Debt (10 page)

Most people are not stupid, and most Malagasy understood exactly what their conquerors were trying to do to them. Some were determined to resist. More than sixty years after the invasion, a French anthropologist, Gerard Althabe, was able to observe villages on the east coast of the island whose inhabitants would dutifully show up at the coffee plantations to earn the money for their poll tax, and then, having paid it, studiously ignore the wares for sale at the local shops and instead turn over any remaining money to lineage elders, who would then use it to buy cattle for sacrifice to their ancestors.
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Many were quite open in saying that they saw themselves as resisting a trap.

Still, such defiance rarely lasts forever. Markets did gradually take shape, even in those parts of the island where none had previously existed. With them came the inevitable network of little shops. And by the time I got there, in 1990, a generation after the poll tax had finally been abolished by a revolutionary government, the logic of the market had become so intuitively accepted that even spirit mediums were reciting passages that might as well have come from Adam Smith.

Such examples could be multiplied endlessly. Something like this occurred in just about every part of the world conquered by European arms where markets were not already in place. Rather than discovering barter, they ended up using the very techniques that mainstream economics rejected to bring something like the market into being.

Anthropologists have been complaining about the Myth of Barter for almost a century. Occasionally, economists point out with slight exasperation that there’s a fairly simple reason why they’re still telling the same story despite all the evidence against it: anthropologists have never come up with a better one.
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This is an understandable objection, but there’s a simple answer to it. The reasons why anthropologists haven’t been able to come up with a simple, compelling story for the origins of money is because there’s no reason to believe there could be one. Money was no more ever “invented” than music or mathematics or jewelry. What we call “money” isn’t a “thing” at all, it’s a way of comparing things mathematically, as proportions: of saying one of X is equivalent to six of Y. As such it is probably as old as human thought. The moment we try to get any more specific, we discover that there are any number of different habits and practices that have converged in the stuff we now call “money,” and this is precisely the reason why economists, historians, and the rest have found it so difficult to come up with a single definition.

Credit Theorists have long been hobbled by the lack of an equally compelling narrative. This is not to say that all sides in the currency debates that ranged between 1850 and 1950 were not in the habit of deploying mythological weaponry. This was true particularly, perhaps, in the United States. In 1894, the Greenbackers, who pushed for detaching the dollar from gold entirely to allow the government to spend freely on job-creation campaigns, invented the idea of the March on Washington—an idea that was to have endless resonance in U.S. history. L. Frank Baum’s book
The Wonderful Wizard of Oz
, which appeared in 1900, is widely recognized to be a parable for the Populist campaign of William Jennings Bryan, who twice ran for president on the Free Silver platform—vowing to replace the gold standard with a bimetallic system that would allow the free creation of silver money alongside gold.
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As with the Greenbackers, one of the main constituencies for the movement was debtors: particularly, Midwestern farm
families such as Dorothy’s, who had been facing a massive wave of foreclosures during the severe recession of the 1890s. According to the Populist reading, the Wicked Witches of the East and West represent the East and West Coast bankers (promoters of and benefactors from the tight money supply), the Scarecrow represented the farmers (who didn’t have the brains to avoid the debt trap), the Tin Woodsman was the industrial proletariat (who didn’t have the heart to act in solidarity with the farmers), the Cowardly Lion represented the political class (who didn’t have the courage to intervene). The yellow brick road, silver slippers, emerald city, and hapless Wizard presumably speak for themselves.
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“Oz” is of course the standard abbreviation for “ounce.”
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As an attempt to create a new myth, Baum’s story was remarkably effective. As political propaganda, less so. William Jennings Bryan failed in three attempts to win the presidency, the silver standard was never adopted, and few nowadays even remember what
The Wonderful Wizard of Oz
was originally supposed to be about.
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For state-money theorists in particular, this has been a problem. Stories about rulers using taxes to create markets in conquered territories, or to pay for soldiers or other state functions, are not particularly inspiring. German ideas of money as the embodiment of national will did not travel very well.

Every time there was a major economic meltdown, however, conventional laissez-faire economics took another hit. The Bryan campaigns were born as a reaction to the Panic of 1893. By the time of the Great Depression of the 1930s, the very notion that the market could regulate itself, so long as the government ensured that money was safely pegged to precious metals, was completely discredited. From roughly 1933 to 1979, every major capitalist government reversed course and adopted some version of Keynesianism. Keynesian orthodoxy started from the assumption that capitalist markets would not really work unless capitalist governments were willing effectively to play nanny: most famously, by engaging in massive deficit “pump-priming” during downturns. While in the ’80s, Margaret Thatcher in Britain and Ronald Reagan in the United States made a great show of rejecting all of this, it’s unclear how much they really did.
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And in any case, they were operating in the wake of an even greater blow to previous monetary orthodoxy: Richard Nixon’s decision in 1971 to unpeg the dollar from precious metals entirely, eliminate the international gold standard, and introduce the system of floating currency regimes that has dominated the world economy ever since. This meant in effect that all national currencies were henceforth, as neoclassical economists like to put it, “fiat money” backed only by the public trust.

Now, John Maynard Keynes himself was much more open to what he liked to call the “alternative tradition” of credit and state theories than any economist of that stature (and Keynes is still arguably the single most important economic thinker of the twentieth century) before or since. At certain points he immersed himself in it: he spent several years in the 1920s studying Mesopotamian cuneiform banking records to try to ascertain the origins of money—his “Babylonian madness,” as he would later call it.
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His conclusion, which he set forth at the very beginning of his
Treatise on Money
, his most famous work, was more or less the only conclusion one could come to if one started not from first principles, but from a careful examination of the historical record: that the lunatic fringe was, essentially, right. Whatever its earliest origins, for the last four thousand years, money has been effectively a creature of the state. Individuals, he observed, make contracts with one another. They take out debts, and they promise payment.

This does not mean that the state necessarily
creates
money. Money is credit, it can be brought into being by private contractual agreements (loans, for instance). The state merely enforces the agreement and dictates the legal terms. Hence Keynes’ next dramatic assertion: that banks create money, and that there is no intrinsic limit to their ability to do so: since however much they lend, the borrower will have no choice but to put the money back into some bank again, and thus, from the perspective of the banking system as a whole, the total number of debits and credits will always cancel out.
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The implications were radical, but Keynes himself was not. In the end, he was always careful to frame the problem in a way that could be reintegrated into the mainstream economics of his day.

Neither was Keynes much of a mythmaker. Insofar as the alternative tradition has come up with an answer to the Myth of Barter, it was not from Keynes’ own efforts (Keynes ultimately decided that the origins of money were not particularly important) but in the work of some contemporary neo-Keynesians, who were not afraid to follow some of his more radical suggestions as far as they would go.

The real weak link in state-credit theories of money was always the element of taxes. It is one thing to explain why early states demanded taxes (in order to create markets.) It’s another to ask “by what right?” Assuming that early rulers were not simply thugs, and that taxes were not simply extortion—and no Credit Theorist, to my knowledge, took such a cynical view even of early government—one must ask how they justified this sort of thing.

Nowadays, we all think we know the answer to this question. We pay our taxes so that the government can provide us with services. This starts with security services—military protection being, often, about the only service some early states were really able to provide. By now, of course, the government provides all sorts of things. All of this is said to go back to some sort of original “social contract” that everyone somehow agreed on, though no one really knows exactly when or by whom, or why we should be bound by the decisions of distant ancestors on this one matter when we don’t feel particularly bound by the decisions of our distant ancestors on anything else.
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All of this makes sense if you assume that markets come before governments, but the whole argument totters quickly once you realize that they don’t.

There is an alternative explanation, one created to be in keeping with the state-credit theory approach. It’s referred to as “primordial debt theory” and it has been developed largely in France, by a team of researchers—not only economists but anthropologists, historians, and classicists—originally assembled around the figures of Michel Aglietta and Andre Orléans,
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and more recently, Bruno Théret, and it has since been taken up by neo-Keynesians in the United States and the United Kingdom as well.
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It’s a position that has emerged quite recently, and at first, largely amidst debates about the nature of the euro. The creation of a common European currency sparked not only all sorts of intellectual debates (does a common currency necessarily imply the creation of a common European state? Or of a common European economy or society? Are these ultimately the same thing?) but dramatic political ones as well. The creation of the euro zone was spearheaded above all by Germany, whose central banks still see their main goal as combating inflation. What’s more, tight money policies and the need to balance budgets
having been used as the main weapon to chip away welfare-state policies in Europe, it has necessarily become the stake of political struggles between bankers and pensioners, creditors and debtors, just as heated as those of 1890s America.

The core argument is that any attempt to separate monetary policy from social policy is ultimately wrong. Primordial-debt theorists insist that these have always been the same thing. Governments use taxes to create money, and they are able to do so because they have become the guardians of the debt that all citizens have to one another. This debt is the essence of society itself. It exists long before money and markets, and money and markets themselves are simply ways of chopping pieces of it up.

At first, the argument goes, this sense of debt was expressed not through the state, but through religion. To make the argument, Aglietta and Orléans fixed on certain works of early Sanskrit religious literature: the hymns, prayers, and poetry collected in the Vedas and the Brahmanas, priestly commentaries composed over the centuries that followed, texts that are now considered the foundations of Hindu thought. It’s not as odd a choice as it might seem. These texts constitute the earliest known historical reflections on the nature of debt.

Actually, even the very earliest Vedic poems, composed sometime between 1500 and 1200 bc, evince a constant concern with debt—which is treated as synonymous with guilt and sin.
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There are numerous prayers pleading with the gods to liberate the worshipper from the shackles or bonds of debt. Sometimes these seem to refer to debt in the literal sense—Rig Veda 10.34, for instance, has a long description of the sad plight of gamblers who “wander homeless, in constant fear, in debt, and seeking money.” Elsewhere it’s clearly metaphorical.

In these hymns, Yama, the god of death, figures prominently. To be in debt was to have a weight placed on you by Death. To be under any sort of unfulfilled obligation, any unkept promise, to gods or to men, was to live in the shadow of Death. Often, even in the very early texts, debt seems to stand in for a broader sense of inner suffering, from which one begs the gods—particularly Agni, who represents the sacrificial fire—for release. It was only with the Brahmanas that commentators started trying to weave all this together into a more comprehensive philosophy. The conclusion: that human existence is itself a form of debt.