Paper Promises: Money, Debt and the New World Order 
by Philip Coggan.
Allen Lane, 294 pp., £20, December 2011, 978 1 84614 510 0
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Debt: The First 5000 Years 
by David Graeber.
Melville House, 534 pp., £21.99, July 2011, 978 1 933633 86 2
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Most analysts divide postwar capitalism into two periods. The first extends from the late 1940s into the 1970s. The end of the second appears to have been announced by the crisis – at first a ‘financial’ crisis, now often a ‘debt’ crisis – that broke out in 2008. The precise boundary between the postwar eras gets drawn differently depending on which feature of the terrain is emphasised. In terms of overall growth rates, it was with the recession of 1973-74 that the surge after the Second World War gave way to deceleration across the wealthy world. Intellectually, Milton Friedman’s Nobel Prize of 1976 signalled the shift from Keynesianism to monetarism; thereafter orthodox economics was more concerned with low inflation than full employment. Politically, the neoliberal turn began later, perhaps with Thatcher’s election in 1979. At any rate, a new kind of socioeconomic arrangement – the Marxian economists Gérard Duménil and Dominique Lévy propose the name ‘neoliberalism under US hegemony’ – emerged from the turmoil of the 1970s, and is now faltering.

Writers who stress the role of debt in the story tend to see 1971 as the cusp. So it is in Paper Promises, a brisk digest of changes in Western monetary policy over the last few centuries by the Economist writer Philip Coggan, and in Debt: The First 5000 Years by the anthropologist and activist David Graeber, which situates the same stretch of modern history within the vast tidal shifts, across five millennia of Eurasian history, between monetary regimes founded on precious metals and those based on ‘virtual credit money’. In August 1971, Nixon suspended the convertibility of the US dollar into gold. Until then, foreign central banks had been entitled – under the terms of the Bretton Woods system established after the Second World War – to redeem dollar holdings at a rate of $35 an ounce. Whether or not this modified gold standard sponsored or merely accompanied the unprecedented expansion after 1945, it discouraged extravagance among international debtors. To sink too far into debt – in terms either of the national budget or the balance of accounts with trading partners – was to risk being sapped of gold. For this reason among others, the first postwar decades saw steeply declining ratios of national debt to GDP across advanced economies. These years were also more or less free of the great trade imbalances of the current era, which allow Americans, Spaniards or Britons to buy so much more from foreigners than they sell to them.

The debt-restraining trends of the Bretton Woods settlement were not reversed until, in the late 1960s, the US began to live – and kill – considerably beyond its means, borrowing enormous sums to cover Johnson’s Great Society and the Vietnam War. It was to avert a run on American reserves that Nixon first disconnected the circuit between paper and bullion. When dollar-gold convertibility was abandoned once and for all in 1973, borrowers and lenders began to ply a more insubstantial trade. In the decades since, all monetary debts have been mere ‘paper promises’. Paper money debts, Coggan argues, being no more than titles to future slips of paper, multiply more easily than debts reckoned in fixed sums of specie, and, starting in the early 1970s, overall indebtedness has indeed grown faster than most national economies: ‘In the last forty years, the world has been more successful at creating claims on wealth than it has at creating wealth itself.’ Four decades ago, the US had a total debt burden – adding up the liabilities of government, businesses and individuals – hardly larger than its annual output. By 2010, many countries laboured under debt burdens several times the size of GDP. The American figure was approximately three to one; the British, four and a half to one. In Ireland and Iceland, total debt to output ratios had swollen to eight or ten to one on the eve of the 2008 collapse.

The new prominence of debt in rich countries – no novelty in poorer ones – has lately been matched by its political salience. In Greece, Portugal and Spain, sovereign debt burdens have driven protesters onto the streets in the tens of thousands. They are indignant at being made to repair their governments’ books through higher taxes and reduced salaries and benefits. In Chile, excessive interest rates on student loans figured among the main grievances in demonstrations throughout the winter. And the Occupy movement in the US – whose slogan, ‘We are the 99 per cent,’ was reportedly first floated by Graeber himself – has condemned not only the maldistribution of wealth but the related vice of massive consumer debt, in the form of mortgages, student loans and usurious interest rates on credit cards. Generally speaking, the 1 per cent lends and the rest borrow.

Western politicians meanwhile excuse their policies by alluding to the national debt. Austerity is required, they say, to placate the bond market – that is, the buyers of sovereign debt. The argument enjoys a popularity with elites independent of its local plausibility. Countries like the US and the UK, able to borrow in their own currencies, have throughout the crisis auctioned new bonds at very low rates of interest – sometimes less than 2 per cent – while the borrowing costs for weaker members of the eurozone have spiked to ruinous levels. Faced with a generation of collective debt servitude, many Greeks have glanced enviously at Argentina, which ten years ago undertook the largest sovereign default in history. In the 1990s, Argentina had pegged the peso to the dollar. When recession struck, the country was left with huge debts denominated in a foreign currency, and no capacity to regain the competitiveness of its exports through devaluation: a familiar predicament in Europe just now. Default, to the tune of $100 billion, was the result. All but shut out of international credit markets over the past decade, Argentina has nevertheless posted growth rates of about 8 per cent a year. Post-crash Argentina, however, enjoyed advantages unknown in the eurozone: a titanic exporter of foodstuffs, it stood on the brink of a commodities boom, and also had the friendship of Hugo Chavez in Venezuela, who financed his fellow left populists in Buenos Aires on generous terms.

Whether or not class struggle is the motor of history, it rarely goes by that name. Coggan attempts to stay above the fray: ‘Economic history has been a war between creditors and debtors, with the nature of money as the battleground.’ Graeber, for his part, enlists on the side of the debtors. His extraordinary book, at once learned and freewheeling, concludes with a call for a ‘biblical-style jubilee’ – in the Old Testament one was declared every fifty years – to cancel outstanding consumer and government loans: ‘Nothing would be more important than to wipe the slate clean for everyone, mark a break with our accustomed morality, and start again.’ In a way, Graeber’s utopian proposal resembles Coggan’s anxious anticipation of the years ahead. ‘Borrowers,’ Coggan writes in his brooding introduction, ‘will fail to pay back their debts, either through outright default or by encouraging their governments to inflate the debt away.’

Default or forgiveness, bankruptcy or jubilee: the different terms for the erasure of debts reflect a divergence of mood founded on different social positions. Individuals owe debts to private lenders and – through taxes – to governments. But, conversely, governments and corporations owe debts to individuals by way of pensions and healthcare plans, not to mention bonds. And many of the banks to which so many of us owe so much money are themselves technically insolvent: to over-lend during the bubble, they had to over-borrow. So too are there net-creditors (China or Germany) and net-debtors (the US or Spain) among nations. Many of the economic promises made over the last decades will not be kept; what follows will depend on which, and whose, promises these are.

Graeber, an American who teaches anthropology at Goldsmith’s in London, is a veteran of the alter-globalisation movement, which sought debt forgiveness for the global South. Closely involved in planning the occupation of Zuccotti Park in Lower Manhattan that began last September, Graeber, who describes himself as an anarchist, joined those successfully advocating a non-hierarchical or ‘horizontal’ organisation of the encampment: deliberation by consensus, no formal leadership. In the months since, the American press, content to ignore Debt when it first appeared (published as it was by a small press and animated by a radical politics), has hailed Graeber as the most intellectually imposing voice of Occupy. In person Graeber is brilliant, if somewhat hectic, plain-spoken, erudite, quick to indignation as to well as to laughter, and – minus the laugh – he offers much the same heady experience on the page. Debt is probably best considered as a long, written-out lecture, informal in style, not as a conventional work of history, economics or anthropology.

As the mock-heroic subtitle suggests, the scope of Debt is far too wide to allow a comprehensive treatment of its theme. Nor does the book offer a central analytic argument identifying the causal mechanics of social change. Partial in both senses, Debt aims to tear away the veil of money draped over the world and expose the credit system as so many naked human relationships, mostly violent and unjust. The colossal historical inertia behind organised domination needn’t triumph – so Debt implies – over small groups of people converted to a dissident conception of what the members of a society ‘truly owe’ each other.

Graeber’s first proposition is that debt can’t be considered apart from the history of money, when it is money that distinguishes a debt from a mere obligation or promise. Obligations are immemorial and incalculable, but until the advent of money such relations of mutual obligation evade mathematical specification. Only through money do nebulous obligations condense into numerically precise debts, which can and – according to ‘our accustomed morality’ – must one day be paid off.

The first role of money (at least as an agent of commerce: Graeber will later discuss its truly aboriginal function) was not to grease exchange but to tabulate debts. Mesopotamian tablets dating from 3500 BC record rent, usually in the form of grain, owed by tenants of temple lands, and rations of barley due to temple workers. These credits and debits may have been calculated in silver shekels, but coins hardly circulated at the time. In other words, of the three functions ascribed to money by economics textbooks – a medium of exchange, a unit of account and a store of value – it was the second that came first. Coinage did not become widespread until several thousand years later.

Graeber insists on the historical priority of debt to exchange in order to dispel the anthropological premise of modern economics: ‘the myth of barter’. Adam Smith supposed – as primers on economics complacently repeat – that economic life emerged from a propensity of the species to truck and barter. The Wealth of Nations imagines ‘a tribe of hunters or shepherds’ among whom producers of arrowheads, tanned hides or teepees simply swap one thing directly for another. Eventually, however, economies become too complex to function like this, and so they introduce some universal commodity – salt, cowries or one or another precious metal – by means of which all other commodities can be exchanged. Graeber rejects this creation myth of homo economicus on two grounds. Not only does it mistake the origin of commercial money, which lies in credit and debt rather than exchange, it also mischaracterises the economic behaviour of earlier societies. The anthropological literature offers no evidence of barter as a central economic practice prior to money, but does furnish endless documentation of societies that distribute what we now call goods and services without drawing up accounts or expecting that such accounts, were they kept, could balance exactly or be closed.

The theoretical core of Debt is a loose schema of three types of human economic relationship. Communism (Graeber admits his use of the word ‘is a bit provocative’), exchange and hierarchy don’t describe distinct types of society but different ‘modalities’ of behaviour that operate to a greater or lesser degree in all societies, monetised or not. Graeber’s communism, which bears a resemblance to Kropotkin’s ‘mutual aid’, covers relationships answering to Marx’s dictum: to each according to his needs, from each according to his abilities. People act as communists not only towards friends and family but often towards guests, neighbours and strangers: ‘What is equal on both sides is the knowledge that the other person would do the same for you, not that they necessarily will.’ Relationships of exchange, by contrast, entail that each party gets from the other a more or less exact equivalent to whatever it’s given. Because exchange ‘gives us a way to call it even: hence, to end the relationship’, it takes place mostly among strangers. Hierarchy is, like communism, a mode of ongoing relationship, but between unequals. Enforced by custom, hierarchy requires that social inferiors make repeated material tribute to their betters in caste or status.

With this tripartite scheme in place, and illustrated with examples from Sudan to Greenland to medieval Europe, Graeber is ready to define the peculiarity of monetary debts. Like other market transactions, a loan is agreed to by formal equals, neither of them legally required to lend or borrow. But so long as a debt is outstanding – and any debt, being ‘an exchange that has not been brought to completion’, extends across time – ‘the logic of hierarchy takes hold.’ Equality is restored only when repayment is made in full. The servicing of debt can meanwhile become a way practically to dominate the formally free, to exact a stream of tribute in societies that recognise no official hierarchies. The implication is that orthodox economics, by presuming exchange to be the source and circumference of economic life, misses something about both the socio-historical environment and the political essence of debt, for relationships of hierarchy and communism historically precede and socially encompass all apparently uncoerced and spontaneous transactions, while monetary debts often smuggle gradations of power into what look like horizontal exchanges. (An intriguing question, neglected by Graeber, is whether a large-scale credit system couldn’t one day promote communism rather than hierarchy, a possibility glimpsed, or anyway named, in the literary theorist Richard Dienst’s recent The Bonds of Debt, which at one point rather vaguely imagines a future ‘radical politics of indebtedness’ fulfilling the slogans of classical Marxism.*)

But regular monetised exchanges – completed or incomplete – are a relative latecomer, as Graeber points out in a brace of fascinating chapters. Money, in the sense of units of abstract or general value, wasn’t unknown to intimate ‘human economies’ of village and tribe, but it didn’t channel the daily flow of goods and services. So-called primitive money was instead a ritual and occasional device. So the ‘bridewealth’ yielded to a woman’s family by her suitor might, among the Tiv of Central Nigeria, take the form of a quantity of brass rods; or a murderer, among the Iroquois, might make reparations to his victim’s family with a gift of white wampum. The inaugural use of money, then, wasn’t even to record commercial debts but – in currencies of cloth or metal, whale teeth or oxen, and sometimes human beings themselves – to betoken ‘debts that cannot possibly be paid’.

In Graeber’s book, a certain literalism about money, an unblushing faith in its capacity to determine or discover genuinely equivalent values, is the mark – or blemish – of commercial economies. The most extreme example is slavery. The buying and selling of people is an ancient practice, yet in the Atlantic slave trade Graeber sees the collision of several of his human economies with a late-model commercial one. Long before trade in human chattel, the Tiv and the Lele possessed the concepts, respectively, of ‘flesh-debts’ and ‘debt pawns’. Thus a bridegroom might owe his in-laws a sister, or a man who had escaped death owe his rescuer a future son. Still, Graeber claims that the violence implied by titles in human life was, before the impact of commercial economies, more potential than actual. A Tiv without a sister for his bride’s family might offer brass rods instead, while among the Lele – as in some gigantic metaphor for community – almost every man was at once the possessor of debt pawns and someone else’s pawn. Neither women nor men could be bought or sold; in effect, a life had a price on it and was at the same time inalienable.

The paradox was too subtle or inconvenient for commercial economies to abide. In the 17th century the Aro Confederacy conspired with local rulers and European traders to impose on a portion of Africa a new commodification of human life. Debts incurred as civil penalties for the violation of (often freshly and cynically promulgated) ritual laws might be denominated in copper, but for a villager unable to scare up enough copper the next expedient might be the sale into slavery of a dependent, a pawn, or even the debtor himself. How are human economies – where ‘money is not a way of buying or trading human beings, but a way of expressing just how much one cannot do so’ – transformed into slave markets? In Debt, it is organised violence that works the change. Only at the point of a sword, spear or gun will a household or community accept the literal and commercial, as opposed to metaphoric and social, transitivity of human life and money.

Two main features of this discussion loom over the rest of the book. The first is an emphasis on the merely conventional nature of money, as a reflection of a social understanding that in principle could just as easily be dissolved as compacted. Commercial economies, in other words, routinely grant credit arrangements a factitious independence from social interchange, so that primary relationships seem to obtain not between human beings but between two sums of money, one loaned and the other due, while people themselves become mere bystanders to the accumulation of compound interest. The second is Graeber’s argument that such a reification of monetary debts can only be maintained by force. A debt is ‘a promise corrupted by both math and violence’. The mathematics abstracts obligation from the fluid process of community, while the violence wielded by mafias or the state enforces the abstraction.

Already here Graeber is courting some familiar objections to the anarchist bias against distant or impersonal relationships and state monopolies on violence. Can’t legal administration – as opposed to informal association – be the vehicle of justice as well as injustice? And isn’t the reverse also true, so that an exclusive reliance on anarchist collectivity might offer less in the way of happiness, freedom or whatever we are finally after, than a society permitting the supervention of an armed and bureaucratised state? But these questions can be postponed until we pass through Graeber’s history of debt from its ancient Near Eastern foundations to the tremors lately shaking Wall Street.

Graeber divides the history of commercial economies into five periods demarcated according to whether metallic bullion or ‘virtual credit money’ prevailed. The periodisation is approximate and the whole scheme patently heuristic, but the rough-hewn construction shelters important insights. In modern times, a gold standard, liable to low inflation or even deflation, has tended to reward creditors and punish debtors, while the reverse has been true for inflation-prone paper currency. As Keynes explained in a polemic against the ‘barbarous relic’ of gold, deflation, by increasing the value of money, ‘involves a transference of wealth from the rest of the community to the rentier class and to all holders of titles to money’. By the same token, the cheapening of money through inflation erodes the real value of debts and eases their repayment. Graeber doesn’t dispute the general application of this rule of thumb, but at no point is he straightforwardly against bullion and in favour of credit. Metallic and virtual money can each in their own way enact the corruption of social promises into economic debts.

In the fourth millennium BC, at the dawn of ‘the great agrarian civilisations’, interest-bearing loans were widely established in Mesopotamia without the use of coins, with wares forwarded to merchants or peasants against returns from commercial expeditions or future harvests. Peasants might have to offer family members as sureties, to be collected in the event of default. By around 2400 BC, indebtedness in the Sumerian kingdom of Lagash had become insupportable, and the monarch was moved to decree history’s first recorded debt cancellation, precursor to the biblical jubilee. Graeber argues this set the pattern for the virtual-money commercial economies of the time, in the Nile valley as well as the Fertile Crescent: the expansion and, through interest rates, intensification of credit relationships at length loads the peasantry with so much debt that rulers have little choice but to void outstanding obligations or risk overthrow.

Graeber’s Axial Age runs from 800 BC to 600 AD, taking over Karl Jaspers’s name for the epoch of the first great world religions. This age is defined by three conjoined developments: the turn to metallic money away from credit money; the emergence of the great philosophical tendencies and religions, from Zoroastrianism, Buddhism and Confucianism to Hinduism and the major monotheisms; and – arising together with these in China, India, the Near East and the Mediterranean – the deployment of professional armies by the state.

What explains the consorting of coinage, wisdom and war? The removal of precious metals from temples and estates and their diffusion into daily commerce in the form of coins seem to have been driven by war. Thus the first coins, appearing around 600 BC, were probably used as payment to Greek mercenaries, prized as soldiers from Egypt to the Crimea, who, far from home, would have had less use for cumbersome commodities or promissory notes that would go begging in their own country. The Axial Age launches a self-reinforcing pact of coin and sword. Payment of soldiers in precious metal encourages further plunder of neighbouring lands for their bullion; conquest of these lands disrupts local economies functioning on credit and trust, as occupying powers demand that taxes and fines be paid in their own imperial coin; and the maintenance of such monetised economies requires the continued presence of the same professional armies that launched the cycle in the first place. The increased commercialisation of life also breeds indebtedness and the sale of people into slavery; other slaves are war booty, put to work in mines. In Asia Minor (where Alexander’s army ‘required half a ton of silver a day just for wages’), in Bronze Age India and contemporaneously in China, Graeber finds much the same clanking concatenation of coinage, slavery, markets and the state.

As for the third element of the Axial Age triad, the religious and philosophical schools, Graeber’s reading won’t surprise historical materialists: the new thinking was essentially a reaction to ‘impersonal markets, born of war, in which it was possible to treat even neighbours as if they were strangers’. The daily use of metal coins opens up two chasms. First, money – as a substance that both is and is not itself, simultaneously a lump of matter and an instance of abstract value – suggests the separability of flesh and spirit. Second, it rends a more unified social sphere into an economy ruled by self-interest and an uncommodified community realm where other values may prevail. Axial Age ideas exhibit a contradictory variety: materialist philosophies might attempt to overcome dualism, while spiritual doctrines ratify it. But all are marked by ‘a kind of ideal division of spheres of human activity that endures to this day: on the one hand, the market, on the other, religion … Pure greed and pure generosity are complementary concepts; neither could really be imagined without the other.’ As today, worldviews might confirm or contest the status quo, and Graeber’s description of China’s ‘hundred schools’ of philosophy suggests a premonition of his own politics: ‘Some of these movements didn’t even have leaders, like the School of the Tillers, an anarchist movement of peasant intellectuals who set out to create egalitarian communities in the cracks and fissures between states.’

Compared to his depiction of a bellicose and slaving Axial Age, Graeber’s portrait of the long Middle Ages is far more admiring. They begin in India between 400 and 600 AD, when the Mauryan dynasty lapsed into a series of diminishingly powerful, mostly Buddhist kingdoms, and coincide with the spread of Islam in Western Eurasia, not reaching Europe until the close of the first millennium. The end of the epoch, when coins dropped out of circulation and money ‘retreated into virtuality’, is announced by the Iberian conquest of a New World seamed with gold and silver. The effort to rehabilitate a period with a bad name is characteristic of Graeber’s general iconoclasm. The Middle Ages undo ‘the military-coinage-slavery complex’ of the Axial Age, and mend the rift between economy and morality. Thus economic life falls ‘increasingly under the regulation of religious authorities. One result was a widespread movement to control, or even forbid, predatory lending. Another was a return, across Eurasia, to various forms of virtual credit money.’

Credit arrangements organised by religious authorities, like the differential schedules of interest for separate castes in India, could still lead to steep inequality. Elsewhere, however, Confucian strictures against extraordinary profits or the Islamic prohibition of usury allowed markets to run on credit without indenturing one portion of the population to another. Graeber’s account of medieval Muslim commerce has warmer words for the institution of the market than are usually heard on the left:

By abandoning the usurious practices that had made them so obnoxious to their neighbours for untold centuries before, [merchants] were able to become – alongside religious teachers – the effective leaders of their communities … The spread of Islam allowed the market to become a global phenomenon … But the very fact that this was, in a certain way, a genuinely free market, not one created by the government and backed by its police and prisons – a world of handshake deals and paper promises backed only by the integrity of the signer – meant that it could never really become the world imagined by those who later adopted many of the same ideas and arguments: one of purely self-interested individuals vying for material advantage by any means at hand.

Notwithstanding some equivocations on the role of the state (‘Markets were never entirely independent from the government. Islamic regimes did employ all the usual strategies of manipulating tax policy to encourage the growth of markets’), here is a glimpse of the anti-rentier but pro-market conception of economic life that must surely count as an intermediate necessity for radical politics today.

In Debt, the Age of the Great Capitalist Empires brings the apotheosis of the moneylender, after his medieval eclipse. Graeber joins a tradition of writers, going back at least to Schumpeter, who locate the origins of capitalism in the international credit system. (A separate school of thought stresses that the conversion of the English peasantry into free tenants – but hardly owners – of agricultural land led to the rise of wage labour.) Graeber follows Fernand Braudel in virtually identifying capitalism with consolidated finance, contrasting the ‘anti-market’ of the monopolistic great capitals with the humbler local markets left over from the Middle Ages. What distinguishes Graeber’s account, apart from its anecdotal richness (it seems, for instance, that gambling debts in Spain harried Cortéz into his assault on Tenochtitlan), is his emphasis on state violence. So the first stock markets, in Amsterdam and London, deal mostly in shares of the simultaneously military and mercantile East and West India Companies, with their monopoly concessions granted by the state. Closer to home, the legalisation of interest charges on consumer debt, reversing medieval bans on usury, promotes at once the spread and the criminalisation of indebtedness, sometimes including – in 16th-century England, for example – capital penalties for default.

Capitalism not only yokes commerce and violence together after the fashion of the Axial Age; it also marks a reversion to slavery, and restores bullion to a central place. But the function of metal is no longer as simple as before. Mercantile capitalism hardly used coins within domestic economies; most American silver instead flowed to China, to be exchanged for silks and porcelain as the Chinese switched from paper money to coins. For Genoese bankers, gold and silver were the metallic pretext for a profusion of virtual money, as ‘the value of the bullion was loaned to the [Spanish] emperor to fund military operations, in exchange for papers entitling the bearer to interest-bearing annuities from the government.’ The continual inflationary discounting (in the face of uncertain repayment) of such sovereign debt – the Spanish or, later, Dutch and British precursors to capitalist paper money in general – unleashed the ‘price revolution’ of early capitalism. Put simply, the paper money of the lenders multiplied much faster than the wages of the labourers, who often had to pay their taxes in scarce silver. (This combination of asset-price inflation for the wealthy and wage stagnation for workers is reminiscent of recent decades.) One effect was to reduce a debt-wracked peasantry to the status of a landless proletariat.

Graeber’s attention to blood and treasure as the dirty fuels of accumulation is a welcome corrective to recent tales of the pristine birth of capitalism. Such stories, in keeping with the ostensible incorporeality of a financial age, tend to spiritualise our mode of production, imagining it as a spontaneous emanation of the marketplace or the belated expression – as of Athena, full-grown, from Zeus’ skull – of a timeless Western rationality and individualism. Classical political economists, even at their most apologetic, knew better, and could speak in passing, as Mill did, of a system still shaped by ‘a distribution of property which was the result, not just of partition, or acquisition by industry, but of conquest and violence’. Graeber’s emphasis on metal and arms serves him less well when it comes to the persistence and evolution of the system into the latest era of world history, whose beginning he places in 1971.

For Graeber, our own time has so far been distinguished by a return to virtual money and the preservation of its value by force of American arms: ‘The new global currency is rooted in military power even more firmly than the old was.’ But, as Graeber himself shows, capitalist money has not consistently adhered to a metallic norm. Even Britain, stalwart of the gold standard, didn’t adopt the measure until 1717, and an international gold standard dates only from the last third of the 19th century. Capitalism before our time also saw the riotous printing of paper money. And even when society-wide binges on credit money inspired chastened retreats to bullion, gold or silver served chiefly to measure and stabilise prices rather than – through coins – to facilitate exchange. In this sense capitalist currency has not been much less virtual than Mesopotamian credit, also indexed to metal. Not only did capitalist powers typically suspend the convertibility of their paper during wartime, but even at the Belle Epoque zenith of the gold standard, international money remained a kind of conjuring trick. Before 1914, as Coggan notes, ‘Britain’s gold reserves rarely exceeded £40 million, a figure that was only 3 per cent of the country’s total money supply … Had foreign creditors demanded the conversion of their claims into gold, Britain could not have met the bill.’ After the war, and the fitful return to gold, Keynes argued that it no longer made sense to distinguish between ‘commodity money’ and ‘representative money’, or the metallic and the virtual. Gold, having ‘ceased to be a coin’, had become ‘a much more abstract thing’, with at most a vestigial part in the regulation by central banks of ‘managed representative money’. Graeber wouldn’t dispute this – he continually emphasises that money is always a political, never a truly mineral phenomenon – but it does put in doubt the usefulness of differentiating capitalism from prior social formations or sorting out eras within its history according to the role of bullion.

Graeber’s emphasis on American imperial might in preserving contemporary monetary arrangements also creates an appearance of continuity just where he proposes a border. If state violence inaugurated and maintained capitalism before 1971, can the same factor set apart the decades since then? The anarchist identification of the state with violence risks becoming more axiomatic than analytic. Graeber describes the assembly over recent decades of a ‘giant machine designed, first and foremost, to destroy any sense of possible alternative futures’. The inculcation of hopelessness rests on ‘a vast apparatus of armies, prisons, police, various forms of private security firms and police and military intelligence apparatus and propaganda engines of every conceivable variety, most of which do not attack alternatives directly so much as create a pervasive climate of fear, jingoistic conformity and simple despair’. The blurring here of instruments of coercion and techniques of consent, of armies and advertisements, itself reveals the need for a more complex account of the way contemporary capitalism secures – if with diminishing success – the acquiescence of the governed and the punctual remittances of the indebted.

The most striking aspect of the current era is that it emerges as the rare period of virtual money that has so far failed to set up strong protections for debtors, whether in the form of bans on predatory lending or periodic jubilees: ‘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 IMF is Graeber’s main example, to which the European Central Bank and the Federal Reserve could be added. The response of Western officials to the economic crisis, with its proximate cause in unsustainable consumer debt, has been to ensure that banks suffer as few losses as possible, while relying on the same indebted consumers – in their role as taxpayers – to keep the bankers whole. The Fed and now the ECB have loaned banks money at virtually no cost, encouraging those same banks to purchase government bonds paying much higher rates of interest: a direct subsidy of finance by the public, while millions sink into unemployment and bankruptcy. A far simpler and more effective monetary policy would have been for the government to print a new batch of money, distribute an equal amount to everyone, then sit back and watch as stagnant economies were stirred to life by the spending and debts were paid down and eroded by temporarily higher inflation. The inconceivability of such a policy is a mark not of any impracticability, but of the capture of governments by a financial oligarchy.

Although Paper Promises is essentially an extended piece of financial journalism, useful and efficient but captive to conventional wisdom, its treatment of the past 150 years nevertheless achieves a level of detail that Graeber must bypass. It’s from Coggan that one gets a picture of the workings of the pre-1914 gold standard, of interwar monetary chaos, and of the fragility of Bretton Woods. Yet in discussing the nature of money as the central reality of economics, both authors at times produce something like the illusion they are trying to dispel: as if currency, whether paper or metallic, were a thing apart from the social production and contestation of value. Both writers see 1971 as a watershed. It’s doubtful, however, that the abandonment of a residual gold standard was, even in monetary terms, the main event of the 1970s, or that it was decisive in bringing about the subsequent economic sea-change.

The problem is more obvious in Coggan’s case. His general proposition that a metallic standard of value favours the ‘creditor/ rich class’ while a regime of virtual money benefits ‘the debtor/poor class’ is never integrated with his history of the postwar era. The first decades after the Second World War saw an inflationary erosion of the value of money; over the past generation, by contrast, the major currencies of the capitalist core, lacking any metallic basis, have nevertheless stubbornly resisted rapid inflation. In other words, the years of gold’s long goodbye were less, not more, propitious for creditors than the virtual money era that followed. As Carmen Reinhart established in a paper cited by Coggan, the real rate of interest (taking inflation into account) was, from 1945 to 1980, as often negative as positive across developed economies; in any given year, a lender was as likely to be losing as gaining real wealth. If this didn’t quite bring about Keynes’s ‘euthanasia of the rentier’, it did amount to the pacification of the rentier, even as profit rates reached historic heights: the main way for capitalists to beat inflation was by investing money, not by lending it. In recent decades, the situation has more or less reversed. In the 1960s the US financial sector harvested about 15 per cent of domestic profits, while manufacturers took half of the total; by 2005, finance enjoyed nearly 40 per cent of profits, and manufacturing less than 15 per cent.

What happened around 1980 to rejuvenate the rentier and unleash the so-called financialisation of the world economy? Why did inflation dramatically subside, and real interest rates surge, across several decades? It was not the quietus to gold. That had happened almost ten years before, and – if paper money were really a boon for debtors – might have been expected to produce an opposite combination of high inflation with low or negative interest rates, as for a few years it did. The decisive monetary event took place in October 1979, when Paul Volcker, chairman of the Federal Reserve, hiked interest rates to unprecedented levels, inducing a severe recession in North America and Europe as well as what came to be known as the Third World debt crisis, as the countries of the global South found that servicing their dollar-denominated debts had become vastly more expensive. The same high American interest rates drew capital to the US for the better part of two decades. This kept the dollar expensive, holding down the price of goods, while inflating the value of such assets as stocks, bonds and real estate. Few arrangements more convenient for the wealthy could be devised. That this one took hold during a time of virtual or ‘fiat’ money suggests that it is mainly the balance of social forces, and not any relationship to metal, that determines whether the nature of money better suits one class or another.

Money itself is a form of debt, a general claim on the social product, and undoubtedly the removal of the dollar from the gold standard permitted a tremendous expansion of debt claims: the granting of titles to the world’s wealth far exceeded the actual production of wealth. Yet for most of the 1970s, labour wielded enough power to demand a growing share of those titles in the form of wages and welfare provision: hence generalised inflation. Since the late 1970s, finance capital, in firmer control of most governments, has been better placed to multiply its claims: this too caused inflation, but of the restricted kind known as asset-price inflation.

In The Crisis of Neoliberalism – a work of lofty analysis and desiccated prose in the intellectual but not the literary tradition of Marx – Gérard Duménil and Dominique Lévy persuasively argue, much as David Harvey has, that neoliberalism has been less an ideological programme on behalf on free markets than a ‘quest for high income on the part of the upper classes’. Much of this high income, withdrawn against asset bubbles, has been, as Duménil and Lévy go on to show, ‘fictitious’ in that it represented a claim on future wealth that neither had been nor was to be produced: as if one could buy apples at the store on the strength of titles to the more numerous future fruits of imaginary orchards. To put the argument a bit too simply, for Duménil and Lévy the crisis that began in 2007-8 derived most immediately from the attempt to extend to ordinary consumers, through rising home prices, a fictitious income long enjoyed by the financial classes. The scheme could hardly last. Imaginary orchards can appear more prolific than real ones only until the apples are picked.

It’s tempting to believe that debt-fuelled financialisation has been the succubus preying on advanced economies and draining them of vitality over the past thirty years, and surely that has been partly true. Why should the owners and managers of financial capital have bothered with increased investment in actual production? Their own incomes soared, never mind that the system’s trajectory began to sink. Yet to dwell on Volcker’s ‘financial coup’ of 1979 as the central development of the decade, or to consider financialisation apart from production, would also be to concede to money an autonomy it doesn’t possess, in either virtual or metallic form. There is good reason to doubt whether financialisation and runaway indebtedness caused the system-wide deceleration since the 1970s, or merely concealed and at length compounded it. Orthodox economics over the last generation has neglected issues of capitalist dynamics, so it has fallen mainly to Marxian thinkers to search for the causes of ebbing growth. Robert Brenner has adduced overcapacity in international manufacturing as the trigger of a systemic slowdown starting in 1973. Others have pointed to ‘the rising organic composition of capital’ or – a related phenomenon – the dwindling economic importance of productivity gains in manufacturing, amid a growing preponderance of services. Graeber and Coggan don’t discuss these arguments, but add to them an awareness – another product of the 1970s – of ecological checks on growth. For Coggan, the great looming threat is a permanent increase in energy costs, making future ‘gains in overall productivity’ difficult or impossible. For Graeber, environmental limits more generally supply the main reason to believe that capitalism, as ‘an engine of perpetual growth … on a finite planet’, will no longer exist ‘in a generation or so’.

A stationary state of growthlessness, or even a situation in which per capita GDP stagnated across the globe, would only sharpen the conflict between creditors and debtors that has come into relief since 2008. The loaning of money at interest, stigmatised as usury during the Middle Ages, has seemed a more tolerable practice during much of the history of capitalism, but its acceptance has been purchased through growth: increased income for rentiers didn’t necessarily imply a corresponding decrease for everyone else, only a share in the common expansion. The more nearly the global economy approaches a zero-sum game, the less we will be able to distinguish between what Adam Smith called productive and consumptive loans, the former contributing to the borrower’s prosperity and the latter merely draining it. Positive real interest rates per se will come to seem consumptive or parasitic, a straightforward transfer of wealth from debtor to creditor. It’s not inconceivable that financial rents could grow even as the economy stalls, with the subjects of capitalism submitting to a century of declining standards of living, as occurred in much of Europe during the 18th century. But other outcomes are possible, and more easily imagined than even a year ago, thanks to the energies of protesters round the world. Graeber’s question for activists might also be taken by ruling elites as a warning: ‘Will a return to virtual money lead to … the creation of larger structures limiting the depredations of creditors?’

Most immediately, the question concerns the ‘sado-monetarism’, as it’s been called, of the ECB. Peripheral Europe needs higher inflation, and soon, in order to shed debt and to regain a degree of competitiveness that probably can’t be achieved, even at enormous human cost, through the simple reduction of wages. The Spanish cartoonist El Roto has summarised the logic of European politicians: ‘If the currency can’t be devalued, it will have to be the people.’ The programme has been a debacle even on its own terms, as the increasing debt burden and interest rates of Spain and other countries testify. Unless the euro – a virtual currency as inflexible, to date, as any golden fetters – is devalued, it will be hard for the EU, which has a larger economy than the US, to escape the consequences foreseen by the economist Nouriel Roubini: ‘Without a much easier monetary policy … more eurozone countries will be forced to restructure their debts’ – in other words, partly default – ‘and eventually some will decide to exit the monetary union.’ It was with the Continental crisis in mind that Paul Krugman recently voiced a thought usually confined to the radical press: ‘I’m really starting to think that we’re heading for a crack-up of the whole system.’

The prospect of systemic crack-up makes it urgent for new movements of the left to imagine what ‘larger structures’ might govern the credit system of a society retaining its complexity and scale even as it demotes bankers to the level of ordinary citizens. Some readers of Debt have surmised that Graeber opposes all forms of impersonal economic relationship, on the basis of his warm accounts of neighbourly credit relations or the Islamic bazaar with its ‘handshake deals’, as well as his denunciation of a credit system, articulated through laws and defended by violence, that exempts debt obligations and the value of money from the sort of continuous revision typical of humane dealings among equals. In response, Graeber has said that he is not ‘against impersonal relations, or all impersonal exchange relations’, which must in some degree characterise ‘any complex society’. There is no reason to doubt him. Yet the spirit of the Occupy movement has so far been defined by what Graeber, in Direct Action: An Ethnography, described as the – mainly anarchist – theory and practice of ‘direct action’, or what is now often called ‘prefigurative politics’. In this ethos, ‘means and ends become, effectively, indistinguishable; a way of actively engaging with the world to bring about change, in which the form of the action … is itself a model for the change one wishes to bring about.’

The political suggestiveness of spontaneous self-organisation – of protests, assemblies and encampments – can’t be denied. These practices have reminded thousands of activists that society itself, all appearances to the contrary, is the active creation of its constituents. But the stress on direct action and face-to-face assembly has also threatened to circumscribe, rather than inspire, a developed programme for the left, as if the impersonal institutions of money, banking and government had been too badly tainted by long collusion with oppression to be salvaged. Yet, assuming that we aren’t about to see a swift unravelling of the contemporary world into a far lower degree of complexity, the left will need to imagine and propose credit systems and monetary authorities that can prise apart debt and hierarchy, exchange and inequality. Money, and therefore debt, is always an abstraction. But justice too can be abstract, and there is no reason in principle why money and debt must serve injustice rather than justice. So long as we still resort to markets and banks, the words of (the socialist) George Bernard Shaw are worth keeping in mind:

The universal regard for money is the one hopeful fact in our civilisation … It is only when it is cheapened to worthlessness for some, and made impossibly dear to others, that it becomes a curse … Money is the counter that enables life to be distributed socially … The first duty of every citizen is to insist on having money on reasonable terms.

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