This is a long video, but it has been selected nonetheless for two important reasons:
- It presents a different, and perhaps even more informed, view of the development of money than either Szabo or Antonopolous, which is worth taking into account.
- Too often, the people disrupting any industry don't understand deeply what it is they're disrupting. This is definitely the case with cryptocurrencies and the current financial system. It really is well worth your time to stop and become familiar with more history so that you can understand why we are where we are, what led us here, and - only then - what solutions might actually benefit you and those you care about.
We'll provide you with a highly summarized version of the talk below, but recommend that you set aside some time and watch the full thing.
How does this fit into KERNEL?¶
We're trying to provide as broad a perspective as possible on money, speech, value and trust: the core ideas which lie at the heart of building global, borderless, ownerless and decentralized products, services and protocols.
Most importantly, you can't just hate on debt: you need to understand what it actually is and how we got to a world which runs on it and where we sit with a current global debt of $188 trillion.
Debt and morality¶
"[The book] grapples with a moral and political problem, which is: 'What is this hold that the idea of debt has over people's imaginations; that morality itself comes to be thought of as a matter of paying one's debts?'"
- Graeber begins with a personal story and describes the "Drop the Debt" Campaign, or "Jubilee 2000". He was perplexed by most people's seemingly common-sensical notion that everyone absolutely should be expected to pay their debts, no matter what. He feels differently, and so began researching the history of debt, and discovered some surprising things. In particular:
"No-one has ever written a history of debt [...] You do find histories of money, which turn out to be mostly about coinage, which is interesting given that the vast majority of transactions through history have been on credit [...] and you do find histories of credit, but it's not exactly the same thing [...] I have found that most of our basic, common-sense assumptions about debt are completely wrong and that the moral ambivalence typified by the 'but you just have to pay your debts' conversation has been happening for about 5,000 years."
- We move from here into a discussion of Plato's Republic, the question "What is justice?" and how the book - like most major religions - takes the structure of 'OK, it's not that, maybe something else then?'. This is the style of thinking we pointed to in Trust - you approach the truth only by negation. On this note:
"Debt, guilt, and sin are actually the same word in Sanskrit - i.e. life itself is a cosmic debt we owe to the gods [...] You owe a debt to your parents, so you become a parent; you owe a debt to the sages, so you become wise; you owe a debt to humanity, so you become humane. But this becomes absurd when we extend it - you're not really paying it back, even though the debt is annihilated by such action [...] Once you figure out what [the Vedas] are really saying it's that, in fact, you are the cosmos and so there can be no such thing as debt.
"The same thing happens in the Bible. In Arameic, the word for debt and sin is also the same word. Actually the Lord's Prayer - which we remember translated into terms of private property - is 'Forgive us our debts, just as we forgive those whom are indebted to us' [...] So what is sacred isn't actually paying back debts, it's forgiveness of debts."
- Put aside any institutional religious difficulties the above passages may present you with for a moment and see this point as it really is.
"Debt forgiveness is, in fact, a tradition going back to Mesopotamia and the Biblical Jubilee. It was considered a divine act [...] Over and over, we find this situation in our civilizational stories where people start with the assumption that debt and morality are the same, and then they are forced to accept that they aren't and have to cast around for some other basis for a universal morality, often encountering great difficulty along the way. It's even more complicated, because when you do think of debt as sin, there is a question of who is the sinner?"
Graeber references a Japanese Buddhist story to highlight this point. Stories like these are best listened to yourself (14:23). The problem it highlights is the moral peril on either side of a debt transaction and the ambivalence it reveals in the very nature of human sociality. Most interestingly, if we're concerned with the level of human exchange, then we only have a relationship with the other when the exchange is incomplete, i.e. when there is debt.
The key to maintaining relationships in many older traditions is based on this ambivalence. Someone will give you something and the expectation is that you will give them something in return, though not something of exactly the same value as that would indicate you no longer wish to relate with them. A healthy community is one in which everybody is a little bit in debt to everyone else - it gives us an excuse to see each other!
"97% of all transactions in England up until the 17th Century were by credit. This was partly because there wasn't a lot of currency floating around, and partly because actual money is associated with violence, war and soldiers. Nice people operate on credit and trust."
- Of course, keeping a running ledger in your head of all your debts quickly becomes challenging, hence every half-year or year they would hold "communal reckonings", cancel the debt they could, and pay back the amounts still outstanding after a few loops.
"That's community! Community means everybody owes everybody else something and everybody remembers what they owe and eventually they all settle it and start over again. In this sense, debt isn't a terrible thing, but there's still this shadow of sin floating over it. Where does that come from?
More generally: a debt is a promise which you can phrase in exactly quantifiable terms. Because you can quantify it, it's impersonal, and therefore transferable. According to some theories, this is what money actually is: a transferable promise. One of the great questions is how this came about? Why is there a need to quantify promises precisely?"
Adam Smith attempted a detailed description of this in 1776 in The Wealth of Nations, which has been accepted as the Economics 101 argument everyone now knows (and which you find in Shelling Out). However, it's not true if you take an accurate anthropological view of history. This false story starts with barter, which runs into the problem of coincidence of wants and the need to settle on one general equivalent and, through a virtuous feedback loop, this then becomes the standard and turns into money.
The only problem with this story is that we have never found any evidence for an entirely barter-based society. The core issue here is the assumption that neolithic people would've only engaged in spot trades, which is not the case if we look at the anthropological evidence.
In most societies, if someone praises your possession, it's almost impossible not to give it to them. Like debt, this phenomenon exerts a strange moral power over many people, even in the modern world. Graeber tells a Maori story here also worth listening to yourself (26:21).
In these sorts of communities, there is definitely a quantified ranking system: a cow is roughly like a canoe is roughly like a good necklace. People can shirk this in all sorts of ways (because favors need not be repaid in a purely material sense), but if you do, you earn a reputation as a cheap skate, which is devastating in small communities. However, it is not possible to say exactly how cheap you are. Graeber then asks:
"How does this rough credit system - which we actually observe in places without money - turn into a system with exact proportional equivalence? The answer seems to be: when someone is really angry. When people are being nice to each other, there's no need to calculate [...] Very often it is the case, even in places where you don't have markets for goods, you do have very elaborate fines for personal damages [...] what they call the barbarian law code [...] So, in legal situations where there is the danger of a feud or outbreak of violence, people do need to quantify. This is the first circumstance in which something like money emerges."
Currency and violence¶
"The association between money and violence is a constant and it helps to explain a lot about why debt takes on this incredibly powerful moral hold. If you are in a situation of violent inequality, probably the most effective technique ever invented to make it seem not only moral, but to make it seem like the victim is to blame, is to frame it in the language of debt."
- Mafiosi and the heads of conquering armies understand this all too well. Interestingly, taxes were only placed on conquered populations: they owe the debt of their lives and the conquerors get to be magnanimous benefactors while the victims end up subjugated for long periods. It's happened throughout history. However, history also proves that this eventually blows up in the victor's faces. This is because debt occurs between two parties who are at least potentially equal. Moses Finlay said that there was only one revolutionary program throughout antiquity, which was 'Cancel the debts and redistribute the land.'
"Why does debt motivate people across all ages in this way? Because it implies that you're equal! This is the inevitable conclusion of claiming that debt is morality. Suddenly the language of debt becomes all-pervasive, because you have to use the master's language and I think that's what we're dealing with in all these religious and philosophical texts which start by saying that debt is morality, but then end up saying, 'well, actually, it's not'. It's also why all this moral language becomes financial language, if you think about redemption and reckoning and so on. We're stuck with this language of debt, except that it periodically blows up."
Remember that the story of barter → money → credit is not only wrong, it's backwards. We go back to ancient Sumer to discuss not just the clay tokens used to make the documents Szabo mentioned last week, but the fact that they're recording compounding interest rates. The evidence for this version of the story is scales, which - despite the available technology - were not accurate enough for small, daily amounts: i.e. people were running tabs.
To avoid periodic social upheavals, or after winning wars etc., kings would declare a "clean slate" and wipe all (consumer) debt. This becomes systematized in the Biblical jubilee (every 7 to 49 years, depending on your reading).
- It's bold because it's important.
Virtual money, coins, and an ancient global system¶
"This virtual money system comes first, which is always entertaining because people have this tendency to write about virtual money as a new phenomena, as if we're in this brave new world, but actually it's the original form of money. Coins come later. Barter only tends to show up where you have people who are used to using money, but can't get their hands on any [...]
"Coins are an interesting case, because they appear in different places using different physical techniques, though the social situations were the same. In all cases, money in the physical sense - currency - is invented to pay soldiers."
- Graeber explains the reasons for this and demonstrates how cash markets - where they do emerge - tend to be in the regions where armies are parked. Governments quickly adopt this (another aspect of this story more convincing than barter, which cannot account for why governments demanded taxes in physical currency), because - in essence - it allows them to employ the entire population to get armies the things they need to survive and fight.
"Money and taxes have been used through the centuries as ways of creating markets. Which is interesting because we have this assumption that markets and governments are opposed principles and that political choice is largely about which one we are going to slant to: free markets or governments [...] Historically, in fact, markets tend to be created by governments as a side-effect of military operations.
"Coinage is invented around 600 BC in what Karl Jaspers called 'the axial age'. He pointed out that most major schools of philosophy and world religions developed in the exact same time and places where we invented coinage [...] World religions arise largely as peace movements against these empires that are using coins to fund armies."
- We're back to complementary opposites: in exactly the same place where we see the development of impersonal markets based on physical currency, we see the development of religions which emphasize the lack of importance in material goods. Gradually though, the empires dissolve, try to adopt religion - which doesn't really work - and we get the Middle Ages where all the gold is put into churches and monasteries, most people go back to local trust, and religions take over the regulation of elaborate credit systems.
"For example, most transactions in the market in Basra from 800 or 900 were done by cheque. This gives an interesting perspective on global markets; which are also nothing new. Cheque is, in fact, an Arabic word [and] cash is a Tamil word for Chinese money. How did that happen? [...] Again, it's not true that we reverted to barter in the Middle Ages [...] We used Roman money until Charlemagne, who never actually got around to making pounds though people still used them to measure. They actually called it imaginary money: an ideal system which spanned Europe with which you could trade on the basis of money that didn't exist. We even had a phenomena called 'crying up' or 'crying down' the currency, by which the king dictated value."
- He then discusses paper money in China and the move toward public currency, versus privatization in the Islamic world. It was Islam which led to the first real free market ideology.
It's not about competition¶
"Adam Smith got most of his ideas and best lines from medieval Islam - like the pin factory, which actually comes from Al-Ghazzali in 1100 who spoke of a needle factory. It was made possible by shariah - civil law which bans usury and operates outside the purview of the state. As a result, we got the first true free markets. You could write a cheque in Mali and cash it in Indonesia and we get, for the first time, the idea that markets can run by themselves. But, since they have a real free market, which isn't enforced by the state, they don't assume it's about competition. The assumption is that it's all an extension of mutual aid."
Again, a profound and unexpected point that surfaces as a result of studying the actual history. There is so much more to be said about Islam, but we'll leave that for a junto.
The world worked like this, except for Western Europe which was a barbarian backwater, until 1492 when a lot of new gold flowed in from the Americas; slavery came back, large empires came back and - to cut a long story short - that's the period which is ending now. 1971 and Bretton Woods is taken by most to be the key point of transition. We get credit cards and cashless transactions taking over in a generation, far more focus on financial capital, "credit is gonna save the world and micro-credit will save the third world", 401k's and mortgages and everything else which blew up in 2008. The question is, again, why?
"The reason is because we're doing things backward. If we look at this from a broad, historical perspective, what we learn is that whenever you have a system of virtual money - in which money is not a thing, but a promise - you have to set up some mechanism to protect debtors. You could have periodic debt cancellation, or anti-usury laws and profit-sharing. Usually it's some kind of giant cosmological system beyond the purview of any state or king. We do set up giant, overarching institutions like this today, but we do so in the form of the IMF, which protects creditors against debtors. All these backward institutions produce the idea that nobody should ever default, which is absurd."
- In such a system, the distinction between actual slavery, and being so in debt that you sell yourself or your time every day is just a legalistic one. However, we're talking about 500 year cycles here, people are beginning to wake up, and we still have time to get it right.
"If democracy is to mean anything, it ought to mean that everybody gets to weigh in on what sort of promises are made, what sort of promises are kept, and - when circumstances change - what sort of promises are renegotiated. That's the political moment that we're in right now."
- The Q&A begins at 59:40. The first question has to do with what sort of risk-free rate of return on investment Graeber would impose in his perfect society, considering things like natural spoilage. That is, does money necessarily have to grow?
"Our entire perspective on what money should do goes back to arguments in the Middle Ages. Since usury was illegal, they came up with interest, which was really a late fee. You were not renting money, which is evil, but charging people for failure to return it on the basis that you could've earned ~5% by investing it had they returned it [...] But, I actually do think a jubilee would be reasonable. I end the book by throwing that out [...] because the very idea would allow us to reconceptualize what we're doing and realise that money isn't what we thought it was."
- The Boston Consulting Group actually modeled the idea of a jubilee and concluded that it would cause significant economic disruption, but rather less than if we didn't do it.
"I think we should start thinking about radically different forms of money entirely. Interest-free systems would be possible. The reason Islamic Banking doesn't work is because not everybody's doing it."
- Is there any precedent for the sheer amount of debt across the globe today?
"Probably not, though there have been many speculative bubbles. The real mystery is who is it all owed to? Everyone seems to be in debt, which is puzzling, in a way."
Graeber references the Midnight Notes Collective and their notion of the 2 phases of capitalism after WWII. Since the 70's there has been a crisis of inclusion in the social benefits and welfare handed out in phase 1 and "the deal" is clearly off. Hence, we decouple wages and productivity, and give everyone political rights (which don't imply economic benefits anymore), but you can have credit. Again, everyone wants in on this deal, and the system inevitably implodes.
Next question: if we protect the debtors, why pay back debt at all?
"If the government had paid back mortgages, that would also have bailed out the banks, but they chose not to and gave the money directly to the banks. This a pattern we see throughout world history: debt means something totally different depending on who it is between. Between equals, debt is just a broad moral feeling that you should come through. Between the big players, it's the same story. However, what seems to be treated as 'sacred' is not debt between equals, but debts between the people on top and the people on the bottom. All of a sudden it takes on a different color [...] The philosophy of debt as something which cannot be forgiven only ever crops up in situations of structural coercion and extreme inequality."
- How much of our sense of debt is biological, how much of it is from society and how much of it is regulatory? The answer is a bit tangential, but importantly, Graeber says:
"When you try to justify things in terms of the 'big picture', that's when you fall back on the language of debt and reciprocity. People tend to use this language to justify social relationships which operate according to completely different principles."
- Using massive foreclosures in SF as an example, what would it look like to build a movement for a jubilee?
"The vast majority of social movements throughout history have been about debt [...] The problem with organizing debtors politically is that debt is very alienating. Most people with student loan debt or mortgage debt don't actually know many others in the same situation and there is no forum to compare notes and come up with common strategies."