11 Mar 2015

David Graeber's "Debt : The First 5,000 Years"

I have finally found the time to read David Graeber's excellent and epic book on the history of Debt. You can download the book as a pdf file.

One of the major points he makes is to demonstrate that the story that money was invented as a way to simplify barter - an idea present in the vast majority of textbooks on economy - is a total myth. For thousands of years, humans societies functioned using bookkeeping systems  that kept a log of who owed what to whom. Money, in the sense that we currently use the term, only came into being with the appearance of the first coins in about 600 BC. There was a second period with very little money from around 600AD till about 1450AD, when banking in its current format appeared. During that period, nearly all business was done using systems based on various forms of IOUs, including tally sticks.

I wonder what David Graeber would think of the sort of IOU based system that I have been proposing with OWE'M. It seems to me that it may indeed be possible to come up with a new form of IOU based economy for the third millenium.  Could it be that we are on the verge of a new form of civilisation, where the power of the money makers can be handed to individual citizens?


  1. Why would you see this (the power of the money makers can be handed to individual citizens) as a solution to anything? This can only be the basis for inequality...

    In light of your reading of "Debt : The First 5,000 Years" and Graeber's distinction of bookkeeping systems, can I suggest that you listen to episodes 5 and 6 of BBC's "Promises, Promises: A History of Debt"? (http://www.bbc.co.uk/programmes/b05442ft and http://www.bbc.co.uk/programmes/b054pn4v)

    My understanding is that both, credit and coinage (the analogue of full reserve banking), have the same fundamental flaw: there is no way to balance with prosperity of their participants. Credit results in a gigantic buildup of debt that, eventually, renders some debtors to being, effectively, slaves. It is resilient in a different, less culturally separating, way to coinage (which constantly resorts to relative devaluation), but the speed, at which we are running globalization, results in it breaking up; and I believe with it will do so with increasing frequency, or result in a lasting halt, as is apparent today's recessions.

    [If you are familiar with the notion of internal and external fragmentation (refers to storage or buffering in my discipline, that is computer science), I believe there is significant correspondence with credit and coinage, respectively. The most efficient approach is shared buffering, but suffers from speed problems, unless it is implemented in a distributed manner.]

    The problem, in both systems, is that there is no notion of sharing. Imagine the perpetual debt buildup that would result if everyone had to pay fees to the US for the invention of the internet (or, for that matter, to the specific researchers, US army, and companies that have made the contributions). Both, coinage and debt, to varying degrees, reduce the value of future contribution by the debtors, to measurable, comparable and, thus, competition-judged dimensions. Competition is no basis for justice and results in races to the bottom and servitude choices for the weakest.

    The only exit from these traps is the establishment of a mechanism for sharing, at the foundations of the monetary system. Debt jubilee (establishment of global processes for country default) can be one way, though it has a slightly negative ethical reference attached to it; a sense of obligation, one does not really deserve, just for the right to live with less material global contribution, or not being lucky enough in the conditions he faces. On the flip side, it is much more likely that such sharing provisions will result in increased speed of prosperity, for the participants, than currently proposed systems. It will also be much more resilient facing global limits.

    Sharing approaches can be implemented in different granularities. We should be working on that...

  2. I alway think we may find a way out in the thought of E. C. Riegel (http://www.newapproachtofreedom.info).
    I am just a layman, however, I think "the establishment of a mechanism for sharing" would also fall into those traps if it would fail to clarify the matter of "issuing money" which Mr. Riegel points out.

  3. Check out mathematical perfected economy~their common monetary infrastructure is basicly a public ledger system.which allows people to issue there own credit based on promissory notes or IOU.

  4. Hi Jake,
    I did try getting through Mike Montagne's youtube presentations some time ago, and had a few problems (sorry - perhaps I didn't try hard enough). But I think that you may be right - there may be some similarities. In a sense, my suggestion is that with an OWE'M style system is essentially mathematically perfect - since the system has to be always in equilibrium - the negative and postiive IOUs all have to cancel out.


  5. Stamatis,

    Thanks for the pointers to David Graeber's 10 radio series on BBC Radio 4 - I'll certainly listen to it.

    But I'm not sure that I share your worries about my IOU proposal as being a basis for inequality. The fact is that you would indeed find that some people (eg an entrepreneur) may have emitted lots of IOUs to get people to help build a new factory for example. Where is the unfairness in that? One person has a factory and a long list of people to whom they owe things - the people who helped build the factory. But the people who did the work have a share in the success of the new factory. Yes, it's not symmetrical, but I don't see why it's unfair. The people who worked to build the factory presumably did it volontarilly - becasue they presumably thought that the factory might produce something that people actually want or need.

    That's effectively sharing....


  6. Choi - thanks to the pointer to E.C. Riegel's contributions. Another neglected thinker! Isn't it time that we got all these ideas out into the open for a truly democrated and open debate?

  7. Firstly, it is the Googles and Facebooks that will be able to issue money. If I get your OWE'M system and issue credit, I will not be able to use it, except with my close friends. Trying to get my credit to float with other credit and money systems, as bitcoin did, will not be in my interest (in a much harder sense than it is the case for Greece exiting the euro).

    So, other than national and super-national central banks, we will have central banks from Google and Facebook and BP and Monsanto, etc. These companies will get to benefit from seigniorage (seigneuriage), as Choi mentions below.

    If new issues of money are backed by increased productive capacity, they will get to account for a larger fraction of global assets, distributed in the hands of the rest of us, representing our *dependency* on this infrastructure (which seems all right) and they will leverage this dependency (the analogue of too-interconnected-to-fail) and their unique position in the money system (the analogue of no alternative for your money but in a bank) to influence politics and decisions and who gets to have debate on the relevant issues...

    If new issues of money are not backed by increased productive capacity, it results in a big transfer of wealth in the private hands of the 0,00001%, from all those that have the company's "currency".

    Unique market positions are commonplace.

    The good think of a local credit system is that activity and exchanges that can be based on local circulation will do so, without the need for globally floating currencies. Possibly also, with increased efficiency, if local debt cycles can be identified and canceled out (I believe you have such a proposal somewhere; I was also thinking of this at some point in the crisis). But, the problem is, we are too interconnected to function in a significant fraction of our activities locally.

    So, the next step is to integrate local systems with the rest. There can be two approaches, in my understanding: (1) integrate hierarchically; and (2) integrate local systems with each other, peer-to-peer. Both approaches have the same risks, since precisely measured relative contribution is the basis for commerce and results either in debt or in weaker contributor shortages.... Only political decisions can change this, in my understanding.

  8. Interesting point Choi. I can agree that, depending on who can issue money and decide on sharing or not, sharing can be problematic also. The answer to this is that issue of money must be in public hands and benefits circulated for the public good, or losses accountable to citizens. Paul Grignon displays it nicely: https://youtu.be/l_IgcmsqnVM?t=1h5m15s

    Sharing, in my opinion, can be the basis for integrating systems of value measurement. The decisions need to be political and accountable (preferably directly) to the public. There is no guarantee that we will get it right, but there needs to be an embedded ability to do so.

  9. Hi
    Yes I struggle with the content provided as well.mpe4austrailia is a bit more concise and clearer.But I still think its very much worthwhile to read about.Apparently Montaigne predicted the economic slump of 2010 decades before by looking at the role of interest and banks on the money system.by providing people with the to transfer their promissory notes into currency via a cmi(common monetary infrastructure) at zero cost (no interest charges),their is no exponentially growing debt burden on the economy.Plus check out 1.1.1 ratio in MPE.

  10. Stamatis

    First of all, I believe I am with you and sharing the same 'root of the problem' from which you have been trying to seek out 'a way out.' Based on this, please allow me to point out another issue which has been still open to me as well.

    According to E. C. Riegel, the idea of "issue of money must be in public hands and benefits circulated for the public good, or losses accountable to citizens" is an 'ILLUSION' or 'CORRUPTED idea' which is just one of important building blocks of the current modern banking system. As we know vey well, this corrupted idea itself creates corrupted 'public' servants and institutions such as States and Central Banks.

    To me, therefore, it seems like kinds of 'WAR OF CONSCIOUSNESS' or '(collective) ENLIGHTENMENT' rather than something we have to contrive. So, I think we should not miss to make a deep dive into the kernel of OS (operating system) level of the current global banking system at the same time while we try to work out a way out.

    It is said that the System Admin of the current system has been preparing for long time to 'upgrade' the system with new version of S/W (from the unipolar system of 1940s regime to multipolar system by introducing SDRs as Supranational currency) for the extension of its life without any changes of its OS.

    I don't think the upgrading work would be smoothly done because of ALL OF US who don't and won't buy it. And I hope that something similar scene in the move would be really happened when the System Admin tries to upgrade the system to the 0.01% tier's advantage.


  11. I would disagree that accountability to citizens exists in western "democracies" and, in effect, that it is an "illusion" or "corrupted idea". Democracy requires that citizen *decisions* (not choice of representative) are a fundamental institution. Representation is not democracy and can be exploited to get oligarchies ruling, just by the lack of choice and silencing of information flows accessible to the broad public (I speak with first-hand experience in Greece).

    I am not sure that awareness and consciousness are attainable without contributing new social (and economic) institutions and infrastructure. Such infrastructure, informal initially, will need to be based on action of the public and culturally common projections and vision for a functioning society, I believe.

    SDRs can strengthen countries/unions that are in position to provide global reserve currencies. As long as these are ruled in a way truly accountable to citizens, I do not see a real problem. Of course, they are not and this creates the problem...

    But, SDRs cannot bypass or ameliorate the current stagnating economic situation. Overproduction and suffocating demand cannot be tackled with a more representative (among the strongest) reserve currency. Debt burdens are overwhelming for the global economy. SDRs are not likely to include some democratic, non market-based representation (otherwise China and India currencies would dominate SDRs). Thus, there will be no change in the global economic situation.

  12. Simon,

    I'd suggest looking closer at Mike Montagne's MPE theorem...he's proposed a mathematically sound platform for over 40 years now, and is being evaded to this day by pretenders claiming to support monetary reform. What's missed here that we already issue our money as promissory obligations (not IOU's). The problem is banks launder our promissory notes in every phoney 'loan', claim a debt to themselves and charge interest. Our money is not an IOU, it's used to service/pay a debt for a car/house whatever has been paid with the credit....what remains is the OBLIGATION to pay the principal out of circulation with a scheduled of payments (to avoid circulatory inflation). Using the phrase IOU is not an accurate representation of whats happening.

  13. Greenbacker84,

    I am not a defender of Paul Grignon, because I do not believe in private issue of money, which he advocates as the most resilient (which it is) solution (which it is not). Nevertheless, Paul Grignon explains clearly what is the problem with debt and privatization of money supply creation, as banks do it. The problem, without engaging in the ethical problems, that there is no guarantee that interest paid to banks is spent in circulation. Grignon also acknowledges the "arithmetic" problem caused by interest and which results in the moral problem of money lenders acquiring all the increase of the money supply and, actually more than that. He does not engage in solving this problem, but proposes solutions that would address the problem.

    But, I believe, you are wrong and, possibly, Mike Montagne is also wrong, in thinking that there is no problem with debt. Debt, when extending further than the pure accounting of new money issue, is problematic, because its face value cannot adjust and, in a contraction, this results in defaults, foreclosures, ect. This is acknowledged by dozens of monetary and macro economists.

    In short, yes, there is a real problem with interest and it is a moral problem. There is, also, a big problem with debt, in that it is issued privately, in the name of the people. So, I agree with you and Montagne and so does Grignon, but after saying the same thing with Grignon you deny that the problem is debt! Australian economist Steve Keen explains very clearly, why the problem is debt, both public and private.

    It is fundamental that (creation of) the money supply becomes public and the inescapable socialization of losses (in the event of overly optimistic expectations at the time of money supply extension), is subject to political decisions and public choices and not at the discretion of a few private bankers. This will not be to the benefit of "the economy," as the economy is viewed today by producers (that is, as an economy revolving around removing production risk, by placing this risk on the public). I am having a hard time understanding what it means "perfected economy," (because different economic agents pursue different goals) and your link (radio broadcast) does not explain anything or with any clarity.

    What I would prefer is a system of 100% reserves, where reserves are issued or removed from the system only by the central bank, as the asset behind every penny of a real money supply and the central bank is democratically accountable for such reserve (and money) creation. See Irving Fisher's "100% Money and the Public Debt" (e.g., http://realmoneyecon.org/lev2/images/pdfs/100percent_money.pdf)