Debt: The First 5000 Years

Highlights

Page 246

in the ancient world, all revolutionary movements had a single program: “Cancel the debts and redistribute the land.”

Page 276

The Catholic Church had always forbidden the practice of lending money at interest, but the rules often fell into desuetude, causing the Church hierarchy to authorize preaching campaigns, sending mendicant friars to travel from town to town warning usurers that unless they repented and made full restitution of all interest extracted from their victims, they would surely go to Hell.

Note: Now that I think about it, the curbs placed on moneylenders by Christianity and Islam probably helped their societies avoid insurrections that might otherwise have occurred. If this is true, the Church and Mosque were possibly the first Consumed Financial Protection Bureaus. It also explains why Jews were so reviled

Page 293

the very name, “usurer,” evokes images of loan sharks, blood money, pounds of flesh, the selling of souls, and behind them all, the Devil, often represented as himself a kind of usurer, an evil accountant with his books and ledgers, or alternately, as the figure looming just behind the usurer, biding his time until he can repossess the soul of a villain who, by his very occupation, has clearly made a compact with Hell. Historically, there have been only two effective ways for a lender to try to wriggle out of the opprobrium: either shunt off responsibility onto some third party, or insist that the borrower is even worse. In medieval Europe, for instance, lords often took the first approach, employing Jews as surrogates. Many would even speak of “our” Jews—that is, Jews under their personal protection—though in practice this usually meant that they would first deny Jews in their territories any means of making a living except by usury (guaranteeing that they would be widely detested), then periodically turn on them, claiming they were detestable creatures, and take the money for themselves. The second approach is of course more common. But it usually leads to the conclusion that both parties to a loan are equally guilty; the whole affair is a shabby business; and most likely, both are damned.

Note: Jews were in a no win situation

Page 356

From this perspective, the crucial factor, and a topic that will be explored at length in these pages, is money’s capacity to turn morality into a matter of impersonal arithmetic—and by doing so, to justify things that would otherwise seem outrageous or obscene.

Note: I’ll need convincing of this

Page 359

The difference between a “debt” and a mere moral obligation is not the presence or absence of men with weapons who can enforce that obligation by seizing the debtor’s possessions or threatening to break his legs. It is simply that a creditor has the means to specify, numerically, exactly how much the debtor owes. However, when one looks a little closer, one discovers that these two elements—the violence and the quantification—are intimately linked. In fact it’s almost impossible to find one without the other. French usurers had powerful friends and enforcers, capable of bullying even Church authorities. How else would they have collected debts that were technically illegal? Hiromushime was utterly uncompromising with her debtors—“showing no mercy whatsoever”—but then, her husband was the governor. She didn’t have to show mercy. Those of us who do not have armed men behind us cannot afford to be so exacting. The way violence, or the threat of violence, turns human relations into mathematics will crop up again and again over the course of this book.

Page 381

that—according to one persistent story—a prominent investment house had to employ astrophysicists to run trading programs so complex that even the financiers couldn’t begin to understand them.

Note: Either this is true or it isn’t. If you’re writing a book don’t bung in rumours

Page 462

For a very long time, the intellectual consensus has been that we can no longer ask Great Questions. Increasingly, it’s looking like we have no other choice.

Note: [citation needed]

Page 466

For every subtle and complicated question, there is a perfectly simple and straightforward answer, which is wrong. —H.L. Mencken

Page 484

The existence of credit and debt has always been something of a scandal for economists,

Note: Scandal is hyperbole. It’s a complication that was ignored for the sake of simplicity

Page 989

One of the most important forms of currency in England in Henry’s time were notched “tally sticks” used to record debts. Tally sticks were quite explicitly IOUs: both parties to a transaction would take a hazelwood twig, notch it to indicate the amount owed, and then split it in half. The creditor would keep one half, called “the stock” (hence the origin of the term “stock holder”) and the debtor kept the other, called “the stub” (hence the origin of the term “ticket stub.”) Tax assessors used such twigs to calculate amounts owed by local sheriffs. Often, though, rather than wait for the taxes to come due, Henry’s exchequer would often sell the tallies at a discount, and they would circulate, as tokens of debt owed to the government, to anyone willing to trade for them.14

Note: Quiz question?

Page 005

If nothing else, this approach helps solve one of the obvious mysteries of the fiscal policy of so many early kingdoms: Why did they make subjects pay taxes at all? This is not a question we’re used to asking. The answer seems self-evident. Governments demand taxes because they wish to get their hands on people’s money. But if Smith was right, and gold and silver became money through the natural workings of the market completely independently of governments, then wouldn’t the obvious thing be to just grab control of the gold and silver mines? Then the king would have all the money he could possibly need. In fact, this is what ancient kings would normally do. If there were gold and silver mines in their territory, they would usually take control of them. So what exactly was the point of extracting the gold, stamping one’s picture on it, causing it to circulate among one’s subjects—and then demanding that those same subjects give it back again?

Note: Good line of questioning

Page 028

The curious thing is that the mainstream economists often ended up actually working for governments and advising such governments to pursue policies much like those the Chartalists described—that is, tax policies designed to create markets where they had not existed before—despite the fact that they were in theory committed to Smith’s argument that markets develop spontaneously of their own accord.

Page 076

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.22 “Oz” is of course the standard abbreviation for “ounce.”23 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.

Note: Quiz question!

Page 140

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.

Note: Yeah I dunno about this

Page 461

This is a great trap of the twentieth century: on one side is the logic of the market, where we like to imagine we all start out as individuals who don’t owe each other anything. On the other is the logic of the state, where we all begin with a debt we can never truly pay. We are constantly told that they are opposites and that between them they contain the only real human possibilities. But it’s a false dichotomy. States created markets. Markets require states. Neither could continue without the other, at least, in anything like the forms we would recognize today.

Page 607

Why, for instance, do we refer to Christ as the “redeemer”? The primary meaning of “redemption” is to buy something back, or to recover something that had been given up in security for a loan; to acquire something by paying off a debt. It is rather striking to think that the very core of the Christian message, salvation itself, the sacrifice of God’s own son to rescue humanity from eternal damnation, should be framed in the language of a financial transaction.

Page 694

Christians practically say as much every time they recite the Lord’s Prayer and ask God to “forgive us our debts, as we also forgive our debtors.”25 It repeats the story of the parable almost exactly, and the implications are similarly dire. After all, most Christians reciting the prayer are aware that they do not generally forgive their debtors. Why then should God forgive them their sins?

Page 698

Perhaps the clearest sign was the debasement of the coinage, which over the course of two centuries or so had gone from almost pure silver to about fifty percent copper.

Note: 1. How does debasement interact with inflation? Why does the content of the coin matter? 2x the coins in everyone’s pocket should lead to coins being worth half as much regardless of their content 2. What determines the “ideal” amount of cash that must be issued? What level leads to inflation? Is the rigmarole of lending money to the government required?

I need these questions answered

Page 765

The Axial Age was the first time in human history when familiarity with the written word was no longer limited to priests, administrators, and merchants, but had become necessary to full participation in civic life. In Athens, it was taken for granted that only a country bumpkin would be entirely illiterate.

Page 181

The British Raj discovered this to their occasional chagrin when they used debt peonage—superimposed on the caste system—as the basis of their labor system in colonial India. Perhaps the paradigmatic popular insurrection was the Deccan riots of 1875, when indebted farmers rose up to seize and systematically destroy the account books of local money-lenders. Debt peonage, it would appear, is far more likely to inspire outrage and collective action than is a system premised on pure inequality.

Page 197

The two great threats to the authorities were always the same: the nomadic peoples to the north (who they systematically bribed, but who nonetheless periodically swept over and conquered sections of China) and popular unrest and rebellion. The latter was almost constant, and on a scale unknown anywhere else in human history. There were decades in Chinese history when the rate of recorded peasant uprisings was roughly 1.8 per hour.21 What’s more, such uprisings were frequently successful. Most of the most famous Chinese dynasties that were not the product of barbarian invasion (the Yuan or Qing) were originally peasant insurrections (the Han, Tang, Sung, and Ming). In no other part of the world do we see anything like this. As a result, Chinese statecraft ultimately came down to funneling enough resources to the cities to feed the urban population and keep the nomads at bay, without causing a notoriously contumacious rural population to rise up in arms. The official Confucian ideology of patriarchal authority, equal opportunity, promotion of agriculture, light taxes, and careful government control of merchants seemed expressly designed to appeal to the interests and sensibilities of a (potentially rebellious) rural patriarch.22

Page 224

We are used to thinking of such bureaucratic interventions—particularly the monopolies and regulations—as state restriction on “the market”—owing to the prevailing prejudice that sees markets as quasi-natural phenomena that emerge by themselves, and governments as having no role other than to squelch or siphon from them. I have repeatedly pointed out how mistaken this is, but China provides a particularly striking example. The Confucian state may have been the world’s greatest and most enduring bureaucracy, but it actively promoted markets, and as a result, commercial life in China soon became far more sophisticated, and markets more developed, than anywhere else in the world. This despite the fact that Confucian orthodoxy was overtly hostile to merchants and even the profit motive itself. Commercial profit was seen as legitimate only as compensation for the labor that merchants expended in transporting goods from one place to another, but never as fruits of speculation. What this meant in practice was that they were pro-market but anti-capitalist. Again, this seems bizarre, since we’re used to assuming that capitalism and markets are the same thing, but, as the great French historian Fernand Braudel pointed out, in many ways they could equally well be conceived as opposites. While markets are ways of exchanging goods through the medium of money—historically, ways for those with a surplus of grain to acquire candles and vice versa (in economic shorthand, C-M-C’, for commodity-money-other commodity)—capitalism is first and foremost the art of using money to get more money (M-C-M’). Normally, the easiest way to do this is by establishing some kind of formal or de facto monopoly. For this reason, capitalists, whether merchant princes, financiers, or industrialists, invariably try to ally themselves with political authorities to limit the freedom of the market, so as to make it easier for them to do so.27 From this perspective, China was for most of its history the ultimate anti-capitalist market state.28 Unlike later European princes, Chinese rulers systematically refused to team up with would-be Chinese capitalists (who always existed). Instead, like their officials, they saw them as destructive parasites—though, unlike the usurers, ones whose fundamentally selfish and antisocial motivations could still be put to use in certain ways. In Confucian terms, merchants were like soldiers. Those drawn to a career in the military were assumed to be driven largely by a love of violence. As individuals, they were not good people, but they were also necessary to defend the frontiers. Similarly, merchants were driven by greed and basically immoral; yet if kept under careful administrative supervision, they could be made to serve the public good.29 Whatever one might think of the principles, the results are hard to deny. For most of its history, China maintained the highest standard of living in the world—even England only really overtook it in perhaps the…

Page 368

Even acts of charity and self-sacrifice are not purely generous; one is purchasing “merit” from the bodhisattvas.46 The notion of infinite debt comes in when this logic slams up against the Absolute, or, one might perhaps better say, against something that utterly defies the logic of exchange. Because there are things that do. This would explain, for instance, the odd urge to first quantify the exact amount of milk one has absorbed at one’s mother’s breast, and then to say that there is no conceivable way to repay it.

Page 433

At first, this paper money was meant to circulate for a limited time (notes would expire after two, then three, then seven years) and was redeemable in bullion. Over time, especially as the Song came under increasing military pressure, the temptation to simply print money with little or no backup became overwhelming—and, moreover, Chinese governments were rarely completely willing to accept their own paper money for tax purposes. Combine this with the fact that the bills were worthless outside China, and it’s rather surprising that the system worked at all. Certainly, inflation was a constant problem and the money would have to be recalled and reissued. Occasionally, the whole system would break down, but then people would resort to their own expedients: “privately issued tea checks, noodle checks, bamboo tallies, wine tallies, etc.”

Note: Demonetisation before it was cool

Page 476

The prevailing Islamic attitude toward law, government, and economic matters was the exact opposite of that prevalent in China. Confucians were suspicious of governance through strict codes of law, preferring to rely on the inherent sense of justice of the cultivated scholar—a scholar who was simply assumed to also be a government official. Medieval Islam, on the other hand, enthusiastically embraced law, which was seen as a religious institution derived from the Prophet, but tended to view government, more often than not, as an unfortunate necessity, an institution that the truly pious would do better to avoid.

Page 691

Local mints did gradually come back into operation, producing coins in an endless variety of weight, purity, and denominations. How these related to the pan-European system, though, was a matter of manipulation. Kings regularly issued decrees revaluing their own coins in relation to the money of account, “crying up” the currency by, say, declaring that, henceforth, one of their ecus or escudos would no longer be worth 1/12 but now 1/8 of a shilling (thus effectively raising taxes) or “crying down” the value of their coins by doing the reverse (thus effectively reducing their debts).

Page 841

In 1148, it was made illegal: henceforth, all income was to be subtracted from the principal. Similarly, in 1187, merchants were forbidden to charge higher prices when selling on credit—the Church thereby going much further than any school of Islamic law ever had. In 1179, usury was made a mortal sin, and usurers were excommunicated and denied Christian burial.

Page 883

It is often held that the first pioneers of modern banking were the Military Order of the Knights of the Temple of Solomon, commonly known as the Knights Templar. A fighting order of monks, they played a key role in financing the Crusades. Through the Templars, a lord in southern France might take out a mortgage on one of his tenements and receive a “draft” (a bill of exchange, modeled on the Muslim suftaja, but written in a secret code) redeemable for cash from the Temple in Jerusalem. In other words, Christians appear to have first adopted Islamic financial techniques to finance attacks against Islam.

Page 908

The Venetians were only the most famous in this regard. They created a veritable mercantile empire over the course of the eleventh century, seizing islands like Crete and Cyprus and establishing sugar plantations that eventually—anticipating a pattern eventually to become all too familiar in the New World—came to be staffed largely by African slaves.133 Genoa soon followed suit; one of their most lucrative businesses was raiding and trading along the Black Sea to acquire slaves to sell to the Mamluks in Egypt or to work mines leased from the Turks.

Note: Interesting that Genoa contributed to the Mamluke cause

Page 936

We have to recall that merchants had begun to achieve unprecedented social and even political power around this time, but that, in dramatic contrast to Islam, where a figure like Sindbad—the successful merchant adventurer—could serve as a fictional exemplar of the perfect life, merchants, unlike warriors, were never seen as paragons of much of anything.

Page 271

Had China in particular not had such a dynamic economy that changing its metallic base could absorb the staggering quantities of silver mined in the New World over three centuries, those mines might have become unprofitable within a few decades. The massive inflation of silver-denominated prices in Europe from 1500 to 1640 indicates a shrinking value for the metal there even with Asia draining off much of the supply.

Page 369

Let us skip, then, from the beginning of Díaz’s book to its final chapter.

Note: Amazing that he’s been able to make me see things from The perspective of Cortez and his men

Page 423

All of this helps explain why the Church had been so uncompromising in its attitude toward usury. It was not just a philosophical question; it was a matter of moral rivalry. Money always has the potential to become a moral imperative unto itself. Allow it to expand and it can quickly become a morality so imperative that all others seem frivolous in comparison. For the debtor, the world is reduced to a collection of potential dangers, potential tools, and potential merchandise.23 Even human relations become a matter of cost-benefit calculation. Clearly, this is the way the conquistadors viewed the worlds that they set out to conquer.

Page 337

Many hold that by floating the dollar, Nixon converted the U.S. currency into pure “fiat money”—mere pieces of paper, intrinsically worthless, that were treated as money only because the United States government insisted that they should be. In that case, one could well argue that U.S. military power was now the only thing backing up the currency. In a certain sense this is true, but the notion of “fiat money” assumes that money really “was” gold in the first place. Really we are dealing with another variation of credit money.

Page 341

Contrary to popular belief, the U.S. government can’t “just print money,” because American money is not issued by the government at all, but by private banks, under the aegis of the Federal Reserve System. The Federal Reserve—despite the name—is technically not part of the government at all, but a peculiar sort of public-private hybrid, a consortium of privately owned banks whose chairman is appointed by the United States president, with Congressional approval, but which otherwise operates without public oversight. All dollar bills in circulation in America are “Federal Reserve Notes”—the Fed issues them as promissory notes and commissions the U.S. mint to do the actual printing, paying it four cents for each bill.8 The arrangement is just a variation of the scheme originally pioneered by the Bank of England, whereby the Fed “loans” money to the United States government by purchasing treasury bonds, and then monetizes the U.S. debt by lending the money thus owed by the government to other banks.9 The difference is that while the Bank of England originally loaned the king gold, the Fed simply whisks the money into existence by saying that it’s there. Thus, it’s the Fed that has the power to print money.10 The banks that receive loans from the Fed are no longer permitted to print money themselves, but they are allowed to create virtual money by making loans at a fractional reserve rate established by the Fed—though in the wake of the current credit crisis, at time of this writing, there has been a move to remove even these restrictions.

Page 358

the United States continues to spend more on its military than do all other nations on earth put together,

Note: Hyperbole

Page 557

In this world, “paying one’s debts” can well come to seem the very definition of morality, if only because so many people fail to do it. For instance, it has become a regular feature of many sorts of business in America that large corporations or even some small businesses, faced with a debt, will almost automatically simply see what happens if they do not pay—complying only if reminded, goaded, or presented with some sort of legal writ. In other words, the principle of honor has thus been almost completely removed from the marketplace.

Note: Rose tinted glasses. People were honourable earlier. Not anymore

Page 700

but it is worthy of note that the most prominent working-class Islamist movement opposed to the U.S. occupation, the Sadrists, take their name from one of the founders of contemporary Islamic economics, Muhammad Baqir al-Sadr.

Note: Pretty sure it’s because their leader is Moqtada al Sadr

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