To reiterate what we learned from part one of this review:
Ideology blinds investors.
For part two, let’s tackle David Graeber’s Debt: The First 5,000 Years.
This is one of the best books I can remember where I largely disagree with the conclusions, yet consider it virtually essential reading. Graeber's is a lucid mind and a nimble pen demanding consideration, whatever your view.
He’s an anthropologist by trade, which provides the benefit of a sweeping historical/social/cultural view of debt (we sorely need more of this in finance). But this feature is also limiting: The scope of this book is so huge—effectively covering economics and finance, including the history of money via the lens of all human civilization—many points are reduced to absurdity or lost in a tidal wave of competing ideas.
My favorite example: Toward the end of the book, Graeber endeavors to explain Middle Ages sensibilities via Chretien De Troyes’s writings on the Arthurian romances, describing “Knights Errant” as the first examples of heroic wanderers in the West. One wonders if Odysseus is chopped liver....
In the end, Debt conjures two main points: A theory of all money as debt; and all debt as infinite, universal and primordial among humans—and therefore communal.
First, the debt theory of money. This is perhaps the most important and intellectually sturdy part of the book. Most economists believe money originally sprang forth, like Adam’s rib gone specie, from barter. Graeber, along with a growing number of economists, believes instead money likely originated as a form of IOU—that is, credit. So, in some sense, all money is ultimately debt.
This is the point linking the Occupy movement to the Tea Party, as the Creature From Jekyll Island ends up making a similar case, though from a different angle. I'm not sure why this is supposed to seem provocative or surprising. Graeber, as did Griffin, positions these statements as if they're cataclysmic to economic thinking, cutting off Adam Smith at the knees. But as Graeber makes a sweeping account of how money evolved—noting it’s much less linear than most believe (non-paper or metal-based money might actually have been the first kind of money)—this point becomes all the more mundane. Yes, under today’s fiat regime with fractional banking (basically, all the world’s systems today) money is effectively created by the issuing of debt. What economist is surprised by this? There should be more balance here in thinking of money as a commodity, too—where scarcity matters, as does money’s representation as capital—the mobile store of created value.
Graeber’s second main argument is that all debt is ultimately communal and primordial. Debt, particularly as a concept, is the automatic “original sin” and a foundational theme of religion—most early civilizations regarded all forms of interest as “usury.” All of us in a society are reliant on each other and, therefore, we are all infinitely indebted to one another from birth. So there can be truly no private property, and notions of trying to quantify debt are absurdities.
This interesting but slippery perspective leads to all sorts of odd conclusions. Graeber asserts from this, for instance, all society is ultimately based on communism. Even all corporations! This is a neat rhetorical trick, one that many great persuasive orators and writers use: He substitutes one concept for another. When Graeber says “communism,” what he’s really referring to is “cooperation.” These seem similar but are vastly different. Communism implies communal property—cooperation is about freely deciding individuals electing to participate with one another toward a common goal—this is what a corporation does.
More, economics is often misapplied or misunderstood amid the wealth of anthropological knowledge, particularly the work of Adam Smith. To claim capitalism is doing little more than reducing all human interactions to exchange is simply false. Adam Smith spends a 500+ page book in his Theory of Moral Sentiments discussing the issue.
Graeber provides a number of examples demonstrating that reciprocity (debt) is a human universal. But these examples are almost exclusively based on small villages and communities in primitive or undeveloped societies—there is scant evidence these systems work for larger societies. Adam Smith himself observed there is great altruism between those who know each other (small communities), but as a society grows and connects with other groups (international trade, for example) a different system is needed because altruism toward strangers is not absolute or all that common. This is one of the key uses of capitalism—it’s the most beneficial system ever conceived for broad human cooperation.
In sum, Debt is a profoundly challenging read, at once infuriating and stimulating. No matter your views, if you can wrestle with it effectively, you’ll know you’ve given a great deal of thought to the issue of debt. Graeber’s work is thoroughly enjoyable and recommended to those with the moxie to jump in. But, as with anything you read, bring your skeptic’s eye to the project.
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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.