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.