David Graeber on Monetary Cycles

Excerpt

Chapter 8

Excerpted from Chapter 8 of the classic First Five Thousand Years of Debt:

David Graeber:

- "__What all this suggests is that moments of historical opportunity - moments when meaningful change is possible - follow a distinct, even a cyclical pattern, one that has long been far more coordinated across geographical space than we would ever have imagined. There is a shape to the past, and it is only by understanding it that we can begin to have a sense of the historical opportunities that exist in the present.__" - Chapter 8

- __"If we look at Eurasian history over the course of the last five thou­sand years, what we see is a broad alternation between periods domi­nated by credit money and periods in which gold and silver come to dominate - that is, those during which at least a large share of transac­tions were conducted with pieces of valuable metal being passed from hand to hand."__ - Chapter 8

- __"As a starting point to any attempt to discern the great rhythms that define the current historical moment, let me propose the following breakdown of Eurasian history according to the alternation between periods of virtual and metal money.

• The cycle begins with the Age of the First Agrarian Empires (3500-800 BC), dominated by virtual credit money.

• This is followed by the Axial Age (800 BC-600 AD), which will be covered in chapter 9, and which saw the rise of coinage and a general shift to metal bullion.

• The Middle Ages (600-1450 AD), which saw a return to virtual credit money, will be covered in chapter 10;

• chapter 11 will cover the next turn of the cycle, the Age of Capitalist Empires, which began around 1450 (and solidified with the Peace of Westphalia in 1648) with a massive planetary switch back to gold and silver bullion, and

• which could only really be said to have ended in 1971, when Richard Nixon announced that the U.S. dollar would no longer be redeemable in gold. This marked the begin­ning of yet another phase of virtual money, one which has only just begun, and whose ultimate contours are, necessarily, invisible.

• Chapter 12, the final chapter, will be devoted to applying the insights of history to understanding what it might mean and the opportunities it might throw open.**"__ - Chapter 8

Chapter 12

- After a lengthy journey through the history of monetary systems, Chapter 12 then explores what could come next, based on the patterns of previous cycles.

The Past

- pg 361

- This is a fairly lengthy series of extracts to lay the ground for what comes next.

- __Whatever Nixon's reasons, though, once the global system of cred­it money was entirely unpegged from gold, the world entered a new phase of financial history-one that nobody completely understands.__ - Chapter 12

- __"The gold stored at the Federal Reserve Bank of New York is se­cured in a most unusual vault. It rests on the bedrock of Manhattan Island - one of the few foundations considered adequate to support the weight of the vault, its door, and the gold inside-eighty feet below street level and fifty feet below sea level . . . To reach the vault, bullion­ laden pallets must be loaded into one of the Bank's elevators and sent down five floors below street level to the vault floor . . . If everything is in order, the gold is either moved to one or more of the vault's 122 compartments assigned to depositing countries and official internation­al organizations or placed on shelves. 'Gold stackers,' using hydraulic lifts, do indeed shift them back and forth between compartments to balance credits and debts, though the vaults have only numbers, so even the workers don't know who is paying whom."__

- There's a reason why the wizard has such a strange capacity to create money out of nothing. Behind him, there's a man with a gun. True, in one sense, he's been there from the start. I have already pointed out that modern money is based on government debt, and that governments borrow money in order to finance wars. This is just as true today as it was in the age of King Phillip II. The creation of Central Banks represented a permanent institutionalization of that marriage between the interests of warriors and financiers that had already begun to emerge in Renaissance Italy, and that eventually became the foundation of financial capitalism.

- The essence of U.S. military predominance in the world is, ultimately, the fact that it can, at will, drop bombs, with only a few hours' notice, at absolutely any point on the surface of the planet. No other government has ever had anything remotely like this sort of capability. In fact, a case could well be made that it is this very power that holds the entire Debt-Based Monetary System, organized around the dollar, together.

- "To the extent that these Treasury IOUs are being built into the world's monetary base they will not have to be repaid, but are to be rolled over indefinitely. This feature is the essence of America's free financial ride, a tax imposed at the entire globe's expense." - Michael Hudson

- If history holds true, an age of virtual money should mean a movement away from war, empire-building, slavery, and Debt Peon­age (waged or otherwise), and toward the creation of some sort of overarching institutions, global in scale, to protect debtors. What we have seen so far is the opposite. The new global currency is rooted in military power even more firmly than the old was. Debt peonage con­tinues to be the main principle of recruiting labor globally: either in the literal sense, in much of East Asia or Latin America, or in the subjective sense, whereby most of those working for wages or even salaries feel that they are doing so primarily to pay off interest-bearing loans. The new transportation and communications technologies have just made it easier, making it possible to charge domestics or factory workers thousands of dollars in transportation fees, and then have them work off the debt in distant countries where they lack legal protections. Insofar as overarching grand cosmic institutions have been created that might be considered in any way parallel to the divine kings of the an­cient Middle East or the religious authorities of the Middle Ages, they have not been created to protect debtors, but to enforce the rights of creditors. The International Monetary Fund is only the most dramatic case in point here. It stands at the pinnacle of a great, emerging global bureaucracy-the first genuinely global administrative system in human history, enshrined not only in the UN, the[World Bank, and the WTO, but also the endless host of economic unions and trade organizations and non-governmental organizations that work in tandem with them-created largely under U.S. patron­age. All of them operate on the principle that (unless one is the United States Treasury), "one has to pay one's debts"-since the specter of default by any country is assumed to imperil the entire world monetary system, threatening, in Addison's colorful image, to turn all the world's sacks of (virtual) gold into worthless sticks and paper.

- The unique thing about the Chi­nese empire is that it has, since the Han dynasty at least, adopted a peculiar sort of tribute system whereby, in exchange for recognition of the Chinese emperor as world-sovereign, they have been willing to shower their client states with gifts far greater than they receive in re­turn. The technique seems to have been developed almost as a kind of trick when dealing with the "northern barbarians" of the steppes, who always threatened Chinese frontiers: a way to overwhelm them with such luxuries that they would become complacent, effeminate, and unwarlike. It was systematized in the "tribute trade" practiced with client states like Japan, Taiwan, Korea, and various states of Southeast Asia, and for a brief period from 1405 to 1433, it even extended to a world scale, under the famous eunuch admiral Zheng He. He led a series of seven expeditions across the Indian Ocean, his great "treasure fleet"-in dramatic contrast to the Spanish treasure fleets of a cen­tury later - carrying not only thousands of armed marines, but endless quantities of silks, porcelain, and other Chinese luxuries to present to those local rulers willing to recognize the authority of the emperor.

- One can see the great crash of 2008 in the same light-as the out­ come of years of political tussles between creditors and debtors, rich and poor. True, on a certain level, it was exactly what it seemed to be: a scam, an incredibly sophisticated Ponzi scheme designed to col­lapse in the full knowledge that the perpetrators would be able to force the victims to bail them out. On another level it could be seen as the culmination of a battle over the very definition of money and credit.

- By the end of WW2, the specter of an imminent working­ class uprising that had so haunted the ruling classes of Europe and North America for the previous century had largely disappeared. This was because class war was suspended by a tacit settlement. To put it crudely: the white working class of the North Atlantic countries, from the United States to West Germany, were offered a deal. If they agreed to set aside any fantasies of fundamentally changing the nature of the system, then they would be allowed to keep their unions, enjoy a wide variety a social benefits (pensions, vacations, health care . . .), and, per­haps most important, through generously funded and ever-expanding public educational institutions, know that their children had a reason­ able chance of leaving the working class entirely. One key element in all this was a tacit guarantee that increases in workers' productivity would be met by increases in wages: a guarantee that held good until the late 1970s. Largely as a result, the period saw both rapidly rising productivity and rapidly rising incomes, laying the basis for the con­sumer economy of today.

- __"I see, therefore, the Rentier aspect of capitalism as a transi­tional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden . . . and will need no revolution."__ - John Maynard Keynes

- The result (of demands for inclusion from 1945 to 1975) might be termed a crisis of inclusion. By the late 1970s, the existing order was clearly in a state of collapse, plagued simultane­ously by financial chaos, food riots, oil shock, widespread doomsday prophecies of the end of growth and ecological crisis-all of which, it turned out, proved to be ways of putting the populace on notice that all deals were off.

The moment that we start framing the story this way, it's easy to see that the next thirty years, the period from roughly 1978 to 2009, follows nearly the same pattern. Except that the deal, the settlement, had changed. Certainly, when both Ronald Reagan in the United States and Margaret Thatcher in the UK launched a systematic attack on the power of labor unions, as well as on the legacy of Keynes, it was a way of explicitly declaring that all previous deals were off.

- Any number of names have been coined to describe the new dis­pensation, from the "democratization of finance" to the "financializa­tion of everyday life." Outside the United States, it came to be known as Neoliberalism. As an ideology, it meant that not just the market, but capitalism (I must continually remind the reader that these are not the same thing) became the organizing principle of almost every­thing. We were all to think of ourselves as tiny corporations, organized around that same relationship of investor and executive: between the cold, calculating math of the banker, and the warrior who, indebted, has abandoned any sense of personal honor and turned himself into a kind of disgraced machine.

- Perhaps the most ambitious theologian of the new creed was George Gilder, whose book __Wealth and Poverty__ became a best-seller in 1981, at the very dawn of what came to be known as the Reagan Revolution. Gilder's argument was that those who felt that money could not simply be created were mired in an old-fashioned, godless materialism that did not realize that just as God could create something out of nothing, His greatest gift to humanity was creativity itself, which proceeded in exactly the same way. Inves­tors can indeed create value out of nothing by their willingness to ac­cept the risk entailed in placing their faith in others' creativity. Rather than seeing the imitation of God's powers of creation ex nihilo as hubris, Gilder argued that it was precisely what God intended: the cre­ation of money was a gift, a blessing, a channeling of grace; a promise, yes, but not one that can be fulfilled, even if the bonds are continually rolled over, because through faith ("in God we trust" again) their value becomes reality."

Possible Futures

- pg 383

- To begin to free ourselves, the first thing we need to do is to see our­selves again as historical actors, as people who can make a difference in the course of world events. This is exactly what the militarization of history is trying to take away.

- Capitalism has transformed the world in many ways that are clearly irreversible. What I have been trying to do in this book is not so much to propose a vision of what, precisely, the next age will be like, but to throw open perspectives, enlarge our sense of possibilities; to begin to ask what it would mean to start thinking on a breadth and with a grandeur appropriate to the times.

- (A new monetary system) usually seems to arise in situations where merchants, for one reason or anoth­er, find themselves making common cause with common people against the administrative machinery of some great state. But market populism is always riddled with paradoxes, because it still does depend to some degree on the existence of that state, and above all, because it requires founding market relations, ultimately, in something other than sheer calculation: in the codes of honor, trust, and ultimately community and mutual aid, more typical of human economies.

- Footnote: Under the Caliphate, to guarantee the money supply; in China, through systematic intervention to stabilize markets and prevent capitalistic monopolies; lat­er, in the United States and other North Atlantic republics, through allowing the monetization of its own debt.

- The main reason that we're unable to notice (the damage our monetary systems have created), I think, is that the legacy of violence has twisted everything around us. War, conquest, and Slavery not only played the central role in converting human econ­omies into market ones; there is literally no institution in our society that has not been to some degree affected. The story told at the end of chapter 7, of how even our conceptions of "freedom" itself came to be transformed, through the Roman institution of slavery, from the ability to make friends, to enter into moral relations with others, into inco­herent dreams of absolute power, is only perhaps the most dramatic instance-and most insidious, because it leaves it very hard to imagine what meaningful human freedom would even be like.

- Footnote: True, as I showed in chapter 5, economic life will always be a matter of clashing principles, and thus might be said to be incoherent to a certain extent. Actu­ally I don't think this is in any way a bad thing-at the very least, it's endlessly pro­ductive. The distortions born of violence strike me as uniquely insidious.

- Trying to flip things around by asking, "What do we owe society?" or even trying to talk about our "debt to nature" or some other manifestation of the cosmos is a false solution-really just a desperate scramble to salvage something from the very moral logic that has sev­ered us from the cosmos to begin with. In fact, it's if anything the cul­mination of the process, the process brought to a point of veritable de­mentia, since it's premised on the assumption that we're so absolutely, thoroughly disentangled from the world that we can just toss all other human beings-or all other living creatures, even, or the cosmos-in a sack, and then start negotiating with them.

It's hardly surprising that the end result, historically, is to see our life itself as something we hold on false premises, a loan long since overdue, and therefore, to see existence itself as criminal. Insofar as there's a real crime here, though, it's fraud. The very premise is fraudulent. What could possibly be more presumptuous, or more ridiculous, than to think it would be possible to negotiate with the grounds of one's existence? Of course it isn't. Insofar as it is indeed possible to come into any sort of relation with the Absolute, we are confronting a principle that exists outside of time, or human-scale time, entirely; therefore, as Medieval theologians correctly recognized, when dealing with the Absolute, there can be no such thing as debt. (Hence Mutual Credit Monetary Systems.)

- "Public opinion has always been biased against creditors. It identifies creditors with the idle rich and debtors with the in­dustrious poor. It abhors the former as ruthless exploiters and pities the latter as innocent victims of oppression. It considers government action designed to curtail the claims of the credi­tors as measures extremely beneficial to the immense majority at the expense of a small minority of hardboiled usurers. It did not notice at all that nineteenth-century capitalist innovations have wholly changed the composition of the classes of credi­tors and debtors. In the days of Solon the Athenian, of ancient Rome's agrarian laws, and of the Middle Ages, the creditors were by and large the rich and the debtors the poor. But in this age of bonds and debentures, mortgage banks, saving banks, life insurance policies, and social security benefits, the masses of people with more moderate income are rather themselves creditors." - Ludwig von Mises

- For me, this is exactly what's so pernicious about the morality of debt: the way that financial imperatives constantly try to reduce us all, despite ourselves, to the equivalent of pillagers, eyeing the world simply for what can be turned into money-and then tell us that it's only those who are willing to see the world as pillagers who deserve access to the resources required to pursue anything in life other than money. It introduces moral perversions on almost every level.

- Page 390 - longer discussion of a Debt Jubilee: "In this book I have largely avoided making concrete proposals, but let me end with one. It seems to me that we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt."

- What is a debt, anyway? A debt is just the perversion of a promise. It is a promise corrupted by both math and violence. If freedom (real freedom) is the ability to make friends, then it is also, necessarily, the ability to make real promises. What sorts of promises might genuinely free men and women make to one another? At this point we can't even say. It's more a question of how we can get to a place that will allow us to find out. And the first step in that journey, in turn, is to accept that in the largest scheme of things, just as no one has the right to tell us our true value, no one has the right to tell us what we truly owe."

Source

Selections made by Michael Haupt [1].