I am writing this note inspired by the book by David Graeber — “Debt — The First 5000 Years”. David teaches anthropology at the LSE (London School of Economics). I do not claim expertise in liberal science, but I am extremely moved by this subject, especially the manner it has been dealt in this book. Through this note, I also plan to solidify my own learnings, which might as well serve as future reference for me and others.
As per Oxford Dictionary, debt is the state of owing money or a feeling of gratitude for a favor or service. Debt disturbs the equilibrium (hierarchy) between individuals. Hence, the individuals in debt are always under pressure to restore the equilibrium — making debt a moral issue. As only when it is paid off, the equilibrium can be restored, freeing individuals of his obligations. The pressure of paying back one’s debt is very high between acquaintances than strangers. That explains why gifts are always returned and monetary debts taken from commercial entities are not.
Favors granted needs to be returned. Isn’t morality all about that? But the external conditions leading to the favor may not be always fair. For example, gullible citizens forced to return loans to IMF taken by dictators who have stashed it is foreign banks for personal use. Poor farmers exploited by money lenders etc. Hence, all debts do not translate into moral obligation — resulting in a public uprising and squaring of ledgers by governments — and the rise of the religious system with an aim to regulate usury.
Returning debts tantamounts to restoring equality and nullifying relationships, and hence it may not be a good idea or even possible to return all kinds of debts. For example, is it possible to restore hierarchy between parent and child? No, as the magnitude of the favor is of such kind that it is not possible for anyone to repay it. Hence, son rendering favors to parents is just an acknowledgment of an existence of an eternal debt which he cannot repay. Similarly, when gifts are exchanged between friends, it is not done with an intent of extinguishing favor, but to perpetuate relationships. Thus, the feeling of debt (gratitude) strengthens relationships and has been the foundation of all “human economies” that were prevalent at earlier times.
Money is a tool used to measure quantum of debt. It is of two kinds, a) virtual money — used in the ledger to measure credits and debits, b) Cash — exchanged immediately on spot to settle a debt and restore equality.
No, only gifts can be exchanged without money. Why? As for the debts to be repaid some form of accounting practice has to be used which is redundant while exchanging gifts (but one has to have some sense of approximate value). Hence, the existence of “Barter” (exchange of commodities without money) is a long-standing myth. There hasn’t been any reference in past where the system of barter is seen between acquaintance. Evidence of Barter if any is always between strangers who plan to not see each other any time in the future.
Contrary to conventional wisdom most transaction with communities happened through a system to “virtual money” — nothing but well-kept accounting systems in temples where goods were exchanged. Cash came much later, but with a purpose.
Cash promotes trade between strangers who transacts at arm’s length with no pending debt to carry. The need for such transactions was triggered by war. In the case of war, the king had to mobilize resources (foods, clothing etc) for the soldiers. It was impossible for him to use the machinery of the state to accomplish this objective. Hence, he paid the soldiers in coins and mandates the citizens to pay back a portion of it to the treasury as taxes. This triggered citizens to serve the soldiers with foods and other services so that they can collect coins to pay taxes back to the king. Hence, the essence of cash is the “need for anonymity” which is most driven by the “need for violence”.
The coins were made of precious metals (gold, silver, bronze) which had wider acceptability even outside the jurisdiction of empires issuing them. Hence, these became excellent means for paying soldiers (mercenaries) who were mostly foreigners.
Before the advent of the cash economy, all transactions were anchored around human economies where human beings could not have been traded. As all humans (part of this system) were socially attached. Use of money was mostly virtual, where accounts of debts were kept, thereby preserving the relationships between transacting individuals. For a person to be converted into a slave, he has to strip off all relationships, thereby requiring extreme violence. Hence, a slave has to come from outside close communities, either captured in war or acquired by paying off with hard cash.
For the system of money to have credibility, it must stand on its own, even when govt fails to fulfill its promises. It was believed that linking money to “Gold” can provide the much-needed stability. It continued till 1971, till the then US President Nixon abolished it. This means after 1971 anyone holding a US dollar cannot claim it to be exchanged for a specific quantum of gold. This converted US dollar into a “Fiat Money”. It is widely believed that Nixon took the decision to able to print more money in order to finance the viatnam war.
It stands on the credibility of the government issuing it. The credibility is not just linked with the honesty of the government in power — that it will not undermine its value (by driving inflation) but by its ability to make the money widely acceptable through its military power. Hence, only those nations who can force wide acceptance of its currency through a system of police, military, and courts, can run a system of “Fiat Money”. For example, US can strike at will in hours notice anywhere in the world. It has ensured that globally all transactions in trade of oil happens through the exchange of US dollars, and whoever does not comply can face embargo of US military action (Iraq tried to move to Euro before it faced US action).
The move from virtual money to cash back to virtual money is seen historically as a cyclic affair. In past, the system of virtual money (cashless) promoted less violence with reduction of the military and the need for policing. Contrary to the past, the current virtual money is more at arm’s length — leading dilution of relationships (which got strengthened in past by virtual money). But, less physical cash in the system brings more accountability leading to responsible behavior (less crime, corruption etc). But, violence, promoted by money (exploitation of poor nations by rich, and within nations by poor by rich) continues unabated (The US has accumulated debt which cannot be repaid, but it expects all other nations to pay back its debts). With China coming into the mix with it economic and military might — it will be interesting to see how all this will play out in the long run.