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More on David Graeber’s Debt

Indebted? No problem we have a (minimum wage) job!

David (Fields) posted a link to Geoff Ingham’s review of Graeber’s book. Graeber is an anthropologist, recently hired by the London School of Economics, and that has often been associated with the Occupy Wall Street movement. Note that several mainstream economists have posted recently on the topic, and have been, as is often the case, barking at the wrong tree. Two mainstream takes on Graeber that are typical are from Noah Smith and Brad DeLong.

Noah wrote a post, a while ago, on David Graeber's views on debt. According to him Graeber is "a sort-of-leftish guy with a tendency to fight with other people on the left." Noah would be, by the same token, a sort of neoclassical-liberalish (in the American sense of progressive) economist fighting other people within neoclassical economics. And here lies the problem, because mainstream (neoclassical) notions about debt are really problematic, and there is quite a bit that could be learned by the profession from anthropologists like Graeber (or sociologists like Ingham; see for example this book).

Noah's complaint seems to be that David is confusing or confused or both. In his words: “his [Graber’s] pronouncements on the subject are vague or seemingly contradictory on all of the questions listed above.” In all fairness, Debt is a very long book, which deals both with one might call a Chartalist view of money, and (in my reading) a vaguely Marxist (certainly non-neoclassical) view of the functioning of the economy, but discussing the evolution of debt and economic development more or less since the beginning of Civilization.

But the basics are not difficult to get. Money does not appear as the efficient mechanism to reduce transaction costs (avoid the double coincidence of wants) in barter economies, but is the result of certain social groups ability in imposing a unit of account. As Keynes put it in his Treatise on Money: “money-of-account, namely that in which debts and price and general purchasing power are expressed is the primary concept of a theory of money.” And what is behind money of account is the power to determine what is the unit to be used, or as Keynes says, the power “to enforce the dictionary but also to write the dictionary.” Further, the classical political economy (and Marxist) approach, is not about market efficiency (not even for Adam Smith by the way, but that’s for another post) of individuals making uncoordinated decisions, but about capital accumulation in particular historical conditions, which involve class relations.

So debt is not bad per se, or good (Noah thinks that David’s point is that debt is bad, or something, as he says). Debt is an instrument that can be used by a social group to extract surplus from other social groups, from the elites in early civilizations that could command work from peasants and determine the means by which they were going to be compensated for their work, to countries that need to pay their debts in a foreign currency (normally dollars, which became the dominant currency after the victory in World War-II). Debt is then a way to force social groups and countries into situations of dependency (Noah himself is probably still paying student loans, with interests that he does not control, since he was told this is the respectable path to a happy life; yes he had a choice, but what are the choices for middle class kids with no money for college? Working for Taco Bell?).

Mind you, not all debt is bad. For example, the increase in debt to pay for unemployment insurance during this crisis is good, and in fact, too small to do any good (yes we need more spending and more debt). But not the kind of private, unsustainable debt that shackles workers to badly paid, unrewarding jobs, or that forces countries into economic arrangements that are contrary to their national interests (it was the debt crisis of the 1980s that forced most Latin American countries to accept the Washington Consensus policies).

Brad's complaint is more complicated to describe, and he is angrier it seems, but it appears to be associated to the fact that he believes David is not open to criticism, while his book contains too many factual mistakes. And yes there are some controversial points in David’s book, unavoidable in a book that is this ambitious and inter-disciplinary on top, including in chapter 12 (not sure why Brad was specially picky with that chapter). I do have also some disagreements on minor issues, but overall the framework of analysis seems to correctly point out the relevant social conflicts that arise from debtor/creditor relations, which have been absent in the mainstream analysis. At any rate, my two cents on the issue.

PS: The idea of Chartal or Cartal money is defended by 'serious' mainstream authors, and central bankers like Charles Goodhart, by the way (here). Not that it makes it more relevant. Authority has (or should have) little relevance when it comes to scientific evidence.


  1. Graeber's book is also useful for its discussion of how money emerged from different processes, and how the Mengerian theory is flawed:

  2. Well, you know Noah Smith didn't read the book at all, he was just picking a fight for the sake of it. If he had read it he would have noticed that the double-sidedness or practical ambiguity of debt, where either party could be seen as taking advantage of the other and in some circumstances definitely is, is the starting point of the entire work. He has no idea what I'm really arguing and basically admitted he made no effort to find out. His reasons for nonetheless posting a blog attacking me, starting with the rather curious claim that I pick such fights myself, I will leave up to the reader to decide.

    As for DeLong, the reason he picks on chapter 12 is clearly because it's the only one he's read. The "he can't take criticism" ploy seems especially ironic considering rather than respond negatively to his criticism, I completely ignored his (often explicitly personal) attacks on me for over a year without responding in any way at all. (The only attempt at a direct response I made was to a charge he made that I'd misread an argument of Arrighi's - I tried to post a quote from Arrighi saying exactly what he claimed I got wrong, but censored it and wouldn't allow it on his blog,) I thought he'd eventually get bored, but instead, continually escalated his attacks, to the point where he designed a special program to cyberstalk me, attacking and insulting me every day on twitter for months on end. Why on earth a professor of economics at Berkeley spends his time creating programs to bully and attack an anthropologist who had never directly engaged with him personally I will again leave to the readers to speculate. Speculate is all we can do.

  3. Noah would be, by the same token, a sort of neoclassical-liberalish (in the American sense of progressive) economist fighting other people within neoclassical economics.

    Fair enough! I hope my infighting is a little friendlier than Graeber's, though...

    (Noah himself is probably still paying student loans

    Actually no...I finished paying my grad school loans in December.

    1. Not sure I can judge yours vs David's degree of friendliness. Point is that these classifications tend to be a bit empty. Better concentrate on the content of the book (or Nation articles, since you did not read the book).

      Happy that your debt-free. But the point remains. Mainstream authors tend to have an incorrect view of money and debt, and David, has a much better picture. By the way, by the same token you should read more on Cartalism, and functional finance.

  4. Oh and I forgot to add: thanks, Matthias, for the even-handed approach. You're right. I'm trying to incorporate some of the insights of Chartalism, Credit Theory, MMT, and other heterodox strains of economics (not all, note I don't take a flat-out Chartalist position but follow Keith Hart in arguing that historically money tends to be both a commodity and social relation but add that, over the last several thousand years, in Eurasia at least, the center of gravity tends to shift back and forth between the two), and combine that with what might indeed be called a Marxian emphasis on class formation and conflict as the motor of social change. (This is what Mike Beggs oddly didn't seem to pick up on. I guess I should have laid all that out a little more explicitly.) It's an experimental synthesis and of course like all experiments, and all broad sweeping works of history, it has necessarily got to have some weak points and mistakes. But it's been pretty gratifying to see that even those who raise the loudest objections don't try to challenge the main points of the argument.

    1. Glad to hear. I think there is a lot of commonality on the sort of theoretical synthesis you use, and the classical-Keynesian (meaning classical political economy and Marx, plus Keynes-Kalecki and Cambridge left Keynesians) that I use in my work.

    2. Dr. Graeber, can you elaborate on the argument that historically money tends to be both a commodity and a social relation? Would you propose that money in its commodity form is a pre-capitalist phenomenon, whereas with the rise of capitalism, as a historically-specific mode of production, if you will, money embodies a specific social relation?
      Hope all is well,

    3. I believe that Chartalists would say that money is always a social construct, following Innes and Keynes. Keynes held in A Theory of Money that modern money, where the unit of account is declared by the state, is at least 4000 years old.

      Money is an idea (concept, logical construct) rather than a thing, while commodities are things. Exchange of commodities for commodities is barter by definition. Conversely, monetary exchange involves a counterparty relationship of credit and debt that involves social or legal obligation. Money is exchanged in lieu of commodities, and this occurs owing to the social relationships involved. Money is represented by a token or money thing in spot transaction. But even in very ancient times it seems that tallies were kept and accounts were netted.

      Primates and other animals barter goods and services, and some species even have a proto-concept of obligation and fairness in exchange. But they do not use money as a unit of account, medium of exchange, store of value, and record of obligation explicitly. Almost certainly primitive human exchange grew from these roots and gradually evolved into the formal concept we now call money as a complex idea that further evolved into finance.

      When an object such as a thing or commodity is used as money, it serves two purposes. First and foremost is the role of money. Tallies are very ancient, for instance, and they played a major role in Britain until the late 19th c. As a unit of account, the token itself is the means, e.g. a tally, grains of wheat, a weight of metal, and the token serves at the medium of exchange and store of value (between exchanges). Secondarily, if a commodity used it becomes the price anchor that established the value of the currency, e.g, the bullion less seignorage or the exchange value in terms of work hours. But the anchor need not be a physical aspect of the money thing. Tallies had no intrinsic value and they seem to be at least as ancient as commodity tokens, and far older than coinage.

      The anchor is often confused with money, but it not itself money,even if used as the physical token in exchange. For money to have value there has to be some sort of anchor, explicit like a commodity token or convertible token, or implicit like the value of the money in meeting one's obligation to the state. Then the value of the money is equivalent to what the one obliged has to do to obtain it, in terms of exchanging assets or labor.

      Why is this important? Because many claim that money that is not backed with a commodity is inferior to that which is backed. This is erroneous thinking about the nature and function of money, and it obscures the basis of monetary exchange in a monetary economy using chartal money, which is overwhelmingly the predominant institution today. There is zero chance the world or any country is going to switch to bullion exchange without seignorage, which would be required for true commodity money under a gold standard.

      The anchor is the choice of the issuer and this choice has consequences wrt to economic policy and monetary stability. There are tradeoffs, and different choices may be suitable for different contexts. So it is really important in economics and finance, and where they intersect, to understand this. Unfortunately, much of the economics profession and policy makers act as if the world were still on a gold standard, so that the president of the United States can say something as ridiculous as "We are running out of money" and have no mainstream economist correcting him.

  5. I gotta protest.

    David Graeber claims that Ben Bernanke is the only government appointee at the Federal Reserve, and that the rest are private bankers. That is not "controversial". That is not "minor". It's simply wrong.

    David Graeber claims that the United States is exploiting China by somehow--probably through threats of military action--forcing China to lend to the U.S. at an interest rate that is unfairly low. And his solution? A general forgiveness of debts--including the debt of the U.S. to China. That you don't help China by forcing it to cancel the U.S. debt to it is not "controversial". That, too, is not "minor". That is so wrong and incoherent it makes my head hurt.

    And Noah Smith is not a debt peon, "force[d]... into situations of dependency... still paying student loans, with interests that he does not control". Assistant Professors of Finance at Stonybrook are not debt peons. That, too, is so wrong it make my head hurt.

    These--and many other howlers--ought to be acknowledged, and corrected.


    Brad DeLong

    1. Hi Brad:
      I disagree that the Bernanke point is major, even if it is wrong. The main point of the book is that debt (and money) which arise from power relations (deeply embedded on class relations) is used to extract surplus from the less powerful social groups. That is something that is that his book illuminates and that mainstream authors could learn quite a bit from.

      On China I actually, I think there is a point to David's argument. The US can use the role of the dollar to maintain trade deficits (in ways that developing countries can't), and certainly the role of the dollar was and is associated to its military might. The US does not need debt forgiveness, since it owes in its own currency. The problem is for coutnries that owe money in foreign currency (by the way, that's why China and other developing countries accumulate reserves).

      On the last one, I should say, that it must be a joke. Come on. Obviously the privileged few are not debt peon, and that was a joke to point out that the middle class, even in the US of A (land of the free, and home of the brave, isn't it?) has had to get indebted since wages have stagnated over the last 40 years. As the people that foresaw the crisis (with whom I worked, like Wynne Godley) would say private debt cuold not be sustainable. So growth will have to depend on less private debt, more public debt, and higher wages.

      Finally, I would say that the funny thing is that if you incorporated some of the insights in David's book, and other heterodox insights like functional finance (besides abandoning the idea of the natural rate), which are more robust that some of the neoclassical principles, your policy positions (the need for fiscal expansion) would be actually strengthned.



    2. Dr. DeLong, on the issues of stagnating wages and growth dependent on debt-financed consumption, I recommend the reading of Barba & Pivetti's "Rising household debt: Its causes and macroeconomic implications—a long-period analysis" see here:

    3. With respect to China's position, I recommend this post by Matias:

    4. or the paper by Matias and myself:

  6. Yeah, I got the number of appointees on the board wrong, though the general point about the Fed being largely autonomous and answering to the interests and sensibilities of private bankers is utterly uncontroversial.

    As a point of clarification: I don't actually say the US is exploiting China. Nor have I ever specifically propose forgiveness of US debt to China or imagine one will ever happen. I do propose of jubilee but whenever the question of specifics come up make clear it obviously wouldn't be all debts of all debts, no jubilee ever has been and one hardly expects one ever will. Just so the readers know what my real position is. This is only one of the almost endless number of actual "howlers" De Long himself regularly comes up with (for instance, claiming Switzerland has no air force) whenever he starts flailing away at my book. What motivates him, God only knows.

  7. Despite my minor criticisms of the book, what Graeber does contribute, which I appreciate, is his recognition of money as an institution of social control. I am reminded of Max Weber, in which he notes that

    [...] the sense of dependence on one's own achievement is supplanted by a consciousness of dependence on purely social forces, power relationships guaranteed by law.

    - From Economy & Society Vol. 2 pp. 485

    1. Not a huge fan of Weber myself. And I would argue that there is more than that in the book.

    2. I see your point. There are many facets of the book that I do like as well. I was just trying to give some suport for David Graeber. My dislike for Weber lies with he being a major influence of the German Historical school - and the foundations he built for neoclassical economics, specifically with respect to his ideal type analytical construction of instrumental rationality.

    3. At any rate, David Graeber has often been attacked for his book not being historically specific with respect to money proper. Given that his intention throughout the book is to engage in issues of ethics with respect to money as a social phenomenon that is dehumanizing and alienating, I thought that my comment would give those critics a sense of what, I think, is David Graeber's general purpose, which authors like NS, who obviously didn't read the book, would obviously miss entirely.

  8. Hi guys:
    Sorry for my late replies. Busy teaching until late after a day at the bank. Above some replies.

  9. "Assistant Professors of Finance at Stonybrook are not debt peons"

    Noah Smith recently wrote a blog post in which he said that economics was the best academic route to guarantee well-paid employment and an easy fast-track route into the upper middle class.

    So, study economics, or something related - like finance, for example, and your economic problems will be largely over... then you can happily spend the rest of your days constructing irrelevant models and pontificating about how people and governments should behave... or else you can spend your days playing around with other people's money, drowning your conscience in cocaine and champagne - and then pass the tab on to the "little people" when it all goes tits up.

    Either way - get into economics and finance, forget about the real world, and you will be handsomely rewarded.

  10. DG has, I think, heard my rap on this before. But anyway here are some thoughts.

    Debt is, in itself, a normal and healthy part of any functioning modern economy of which we can easily conceive. There are certainly abnormalities, evils, inefficiencies and pathologies in debt relations, but those problems have there source, in my opinion, in the background structure of social relations, not in the phenomenon of debt itself.

    The primary place to look for an understanding of debt and credit institutions is in law and legal history. The evolution of debt institutions is more or less the same thing as the evolution of contract and contract law, and with the broader legal concept of "obligation". A large proportion of the common law and civil law traditions of all cultures deals with debts, obligations, contracts.

    In any society with some measure of free exchange governed by contract, there will be debt. Not all exchanges are spot exchanges. In most cases, the deal that is made requires one or both of the parties to perform at some time in the future. Once they are bound by the deal, they have debts.

    Some of he societies DG studies in his anthropological work might not have had exchange, such as we understand it. So maybe that means debt relations are not built into human nature. But obviously trade and exchange have been a huge part of the evolution of the historical world for at least a few thousand years now. I would regard all of this exchange on the whole, as a massively progressive force responsible for much of our prosperity.

    Even a highly egalitarian society - say one in which income differences are scrupulously equalized via taxation - in which there exists free exchange in any degree will likely be a society with debt, since not all exchanges will be spot exchanges. Even in a 100% socialized economy, if it has a rule of law and people have legally binding economic obligations to the society, there would be debt.

    There is no essential connection between money and debt. Even in a barter economy, if I make a contract with a neighbor to deliver five bushels of corn today for a promise of five bushels of apples to be delivered in the fall, then after I have delivered the corn, my neighbor has a debt to me. It's a debt for apples.

    There is also no essential connection between money and interest. If I make a deal with a neighbor to deliver ten bushels of corn today for a promise of eleven bushels of corn to be delivered to me two weeks from now - an easily understandable type of exchange - then after I have delivered the corn, my neighbor has a debt with interest. It's interest in corn, not dollars, and the rate is 10%.

    I think this stuff matters, and is not just pedantic distinction-mongering, because in my view contemporary progressives are focusing too much on debt, which they have mystified, problematized and perplexed through some confused theorizing, and are not focusing enough on the deeper matrix of economic power relations in which debt relations live. Compare debt with labor in that regard. There are bad labor relations. There are even deeply oppressive, exploitative and sinful labor relations: serfdom, slavery, etc. But there is nothing bad or evil or sinful or problematic about labor and labor relations themselves. We should celebrate the fact that we have learned how to specialize our labor, organize it and make binding promises among ourselves to perform it in various ways. That is only morally problematic when the degree of economic inequality and power distinctions among people allow those labor relations to become exploitative. I think the same thing is true with debt.

    1. Among social animals, especially primate groups, there are several factors underlying the future development of money, namely memory, a sense of fairness, and social obligation. In this sense, primate groups are a web of "credit and debt" relationships, some of which involves "saving" as deferred payment. 'I scratch your back (e.g. groom you) and you scratch my back' (in a fair exchange}.
      These are apparently not only spot transactions, but some also involve deferred payment. 'I'll give you this fruit now in exchange for intercourse later.' Of course, not all exchange is "fair" in primate society since power relationships exist, also prefiguring human society.

      What is significant is that a sense of fairness exists in primates, so that it's not all power and dominance-submission. That fact is that even in sub-human societies there are behaviors that resemble mutual obligation in human society, as well as appreciation of fairness in exchange, that are found along with imposition and dominance-submission through power relationships. Vestiges of this behavior are identifiable not only in primitive human societies but also in modern developed ones. This is not to say that humans are hairless apes but that humans have a history that emerges iaw evolutionary principles. Humans exhibit evolutionary traits that shape us and constrain us more than many realize or would like to admit.

      This is significant to point out because it is the likely basis of the social construct we now call "money," as well as double entry accounting rather than the barter story and the happy "discovery" of money "as the efficient mechanism to reduce transaction costs (avoid the double coincidence of wants) in barter economies" as Matias says above. When Adam Smith concocted the narrative, he was unaware of evolution and was himself thinking primitively about the genesis of humanity in order to create a plausible model of the development of monetary exchange. (Wealth of Nations, Book 1, Chapter 4
Of the Origin and Use of Money).

      It's evident from primate studies that these rather complex relationships that would eventually lead to high finance in human society were not accidental but evolutionary. Money, markets, debt and legal institutions did not emerge suddenly from nowhere as felicitous discoveries, any more than language or tool use did. There's a discernible pattern.

  11. In response to David Fields' question

    "Dr. Graeber, can you elaborate on the argument that historically money tends to be both a commodity and a social relation? Would you propose that money in its commodity form is a pre-capitalist phenomenon, whereas with the rise of capitalism, as a historically-specific mode of production, if you will, money embodies a specific social relation?"

    Actually, I argue that money in its commodity form first largely takes the form the Chartalists predicted: a unit of account largely used to measure debt rather than a physical circulating medium of exchange, though the unit of account was usually fixed to some commodity. Also at first, it usually wasn't fixed by the state, but by large communal institutions (at least if Mesopotamia is anything to go by.) So it's primarily a social relation from the start. Coinage after all comes much later, c700-600 BCE being invented, using different physical technologies, in Lydia, India, and China all at roughly the same time, and largely as a means of paying and trading with soldiers. It's kind of a long story.

    1. From my understanding, money as a social relation, as a unit of account, was set in motion by banking houses, with the rise of capitalism, prior to the rise of the state, in contrast to what many neo-chartalists, like Wray, argue. When you suggest that money in its commodity form is a social relation because historically a commodity has been used as a fixed unit of account, are you differing from the common Marxian conception of money as put forward by authors like Lapavitsas?

    2. In addition, is your argument about money as a physical technology sort of a Charles Tilly story?

    3. Yes I think the common Marxian conception reads Marx too literally, when he's just accepting the Political Economists' definition of money for purposes of argument, not because he necessarily believed it was literally true. Money as a unit of account, all evidence shows, can be documented long before capitalism and the only way to argue otherwise would be to come up with some elaborate means of defining "means of account" or "social relation" in a circular fashion so that earlier instances somehow don't count.

    4. Interesting. So, how would you respond to critics who would claim that your thesis is too revisionist and not historically specific, like Gunder Frank's World System construction of 5000 years? (note: I am not suggesting that your analysis is too revisionist). In addition, what are thoughts on this:

    5. Moreover, would you suppose that your arguments are in line with Tilly's descriptive frames of reference?

  12. Dr. Graeber, my apologies, thanks for response to my question! :)


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