereat do I find this “freedom” thing you speak of?

Is freedom a characteristic of money so we can all become Jamie Dimon and then free? Is it transcendant, outside of social relations? Is it emergent, say from the velocity or the quantity of money?

I like to do mashups, (Marx works:Capital is continual revolution of social relations or something like that but not evolution) so I find freedom in Real Keynes/Minsky/Paul Davidson non-ergodicity and radical irreducible uncertainty. Revolution.

What was the basis of the Great Compression, 1948-1978?

Well, after the century from 1848-1948, and the thirty years of nuclear terror that followed, radical uncertainty was embedded in the social and psychic fabric.

Debt objectifies, and I for one do not want people and society to become so calculable that real rates can rest steady at 2%. It’s immoral.

I think the widespread impression in the US nowadays is that there’s no such thing as bankruptcy for the 99%.

1.35 million people declared personal bankruptcy last year and they can’t all be in the 1%.

“Well, after the century from 1848-1948, and the thirty years of nuclear terror that followed, radical uncertainty was embedded in the social and psychic fabric.”

As opposed to 1748-1847?

And as for the nuclear terror, it had effects, but please note that the reaction was pretty much to get on with life. There’s not much evidence of the ‘radical uncertainty’ which prevents our delicate business flowers from blooming.

(Note to self: go back and assess how much criticism of ‘Debt’ merely amounts to a defense of bourgeois complacency.)

bob, if you think you are going to die tomorrow, you aren’t going to invest.

In much of the popular discourse around debt, it is seen as something sacred

Right. A system of resource allocation has somehow become morally equal to the social obligations around marriage, childbirth and death.