It is growing daily more apparent that the current economic recession is not a run-of-the-mill downturn or cyclical lag in consumer demand. This recession is different from the booms and busts of the 80s and 90s, above all else, because worldwide, we are experiencing a massive overhang of public and private debt. As Harvard economist and former chief economist of the IMF Kenneth Rogoff recently observed, “the real problem is that the global economy is badly overleveraged, and there is no quick escape without a scheme to transfer wealth from creditors to debtors.” When you start connecting the dots, it becomes apparent that many of the largest, seemingly unrelated policy fights we have seen since the 2008 crisis have been about debt. The European debates over sovereign debt and austerity measures are a classic debtor-creditor dispute, which boils down to whether creditor institutions, insolvent borrowers, or unwitting taxpayers ultimately bear the burden of unpayable debt. The push for mortgage write-downs and foreclosure prevention in the United States reveals a similar rift, where taxpayers were put on the line for risks taken by banks and large institutional creditors, while average borrowers, students, and homeowners have been crying out for relief. Worldwide, high levels of public debt have undermined the ability of governments to pursue Keynesian spending programs, a fact that threatens to make the current recession more intractable than any since the Great Depression. One of the major challenges of our time will be figuring out how to unwind after a glut of borrowing without either fomenting unrest or grinding the global economy to a standstill. And as this picture becomes clearer, divisions between debtors and creditors are likely to grow more polarized. We need more and better ways of thinking about debt.
In his book, Debt: The First 5,000 Years, anthropologist and early Occupy Wall Street organizer David Graeber, makes a compelling case that debt relationships are among the oldest and most fundamental organizing mechanisms in human history. From ancient India, China, and Mesopotamia, to the slave trade in Africa, through Medieval Europe and into the modern liberal state, debt has provided a system for social sorting and served as one of the primary institutions of resource allocation. And because debt is so crucial to social order, relationships between debtor and creditor have generated many of mankind’s most virulent rebellions, wars, and revolutions and set the terms of political dispute since the earliest written records. In his work, Graeber has drawn attention to a staggering range of political structures and philosophical attitudes that have arisen to manage debt relationships and has painstakingly documented what happens when those relations spiral out of control.
Even justified under a lawful credit system, the prospect of widespread servitude, starvation, and dispossession contains an obvious potential to produce massive political instability.
Beyond being eminently readable and jargon-free, this well-researched mix of anthropology, economics, and intellectual history could hardly be more timely. While the careful attention he gives to other societies and economic arrangements alone make the book worth reading, Graeber is also a self-described political activist who understands how history has the potential to reframe our grasp of the present. While he rarely takes overt political tones, he places debt at the center of economic history and aims to upset assumptions that many economists and policymakers take for granted. It is perhaps Graeber’s greatest accomplishment that he reminds readers of a fact that would have been obvious at almost any other period in history: Debt is not a problem to be resolved by natural law or cold, impersonal economic principles. It is a political and moral problem, and one with the potential to rapidly and irreversibly transform societies.
As Graeber describes at the beginning of his book, the baseline ethical assumption that most people have about debt is “one has to pay one’s debts.” But even in a legal system that favors creditors as ours does, this is simply not true. Bankruptcy law, for example, is a controlled way of relieving borrowers of a portion of their debts and enables them to rehabilitate themselves financially. Creditors after a bankruptcy are forced to accept only a portion of the amount they leant. Contract law no longer allows creditors to exact flesh, and prohibitions on prostitution and slavery mean debtors are no longer forced to extremes to redeem their debts. Together, legal developments over the past few centuries have acknowledged that debtor rehabilitation and the preservation of social order are often more important than seeing creditors made whole. Even credit markets do not, as a rule, expect people to pay all their debts all the time. That’s why riskier borrowers get higher interest rates. When creditors start treating debt as absolute and lose the incentive to evaluate credit risk, bad loans proliferate and we end up with something that looks like the subprime lending crisis. When both debtors and creditors are insolvent and straddled with bad loans, the question of who bears the risk of non-payment is thrust back into the realm of politics.
After reading Graeber’s book, it is difficult to think about debt without seeing its political and ethical dimensions. By his account, debtor-creditor relations have provided the moral foundation for many of history’s most reviled institutions. Slavery, indentured servitude, and forced prostitution, for example, received their most coherent justification through the logic of credit systems. In societies that viewed a debtor’s obligation as inviolable, selling one’s freedom or the freedom of a family member was often a borrower’s last recourse to satisfy an outstanding debt. The financial advantage of creditors often translated into legal and political advantage over debtors, and—without the advantage of modern rights—could result in extremely unfavorable terms for defaulting borrowers. When, for example, a single drought or recession could force large swathes of the working population to borrow against future yields, creditors oftentimes seized the opportunity to compel debtors into conditions of servitude and to further consolidate land ownership by foreclosing on their property. Even justified under a lawful credit system, the prospect of widespread servitude, starvation, and dispossession contains an obvious potential to produce massive political instability. And precisely because indebtedness can render poverty so irremediable, the social divisions produced by debt have generated more rebellions, wars, and insurrections than almost any other distinction in history.
None of this is to assert that debt is in itself a bad thing. For all of the horrors that debt politics have the potential to unleash, credit systems have facilitated massive amounts of economic growth and development. Credit has pulled billions out of poverty and carried countless people through hard times. By some accounts, credit even provides the basis of economic interdependence, and, as is arguably the case with contemporary China and the U.S., provides the economic incentives for peaceful coexistence.
Despite the Janus-faced nature of debt, it is, of course, possible to disentangle its benefits from its harmful potential. Indeed, managing debt relations could be characterized as one of the primary functions of any political system. Lasting social stability depends on the ability of governments to resolve disputes among debtors and creditors, and throughout history, societies have developed a range of strategies for preventing widespread indebtedness from destabilizing the entire social order. Religious and political leaders often instituted prohibitions on usury, and, as in the Biblical Jubilee year, granted periodic debt relief. In fact, according to Graeber, the first written record of the word “freedom” in any human language is the Sumerian amagi, a royal pronouncement of universal debt-relief, meaning literally “return to mother.” Many of the political freedoms and notions of progress associated with western liberal democracies can be plausibly characterized as restraints on the credit system. In abolishing slavery, indentured servitude, and debtor prisons, for example, modern legal and religious institutions gradually came to recognize humane limitations on the ability of creditors to enforce debts. Other legal and moral developments expanded the pool of individuals who were able to own property and borrow money, and human rights law continues to provide a framework for challenging contemporary slavery, indentured childhood prostitution, and other persisting forms of debt bondage.
Economists and policymakers are slowly coming to realize that the subprime crisis and the sovereign debt crisis are, at base, the same thing—a push by creditors to squeeze money out of unpayable debts.
Despite the sterility with which lawyers and economists currently conceptualize debt, recent events show how quickly debt can become politicized and retake the center-stage. The 2008 credit crunch, the sovereign debt crises in Europe, and the disastrous 2011 U.S. debt-ceiling debates have laid bare some of the political stakes. But looking back across time and across cultures, it appears that the past two-hundred years in Western Europe and the United States were somewhat of an exception in placing debtor-creditor disputes largely outside of the political arena. It is interesting to consider whether the political dimensions of debt were obscured by rising prosperity, a well-functioning bankruptcy system, increased economic complexity, or by other social transformations. If the deleveraging process we are now seeing continues to strain economic recovery and job creation, new political alignments and new forms of political consciousness are almost certain to develop, and, as with the Occupy Wall Street movement, debt reform will likely be at the core of their message.
Rethinking debt also means taking on economic orthodoxies. Graeber spends considerable energy critiquing the story of bartering that begins nearly every introductory economics textbook. According to the conventional wisdom, money arose to reduce the complexities and inefficiencies of in-kind bartering systems. Most economists treat it as an obvious that money exists because it eliminates the need to wait around for a double coincidence of wants, thereby increasing trade and economic surplus. From this baseline account, the traditional view is that credit systems and other financial innovations developed as markets grew increasingly sophisticated. The problem, as Graeber quite thoroughly demonstrates, is that there is no historical evidence for this account. Graeber documents, rather, that currency arose at several times in several different societies and typically emerged from “human economies,” systems for managing honor, marriage, death, and revenge. These so-called human economies gave people a way to record obligations, placing debt—not trade—at the origins of human economic history. Graeber goes on to demonstrate that currencies only became standardized and widely used when monarchs began paying soldiers in coinage and insisted that civilians return the coins in the form of taxation. In other words, without the threat of force to create demand for the currency, the purported economic advantages of standardized currency never spontaneously yielded a widely-accepted, uniform unit of trade. In challenging orthodoxies of economic history, Graeber is doing more than simply clarifying the record. He is attacking economists’ unwillingness to look at their own discipline empirically, and he is calling attention to the violence at the root of economists’ most deeply held assumptions.
Debt is overflowing with alternative ways of conceiving of credit, debt, and currency, and it’s filled with reminders that debt systems have not always been organized in the ways we assume. Graeber’s intellectual range can make his book feel a bit disorganized at times, and he tends to blur particularized anthropological accounts into generalized theoretical observations. Nevertheless, the historical richness and the breadth of philosophical attitudes are precisely what make the book so compelling. Graeber looks closely at other traditions and other societies, and from them exposes new possibilities for our own. There is something reminiscent of Nietzsche in his ability to pierce through appearances and identify the power psychology underlying conventional philosophical, economic, and legalistic attitudes toward debt. And when viewing Graeber’s efforts to reclaim debt as a site of political conflict, it is hard not to compare Marx’s insight that labor and class are among society’s basic political rifts. Graeber is pushing toward a deeper criticism of the ways economics has obscured inequalities and rationalized issues that have always been moral, political, and fundamentally indeterminate. Economists and policymakers are slowly coming to realize that the subprime crisis and the sovereign debt crisis are, at base, the same thing—a push by creditors to squeeze money out of unpayable debts. And as these struggles wage on, the political and indeterminate aspects of debt are likely to grow more pronounced. Debt and debt forgiveness, it turns out, have always been at the center of political debate. It is hard to believe anyone ever thought otherwise.