Debt: the first 5,000 years.

JagerIV

Well-known member
I became aware of this book through, bless his heart, Adam Friended's recent rabbit holing of MMT. Apparently, its actually a fairly big book, and seems to be the source of several strange arguments I'd been seeing but didn't know the origin of.

As far as I can tell, the core argument of the book seems to be that barter is terrible (as predicted in standard monetary theory) and so no society of any serious complexity uses it for long (as predicted by the standard theory). Thus, since we haven't found any Barter societies, this disproves economic theory on the orgin of money.

I don't really get it. But, it seems to be coming up a lot, and feeds into this MMT stuff, so it seems worthwhile to have a discussion of it, either to counter the argument if it has no real value, or pull from it whatever value there is if it exists between the mans apparent mass of communist sympathies.

What I've been told is the relevant chapter in audiobook form, which I haven't been able to read yet. Looking to see if I have a text version, where someones arguments can be more easily anayized for validity or not.

edit: found the actual book online


And the criticism articles, some of which I have read through, some I have not gotten all the way through.


Perhaps the possibility of credit before a common medium of exchange is ignored in the standard account, however, that does not imply that Menger’s theory is false — maybe incomplete, but not false. Since direct exchange, i.e. barter, may be inter-temporal. Barter need not be a spot transaction reduced to a particular place and time. If the concept of inter-temporal barter is accepted, then the evidence of credit existing before a common medium of exchange creates no conflict in Menger’s account. The conclusion contra Innes is: all credit before the existence of a common medium of exchange is inter-temporal barter.


In other words, monetary exchange, being but an "impersonal" matter of mathematics, is a contest that must result either in a stalemate, with neither side winning, or in a bargain by which one side rips the other off. Gift exchange, on the other hand, "is likely to work precisely the other way around — to become a matter of contests of generosity, of people showing off who can give more away."

I leave it to the reader to imagine how, by means of repeated appeals to this sort of reasoning, Graeber manages to paint Adam Smith (and most economists since) as an apologist for slavery, imperialism, and pretty much every ungenerous and unkind activity under the sun.

There's just one problem. Just as money is in truth no more "quantifiable" than hamburgers, so, too, is it the case than money is no more a "measure" of value than a hamburger is. By that I mean, not that a hamburger is also capable of measuring the value of other things, but that neither it nor any sort of money is capable of doing so.

The idea that money is a "measure of value," like the related idea that exchanges are necessarily exchanges of equivalents, is among the hoariest of economic fallacies. It plays a prominent part in Aristotle's economics — and, not coincidentally, in Aristotle's condemnation of all sorts of "capitalist" activity. Smith himself, in subscribing to a modified labor theory of value, was unable to break free of it. It is more than a little ironic that Graeber, in flinging all sorts of undeserved criticism at Smith, cleaves to him when it comes to his one indisputable mistake.

The notion that money is a "measure of value" is but a particular instance — albeit one that has managed to linger on in some economics textbooks — of the mistaken belief that economic exchanges are exchanges of equivalents. In his book Money: The Authorized Biography, Felix Martin, like Graeber, takes the "measure of value" notion seriously, and attempts to build from it a critique of both modern economics and modern monetary economies. In reviewing that work, I explained Martin's mistake by observing that when a diner sells me bacon and eggs for $4.99, "that doesn’t mean that bacon and eggs are worth $4.99, 'universally' or otherwise. It means that to the diner they are worth less, and to me, more."

Grasp this little strand of truth. Pull on it. Keep on pulling. And watch Martin's critique unravel. Graeber's critique, with its fatuous dichotomy of generous credit transactions on one hand and antagonistic monetary transactions on the other, rests on the same fallacy, and is no less gimcrack.

And I commented: Indeed. It really looks from the anthropologists that Adam Smith was wrong--that we are not animals that like to "truck, barter, and exchange" with strangers but rather gift-exchange pack animals--that we manufacture social solidarity by gift networks, and those who give the most valuable gifts acquire status hereby.

It seemed to me that there were, in fact, four important and interesting questions:

  • How does an original thick-tie sense of reciprocal obligation and gift-exchange become a precise system of measurement using monetary values as units of account?
  • How does this keeping-track-of-exchange get transformed, via debt, into a system which often creates a particular set of powerful ones called "the rich", who then via thick-tie relationships with "the poor" take what they can while the weak suffer what they must?
  • How does money as a medium-of-exchange emerge, so that individuals are no longer limited to various debt thick-tie reciprocal obligation networks but can instead construct pick-up one-time thinnest-tie exchange relationships with pretty much anybody they please?
  • How does the thick-tie category of "debt" transform itself into a thin-tie (or thinner-tie) relationship--and how can such thin-tie relationships go as catastrophically wrong on a systemic level as they did in 2007-2009?
It seemed likely that Graeber's Debt would provide a perspective I would find interesting and informative on these questions.

But then things went south rather quickly...

Nor does Graeber's response to Murphy supply any reason for me to modify my assessment of his understanding of basic economics. On the contrary: he repeats here as well his view that "money is simply a mathematical system whereby one can compare proportional values, to say 1 of these is worth 17 of those." This, as I said before, is what Aristotle believed; it is also what economists stopped believing around 1871.

In his reply to Murphy, as in his book, Graeber recognizes that barter does occur, saying that it "typically occurs between strangers," as if this were an exception of little importance. But as I said in my earlier post, it is precisely through trade between strangers that non-commercial societies give way to commercial ones; and it is in enabling this transition that money comes to acquire great importance.


Graeber’s book quotes examples taken from several econ principles texts of hypothetical barter transactions that he claims have no basis in history. But the authors design these examples merely to illustrate why monetary exchange is more efficient for complex economies. They imply no accuracy with respect to historical details, with the possible exception of the quotations taken from Adam Smith’s Wealth of Nations. It would make as much sense for Graeber to ridicule grade-school arithmetic texts because of their fanciful use of apples to illustrate addition. Graeber goes on to set up an additional straw man with his assertion that economists universally believe that the emergence of money necessarily preceded the development of credit. This is utter nonsense, nowhere supported in the economics literature. Every competent economist fully understands that you can have debt transactions without money. They simply recognize that money facilitates credit as it facilitates other exchanges and, therefore, find monetary credit easier and more relevant to explicate.

Indeed, an extended defense of the historical claim that money spontaneously evolved from barter is almost unique to the Austrian School and Carl Menger (whose first name Graeber misspells as “Karl” and whom Graeber mistakenly accuses of “adding various mathematical equations” and coming up with the term “transaction costs,” possibly confusing the economist Menger with his son, Karl, who was a mathematician). Menger’s story is in no way undermined by the discovery that what preceded monetary exchange was barter debt transactions rather than barter spot transactions. Moreover, Graeber’s classification of Sumerian temples as non-States actually reinforces the Menger story. And his blanket assertion that “non-state bureaucracies . . . are off the map of economic theory” is simply absurd, as if he thinks that economists are unaware that the private firms they analyze often have bureaucracies.

Nor is the Menger scenario compromised very much by the claim that media of accounts emerged before media of exchange, which has been suggested by many anthropologists and accepted even by Tyler Cowen and Randy Kroszner in their Explorations in the New Monetary Economics. The only serious challenge Graeber raises is his assertion that most media of account arose from legal penalties or were otherwise arbitrarily imposed. However, as Murphy points out, it seems implausible that something could emerge as a medium of account without already being widely enough marketable to provide at least some guidance about its value relative to other goods. The only reason this poses no puzzle to Graeber is that he apparently considers most prices to be significantly arbitrary and is entirely oblivious to their vital role in workable resource allocation.

Last week the popular blog "naked capitalism" ran an interview with David Graeber, an "economic anthropologist" whose new book allegedly destroys the standard account of the origin of money. If correct, Graeber's views would prove embarrassing to the Austrian School, because it was none other than Carl Menger who developed the first systematic explanation for how people went from barter to a full-blown monetary economy.

As we'll see, Graeber's critique of the standard (Mengerian) view is much weaker than he believes, while his own explanation makes no sense. Furthermore, we have actual case studies of the development of a new money, which fit the Mengerian story. All in all, I see nothing in Graeber's interview to make me question Menger's orthodox approach.


This critique is simultaneously frivolous and powerful, though Graeber himself doesn’t seem to grasp the nuances involved. On the one hand, it is silly to object that no one has ever discovered a full-blown economy operating on the principles of barter. The whole point of the standard economist story is that such an economy would be plagued by difficulties in reaping gains from trade and so would quickly spawn media of exchange and eventually money. In fact, if missionaries or conquistadors ever had found a stable society that had been using pure barter for generations, then that would have constituted the real problem for the Mengerian theory.

Graeber is simply wrong when he leads the reader to believe that the economist story is pure fiction. We have a documented case study: the famous emergence of cigarettes as money as described in R.A. Radford’s classic 1945 paper, “The Economic Organization of a P.O.W. Camp.” To adopt Graeber’s approach, modern archeologists might explore the ruins of these camps and uncover chalkboards listing prices for various items in Red Cross ration packages denominated in cigarettes. Yet the archeologists might have no record of prisoners initially trading the goods directly against each other (since that practice was very short-lived). Hence, they would conclude that the prisoners on day one of their capture must have known to use cigarettes as money rather than the currencies of their homelands.

Although Graeber’s critique therefore misses the mark in one obvious respect, nonetheless he doesseriously challenge the standard Mengerian account, in a way I’m embarrassed to say that I had never even considered when teaching the fable to my own students. Specifically, Graeber points out that barter spot transactions would really only be necessary between strangers who might not see each other again. In contrast, neighbors could engage in credit transactions even before the use of money had developed. For example, if one farmer had eggs to sell, while his neighbor didn’t have anything he wanted at the time, then the first farmer could simply give them to his neighbor, saying, “You owe me.”
 
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Simonbob

Well-known member
Interesting.

But, I don't want to read an entire ecconomic text to debate it.


As far as I can tell, the core argument of the book seems to be that barter is terrible (as predicted in standard monetary theory) and so no society of any serious complexity uses it for long (as predicted by the standard theory). Thus, since we haven't found any Barter societies, this disproves economic theory on the orgin of money.

I don't really get it. But, it seems to be coming up a lot, and feeds into this MMT stuff, so it seems worthwhile to have a discussion of it, either to counter the argument if it has no real value, or pull from it whatever value there is if it exists between the mans apparent mass of communist sympathies.


It's true, that barter is a terrible ecconomic system, and that to have even mild complications, ecconomicaly speaking, you need a more portable means of exchange. But, debt?

Debt is not a purely ecconomic concept. Honor debts, for example, aren't about money. Technically speaking, any time one person makes an agreement that isn't enacted that moment, there's debt.



Anyway, if you want to talk on this subject, I'll chat.
 

Scottty

Well-known member
Founder
Barter works fine for ad hoc person to person deals. Or even negotiated deals between countries.
 

JagerIV

Well-known member
Sure, but generaly, not long term, nor more varied trade.

Which is why his critism is so stange: he basically claims "standard economic theory says barter is a terrible way to carry out most any trade, which is why people switch to some medium of exchange almost immediately, but since we don't see any barter society, therefore mainstream economics is wrong?"

The guy does come across as a bit of a communist, so logic is not going to be his strong suit. On the one hand, it seems almost a waste of my time, but on the other a lot of people seem to take the book seriously, so it might be worthwhile to point out exactly how its bullshit.
 

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