After more than a year of wanting to read David Graeber’s Debt: The First 5,000 Years, a friend gave it to me, so I finally have—at the same time that everybody else has moved on to reading his latest work on democracy.
Bloomberg Businessweek called Debt, ‘a sprawling, erudite, provocative work’. For me, anthropologist and anarchist Graeber asks the great and central questions about debt. I was ultimately unconvinced by his central thesis that the swings between coinage money and credit money have been a decisive factor in human history. But it is a book that tackles head-on one of the most serious issues of our time and, in so doing, distinguishes itself from the hundreds of books and hundreds of thousands of pages of commentary on the Global Financial Crisis. He is not content to swim in the shallows of the ‘more regulatory oversight of banks’ school. Instead, he wants to explore the blue ocean of how moral attitudes to credit have shaped societal structure.
Given the breadth of the book, I won’t attempt to summarise it, but explain what I got from reading it.
What I took from this book is a fresh appreciation of how attitudes to debt reflect social moral codes and the prevailing level of trust in a society. History shows societies have grappled with debt in three broad ways: there have been societies with an absolute prohibition on debt with interest, societies that permit—but limit—interest through anti-usury rules, and societies that place no constraints on term or interest rates. Graeber’s original characterisation of Cortez’s conquest of the Aztecs as a product of a period of unrestricted debt was particularly chilling. For me, the range of community views on debt resembles a pendulum swing more than a cycle. On one extreme is the idea that it is a moral imperative to pay your debts, condemning to ‘non-person’ status those who cannot. This thinking leads to emerging economies not being treated as proper countries by the IMF, just as they weren’t at the height of the 1980s Third World debt crisis. Or the view that people who have unsustainable levels of credit card debt at 25 per cent compound interest that they cannot pay are ‘deadbeats’ who deserve what they get. In Graeber’s analysis, debt and slavery are cousins, if not siblings, and debt can be a weapon of exploitation of the poor by the rich. Thus, the bedrock assumption that debts must be repaid has led to untold exploitation and misery for the least fortunate.
At the other end of the spectrum is the idea that it is a mortal sin to lend money at interest and that to be a financier is to be a virtual criminal. As a career financier, I find that position rather uncomfortable. One of Graeber’s most interesting insights is that, over the course of history, people have held these two contradictory ideas simultaneously.
Somewhere in the middle is the idea that there need to be limits to the interest terms and periodic amnesties for people burdened by debt. Graeber describes the historical limit set on interest that meant it could never accumulate to more than the principal. That and a cap on the all-in interest rate seem to have a real merit.
This long view of the function of debt in human history also cast new light for me on the current battle between Austerians and Spendanigans on the correct path out of economic stagnation. Austerity advocates take as a quasi-religious article of faith that high government debt is a sin that dooms economies to stagnation. Spendigans, on the other hand, see public debt accumulated for productive investment as the road to recovery. While the economists thrash out the association between higher debt and slower growth, it is worth remembering that this government debt ‘crisis’ has its origins in a financial crash caused by soaring private debt that—in many ways—marked the apogee of naked abandonment of any prohibition on usury. Perversely, it seems clear that one of the obstacles to renewed growth today, particularly in southern Europe, is a lack of credit because people are hoarding cash and so private loans are either not available or only available at exorbitant rates.
To me, the merits of a credit economy seem obvious. I am convinced that the world does better with credit as a lubricant of capitalism. But there are clearly corresponding moral and prudential considerations and, as we face increasingly sophisticated instruments, I cannot help but remember economist Paul Volcker’s quip that finance has offered nothing useful to the world since the invention of the ATM.
I urge everyone with an interest in the causes of the current global malaise to read his book—its broad perspective will challenge and deepen your thinking and provide valuable context for the contest between the Austerians and Spendanigans that is playing out today.
Mark Carnegie is an entrepreneur, investor and corporate adviser.