Debt: the First 5,000 Years

by David Graeber

Book Review

The primary purpose of Debt: the First 5,000 Years is to correct the historical record concerning the origin of barter, coinage and credit. Incredibly well researched, anthropologist David Graeber’s book is a fascinating read. I found it extremely helpful in gaining some understanding of modern problems with debt and perpetual war. I was particularly intrigued to learn about the 2,600 year old link between war, debt and money creation, as well as the role of violent insurrection in shaping history. Ruling elites are terrified of insurrection. Throughout history, this fear has driven most major reforms.

Debunking Adam Smith

The conventional wisdom, which originates from Adam Smith’s Wealth of Nations, is that money (i.e. coins) originated out of barter relationships, and that paper money and credit replaced coins when trade became too large and complex to be conducted with coins. As Graeber ably demonstrates, Smith had it backwards. Not only was barter virtually non-existent in prehistoric societies, but coinage itself was an extremely late development. Virtual credit preceded coinage (and barter) by thousands of years in all early civilizations. What’s more, these complex credit-debt arrangements played a vital role in the development of traditional institutions, such as slavery, patriarchy, urbanization and organized religion.

The Myth of Barter

People didn’t barter in early hunter gatherer and agrarian societies because they didn’t need to. Well into the Middle Ages, basic needs were met by family and community mutual obligation networks. There was an expectation extended family, neighbors would provide what you couldn’t provide for yourself.

There was a vital need for credit, however, with the development of farms large enough to feed the entire community. According to archeological evidence, credit first developed around 5,000 years ago when farmers borrowed seed and farm implements from wealthy merchants and repaid the debt with a share of the harvest. When the harvest failed, they repaid it in sheep, goats and furniture. When that was gone, they sold their children and eventually themselves into slavery.

This scheme was difficult to enforce, as many indebted farmers either walked away from their land or launched violent insurgencies. In was for this reason that both Sumeria and early Chinese civilizations launched formal debt forgiveness schemes, in which people regained their lands and debt slaves were free to return to their lands.*

The first money (in the form of precious metals, shells or other tokens) was used to pay the bride price the groom paid the bride’s family, the blood debt incurred when someone was murdered and to buy someone out of slavery.

The Origin of Patriarchy

In the earliest Sumerian texts (3000-2500 BC), women appear as doctors, merchants, scribes and public officials and are free to participate in all aspects of public life. This changes over the next 1000 years, with women becoming closeted to protect the honor of their fathers and husbands. According to Graeber, this pressing need to protect a woman’s reputation arose from a reaction by agrarian peoples (such as the early Israelites) to urbanization and the prostitution that resulted from it. The rise of cities in Sumeria and Babylon was accompanied by the rise of numerous informal occupations – including prostitution – practiced by men and women who had fled slavery. Patriarchy arose simultaneously in ancient China for similar reasons.

War, Debt and Money

Coinage (gold, silver and bronze coins) arose simultaneously between 600 BC and 800 AD (aka the Axial Period) in Greece, Rome, the great plains of northern China and the Ganges Valley for precisely the same reason: it was impossible to finance war with local systems of credit.

In all three civilizations, the first coins were used to pay professional soldiers (aka mercenaries). This would lead to the first market economies, as soldiers spent their coins in local communities, as well as concepts of profit and debt interest. In fact, a vicious cycle was established whereby rulers tried to solve their debt problems through expansionist wars to acquire more land, resources and slaves. In every case, this strategy backfired and the wars only increased their indebtedness.

The appearance of coins and market economies also led to a backlash against materialism and preoccupation with money. All the world’s major philosophic tendencies (Zoroastrianism, Buddhism, prophetic Judaism, Hinduism, Confucianism, Jainism, Taoism, Christianity and Islam) arose during the Axial Period

This period also saw the rise of the first peace movements when early philosophers (eg Socrates and Plato) made common cause with rebels who opposed the violence of war and existing power relationships. According to Graeber these movements were remarkably successful in reducing the brutality and frequency of war. By 600 AD, slavery itself was virtually non-existent.

The Rise and Fall of Credit Economies

Following the fall of Rome, populations fled the cities and lived in smaller communities that reverted to credit economies. Gold and silver were used for temples and cathedrals, and only rich people had access to coins. All the major religions prohibited usury.

Money lending and banking arose to fund the Crusades, with the Knights Templar replacing Jewish moneylenders. After their persecution, torture and extermination by Phillip IV (due to the enormous debt he owed them), the latter were replaced by Venetian and Genoan bankers. The Italian bankers used municipal and government debt bonds as the chief instrument of exchange.

Around 1450, gold and silver bullion and coin (much of it from the New World) were re-introduced to finance vast empires and predatory warfare. This development was accompanied by the return of usury and debt slavery.

The Birth of Capitalism

Graeber defines capitalism as a gigantic credit/debt apparatus pumping maximum labor out of human beings to produce an ever expanding quantity of material goods. He dates its origin to around 1700 (six years after the Bank of England issued the first paper banknotes). Police, prisons and state sanctioned slavery were essential tools in achieving the phenomenal productivity needed to finance political systems based on continual war.

*”Every seventh year you shall make a cancellation. The cancellation shall be as follows: every creditor is to release the debt he has owing to him by his neighbor” (Deuteronomy 15:1-3). Every 49 years came the Jubilee, when all family land was to be returned to its original owners, and even family members who had been sold as slaves set free (Leviticus 25:9).