Debt: The first five thousand years

[Gouda]

FWIW:

The average credit score nationwide is 666, according to CreditKarma.com.

http://finance.yahoo.com/banking-budget ... -article-c

[JackRiddler]

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This week since reading this I've been talking about Graeber's findings every chance I get.

[Elihu]

GÖTTERDÄMMERUNG
The Twilight of Irredeemable Debt
Antal E. Fekete
Gold Standard University

Wagner’s opera Götterdämmerung is about the twighlight of pagan gods. The most powerful of the latter-day pagan gods that has been guiding the destinies of humanity for the past two-score of years is Irredeemable Debt. Before August 14, 1971, debts were obligations, and the word “bond” was to mean literally what it said: the opposite of freedom. The privilege of issuing debt had a countervailing responsibility: that of repayment.

On that fateful day all that was changed by a stroke of the pen. President Nixon embraced the woolly theory of Milton Friedman and declared the irredeemable dollar a Monad, that is, a thing that exists in and of itself. According to this theory the government has the power to create irredeemable debt ― debt that never needs to be repaid yet will not lose its value ― subject only to a quantity rule”, e.g., it must not be increased by more than 3 percent annually. This idea is so preposterously silly that “only very learned men could have thought of it”. If the thief is thieving modestly, then he will not be detected. It never occurred to the professors of economics and financial journalists that a modest thief is an oxymoron, a contradiction in terms. How did they get to believing in irredeemable debt? The explanation is most likely found in Schiller’s dictum: “Anyone taken as an individual is tolerably sensible and reasonable. But taken as a member of a crowd ― he at once becomes a blockhead”. Economics professors and financial journalists are no exception.

For a time it appeared that Milton Friedman was right. The world has become dedicated to the proposition that it is possible, even desirable, to expand irredeemable debt in order to make the economy prosper. Never mind the default of the U.S. government on its bonded debt held by foreigners. Never mind people victimized by theft. Thanks to the quantity rule, they will never notice the difference.

For all its seductive attractiveness Friedmanite economics is ignoring the effect of irredeemable debt on productivity. It watches debt per GDP and is happy as long as this ratio stays below 100 percent by a fair amount. However, what should be watched is the ratio of additional debt to additional GDP. By that indicator the patient’s condition could be diagnosed as that of pernicious anemia. It set in immediately after the dollar debt in the world was converted into irredeemable debt. The increase in GDP brought about by the addition of $1 of new debt to the economy is called the marginal productivity of debt. That ratio is the only one that matters in judging the quality of debt. After all, the purpose of contracting debt is to increase productivity. If debt volume rises faster than national income, there is big trouble brewing, but only the marginal productivity of debt is capable of revealing it.

Before 1971 the introduction of $1 new debt used to increase the GDP by as much as $3 or more. Since 1971 this ratio started its precipitous decline that has continued to this day without interruption. It went negative in 2006, forecasting the financial crisis that broke a year later. The reason for the decline is that irredeemable debt causes capital destruction. It adds nothing to the per capita quota of capital invested in aid of production. Indeed, it may take away from it. As it displaces real capital which represents the deployment of more and better tools, productivity declines. The laws of physics, unlike human beings, cannot be conned. Irredeemable debt may only create make-belief capital.

By confusing capital and credit, Friedmanite economics obliterates truth. It makes the cost of
running the merry-go-round of debt-breeding disappear. It makes capital destruction invisible. The stock of accumulated capital supporting world production, large as it may be, is not inexhaustible. When it is exhausted, the music stops and the merry-go-round comes to a screechy halt. It does not happen everywhere all at the same time, but it will happen everywhere sooner or later. When it does, Swissair falls out of the sky, Enron goes belly-up, and Bear-Sterns caves in.

The marginal productivity of debt is an unimaginative taskmaster. It insists that new debt be justified by a minimum increase in the GDP. Otherwise capital destruction follows ― a most vicious process. At first, there are no signs of trouble. If anything the picture looks rosier than ever. But the seeds of destruction inevitably, if invisibly, have sprouted and will at one point paralyze further growth and production. To deny this is tantamount to denying the most fundamental law of the universe: the Law of Conservation of Energy and Matter.

The captains of the banking system in effect deny and defy that basic law. They are leading a blind crowd of mesmerized people to the brink where momentum may sweep most of them into the abyss to their financial destruction. Yet not one university in the world has issued a warning, and not one court of justice allowed indictments to be heard from individuals and institutions charging that the issuance of irredeemable debt is a crude form of fraud, calling for the punishment of the swindlers issuing it, whether they are in the Treasury or in the central bank. The behavior of universities and courts in this regard could not be more reprehensible. Rather than acting to protect the weak, they act to cover up plundering by the mighty.

The inconspicuous beginnings of irredeemable debt have blossomed into a colossal edifice, a
fantastic debt tower that is bound to topple upon the prevailing complacency and apathy. Actually ‘tower’ is a misnomer. Rather, what we have is an inverted pyramid, a vast and expanding superstructure precariously balanced on a tiny and ever-shrinking gold foundation ― <Singularity?>the only asset in existence with power to reduce gross debt. The construction has no precedent in history, and no place in theory, whether Ricardian, Walrasian, Marxian, Keynesian or Austrian. As a matter of fact, no one is analyzing the process. Research has been placed under taboo by the powers that be, lest diagnosis reveal the presence of cancer caused by irredeemability. There is no known pattern or model that would apply to its mechanism in terms of equilibrium analysis. Two negative conclusions emerge. One is that the edifice of irredeemable debt must grow at an accelerating pace ,<resonance?>as markets for derivatives providing ‘insurance’ to holders of debt proliferate. The insurer of debt must also be insured, as must the insurer of the insurers, and so on, ad infinitum. This is due to the fact that the risk of collapsing bond values has been created by man. In contrast, the risk of price changes of agricultural commodities are created by nature, and the futures market provide insurance, with no need to re-insure. The other conclusion is that the unwieldy size of the debt structure excludes the possibility of a normal correction: a major liquidation would dwarf the calamities of the Great Depression.<.......event horizon?>

It is a delusion to think that the government can splatter debt all over the economic landscape to cover up its warts, and reap everlasting prosperity as a result. The stimulation and leverage of debt has always caused stock markets to boom, so that the impact of debt was aided and magnified by the added paper wealth which, in turn, increased the propensity to spend and borrow still more. Businessmen are supposed to be more realistic in contracting debt. Yet the pattern of increase in corporate debt has also changed tremendously. Whereas traditionally corporations used to finance their capital needs in a ratio of $3 in debt for every $1 in stock, in the years leading up to 1971 they issued $20 in debt for every $1 in stock, with the ratio sky-rocketing thereafter.

We hear arguments that economists have by now learned how to control the economy with the so-called built-in stabilizers. Debt has largely lost its sting as a consequence, we are told. For example, bank deposits can now be insured. They couldn’t in the 1930’s. But when the government itself is loaded with debt, and runs boom-time deficits, the built-in stabilizers may backfire and destabilize the economy further. The government has commitments so great that its endeavor to offset a depression in our vast economy can only result in a loss of confidence. Anxious withholding of purchasing power in the private sector could far outweigh anything the government can add. To make matters worse, government income is highly dependent on a prosperous economy. The magnitude of the problem of offsetting a depression is grossly disproportionate to resources available.

One of the marks of great delusions is that nearly everyone tends to share them. It is a sorry
tale ― any delusion gives rise to a rude awakening in due course. Public attitudes to debt have
changed so radically since 1971 that today indebtedness is practically a status symbol, instead of a shameful condition it used to be in a by-gone era. The most striking reversal in traditional American attitudes towards debt is the widespread acceptance of perpetual national indebtedness, copied by perpetual personal indebtedness ― a never-ending lien on future income.

Perhaps the worst aspect of the regime of irredeemable debt is the lowest level of morals followed by governments in modern history. It is epitomized by an elaborate check-kiting conspiracy between the U.S: Treasury and the Federal Reserve. Treasury bonds, contrary to appearances, are no more redeemable than Federal Reserve notes. It’s all very neat: the notes are backed by the bonds, and the bonds are redeemable by the notes. Therefore each is valued in terms of itself, rather than by an independent outside asset. Each is an irredeemable liability of the U.S: government. The whole scheme boils down to a farce. It is check-kiting at the highest level. At maturity the bonds are replaced by another with a more distant maturity date, or they are ostensibly paid in the form of irredeemable currency. The issuer of either type of debt is usurping a privilege without accepting the countervailing duty. They issue obligations without taking any further responsibility for their fate or for the effect they have on the economy. Moreover, a double standard of justice is involved. Check-kiting is a crime under the Criminal Code. That is, provided that it is perpetrated by private individuals. Practiced at the highest level, check-kiting is the corner-stone of the monetary system.

But our world is still one of crime and punishment, tolerating no double standard. The twilight of irredeemable debt is upon us. The sign is that banks are reluctant to take the promissory notes of one another. Significantly, this also includes overnight drafts. The banks know there is bad debt at large, and they don’t want to be victimized by taking in some inadvertently. What the banks don’t yet know, but will soon learn, is that all irredeemable debt is bad debt, and there is no way to rid the system of poison through administering more.

Redeemability of debt is not a superfluous embellishment. It has a function of fundamental importance: the proper allocation of resources to the different channels of their utilization. The obligation to redeem debt hangs as the sword of Damocles over the government, just as it does over the head of every economic participant. It compels economy and foresight. It forces balancing of income and expenditures. It adjusts claims and commitments. It limits expansion by shifting resources away from the incompetent, and away from unhealthy projects. The regime of irredeemable debt creates an escape route from commitments by the promise of eliminating the pressure of solvency. Whether it promises eternal prosperity, or it promises eternal subsidies, it does not matter. The results are the same. They consist in misleading people, enticing them to skate on thin ice, and luring them into financial adventures, private or public, which are not warranted by the ability to pay. The logical consequence is wholesale bankruptcy of individuals as well as that of the political setup. Losses breed more losses, until they become an avalanche. The present crisis is just the first sign of that denouement. More is on the way.

It is still possible to escape the catastrophe which this process would entail. The way out is to open the U.S. Mint to gold and silver, as advocated by presidential candidate Dr. Ron Paul. The logic of this remedy is that it would mobilize potentially unlimited resources, presently tied up in idled gold, and re-introduce the indispensable means of debt-retirement into the economy.

Failing to bring gold back, where are we heading? The short answer is: we are marching into the death-valley of collectivism. The alternative to re-introducing redeemable currency is that the debt behemoth will force the imposition of a capital-levy type of taxation ― à la Solon, 594 B.C.

April 27, 2008.

[JackRiddler]

Without doubt one of the best most thought provoking articles I've ever seen posted here (imo of course). Thank you for that

Absolutely. Everyone should read the Graeber material (OP and a couple of other posts on the thread) and listen to his talk. It's brilliant, largely new to me, and near to the opposite of the goldbug religious stuff that Elihu for some reason thinks should also be included with Graeber. Apparently Graeber is a provocation to those who buy into the mythology that gold is either more real, or more originally, money than archaic credit and potlatch. It obviously and painfully isn't. As Graeber points out (and Hudson has many times), the problem lies not in credit nor in easy money creation, but in the institution of unlimited interest and "the miracle of compound interest." Today the gold standard is little more than an outdated form of financial slavery, something understood by our predecessors in the fight against oligarchy -- the populists of the late 19th century, who as a class were very similar to the current tea partiers but politically about a thousand times more savvy. "Infinite leverage" should be replaced by a literal rendering of "he who has the gold makes the rules"? If there's something even more insidious than the real-existing Federal Reserve, then it's definitely the gold mining companies who would end up replacing it in such a scenario.

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[JackRiddler]

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Geez, Graeber was on C-SPAN BookTV today! Interviewed by Doug Henwood.

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By the way, the REAL debt picture is not just government, which is a fraction of the whole. Let's not forget the Fed balance sheets for the entire US, which translated into a handy graphic show this:


(To create this chart, someone helpfully plugged in the numbers from the table at Federal Reserve, "Flow of Funds Accounts of the United States," Release Z.1, March 2010: Table D3, "Debt Outstanding by Sector" (1978-2009). The full report is at http://www.federalreserve.gov/releases/ ... ent/z1.pdf.)

[Elihu]

" The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. - John Kenneth Galbraith

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.--Henry Ford

THERE IS MORE
WHERE THIS GIFT HAS COME FROM
Antal E. Fekete
Professor of Money and Banking
San Francisco School of Economics
E-mail: aefekete@hotmail.com

On Wednesday, March 18, another handsome gift was delivered by the Fed to the bond bulls.
It was the announcement that the Open Market Committee has made a unanimous decision for
the central bank to buy $300 billion in long-term Treasury bonds and notes over the next sixmonth
period. The yield on the 30-year Treasury bond immediately fell from 3.8% to 3.5%,
while the yield on the benchmark 10-year Treasury note fell more: from 3% to 2.53%,
increasing the price of the note by 42/32 from 9726/32 to 10128/32 , the biggest one-day rise in
years. The gift of risk-free profits is granted to the bond bulls through courtesy of the Fed, in
telling them in advance about its intention of buying long-dated government debt.

Note that in the past Fed purchases of long-term Treasurys have been exceedingly
rare. The last time the Fed resorted to it was in 1959. But half-a-century ago it was not meant
to be a permanent fixture of monetary policy. This time is different. Wednesday’s
announcement is the opening salvo in a brand new game of serial interest-rate cuts in the
high-end of the yield-curve now that the Fed has chewed up the low end. It has used up all its
ammunition in the short-term T-bill market where the rate is only microscopically greater than
zero, rendering the Fed helpless and impotent. A new bag of tricks is coming into play: the
monetization of long-term government debt. The market tells it all. The dollar index fell 3%,
the biggest drop in more than two decades.

Actually, as I have suggested in several earlier articles, ‘serial cutting of interest rates’
is a misnomer. The correct phrase is ‘serial halving of interest rates’. The nuance is important.
Serial cutting comes to an end when you have cut it to the bare bones: all the way back to
zero. Not so serial halving that can be fine-tuned like water-torture. It can continue
indefinitely, while each halving causes the same devastation in the economic landscape as it
doubles the liquidation value of total debt.

Central banks in Japan and the United Kingdom have announced similar monetary
policies. The Bank of Japan has said that it will increase its volume of bond purchases by
30%. According to Mr. Shiraskawa, the governor of the bank, “bond purchases are not
intended to finance the Japanese government’s spending. That would be too dangerous.” Who
is the governor kidding? As long as the Japanese government spends more than its revenue
from taxes, every act of buying a government bond is an act of financing the government.
Even in Switzerland, the paragon of monetary and fiscal rectitude, where the Swiss National
Bank is hard put to find a government bond it can buy, they have to do something to enter the
mad race to find out which country can increase the money supply at the fastest rate. The
Swiss are resourceful: since they cannot increase the money supply through purchases of
bonds, they will increase it through sales of Swiss francs. All masks are off. The Swiss will
not let others outbid them in the game of bidding down the value of national currencies
around the globe. This is competitive currency debasement at its most vicious. It is a cover-up
for the underlying trade war.
* * *
Why should we worry about a monetary policy that depends on risk-free profits offered to
speculators betting on higher bond values? Because it reflects the utter corruption of the
profit-and-loss system on which capitalist production is based. It makes the businessman
appear foolish who takes risks in the producing sector while trying to satisfy the needs of the
consumers – when risk-free profits are available in the financial sector. As a matter of fact,
the risk-free profits of the bond bulls do not come out of nowhere. They come right out of the
capital accounts of the producers. These gains are the flipside of the capital losses suffered by
the real risk-takers, the sitting ducks in this shoot-out.

I have been in a minority of one in my quest to inform the public about the single
cause of the present economic disaster. In fact I have been predicting it for the past eight
years. The single cause is the Fed’s deliberate policy to drive down interest rates through
serial halving. This policy is animated by the economic theories of John Maynard Keynes,
according to which interest ought to be abolished so that the stone can be turned into bread
and water into wine. The miracle is worked by a central bank well-equipped with printing
presses and a factory to produce green cheese in unlimited quantities, to shove it down the
throats of savers who are trying to provide for their twilight years, or for the education of their
offspring, or just for a rainy day.

Continuing or even accelerating that disastrous monetary policy of unlimited green
cheese production will not alleviate the crisis. It will make it worse. Much worse.

Look at it this way. The present contraction of the world economy is not due to a glut
in global savings for which businessmen can find no good use, and which consequently has to
be mopped up through expanding the balance sheet of the central banks all over the world, as
“explained” by Paul Krugman and his friend, mentor, and former boss Ben Bernanke. The
contraction is due to the lethargy of businessmen who see their past investments turn sour one
after another at each interest-rate cut. Businessmen will not make new investments, no matter
how badly central bankers want to force-feed them at the trough of newly created money, as
long as the mad driving-down of interest rates continues. Would you buy a car today if you
were told that its price will be cut tomorrow? Of course you wouldn’t. Well, it is the same
with businessmen. They would not make an investment today if they were told that tomorrow
they could finance it at a cheaper rate and, the day after tomorrow at a rate cheaper still. It is
as simple as that.

Now the Fed is saying that it has got a new toy-grenade to try on the economy: the Tbond
purchase plan. Businessmen conclude that this is time to go into hibernation-mode. They
just want to survive with their remaining capital intact until this madness runs its full course.
They will come back and start investing again in saner times, when interest rates are stabilized
at their natural level. Those who listen to the siren song from the Fed and other central banks,
and invest at today’s teaser-rate will get massacred at the next halving, when even lower
teaser rates will be offered.
* * *
What we are witnessing is the closing of Keynes’ system. This system is based on the worst
fallacy ever embraced by pretenders and impostors in science: the fallacy, inspired by Karl
Marx, of over-saving and under-consumption. It was under this banner that the Fed introduced
its illegal policy of open market purchases of government bonds that would be legalized
retroactively later. But with this coup d’etat the Fed shot itself in the foot. It has forgotten to
take the reaction of bond speculators into account. Of course, speculators would not sit idly by
when they are told that, as a matter of high monetary policy, the Fed will have to make
periodic trips to the bond market to purchase its quota of government bonds. Of course
speculators would want to pre-empt the Fed. Of course they wanted to buy first so that they
could dump their bonds on the Fed at a profit later. Of course bond speculators would lie in
wait for the Fed and ambush it at the moment it was ready to pick up its next quota of
government bonds in the open market.

The present monetary system promises risk-free profits to bond speculators. This
guarantees that the interest rate structure will keep falling indefinitely. Astute businessmen
who understand the interaction between finance and production will stay on the sidelines.
They will not join the mad tea party of teaser rates whether offered in the subprime mortgage
market or whether offered on loans to finance future production. Teaser rates are there to
tempt individuals and businesses to commit hara-kiri.

This raises the question just how sound a monetary system is that wants to create
money, lots of it, but can only do it through bribes and blackmails. This also raises the
question how it is possible to treat Keynes’ system with respect.
* * *
Mine is a cry in the wilderness. You had thought that the political system was rotten as it was
a system of bribes, blackmails, and vote-buying facilitated by irredeemable currency. You had
thought that the judiciary was rotten as no complaint about the fraud involved in the checkkiting
conspiracy between the Treasury and the Fed would ever be heard in a court. You had
thought that victims of the Ponzi-scheme whereby the government would sell bonds, which it
had neither the means nor the intention to pay off, could have their day in court.

But look: the educational system, our only hope for the future, is equally rotten. Its
faculties of criticism are so badly disabled that one can no longer hope for an open discussion
of burning issues. Keynesians, in concert with their Friedmanite comrades, control
everything: monetary policy, fiscal policy, the judiciary, appointments and the research
agenda at universities and other think-tanks, the publication programs in the editorial offices
of scholarly journals. A Cassandra such as myself would never get a hearing before the
disaster struck.

Now, as it turns out, I won’t get a hearing even after disaster has struck. Keynesians
and their Friedmanite cronies want to control the rescue effort and they certainly do not want
to see their past errors and misdeeds, that lie at the root of the problem, exposed to public
scrutiny.

The economic and financial crisis that is plaguing the world is extremely serious.
Damage to the social fabric could be even greater than that during the Great Depression. But a
reasoned, high-level discussion on the genesis of the crisis is ruled out. You have to buy the
official crap on the global savings glut. You are not allowed to challenge the official dogma of
under-consumption even after the most wasteful episode of over-consumption in history,
running up private and public debt to stratospheric heights.

The present crisis is about past, present, and future destruction of capital due to the
Keynesians’ deliberate policy of driving down interest rates. Education of public opinion
about these matters is sorely needed. Keynesians have been successful in convincing the
public that their monetary policy to drive down interest rates is a blessing. But the truth is that
falling interest rates erode capital, because the return from earlier investments proves
insufficient to amortize debt contracted at higher rates. At the end of the capital erosion road
comes the realization that production and finance stands bereft of any capital. The result is a
credit collapse that can no longer be covered up with the usual Keynesian nostrums

My conclusion is that the latest move of the Fed is going to entrench deflation through
entrenching the trend of falling interest rates. The mechanism works through bond
speculation, making risk-free capital gains available to speculators, who will then bid up bond
prices unopposed to any high level.

Other observers may violently disagree with this view. For example Clive Maund had
this to say: “So Treasuries spiked yesterday [on March 18], but the large gains were almost
entirely erased by the drop in the dollar… So in an environment where the Fed and the
Treasury are going to have to create dollars, i.e., to dilute the currency, to prop up financial
instruments… who but a complete imbecile is going to buy them?… The Treasury market
will collapse in due course anyway despite, and perhaps even because of, the Fed’s desperate
and reckless attempts to backstop it.”

Not so fast, please. Ultimately the market for Treasury bonds will collapse in a hyperinflationary
scenario, but this may be years down the road. In the meantime we have to face
the music that keeps the game of musical chairs going: the serial halving of interest rates to
enable bond speculators to earn risk-free profits. This stokes the fires of deflation, not the fires
of inflation. Obituaries of the dollar are written prematurely. The death throes of the Dollar
Almighty, as the U.S. currency was known not so long ago, will continue for quite a while yet
and, unfortunately, will cause a lot more damage to the world economy, and a lot more
economic pain to ordinary people.

It is an inane and malicious Keynesian propaganda that falling interest rates are good
for the economy, for you, for me, for business. On the contrary, they are lethal. Only low and
stable interest rates can help us to get out of the present mess – an unachievable goal under
the regime of irredeemable currency.
ReferenceReference

By the same author: That Accursed Propensity To Save, March 9, 2009,
http://www.professorfekete.com .

[Elihu]

http://www.acting-man.com/?p=10061

European Chaos.....As we have pointed out many times, we believe that at its heart, this is not only a crisis of the European welfare states and their unpayable debt. At its heart it is a crisis of the fractionally reserved banking system. The manner in which fiat money 'works', whereby the debt issued by sovereigns is used as the 'reserves' of the banking system, is deeply flawed. In the euro area this has merely become obvious more quickly than elsewhere as the supranational central bank stands in the way of member nations 'inflating the debt away'.

The entire monetary system rests ultimately on a mixture of coercion and faith. Legal tender laws prescribe that fiat money must be used in discharging public and private debts, while the idea that the debt issued by sovereigns represents a 'reserve' for the fiat money issued rests on the notion that these states will forcibly take more of their citizens wealth in the future. Given the size of the liabilities, both currently extant and so-called 'unfunded' liabilities, it appears people think that there is a sheer endless reservoir of wealth that can be plundered. Or rather, 'used to believe'. Confidence in this system certainly appears to be crumbling, although no-one in the establishment as of yet questions the system as such, at least not publicly.

Many .... fall into confusion on specific relations with the State, even when they concede the general immorality or criminality of State actions or interventions. Thus, there is the question of default, or more widely, repudiation of government debt. Many .... assert that the government is morally bound to pay its debts, and that therefore default or repudiation must be avoided.

The problem here is that they are analogizing from the perfectly proper thesis that private persons or institutions should keep their contracts and pay their debts. But government has no money of its own, and payment of its debt means that the taxpayers are further coerced into paying bondholders..... For not only does increased taxation mean increased coercion and aggression against private property, but the seemingly innocent bondholder appears in a very different light when we consider that the purchase of a government bond is simply making an investment in the future loot from the robbery of taxation. As an eager investor in future robbery, then, the bondholder appears in a very different moral light from what is usually assumed.[25] --M Rothbard, the state vs liberty

notice the league, the partnership. they've been issuing debt they never intended to repay. and what would they spend the money on? actually caring for society? why, when you got a spigot that pumps free money, caring for society would mean you'd have to shut it off in a week because it wouldn't cost that much. so they liked the rush and want another hit. hence we have to find a way to waste the money gushing from the fountainhead. war, drug war, space exploration, farm susidies, bureaucracy, gov schools, on an on an on. and you can call them anything you want. doesn't matter. for example: "the gov program to help everybody everywhere with whatever they want" who could object to that? or even "we know you hate this program and you have caught us lying a million times but e.s.a.d patriotic act of20xx" this is it. the socerer's stone...

[Elihu]

we can guarantee cash benefits as far out and whatever size you like, but we cannot guarantee their purchasing power. --Alan Greenspan testimony to the Senate Banking Committee, 2005

[elfismiles]

A Talk with David Graeber about his book "Debt: The First 5,000 Years"
Thursday, August 25, 2011, 7:00:00 PM

Much of what we thought we knew about the history of debt, credit and money is just plain wrong -- or woefully inadequate. Anthropologist David Graeber corrects that in his new book "Debt: The First 5,000 Years." In this interview with Graeber, hear how we (as a civilization) got into the mess we're in, how (in some ways) we've been here before, and how we can possibly get out.

http://www.kuci.org/podcastfiles/668/Graeber.mp3

Out The Rabbit Hole radioshow podcast feed
http://www.kuci.org/podcasts/?ShowID=668

[Elihu]

"I know not whether taxes are raised to fight wars or wars are fought in order to raise taxes." – Thomas Paine

"Be thankful we're not getting all the government we're paying for."-Will Rogers

“Paper money eventually returns to its intrinsic value ZERO” – Voltaire 1729

[ninakat]

In the second half of the show Max talks to anthropologist, David Graeber, about his new book, Debt: The First 5000 Years. (starts at 12:45)

[Elihu]

and near to the opposite of the goldbug religious stuff that Elihu for some reason thinks should also be included with Graeber.... Apparently Graeber is a provocation to those who buy into the mythology that gold is either more real, or more originally, money than archaic credit and potlatch. It obviously and painfully isn't. If there's something even more insidious than the real-existing Federal Reserve, then it's definitely the gold mining companies who would end up replacing it in such a scenario.

this is mistaken because of two obvious facts. one, gold is the most abundant commodity on earth in terms of the ratio of its existing stocks above ground to annual flows from mines. for gold i understand that there are 80 years of annual current production in existence. compare this to copper, iron or oil, the ratios of which are all one year or less. estimates range from 150,000-200,00 metric tons above ground in marketable form. the second fact, is that gold has (practically) constant marginal utility. therefore the hypothetical insidious influence of gold mining companies can be dismissed as a chimera. the same conditions obtain for silver the substance that comes second to gold in marginal utility. i conclude that gold is more real and more originally money than anything else.

The rationale of gold
The first thing to know about gold is that there is no alternative to it. Gold is the one and only commodity that has no marketing problem. There is no sales resistance and no competition to overcome. --Melchior Palyi (1892-1970),

http://professorfekete.com/articles%5CA ... Hoards.pdf

[American Dream]

Debt, Slavery and our Idea of Freedom (Part 2)

September 12, 2011

By David Graeber
and Jamie Stern-Weiner

Source: New Left Project


David Graeber is a professor of anthropology at Goldsmith’s, London, and a left-wing political activist. His most recent book, Debt: The First 5,000 Years, has just been published in the UK. It looks at the history and evolution of debt as both a moral and an economic concept, drawing on anthropological evidence from a wide range of societies, both contemporary and historical.

I met up with David to discuss some of the arguments in the book. In the second of a two-part interview, he places the post-1971 shift towards a credit-based economic system in a much broader historical context, and looks at the role of the national debt in the light of currently dominant politics of austerity. The first part of the interview, which focused on development of debt as a moral language, can be read here.

A key organising framework for the historical analysis you present in your book is the oscillation between economies based on credit and those based on bullion. You seem, here, to be picking up on the same patterns as Giovanni Arrighi, with his ‘systemic cycles of accumulation’, although you do different things with it.

Yes, it’s the same kind of thing. I’m trying to figure out these patterns. But it’s also very different in that he is essentially talking about different sorts of capitalist hegemony, whereas I’m saying that capitalism itself is one cycle of this very broad series of back-and-forth movements between credit systems that have certain relatively populist implications and bullion-based systems which tend to be associated with war, chattel slavery, standing armies, and so forth.

Could you outline your analysis of this cycle? One of the interesting things about your historical framework, for example, is that it shifts focus away from the ‘transition’ from feudalism to capitalism, which attracts so much attention and debate, by starting one period in 1450 and ending it in 1971.

Right. When looking for the shift from credit systems to bullion systems, the obvious place to start would be the discovery of the Americas and the massive flow of bullion from the Americas to Europe. But the problem is that the massive flow of bullion didn’t, for the most part, end up in Europe – it ended up in India and China. If you look carefully, the real transition seemed to happen around 1450, when China itself moved from the old paper money system to a silver bullion-based economy, which was one of those moments of free market populism when people shake off the old state-controlled system and the paper money and credit systems that are associated with it—which was closely tied to a tax system which assigned people to fixed slots as farmers, soldiers, artisans, etc. People started fleeing the villages to which they were assigned by the tax system, creating illegal silver mines and an informal economy that operated with uncoined silver. Eventually the Chinese government gave in, stopped even coining money, and said ‘fine, everyone just pay a uniform tax in silver.’ The problem was they quickly discovered that there actually isn’t very much silver in China. They cleaned out Japan in twenty years, but the insatiable demand for silver persisted. Some have estimated that the colonies established by the conquistadors wouldn’t have been economically viable for more than ten or twenty years were it not for this huge demand for bullion from the Far East. And that connection began the shift from the old credit systems that dominated during the Middle Ages to the bullion systems that dominated, really, until 1971.

You’ve described how the shift from credit to bullion, which occurred as a side-effect of war, created commercial markets. Was this the point at which the shift from what you call “human economies” to “commercial economies” occurred?

A ‘human economy’ is a term I coined to refer to an economy in which money is used primarily to rearrange social relations, rather than to buy material objects or possessions. I give a lot of examples in the book. Now, a credit system like the one in ancient Mesopotamia is sort of a half-way point: you could buy things, but it was largely on credit and you could not completely divorce the transaction from someone’s reputation (or their credit-worthiness). So it was kind of a hybrid – money was used both for rearranging social relations and for buying material objects. But when money is used for both, suddenly it creates all of these moral crises, which are further exacerbated when the system develops into one where people start routinely using cash for basic transactions. The examples I give in the book are the moral crises over slavery and prostitution.

Let’s focus here on prostitution. Obviously prostitution can’t really occur unless you have some kind of impersonal market system, but in a human economy, often, legitimate social relations are ones in which money has changed hands. That’s how you recognise when a new social relation has been created (for instance, when ‘bridewealth’ has been paid between families to recognise a new marriage). But when you’re using the same stuff to seal a marriage as you’re using to buy a duck or to pay a streetwalker for momentary sexual services, that creates a big problem, and that’s why you have this terrible moral panic which starts in Mesopotamia and becomes if anything even stronger in ancient Greece as the beginnings of a cash economy emerge.

And is the shift always from ‘human economies’ to ‘commercial economies’? Has the transition ever occurred in other direction?

Oh yes, people have certainly run away from commercial economies, and commercial economies have collapsed. Still, within the tradition of the great civilisations what happens is not a movement between human and commercial economies, but between credit-based systems and bullion-based systems, and that back-and-forth is one of the themes of the book. Credit-based systems are more like human economies, although they don’t go all the way.

Because credit is not completely impersonal in the way that cash transactions can be?

Yes, it relies on personal trust, but it’s also quantified and transferable, which makes it a debt rather than a simple moral obligation. This is where you get symptoms like those I have described – for example, in medieval Islam one’s honour is a form of capital; one’s reputation for being a decent person, for being trustworthy, becomes key. As Pierre Bourdieu said of contemporary Algeria, honour is superior to money because you can convert your honour into money, but you can’t convert your money into honour. I thought this was a brilliant discovery– that honour is a form of capital – until I discovered that in traditional Islamic law it is literally true: honour is legally recognised as a form of capital. That sort of system is similar to the kind of thing that prevailed in medieval Europe. In England, for example, you find expressions like “a worthy man” or “a man of no account”, which refer both to one’s personal reputation for decency and to one’s credit-worthiness. The two essentially could not be distinguished.

The interesting thing this brings out, I think, is that while markets emerge as a side-effect of military operations, in certain times and places in history they become something different. They become something which is neither dependent upon nor a side-effect of state actions, but instead become opposed to the state. The first time I’m aware of this happening is in medieval Islam, but you also see it in Ming China and there are traces of it in renaissance England. It is a kind of market populism that tends to occur when controls are instituted to ensure that credit systems don’t go crazy. So in medieval Islam, for example, there was a ban on usury. But that ban was not enforced by the state— people appealed to religious law to settle commercial disputes and contracts, but the state couldn’t haul someone off to jail for violating them. Abusive practices like usury and debt peonage had been typical of the Middle East for thousands of years, and were essentially made illegal under Islam. That’s one of the reasons why many people were so willing to convert – it was really through the judicial system that it all happened.

The way I put it is that the mercantile classes basically switched sides. Throughout most of Middle Eastern history they were allied with the government – they were the money-lenders, they were the people that others fell into debt traps with and became debt peons because of interest bearing loans. And essentially they said, ‘OK, OK, we’ll become the good guys. We will stop charging interest, we will outlaw slavery and debt peonage, and the government are the bad guys now, we won’t even talk to them, we’ll just work this stuff out among ourselves.’

Now, you can’t have this sort of system if you’re extracting interest and getting people ensnared in debt traps where they become enslaved. For that kind of system you need physical enforcement. So essentially they created this idea of a market existing outside the state. But it was a different type of market. While the market and the state were considered completely separate it was also assumed that competition, while it plays a role, is not the essence of what the market is. The market, ultimately, was seen as a form of mutual trust and mutual aid.

One of the more surprising things is the degree to which free market rhetoric was spearheaded in medieval Islam within that context of Sharia. To take one example, Adam Smith’s idea of the ‘invisible hand’ – that divine providence sets prices under free market conditions – was originally a sentiment attributed to Muhammad, who was initially, of course, a merchant. Some of Adam Smith’s best lines – you never saw two dogs exchanging a bone, his example of the pin factory – go back to free market theorists in medieval Persia. He seems to have taken a lot of his lines directly from them.

But there is a difference, because the Sharia notion of the market as based fundamentally on mutual aid and trust did not transfer straightforwardly to the European context. To illustrate, contrast the Indian Ocean and the Mediterranean. The Indian Ocean became a Muslim lake in the Middle Ages, and there was an understanding that, while on land you could kill each other, on the ocean everyone had to be friends. The ocean is the domain of merchants who will go to the religious courts to enforce contracts, and with contracts, everything’s a handshake deal. On the Mediterranean, by contrast, whether Venetian galleys were traders, pirates or crusaders really depended on the balance of forces of the moment. Every ship was equipped both for trade and for war, and one was considered an extension of the other. So in Europe you had this much more aggressive idea of trade as an extension of competitive relations with people who you would just as soon kill, were it not disadvantageous to try to do so at a particular moment. Well in that context the idea of the ‘free market’ becomes completely different. And in that context you create an idea of a market that should exist outside of the state, but actually couldn’t.

I’ll come back to credit vs. bullion cycles in a bit. But you mentioned prostitution above, and one of the interesting arguments in your book concerns the origins of patriarchy in the context of moral crises surrounding debt and the introduction of commerce. Could you elaborate?

Yes. I should make clear that I’m not talking about male dominance per se, for which we would have to cast a wider net, but rather about the specific phenomenon of Middle Eastern patriarchy in which women are locked away, or veiled, or otherwise sequestered from public life. That is not something which goes back to the earliest times. In fact the evidence is that in thevery earliest times, it was least like that. If you look at the early Sumerian records, the situation looks kind of like now – it’s not equal, but you know, a third of doctors are women, or a third of administrators, or even among heads of state, you’ve got a few. Within 1000-1500 years, somehow or another, women are systematically excluded from public life, and suddenly you’ve got this intense concern about premarital virginity (it’s not even clear that they had a concept of that in early Sumerian times). How did all this happen?

The traditional line suggests that maybe the Sumerians were ‘mellow’ while the Semitic people were these pastoral nomadic types with severe patriarchal traditions, and gradually these nomads seeped in from the steppes and overwhelmed the cities with wave after wave of conquest. And it is true that the language spoken along the Tigris and Euphrates successively shifted from Sumerian to Semitic, Akkadian, Amorite, Aramaic, then finally, Arabic, which you could say was the last Semitic language to take over the region. But there is a problem with this explanation. In most other respects, the evidence suggests that these conquering Semitic peoples adopted the mores of the people they found living in the cities. So why not in this case? The picture doesn’t really make sense – it’s almost a substitute for a real explanation.

What I found more plausible is that it had to do with debt crises. You had this situation where women, especially poor women, became commoditised. Some of that has to do with the history of prostitution. It is much contested whether there really was a thing called ‘sacred prostitution’ in the ancient world – some people say the whole thing is a myth, but there seems to be some fairly clear evidence that ritual sexual behaviour which involved exchange of something did take place. In any case, the details aren’t so important. Whether or not there were sacred prostitutes in temples, it quickly became the case that temples were surrounded by red light districts with actual bordellos in the modern sense of the term. Who was in them? Mostly people who got carried away because of late debt payments, often those of their parents. So you had parents in this agonising situation in which their daughter was about to be taken away to serve as a prostitute because they couldn’t pay their loans. One of the more common responses was to run away. Through much of world history, when faced with an insoluble situation, people are much less likely to revolt than to figure out a way to just leave.

James Scott makes a lot of this.

Precisely – “exodus”. That’s a perfect example from the Middle East itself. So exodus was widely practiced. Of course it was much harder after irrigation and agriculture had been developed, because it’s difficult to abandon canals and so on that you’ve spent twenty years building. But when people were truly desperate, as when their daughters or sons were about to be taken off to serve as prostitutes, the common response was to run off and join the local band of nomads – people who practiced occasional agriculture on the fringes, but who remained mobile enough to evade capture. In this way the numbers of nomads would swell, which is one of the reasons why kings had to declare periodic debt cancellations: they were afraid of losing their population, and indeed of being overwhelmed by nomads and bandits. People would run off and join nomadic bands after fleeing in the manner described above, until eventually they swept back into the cities as conquerors. That’s how you got the Semitic people taking over – they were aided by half the proletariat from the towns they were conquering.

So in a sense, Middle Eastern patriarchal reaction starts as a sort of social movement, or rebellion, against the wealthy and the most graphic abuses of wealth at the time – debt slavery, and wives and daughters being sold into prostitution to service debts. Of course the form that rebellion took had terrible, ambivalent and reactionary effects. But I think we need to recognise the fact that not all resistance is libratory of everyone.

To jump ahead a bit, what was the origin of the national debt?

That’s interesting, because this period of roughly 1450-1971is a period dominated by bullion insofar as people think that money essentially is bullion – gold is a commodity used to measure other commodities – but it’s also a period where you have modern paper money. This might appear to be a paradox, but of course the value of paper money was always seen as ultimately representing gold. Now, the interesting thing about those systems – and this is something about the nature of capitalism that I think, much though I respect the Marxist tradition, has been sort of left out– is the fact that the kind of money that capitalists were using with each other was different to the kind of money used by ordinary people. There was this sort of moral idea that people shouldn’t be using credit, that they should be using coins – Adam Smith tried to eliminate credit as much as possible from his vision of the world – which corresponded to a general middle class idea that it wasn’t a good thing that everyone should owe each other money. It was physically very difficult to produce enough coins to ensure that people would be able to just go to the shop and buy everything they needed with them, though it was eventually pulled off by the nineteenth century. But the same capitalists who felt that people shouldn’t be in each debt to each other, when they made transactions among themselves, generally used as what is sometimes called “high powered” money, which was mostly monetised government war debt.

The classic example of that is the Bank of England, which was essentially based on a £1.2 million loan made by a consortium of British merchants to King William II. The King, who was fighting a war with France, asked for an emergency loan, in exchange for which he gave the merchants the right to take the money he now owed them and loan it to other people in the form of paper money (bank notes). That’s what British currency is. They also got to call themselves the ‘Bank of England’ and they had a monopoly on the right to do this. And indeed if you look at a £10 note today, there’s still a picture of the queen, and above her it still says, in small letters, “I promise to pay the bearer on demand the sum of”. It’s a promise, an I.O.U. from the Queen.

This is why all this discussion of the debt as such a terrible problem has nothing to do with the way economies actually work. The way economies actually work means that the government has to maintain a debt, and that debt is generally speaking based mainly in military spending (in the U.S. almost exactly). The debt is then monetised in the form of bank notes, and that’s what we use as money: money owed by the government in exchange for maintaining a security apparatus and a military, which of course can then further enforce the fact that this debt can be considered money, which creates a rather interesting circularity.

The U.S., to be clear, has always had a debt, since 1776. The original Revolutionary War debt has never been repaid, and couldn’t be. The only person who made a serious effort to retire the debt was President Andrew Jackson. In order to do that he also had to get rid of the Bank of the United States, which was the equivalent of the Federal Reserve. As a result, basically, local banks had to take up the task of providing all the credit in the U.S. That caused incredible speculative bubbles, because there was no real control over how they would do that (one advantage of having a central bank is that you can keep an eye on it and make sure it doesn’t engage in completely inflationary policies). This led to the Panic of 1837 and a giant economic collapse. No one has tried to do it since.

So what is the economic basis for the concern about the size of the debt?

The only economic basis is that, especially if we had high employment rates (which the US doesn’t), deficit spending could eventually lead to inflation. But at the moment that’s what we want – the last housing bubble crashed and they’ve been trying desperately to blow on a popped balloon ever since. That is basically what federal policy is – the Federal Reserve is in fact printing money like crazy (they call it ‘quantitative easing’ so you don’t quite know what’s happening). So the idea that we face a danger of inflation exactly reverses the problem.

If, on the other hand, the government retired the debt, the problem would be that once again local banks would have to create all the credit, which is exactly what they’re not doing at the moment (there is a ‘credit crunch’). So that would be particularly catastrophic at the moment.

So I would say that the only real danger of running extreme deficits would be that eventually you’d have a loss of faith on the part of the international community. The deficit, which was caused primarily by increased military spending and the 2008 economic crisis, was funded largely by selling treasury bonds abroad. Treasury bonds have come since 1971 to substitute for gold as the basic reserve for people who don’t have huge vaults like we do (that is, U.S. treasury bonds now function as the standard unit of account for debt). There is some danger that eventually, if the U.S. runs a huge deficit over a sustained period of time, somebody might decide that maybe treasury bonds are no longer the safest investment choice – though it is not clear what the alternative might be. There has been some murmuring along these lines – Russia has been muttering about it, and China occasionally makes noises about possibly diversifying, but they don’t do anything about it. The irony of course is that the only thing that could really speed this long-term process up is exactly what the Republican Party has been doing: threatening to default, which they claimed we might have to do because of the debt. This is precisely backwards.

So a country can’t go ‘broke’, really?

Certainly not a country with a giant army. Argentina can go broke. If you look at countries that actually go broke, they are countries that lack the power of seigniorage. Now, ‘seigniorage’ is another of those great words that economists use so you don’t know what they’re actually saying. It essentially refers to the economic advantage you get from having the political power to decide what money is. If you look at countries that have real, genuine debt crises – Argentina, Ireland, Greece – they don’t have their own currency (Argentina’s was pegged to the dollar). If you’re using somebody else’s currency, you can get in big trouble. Countries that do control their own currency, on the other hand, have a range of options available to them. They can always just print money – that might have bad economic effects, but it is one way to escape a debt trap. The U.S.‘s position is even better than that, because not only can the U.S. print money, it can print money that is used, essentially, as gold. So we can write cheques that not only will people not cash, but that will be treated by others as if they were gold, and stored in their vaults. That’s an insane advantage. What people are thinking when they talking about trying to undermine that, God only knows.

So for example, everybody always says that the U.S. owes China all this money. No we don’t – or at least, not in the sense that the U.S. will ever have to pay it. Foreign holders of T-bonds just roll them over every five or ten years, the bonds mature and they use them to buy new ones. Japan does the same thing. Now, as I say, central banks tend to use treasury bonds as their reserve currency, but certain countries buy much more than their share. China’s got into that game recently, which is complicated and interesting, but if you look historically, there is a pattern: during the Cold War it was mostly West Germany that bought huge amounts. Nowadays, South Korea and Japan are big ones – Japan actually owns almost as many American treasury bonds as China – as are the Gulf states. What do all these countries have in common? U.S. military bases. So: U.S. debt is largely based on maintaining military spending; the military is sitting on these countries that then finance that debt by making these loans that they know will never be repaid. You can call that ‘protection money’ in either sense of the term, depending on your point of view. In a way it’s a mix of both, because they are getting physically protected, but it’s also a shakedown. China, meanwhile, seems to be playing a complicated game, essentially selling the U.S. loads of cheap consumer goods on credit that they know will never get fully paid back; but if nothing else, there seems a tacit agreement that as long as they do that, the US will look the other way on technology transfers, patent violations, and so forth.

[i]According to the schema set out in your book, since 1971 we’ve seen a shift back away from bullion towards credit.[/i

Yes. And I argue that in periods dominated by credit money – there is no period exclusively of either – people come to recognise that money is essentially an I.O.U., a social relation. And if money is just a series of promises and commitments between people, clearly those things can be rearranged, if needed.

The shift to credit tends to prompt two questions: 1) what’s to stop people just going crazy with it and creating new forms of money with reckless abandon? 2) What is to stop people from thereby falling into debt traps and becoming enslaved? The usual solution is to create some kind of control, which is why you had periodic debt cancellations in Mesopotamia; jubilees, bans on usury, and various other mechanisms that appeared in the Middle Ages; and so on. This makes sense, because if money is just a social construct, and is recognised as such, then people will be more open to changing the rules that govern it. And in fact in the Middle Ages this was completely recognised. Aristotle’s position that money is an agreement we make with each other, which was very much a minority view in antiquity, got widely adopted in Europe. If it’s an agreement, we can renegotiate it at any time, and people did. They would cry out and cry down the value of money, and shift it around all the time.

So the question becomes: why didn’t that happen this time? Why have they not, since 1971, set up these overarching institutions to protect debtors, which is what they’ve always done in the past? Why did they not create controls so that money couldn’t just be created with reckless abandon by those in power as a way of enslaving everybody else? In fact, what’s happened is exactly the opposite of that. They’ve created overarching institutions, like the IMF, to protect creditors. That essentially is what the IMF is: it is part of a huge financial global bureaucracy developed gradually over the past 30-50 years, dedicated to the principle that no-one is ever allowed to default on a loan. Which is crazy – even according to standard economic theory the profits from a loan are supposed to be a reward for taking a risk. This leads to insane speculative bubbles, a situation in which 90-95 percent of all money is actually speculative with no connection to production or trade, and people becoming effectively enserfed.

In America, for instance, pretty much everybody is in debt. The great social evil in antiquity, the thing that Sharia law and medieval canon law were trying to ensure never happened again, was the scenario in which a family gets so deep in debt that they are forced to sell themselves, or sell their children, into slavery. What do you have here today? You have a population all of whom are in debt, and who are essentially renting themselves to employers to do jobs that they almost certainly wouldn’t want to do otherwise, to be able to pay those debts. If Aristotle were magically transported to the U.S. he would conclude that most of the American population is enslaved, because for him the distinction between selling yourself and renting yourself is at best a legalism. This, again, is why I say that our definitions of freedom are bizarre – we’ve managed to take a situation which most people in the ancient world would have recognised as a form of slavery and turned it into the definition of freedom (your ability to contract debts, your ability to sell your labour on the market, and so on). In the process we have created the very thing that all that old legislation and all of those old political practices were designed to avoid.

However, it’s also true that we’re talking about 1971 to the present, which is 40 years. Out of a 500 year economic cycle, that’s not a lot. It’s the very beginning, and it’s also clear that the system I’ve been describing hasn’t worked out too well. The IMF has been kicked out of one country after another, it’s essentially persona non grata in East Asia, it’s been kicked out of Latin America, just a few weeks ago it was kicked out of Egypt. Really they just have Africa and Europe left as their stomping ground, and there’s a major reaction to their prescriptions in Europe right now.

In 2008 the whole elaborate make-believe magical credit world hit a brick wall, and they didn’t solve the problem. One of the reasons I wrote this book was that in the wake of the crisis I thought that there was an opportunity for us to sit down and start talking about stuff again. And there was a brief moment, right after 2008, when people said ‘oh, everything we thought we knew was wrong’. I mean, the Economist was running headlines asking whether capitalism had been a good idea. It didn’t last long, though. There was a big ‘oops!’ feeling, and then people starting saying that maybe we can reinstate the old system more or less how it was before. That’s the stage we’re in at the moment. Every year that goes by brings us closer to the time that it will happen again, and everyone pretty much knows this. So credit has come crumbling. That’s why I thought this was a timely moment for this book, because we need to have a serious conversation about debt. If things unfold the way they have done in the past, we will end up going in the complete opposite direction from the way in which things have been going for the past 40 years – away from new-fangled forms of slavery and debt peonage; away from endless creation of magical credit bubbles that then burst; and away from this idea that debt is a sacred obligation that immediately outranks any other promise you can make. But we still have these ideas in our heads – there’s a psychology there that’s going to be difficult to overcome.

Jamie Stern-Weiner studies politics at King’s College, Cambridge, and is co-editor of New Left Project.

From: Z Net - The Spirit Of Resistance Lives
URL: http://www.zcommunications.org/debt-sla ... id-graeber

[82_28]

That was awesome AD. Thanks for sharing the link.

[jingofever]

David Graeber takes on the Austrians:

Last week, Robert F. Murphy published a piece on the webpage of the Von Mises Institute responding to some points I made in a recent interview on Naked Capitalism, where I mentioned that the standard economic accounts of the emergence of money from barter appears to be wildly wrong. Since this contradicted a position taken by one of the gods of the Austrian pantheon, the 19th century economist Carl Menger, Murphy apparently felt honor-bound to respond.

In a way, Murphy’s essay barely merits response. In the interview I’m simply referring to arguments made in my book, ‘Debt: The First 5000 Years’. In his response, Murphy didn’t even consult the book; in fact he later admitted he was responding at least in part not even to the interview but to an inaccurate summary of my position someone had made in another blog!

We are not, in other words, dealing with a work of scholarship. However, in the blogsphere, the quality or even intention of an argument often doesn’t matter. I have to assume Murphy was aware that all he had to do was to write something—anything really—and claim it rebutted me, and the piece would be instantly snatched up by a right-wing echo chamber, mirrored on half a dozen websites and that followers of those websites would then dutifully begin appearing across the web declaring to everyone willing to listen that my work had been rebutted. The fact that I instantly appeared on the Von Mises web page to offer a detailed response, and that Murphy has since effectively conceded, writing an elaborate climb-down saying that he had no intention to cast doubt on my argument as a whole at all, only to note that I had not definitively disproved Menger’s, has done nothing to change this. Indeed, on both US and UK Amazon, I have seen fans of Austrian economics appear to inform potential buyers that I am an economic ignoramus whose work has been entirely discredited.

I am posting this more detailed version of my reply not just to set the record straight, but because the whole question of the origins of money raises other interesting questions—not least, why any modern economist would get so worked up about the question. Let me begin by filling in some background on the current state of scholarly debate on this question, explain my own position, and show what an actual debate might have been like.

First, the history:

1) Adam Smith first proposed in ‘The Wealth of Nations’ that as soon as a division of labor appeared in human society, some specializing in hunting, for instance, others making arrowheads, people would begin swapping goods with one another (6 arrowheads for a beaver pelt, for instance.) This habit, though, would logically lead to a problem economists have since dubbed the ‘double coincidence of wants’ problem—for exchange to be possible, both sides have to have something the other is willing to accept in trade. This was assumed to eventually lead to the people stockpiling items deemed likely to be generally desirable, which would thus become ever more desirable for that reason, and eventually, become money. Barter thus gave birth to money, and money, eventually, to credit.

2) 19th century economists such as Stanley Jevons and Carl Menger [1] kept the basic framework of Smith’s argument, but developed hypothetical models of just how money might emerge from such a situation. All assumed that in all communities without money, economic life could only have taken the form of barter. Menger even spoke of members of such communities “taking their goods to market”—presuming marketplaces where a wide variety of products were available but they were simply swapped directly, in whatever way people felt advantageous.

3) Anthropologists gradually fanned out into the world and began directly observing how economies where money was not used (or anyway, not used for everyday transactions) actually worked. What they discovered was an at first bewildering variety of arrangements, ranging from competitive gift-giving to communal stockpiling to places where economic relations centered on neighbors trying to guess each other’s dreams. What they never found was any place, anywhere, where economic relations between members of community took the form economists predicted: “I’ll give you twenty chickens for that cow.” Hence in the definitive anthropological work on the subject, Cambridge anthropology professor Caroline Humphrey concludes, “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing” [2]

a. Just in way of emphasis: economists thus predicted that all (100%) non-monetary economies would be barter economies. Empirical observation has revealed that the actual number of observable cases—out of thousands studied—is 0%.

b. Similarly, the number of documented marketplaces where people regularly appear to swap goods directly without any reference to a money of account is also zero. If any sociological prediction has ever been empirically refuted, this is it.

4) Economists have for the most part accepted the anthropological findings, if directly confronted with them, but not changed any of the assumptions that generated the false predictions. Meanwhile, all textbooks continue to report the same old sequence: first there was barter, then money, then credit—except instead of actually saying that tribal societies regularly practiced barter, they set it up as an imaginative exercise (“imagine what you would have to do if you didn’t have money!” or vaguely imply that anything actual tribal societies did do must have been barter of some kind.

So what I said was in no way controversial. When confronted on why economists continue to tell the same story, the usual response is: “Well, it’s not like you provide us with another story!” In a way they have a point. The problem is, there’s no reason there should be a single story for the origin of money. Here let me lay out my own actual argument:

1) If money is simply a mathematical system whereby one can compare proportional values, to say 1 of these is worth 17 of those, which may or may not also take the form of a circulating medium of exchange, then something along these lines must have emerged in innumerable different circumstances in human history for different reasons. Presumably money as we know it today came about through a long process of convergence.

2) However, there is every reason to believe that barter, and its attendant ‘double coincidence of wants’ problem, was not one of the circumstances through which money first emerged.

a. The great flaw of the economic model is that it assumed spot transactions. I have arrowheads, you have beaver pelts, if you don’t need arrowheads right now, no deal. But even if we presume that neighbors in a small community are exchanging items in some way, why on earth would they limit themselves to spot transactions? If your neighbor doesn’t need your arrowheads right now, he probably will at some point in the future, and even if he won’t, you’re his neighbor—you will undoubtedly have something he wants, or be able to do some sort of favor for him, eventually. But without assuming the spot trade, there’s no double coincidence of wants problem, and therefore, no need to invent money.

b. What anthropologists have in fact observed where money is not used is not a system of explicit lending and borrowing, but a very broad system of non-enumerated credits and debts. In most such societies, if a neighbor wants some possession of yours, it usually suffices simply to praise it (“what a magnificent pig!”); the response is to immediately hand it over, accompanied by much insistence that this is a gift and the donor certainly would never want anything in return. In fact, the recipient now owes him a favor. Now, he might well just sit on the favor, since it’s nice to have others beholden to you, or he might demand something of an explicitly non-material kind (“you know, my son is in love with your daughter…”) He might ask for another pig, or something he considers roughly equivalent in kind. But it’s almost impossible to see how any of this would lead to a system whereby it’s possible to measure proportional values. After all, even if, as sometimes happens, the party owing one favor heads you off by presenting you with some unwanted present, and one considers it inadequate—a few chickens, for example—one might mock him as a cheapskate, but one is unlikely to feel the need to come up with a mathematical formula to measure just how cheap you consider him to be. As a result, as Chris Gregory observed, what you ordinarily find in such ‘gift economies’ is a broad ranking of different types of goods—canoes are roughly the same as heirloom necklaces, both are superior to pigs and whale teeth, which are superior to chickens, etc—but no system whereby you can measure how many pigs equal one canoe. [3]

3) All this is not to say that barter never occurs. It is widely attested in many times and places. But it typically occurs between strangers, people who have no moral relations with one another. There is a reason why in just about all European languages, the words ‘truck and barter’ originally meant ‘to bilk, swindle, or rip off.’ [4] Still there is no reason to believe such barter would ever lead to the emergence of money. This is because barter takes three known forms:

a. Barter can take the form of occasional interactions between people never likely to meet each other again. This might involve ‘double coincidence of wants’ problems but it will not lead to the emergence of a system of money because rare and occasional events won’t lead to the emergence of a system of any kind.

b. If there are ongoing trade relations between strangers in moneyless economies, it’s because each side knows the other side has some specific product(s) they want to acquire—so there is no ‘double coincidence of wants’ problem. Rather than leading to people having to create some circulating medium of exchange (money) to facilitate transactions, such trade normally leads to the creation of a system of traditional equivalents relatively insulated from vagaries of supply and demand.

c. Sometimes, barter becomes a widespread mode of interaction when you have people used to using money in everyday transactions who are suddenly forced to carry on without it. This can happen, for instance, because the money supply dries up (Russia in the ‘90s), or because the people in question have no access to it (prisoners or denizens of POW camps.) This cannot lead to the invention of money because money has already been invented. [5]

So this is the actual argument, which Prof. Murphy could easily have ascertained with a glance at the relevant chapter of the book.

It’s easy to see from this that his counter-arguments range from extremely weak to completely irrelevant. Let me take them on in turn, such as they are

• Murphy argues that the fact that there are no documented cases of barter economies doesn’t matter, because all that is really required is for there to have been some period of history, however brief, where barter was widespread for money to have emerged. This is about the weakest argument one can possibly make. Remember, economists originally predicted all (100%) non-monetary economies would operate through barter. The actual figure of observable cases is 0%. Economists claim to be scientists. Normally, when a scientist’s premises produce such spectacularly non-predictive results, the scientist begins working on a new set of premises. Saying “but can you prove it didn’t happen sometime long long ago where there are no records?” is a classic example of special pleading. In fact, I can’t prove it didn’t. I also can’t prove that money wasn’t introduced by little green men from Mars in a similar unknown period of history. Given the weight of the evidence, the burden of proof is on the Murphys of the world to produce some plausible reason why all observable cases of moneyless societies fail to operate the way Menger predicted, and therefore, why we have any reason to believe some unknown age would have been any different; and this, he does not even attempt to do.

• Murphy then goes on to produce a straw man saying that a system where people borrow things from one another and then turn to political authorities to regulate the system would not produce money. True enough, but it seems a bit irrelevant considering (a) I never say people would be “borrowing” from each other in the way he describes, (b) I never attribute any role to political authorities in this process, and (c) rather than saying the informal system of favors I do describe would lead to the invention of money, I explicitly say that it would not.

• He then restates Menger’s argument about how money could emerge from barter, an argument that given the weight of evidence so far presented would only be relevant if there was some reason to believe money could not have emerged in any other way. He gives no such reason, other than that he cannot personally imagine money emerging any other way.

• Murphy ends by noting the famous study of how widespread barter between prisoners in POW camps seem to have led to the use of cigarettes as money—an argument which, if he had bothered to read the entire interview, let alone the book, he would have known is actually a confirmation of my argument (see 3c above) and not a refutation.

To be fair, Murphy has one other argument—he adopts the position, first proposed by Karl Marx [!], that money first emerged from barter in the process of international trade. The evidence is as follows: while the first records we have of money are administrative documents from Mesopotamia, in which money is used almost exclusively in keeping accounts within large bureaucratic organizations (Temples and Palaces), the system is based on a fixed equivalence between barley and silver, and that since silver was a trade item, this shows that Mesopotamian merchants must have been using silver as a medium of exchange in spot transactions with long-distance trade partners for that system to then be adopted as a unit of account in administrative transactions within Temples. This merits a bit more of a response—not because it is a particularly cogent argument (it’s basically circular: “since money can only have arisen through barter, if silver was money, it must have arisen through barter”), but because it raises some interesting questions about how money actually did emerge.

As I remarked above, occasional, irregular exchange between strangers will not generate a money system—since irregular, occasional exchange will not produce any kind of system. In ancient times, if you do see regular exchange between strangers, it’s because there are specific goods that each side knows they want or need. One has to bear in mind that under ancient conditions, long-distance trade was extremely dangerous. You don’t cross mountains, deserts, and oceans, risking death in a dozen different ways, so as to show up with a collection of goods you think someone might want, in order to see if they happen to have something you might want too. You show up because you know there are people who have always wanted woolens and who have always had lapis lazuli. As noted above, logically, what such a situation would lead to is a series of conventional equivalences—so many woolens for so many pieces of lapis lazuli—equivalences which are likely to be maintained despite contingencies of supply and demand, because all parties need to reduce risk in order to be able to continue to the trade at all. And once again, what logic would predict is precisely what we find. Even in periods of human history where money and markets did already exist, merchants often continue to conduct high-risk long distance trade through a system of conventional equivalents, or if money is used, administered prices, between specific commodities they know will be available, or in demand, at certain pre-established locations.

One might of course ask, could not such a system generate something like money of account—that is, the use of one or two relatively desirable commodities to measure the value of other ones, once more items were added to the mix (say, our merchant is making several stops)? The answer is yes. No doubt in certain circumstances, something like this did happen. Of course, it would have meant that money, in such cases, was first created as a means to avoid market mechanisms, and that it was not used mainly as a medium of transactions, but rather, primarily as a means of account. One could even make up an imaginary scenario whereby once you start using one divisible/portable/etc commodity as a means of establishing fixed equivalents between other ones, you could start using it for minor occasional transactions, to measure negotiated prices for spot trade swaps on the side, in a more market-driven way. All that is possible and likely as it did happen now and again—after all, we’re dealing with thousands of years here. Likely all sorts of things happened over this long period. However, there is no reason to assume that such a system would produce a concrete medium of exchange regularly used in making these transactions—in fact, given the dangers of ancient trade, insisting that some medium like silver actually be used in all transactions, rather than a credit system, would be completely irrational, since the need to carry around such a money-stuff would make one a far, far, more attractive target to potential thieves. A desert nomad band might not attack a caravan carrying lapis lazuli, especially if the only potential buyers were temples which would probably know all the active merchants and know that you had stolen the stuff (and even if you could trade for them, what are you going to do with a big pile of woolens anyway, you live in a desert?) but they’d definitely go after someone carrying around a universal equivalent. (This is presumably the reason why the great long-distance traders of the Classical World, the Phoenicians, were among the last to adopt coinage—if money was invented as a circulating medium for long-distance trade, they should have been the first.)

The other problem is that there is no reason to believe that such a mechanism—which would presumably only be used by that tiny proportion of the population who engaged in long distance trade, and who tended to treat such matters as specialized knowledge to be guarded from outsiders—could possibly create a money system used in everyday transactions within a society or any evidence that it might have done so.

The actual evidence is that in Mesopotamia—the first case we know anything about—these more widespread pricing systems in fact emerged as a side-effect of non-state bureaucracies. Again, non-state bureaucracies are a phenomenon that no economic model would even have anticipated existing. It’s off the map of economic theory. But look at the historical record and there they are. Sumerian Temples (and even many of the early Palace complexes that imitated them) were not states, did not extract taxes or maintain a monopoly of force, but did contain thousands of people engaged in agriculture, industry, fishing, and herding, people who had to be fed and provisioned, their inputs and outputs measured. All evidence that exists points to money emerging as a series of fixed equivalent between silver—the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc.—and grain, the stuff used to pay the most important rations from temple stockpiles to its workers. Hence, as economist and Naked Capitalism contributor Michael Hudson has so brilliantly demonstrated [6], a silver shekel was fixed as the amount of silver equivalent to the numbers of bushels of barley that could provide two meals a day for a temple worker over the course of a month. Obviously such a ration system would be of no interest to a merchant.

So even if some sort of rough system of fixed equivalences, measured by silver, might have emerged in the process of trade (note again: not a system of actual silver currency emerging from barter), it was the Temple bureaucracies that actually had some reason to extend the system from a unit used to compare the value of a limited number of rare items traded long distance, used almost exclusively by members of the political or administrative elite, to something that could be used to compare the values of everyday items. The development of local markets within cities, in turn, came as a side effect of these systems, and all evidence shows they too operated primarily through credit. For instance, Sumerians, though they had the technological means to do so, never produced scales accurate enough to weigh out the tiny amounts of silver that would have been required to buy a single cask of beer, or a woolen tunic, or a hammer—the clearest indication that even once money did exist, it was not used as a medium of exchange for minor transactions, but rather as a means of keeping track of transactions made on credit.

In many times and places, one sees a similar arrangement: two sorts of money, one, a common long-distance trade item, the other, a common subsistence item—cattle, grain—that’s stockpiled, but never traded. Still, Temple bureaucracies and their ilk are something of a rarity. In their absence, how else might a system of pricing, of proportional equivalents between the values of any and all objects, potentially arise? Here again, anthropology and history both provide one compelling answer, one that again, falls off the radar of just about all economists who have ever written on the subject. That is: legal systems.

If someone makes an inadequate return you will merely mock him as a cheapskate. If you do so when he is drunk and he responds by poking your eye out, you are much more likely to demand exact compensation. And that is, again, exactly what we find. Anthropology is full of examples of societies without markets or money, but with elaborate systems of penalties for various forms of injuries or slights. And it is when someone has killed your brother, or severed your finger, that one is most likely to stickle, and say, “The law says 27 heifers of the finest quality and if they’re not of the finest quality, this means war!” It’s also the situation where there is most likely to be a need to establish proportional values: if the culprit does not have heifers, but wishes to substitute silver plates, the victim is very likely to insist that the equivalent be exact. (There is a reason the word ‘pay’ comes from a root that means ‘to pacify’.)

Again, unlike the economists’ version, this is not hypothetical. This is a description of what actually happens—and not only in the ethnographic record, but the historical one as well. The numismatist Phillip Grierson long ago pointed to the existence of such elaborate systems of equivalents in the Barbarian Law Codes of early Medieval Europe. [7]For example, Welsh and Irish codes contain extremely detailed price schedules where in the Welsh case, the exact value of every object likely to be found in someone’s house were worked out in painstaking detail, from cooking utensils to floorboards—despite the fact that there appear to have been, at the time, no markets where any such items could be bought and sold. The pricing system existed solely for the payment of damages and compensation—partly material, but particularly for insults to people’s honor, since the precise value of each man’s personal dignity could also be precisely quantified in monetary terms. One can’t help but wonder how classical economic theory would account for such a situation. Did the ancient Welsh and Irish invent money through barter at some point in the distant past, and then, having invented it, kept the money, but stopped buying and selling things to one another entirely?

The persistence of the barter myth is curious. It originally goes back to Adam Smith. Other elements of Smith’s argument have long since been abandoned by mainstream economists—the labor theory of value being only the most famous example. Why in this one case are there so many desperately trying to concoct imaginary times and places where something like this must have happened, despite the overwhelming evidence that it did not?

It seems to me because it goes back precisely to this notion of rationality that Adam Smith too embraced: that human beings are rational, calculating exchangers seeking material advantage, and that therefore it is possible to construct a scientific field that studies such behavior. The problem is that the real world seems to contradict this assumption at every turn. Thus we find that in actual villages, rather than thinking only about getting the best deal in swapping one material good for another with their neighbors, people are much more interested in who they love, who they hate, who they want to bail out of difficulties, who they want to embarrass and humiliate, etc.—not to mention the need to head off feuds.
Even when strangers met and barter did ensue, people often had a lot more on their minds than getting the largest possible number of arrowheads in exchange for the smallest number of shells. Let me end, then, by giving a couple examples from the book, of actual, documented cases of ‘primitive barter’—one of the occasional, one of the more established fixed-equivalent type.

The first example is from the Amazonian Nambikwara, as described in an early essay by the famous French anthropologist Claude Levi-Strauss. This was a simple society without much in the way of division of labor, organized into small bands that traditionally numbered at best a hundred people each. Occasionally if one band spots the cooking fires of another in their vicinity, they will send emissaries to negotiate a meeting for purposes of trade. If the offer is accepted, they will first hide their women and children in the forest, then invite the men of other band to visit camp. Each band has a chief and once everyone has been assembled, each chief gives a formal speech praising the other party and belittling his own; everyone puts aside their weapons to sing and dance together—though the dance is one that mimics military confrontation. Then, individuals from each side approach each other to trade:

If an individual wants an object he extols it by saying how fine it is. If a man values an object and wants much in exchange for it, instead of saying that it is very valuable he says that it is worthless, thus showing his desire to keep it. ‘This axe is no good, it is very old, it is very dull’, he will say… [8]

In the end, each “snatches the object out of the other’s hand”—and if one side does so too early, fights may ensue.

The whole business concludes with a great feast at which the women reappear, but this too can lead to problems, since amidst the music and good cheer, there is ample opportunity for seductions (remember, these are people who normally live in groups that contain only perhaps a dozen members of the opposite sex of around the same age of themselves. The chance to meet others is pretty thrilling.) This sometimes led to jealous quarrels. Occasionally, men would get killed, and to head off this descending into outright warfare, the usual solution was to have the killer adopt the name of the victim, which would also give him the responsibility for caring for his wife and children.

The second example is the Gunwinngu of West Arnhem land in Australia, famous for entertaining neighbors in rituals of ceremonial barter called the dzamalag. Here the threat of actual violence seems much more distant. The region is also united by both a complex marriage system and local specialization, each group producing their own trade product that they barter with the others.

In the 1940s, an anthropologist, Ronald Berndt, described one dzamalag ritual, where one group in possession of imported cloth swapped their wares with another, noted for the manufacture of serrated spears. Here too it begins as strangers, after initial negotiations, are invited to the hosts’ camp, and the men begin singing and dancing, in this case accompanied by a didjeridu. Women from the hosts’ side then come, pick out one of the men, give him a piece of cloth, and then start punching him and pulling off his clothes, finally dragging him off to the surrounding bush to have sex, while he feigns reluctance, whereon the man gives her a small gift of beads or tobacco. Gradually, all the women select partners, their husbands urging them on, whereupon the women from the other side start the process in reverse, re-obtaining many of the beads and tobacco obtained by their own husbands. The entire ceremony culminates as the visitors’ men-folk perform a coordinated dance, pretending to threaten their hosts with the spears, but finally, instead, handing the spears over to the hosts’ womenfolk, declaring: “We do not need to spear you, since we already have!” [9]

In other words, the Gunwinngu manage to take all the most thrilling elements in the Nambikwara encounters—the threat of violence, the opportunity for sexual intrigue—and turn it into an entertaining game (one that, the ethnographer remarks, is considered enormous fun for everyone involved). In such a situation, one would have to assume obtaining the optimal cloth-for-spears ratio is the last thing on most participants’ minds. (And anyway, they seem to operate on traditional fixed equivalences.)

Economists always ask us to ‘imagine’ how things must have worked before the advent of money. What such examples bring home more than anything else is just how limited their imaginations really are. When one is dealing with a world unfamiliar with money and markets, even on those rare occasions when strangers did meet explicitly in order to exchange goods, they are rarely thinking exclusively about the value of the goods. This not only demonstrates that the Homo Oeconomicus which lies at the basis of all the theorems and equations that purports to render economics a science, is not only an almost impossibly boring person—basically, a monomaniacal sociopath who can wander through an orgy thinking only about marginal rates of return—but that what economists are basically doing in telling the myth of barter, is taking a kind of behavior that is only really possible after the invention of money and markets and then projecting it backwards as the purported reason for the invention of money and markets themselves. Logically, this makes about as much sense as saying that the game of chess was invented to allow people to fulfill a pre-existing desire to checkmate their opponent’s king.

* * *

At this point, it’s easier to understand why economists feel so defensive about challenges to the Myth of Barter, and why they keep telling the same old story even though most of them know it isn’t true. If what they are really describing is not how we ‘naturally’ behave but rather how we are taught to behave by the market—well who, nowadays, is doing most of the actual teaching? Primarily, economists. The question of barter cuts to the heart of not only what an economy is—most economists still insist that an economy is essentially a vast barter system, with money a mere tool (a position all the more peculiar now that the majority of economic transactions in the world have come to consist of playing around with money in one form or another) [10]—but also, the very status of economics: is it a science that describes of how humans actually behave, or prescriptive, a way of informing them how they should? (Remember, sciences generate hypothesis about the world that can be tested against the evidence and changed or abandoned if they don’t prove to predict what’s empirically there.)

Or is economics instead a technique of operating within a world that economists themselves have largely created? Or is it, as it appears for so many of the Austrians, a kind of faith, a revealed Truth embodied in the words of great prophets (such as Von Mises) who must, by definition be correct, and whose theories must be defended whatever empirical reality throws at them—even to the extent of generating imaginary unknown periods of history where something like what was originally described ‘must have’ taken place?

REFERENCES
[1] Jevons, W. Stanley, Money and the Mechanism of Exchange. New York: Appleton and Company, 1885, and Menger, Carl, “On the origins of money.” Economic Journal 1892 v.2 no 6, pp. 239-55
[2] Humphrey, Caroline, “Barter and Economic Disintegration.” Man 1985 v.20: 48. Other anthropologists have gone even further, for instance Anne Chapman, “Barter as a Universal Mode of Exchange.” L’Homme 1980 v22 (3): 33-83), argues that if pure barter is to be defined as only about the things, and not about the people, it’s not clear that it has ever existed—as the cases cited at the end of this essay indeed illustrate.
[3] Gregory, Chris, Gifts and Commodities. New York: Academic Press (1982): pp. 48-49. On gift economies, the classic text is Mauss, Marcel, Essai sur le don. Forme et raison de l’échange dans les sociétés archaïques.” Annee sociologique, 1924 no. 1 (series 2):30-186. On spheres on exchange in general see Bohannan, Paul “Some Principles of Exchange and Investment among the Tiv,” American Anthropologist 1955 v57:60-67; Barth, Frederick, “Economic Spheres in Darfur.” Themes in Economic Anthropology, ASA Monographs (London, Tavistock) 1969 no. 6, pp. 149-174; cf Munn, Nancy, The Fame of Gawa: A Symbolic Study of Value Transformation in a Massim (Papua New Guinea) Society, 1986, Cambridge, Cambridge University Press, and Akin, David and Joel Robbins, “An Introduction to Melanesian Currencies: Agencies, Identity, and Social Reproduction” in Money and Modernity: State and Local Currencies in Melanesia (David Akin and Joel Robbins, editor), pp. 1-40. Pittsburgh: University of Pittsburgh Press.
[4] Servet, Jean-Michel, 1994 “La fable du troc,” numero spécial de la revue XVIIIe siècle, Economie et politique, n°26: 103-115
[5] The classic work on the economics of POW camps, whence this argument derives, is Radford, R. A., “The Economic Organization of a POW Camp.” Economica 1945 v.12 (48): 189-201. There is an excellent critique of the assumptions underlying it in Ingham, Geoffrey, “Further Reflections on the Ontology of Money,” Economy and Society 2006 v 36 (2): 264-65, which notes among other things the obvious point that the entire camp environment was created and maintained by a bureaucratic organization that supplied all actual necessities—food, shelter, etc—through administrative distribution.
[6] Hudson, Michael,“The Development of Money-of-Account in Sumer’s Temples.” In Creating Economic Order: Record-Keeping, Standardization and the Development of Accounting in the Ancient Near East (Michael Hudson and Cornelia Wunsch, editors, 2004), pp. 303-329. Baltimore: CDL Press.
[7] Grierson, Phillip, “The Origins of Money.” In Research in Economic Anthropology 1978, v. I, pp. 1-35. Greenwich: Journal of the Anthropological Institute Press.
[8] Levi-Strauss, Claude, “Guerre et commerce chez les Indiens d’Amérique du Sud.” Renaissance. Paris: Ecole Libre des Hautes Études, 1943 vol, 1, fascicule 1 et 2.
[9] Berndt, Ronald M., “Ceremonial Exchange in Western Arnhem Land.” Southwestern Journal of Anthropology 1951 v.7 (2): 156-176.
[10] See for instance Dillard, Dudley, “The Barter Illusion in Classical and Neoclassical Economics”, Eastern Economic Journal 1988v14 (4):299-318.