DAVID GRAEBER: “the American Empire collapse is, effectively, being negotiated both internationally, and within”
A conversation with anthropologist DAVID GRAEBER about his book on the history of debt by Jorge Nascimento Rodrigues.
«[The bubble and credit cycles are different after 1971}, I suspect so because now it’s marked by a broad shift of the very meaning of money and this will ultimately have enormous political effects»
«We create the sort of scenario the ancients most feared, where the bulk of the world’s population are reduced to debtors working for the tiny percentage that actually controls the creation of money»
«But in a way 2008 let the cat out of the bag. We realize now that if money is owed by really important players, even trillions in debts can be made to disappear or renegotiated away. Money is just a social arrangement, a set of promises or IOUs»
«The ideology that debt is somehow a moral sin and it is wrong to ever let anyone off the hook has nothing to do with economics, it’s a moral discourse that has been deployed as a means of social control for millennium»
«Debt restructuring, it’s inevitable. It’s just a matter of how they dress it up»
© Janelanaweb.com, November 2011
The New Yorker David Graeber, a native of Chelsea, 50, an anthropologist, professor at the University of London, UK, published recently Debt- the first 5,000 years, a must-read for economists and historians of economy. Also, for politicians.
READ THE BOOK – BUY THE BOOK
A SEMINAL BOOK – a must-read
His book on debt is a critical review of most of the assumptions economists have today about money. He began criticizing the mythical story wrote by Adam Smith, the founder of the discipline of Political Economy, or in today’s terminology, Economics, although the Scottish professor lectured on problems of Moral Philosophy and he will probably be surprised how the industrialists take his “invisible hand” as the new credo of business affairs in the 1800s.
The moralisation of debt by economists and politicians, forgetting that a lender is supposed to accept a certain degree of risk, was the beginning of David’s research on the history of credit and money.
And he found that what we now call virtual money was the original form of money. Credit systems existed long before cash, “indeed preceded the invention of coinage by thousands of years.” Credit and debt come first in history. Loans and interest predated even writing in Ancient Mesopotamia (toponym for the area of the Tigris-Euphrates river system, largely corresponding to modern-day Iraq, northeastern Syria, southeastern Turkey and southwestern Iran).
Exchange markets and physical money emerged from organized violence and power projection, not – as the fairytale written by Adam Smith in the 1770s says – as a historical “progressive” and “clean” sequence from barter to exchange markets and money, and finally banking with credit and debt. Smith also created the fantasy that markets were a kind of natural human propensity and governments came second. The precise reverse is true. An enormous amount of historical evidence show the contrary of Smith utopia – governments created markets as a side-effect of political power projection.
Cycles of debt
Then, David discovered very long cycles in the history of debt, that – amazingly – alternate between virtual and metal money periods. Five cycles so far.
The first – 27 centuries – was dominated by virtual credit money between 3500-800 BC, the age of the Ancient Empires of Mesopotamia, Egypt and China.
The second coined as the Axial Ages from 800 BC to 600 AD, fourteen centuries which saw the rise of coinage sometime around 600 BC – probably in Lydia, in western Anatolia (now Turkey) and specifically to pay mercenaries – and a shift to metal bullion, a period of extreme violence and birth of old philosophies and today’s major world religions.
The third, along eight centuries, the typical Middle Ages, High and Low, from 600 AD until 1450 with a return to virtual money. In the distant China the first financial powerhouses were the Buddhist monasteries and the paper money emerged, called “flying cash.” Then the power projection of Islam from the Iberian Peninsula to China developed capital as credit and the market become a global phenomenon. Long before the market-sand and the merchant-adventurers developed in the most advanced parts of Europe the maritime city-states, particularly the Italian Repubbliche marinare.
The fourth, the Age of Capitalism (in the current concept), from the beginning of the globalization projection by the Portuguese (David refers 1450 as the turning point of the credit cycle), through the Industrial Revolution and the modern financialization waves, with a massive planetary switch back to bullion and the transition from an economy of credit to an economy of interest with a criminalization of debt. We saw the first modern waves of sovereign defaults in England (1472), Spain (6 from 1557), France (8 from 1558), Portugal (1560) and later in Germany (1683) and the first bubbles busts in Holland (the tulip mania in the 1630s) and then in England (the South Sea bubble of 1710). Then, the birth of systemic global crisis since 1826 until the Great Recession of the 1930s.
Something to be determined
That fourth period finished in 1971 when President Nixon announced that the US dollar would no longer be redeemable to gold. Nixon needs were obvious. The US developed what economist Michael Hudson, president of The Institute for the Study of Long-Term Economic Trends, called “debt imperialism” (sovereign credit again as the engine for power projection, something Phillip II of Spain in the 16th century was a master fuelling his grand strategy). The US also needed to win the hegemony curse – what came true with the implosion of the Soviet Union. Then, we saw an incredible return to virtual money, fuelled also by the new tech revolution and the de-materialisation of finance and parts of the production and services not only in the West rich powers, but also in the emergent economies of the so-called Third World.
We are leaving now in this new era, only 40 years old. David coined this infant period as “the beginning of something to be determined.” In this period debt has two special characteristics: first, sovereign debt from countries with a geopolitical privilege is not to be repaid, but to be continually rolled over; second, there’s a difference from middle class and poor debtors captured by the so-called democratization of finance and “systemic” debtors (those, banks, individuals, sovereigns too big to fail). The great financial crisis from 2007 is of a new type – stop to benchmark with the 1890s, or the 1907 panic or the Great Depression. Also, the geopolitical moves from emergent great powers remind us that we are thriving in the unknown.
Q: What was “born” first – debt, money, or coins? Or is it a chicken-egg problem?
A: Money had been around for several thousand years at that point – by circa 3000 BC, we already have records of compounded interest, expense accounts, credit purchases. It seems that the great Bronze Age Empires didn’t produce any real currency system. Silver was used for some transactions, but weighed out and not in uniform denominations, and mainly for larger ones, especially between merchants who weren’t in the same mercantile organization or other people with little social connection. For most everyday transaction, it was credit. In fact that Sumerians didn’t even bother making scales accurate enough to use in the tiny amounts of silver that would have been required to buy hammers or fish or such things. Well, coinage is invented perhaps around circa 650 BC in Lydia, and shortly thereafter, but apparently independently, in both India and China. Actually credit systems preceded the invention of coinage by thousands of years.
Q: Why Adam Smith construct that fantasy land regarding the credit, Money and market, your refer in your book?
A: Well at the time there was an emerging sense, particularly in middle class circles that credit was inherently problematic, even corrupting – a dramatic shift from the assumptions of earlier ages that it was the very essence of sociability, and that it was only appropriate that everyone in a community be in debt to everyone else. What Smith seems to have done was to invent a parable for this new middle-class sensibility that once upon a time, people just swapped everything directly, in a world with no confusing social entanglements, just trade.
Q: You refer a sequence of very long cycles in history of debt and money. Curiously enough they alternate between periods of virtual and metal money, with this extraordinary remark that what we now call virtual money come first in history. Are we leaving nowadays in a virtual credit epoch again?
A: Well I think you can argue that 1971, when Nixon went off the gold standard, does mark a fundamental break – since then there is a whole series of very rapid developments, from the financialization of capital, the spread of credit cards, the effective abolition of usury laws in the US, the movement from social welfare states to credit systems where access to cheap credit is supposed to be the salvation of the world’s poor – from mortgages to 401ks to micro-credit in the Global South. But it seems to me that we’ve been getting things backwards. If we look at the broad sweep of history, the first age of virtual credit money was the first Agrarian Empires (3500-800 BC). Then, in the Middle Ages (600-1450 AD), you have a return to virtual credit money. The Nixon announcement in 1971 marked the beginning of yet another phase of virtual money.
Q: Which are the patterns of those periods of virtual money?
A: Well one thing that’s clear is that during periods dominated by virtual money, there’s always some sort of overarching institution designed to protect debtors, to make sure the bulk of the population isn’t effectively enslaved. It could take many forms (debt cancellations, like the Mesopotamian clean slates or Biblical jubilees, Medieval anti-usury laws…) but there was always something. What do we do instead nowadays? We create institutions like the IMF (or for that matter S&P) designed basically to protect creditors, to ensure that in important matters, no one ever gets to default. Not only is the economic logic crazy, but the effect has been precisely to create the sort of scenario the ancients most feared, where the bulk of the world’s population are reduced to debtors working for the tiny percentage that actually controls the creation of money. I assume all this must, necessarily, be reversed.
Q: What was the main characteristic of the shift from the Axial Age’s bullion period to the High Middle Ages’ virtual system? In which sense that shift and period of change between the two ages can be of use to think nowadays transition?
A: You see very broadly the same sequence of events in China, India, and Rome. The rise of the Axial Age empires was met by popular anti-war movements which took the shape of what became the great world religions. Gradually, as the empires came to a peak, and started to falter, they ended up adopting one of the religious movements as a state cult, which worked out with varying success in different places. The collapse of standing armies lead to a movement away from coins, and back towards virtual money. The initial transition also involved a collapse of urban life, which liberated millions of agricultural laborers, led to the near-abolition of slavery in most parts of the world, and generally massively increased day to day human freedom, but was devastating in terms of literacy and the arts. Gradually the religious movements ended up regulating a revived economic order – much quicker in China and the Middle East than in India and especially Europe, where a caste system was put in place – and creating a world that for most people was probably far more peaceful and prosperous than the Axial Age empires had ever provided. It’s hard to say what sort of analogy one can really make here. I do think the transition from capitalism to whatever comes next is more likely to be like that one than like the always-invoked transition from feudalism. But will it be as demographically or culturally catastrophic? I obviously hope not. A lot of it depends on the political movements that are the contemporary equivalents to the old religious anti-war movements, which form or direction they ultimately take.
Q: You refer the Middles Ages – in a global sense, not only the “westernized” view forgetting Asia and the Middle East – as a return to forms of virtual credit money. One of the most interesting periods, unknown for most West economists, was Sung China (960-1279 AD), a period of structural change in society and economy. What was the role of this Chinese dynasty in money history?
A: Well paper money emerges under the Tang dynasty, being derived from various sorts of credit instruments, but takes off under the Sung dynasty. It was part of a broad movement away from metal currencies, away from the use of bullion in everyday transactions that one sees across Eurasia in the early Middle Ages. Basically, the use of metal only really comes about with the rise of professional standing armies, and coins are always closely tied to the military economy of the great empires, and when the standing armies dissolve, so does the use of metal currency (though the use of copper coins is maintained in China, since eventually the empire reconstitutes itself, just not in the same form). In the world of Islam, from Mali to the Spice Islands, there’s a kind of free-market ideology where credit instruments – ruqq, notes, sakk, or checks, etc. – are, like contracts, enforced not by governments, but religious courts. This is made much easier by the abolition of interest-taking. In China, where interest is still legal, and where there’s if anything a diametrically opposite attitude towards government (or for that matter merchants), government quickly co-opts the system and you end up with paper money. But the movement towards some form of virtual credit money system occurs throughout the Medieval world. It just takes different forms.
Q: Nowadays, in times of austerity packages coupled with inflation, most people react against the “plastic” money and personal credit in day to day life. Even personal financial pundits – a kind of personal trainers for family finance – advocate the return to 100% flows based in physical coins and the ban of credit and debit plastic money. Are they a kind of financial Luddites, or this means a new trend?
A: Oh I don’t think there’s really any going back. Rather, I think people haven’t come to fully embrace what sort of money system we’re moving into – as I just suggested. But in a way 2008 let the cat out of the bag. We realize now that if money is owed by really important players, even trillions in debts can be made to disappear or renegotiated away. Money is just a social arrangement, a set of promises or IOUs. Hence, if democracy is to mean anything, it’ll have to mean that everyone gets to weigh in on how these promises are made and renegotiated.
Q: The Nixon “coup” putting the dollar out of the gold standard in 1971 was the last move of great power projection from the US, more than a “simple” monetary and currency event?
A: Well it was ambiguous. I think Michael Hudson is right when he said the immediate effect is a kind of “super-imperialism,” where imperial tribute is effectively extracted by means of debt – ironically, both by debt owed to the US, as in the Third World debt crisis, and by the US, as in the enormous purchase of T-bonds by countries that are effectively US military client states (Japan, Korea, the Gulf States…). But the long-term effects, it seems to me, can only undermine the relation between war-making sovereign powers and financial interests – systematized in the central bank system – which has defined capitalism since the beginning. It’s just a matter of how long it takes.
Q: Despite the historical breakthrough of the Nixon “coup” you mention, it seems we are leaving since the 1850s or the 1860s since the invention of financial trusts and of the modern financial capitalism, through cyclical financialization waves with its bubble and crash moments. This financialization dynamics is new in history?
A: Well Giovanni Arrighi of course, following Fernand Braudel, argues that it’s not – all hegemonic powers in the history of capitalism go through a phase of productive capital, followed by a phase of financial capital, before they give way. However, there’s more to it I think. I think you could also argue – expanding on certain ideas put forward by Hyman Minsky, for example – that capitalism is curiously prone to bubbles in precisely the period it seems most stable. It’s always seemed to me that’s the reason that for the last couple centuries, capitalists don’t seem to be able to really conceive of their own eternity. If credit is just speculation of future production, future profits, future wealth, then if the system is assumed to be stable and permanent, if the horizon is forever, why not multiply it infinitely. So you get these crazy bubbles. This, I suspect is one reason people always create the image – or reality – of something about to sweep over and destroy the system, in the way that most 19th century capitalists assumed the revolution would come any year now, or after that didn’t seem plausible after 1945, they came up with nuclear war, and after that faded as a fear, global warming… Capital can’t conceive of its own eternity.
Q: The bubble and credit cycles are different after 1971?
A: Yes, I suspect so because now it’s marked by a broad shift of the very meaning of money and this will ultimately have enormous political effects.
Q: Gold fans just gain momentum with the present bullion cycle in the precious metal markets. India and China are nowadays big “engines” of bullion demand. Even in the US the financial industry around the bullion, physical and “paper” gold and silver has been entering mainstream. This means we have signals of a return to a bullion epoch?
A: As I just said I doubt it. Sure, gold and silver will always be valuable commodities. But we’re not going back to the actual use of gold and silver in monetary transactions on any level.
Q: Reinhart and Rogoff studied the sovereign debt since the 1500s. They found periods of cyclical indebtedness and defaults from state entities. Debt and default is a normal “state” of political life?
A: Absolutely, it’s a normal part of capitalism, and secretly, all economists recognize this. After all, what would be the banker’s motive to make productive loans if there was no possibility of default? The ideology that debt is somehow a moral sin and it is wrong to ever let anyone off the hook has nothing to do with economics, it’s a moral discourse that has been deployed as a means of social control for millennium.
Q: Twenty, or thirty years ago, we talked about the Third World Debt Bomb. Now, even the mighty great power, the US, has its credit downgraded and the risk of a default openly discussed. In Europe, a wave of near-default situations emerged – even “big” Eurozone economies like Italy, France and Spain are stressed in the debt markets. Why happened this shift from the “third world” to the so-called developed countries? Is this the end of an epoch as well?
A: Well one thing people rarely recognize is that the “anti-globalization movement” was largely successful. The IMF was driven out of East Asia, out of Latin America, just as now it’s in the process of being driven out of the Middle East. That’s why no one is really talking about “austerity” in those parts of the world; in fact, they’re growing much more rapidly than the former metropole. So yes, in a way, the third world debt crisis has come home. Even the resistance to it – with its emphasis on bottom-up democracy, diversity, civil disobedience, the rejection of the entire political system – takes remarkably similar forms.
Q: Debt restructuring is the best solution for highly indebted countries? How you see the ongoing situation in the Eurozone?
A: Oh it’s inevitable. It’s just a matter of how they dress it up.
Q: Once Keynes suggested that balance in the world between credit and debt countries need most of all a pro-active stance from credit countries. Do you think China and Germany for instance, the so-called mercantilistic economic powers, must take a more active approach on the present situation?
A: Well, if nothing else people in countries like Germany should accept the fact that if they want to be net exporters, they can’t do that unless someone else is a net importer. That’s just math. So they shouldn’t go around treating their partners like moral reprobates.
Q: In the past, debt crisis were the first symptom of decline in power projection and the beginning of a shift in geopolitics. Most people argue with classical case studies like the fall of the Grand Strategy of the Philippes of Spain and more recently the decline of the Great Britain Empire. Can we argue that we are assisting to a kind of transitional period?
A: Oh yes I definitely think the whole thing will be remembered as the story of the decline of the American Empire. Its collapse is, effectively, being negotiated both internationally, and within, between different elements in American and European society. Effectively, that very small elite of 1-2% that has repeated all the gains from the US economy’s plunder of the rest of the world is now going to try to create a similar power over the working class in its own country. It looks bleak because they have been very good at propaganda – they’ve genuinely managed to convince most people that no economic system other than the current rather peculiar form of financialized capitalism is even possible. But it seems to me they have put all their chips in the propaganda victory and completely neglected to create a long-term viable form of capitalism, which is why the empire is crumbling before our eyes. For the moment everyone is in shock, they’d come to accept no other system could possibly work, and now they are watching this one completely fall apart. But people will get over it. I take comfort in the knowledge that the fall of empires generally does not lead to even more extreme inequalities in the former metropole, but less – look at what happened in Europe with the collapse of the colonial empires. It led to the creation of the welfare state, free education, health care… Perhaps it’s significant that the US is at least starting to talk about a universal health care system. However, inadequately so far, at precisely the moment their empire is falling apart.
DAVID GRAEBER – A PROFILE
North-American anthropologist, teaches at Goldsmiths, University of London, UK. Author of the recent Debt- the first 5,000 years (Melville House Publishing, NYC, 2011).
Born in Chelsea, New York, in 1961 from a plate stripper worker Kenneth Graeber, that fought for the Republicans in the Spanish Civil War, and Ruth Rubinstein, that was part of the original cast of the labor stage musical review “Pins and Needles” performed entirely by garment workers, a Broadway hit from 1937 to 1940. David graduates and gain his doctorate from the University of Chicago, after studying a rural community in Madagascar far far away from Lake Michigan shoreline. He entered Yale University as an associate professor.
In May 2005, the Yale University anthropology department decided not to renew his contract. He moved to London. Maurice Bloch, a retired professor of Anthropology at the London School of Economics and at Collège de France, stated about David: “His writings on anthropological theory are outstanding. I consider him the best anthropological theorist of his generation from anywhere in the world.” Anthropology came to him at age 11. He was a boy obsessed with Mayan hieroglyphics.
Bloomberg Businessweek, recently, feature him as a political activist of the Occupy Wall Street (OWS) movement, his other passion. Indeed, he began his sabbatical year last summer and moved back to New York from London. When we interview him by email, David was moving from one city to another in the US, following the OAW movement.