Debt: The First 5,000 Years by David Graeber [quotes and notes]

I’ve always been fascinated by the history of money. Not only as it’s a key driver of human behaviour and geopolitics. But as major force that shapes the trajectory of human endeavor. Put simply, it’s an integral part to understanding how the world works. “If you want to understand how the world works, follow the money.”

But what is money really? And how did we get here?

The more I try to wrap my head around this topic, the more confused I get.

In Debt: The First 5,000 Years, David Graeber being an anthropologist, approaches the origins of credit and money with a starkly different lens to most economists.

“The story of the origins of capitalism, then, is not the story of the gradual destruction of traditional communities by the impersonal power of the market.

It is rather the story of how an economy of credit was converted into an economy of interest; of the gradual transformation of moral networks by the intrusion of the impersonal – and often vindictive – power of the state.”

What I appreciate most about this book are the countless astute observations the author makes. Drawing together the subtle connections between markets, the state, military, religion, and even philosophy, throughout history, across the Eurasian continent. Although, the last two chapters of the book were a bit more biased in my view.

This post will summarize some key points I took away. 

Debt: The First 5,000 Years, David Graeber, 2011
Amazon USAmazon Australia


1. The Barter Myth

“The very fact that we don’t know what debt is, the very flexibility of the concept, is the basis of its power. If history shows anything, it is that there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt.”

The origin story of money we’re all familiar with is the barter theory.

I have extra fish. You have extra rice. We can trade and both be better off. 

The problem: I might not want more rice, I might want some clothes.

Barter Theory says that money and coinage evolved to solve this “coincidence of wants” problem. By creating an abstract representation of scarcity, an absolute unit of account could be established. And banking and credit, supposedly, only came after this.

That is, money came before credit.


But Graeber argues that this conventional economic orthodoxy has it backwards.

Credit (and debt) came before money, not the other way round.

If I have fish, you have rice, and you want my fish but I don’t want your rice. No problem. We can work it out with an IOU system. 

The author argues that such credit-based systems were the norm in primitive societies. Commerce worked just fine without the need for barter.

This brings us to the next key point in the book.


2. Primitive notions of debt 

Money, evolved not as a medium of commercial convenience, but to recognize the existence of debts that could not possibly ever be repaid.

Such debts include primordial or religious debts. The idea that, since birth, our lives were on a loan to the universe or God. Many religions are centered around the notion of redemption. Other primordial debts include “milk debts” owed to your parents for giving you life.

“…the language of the marketplace has come to pervade every aspect of human life – even to provide the terminology for the moral and religious voices raised against it.

We have already seen how both Vedic and Christian teachings thus end up making the same curious move: first describing all morality as debt, but then, in their very manner of doing so, demonstrating that mortality cannot really be reduced to debt, that it must be grounded in something else.”

Then there’s debts that around to resolve violent disputes (blood and flesh debts).

The common denominator of these primitive notions of debts is that they are all social currencies. Meaning, their purpose is to measure, assess, maintain relationships between people. At its core, they emphasize that a human life could never be precisely reduced into a quantifiable value.

So in this view, debt and credit have always been around. And money was only introduced afterwards to reconcile the kind of debts that could not ever be repaid.


“Primitive currencies… rather than being employed to acquire things, they are mainly used to rearrange relations between people. Above all, to arrange marriages and to settle disputes, particularly those arising from murders of personal injury.”


3. The Credit-Money cycles of history

Interestingly, 5,000 years of Eurasian history has experienced alternating periods of credit versus money paradigms. 

(i) Agrarian empires (3500BC – 800BC): Credit
(ii) Axial Age (800BC – 600AD): Money
(iii) Middle Ages (600 – 1450): Credit
(iv) Capitalist empires (1450 – 1971): Money
(v) Yet to be determined (1971 – current): Credit

For clarity, by money we mean gold and precious metals. And by credit we mean an IOU system.

Generally speaking, credit arrangements work well when there is a stronger relation of trust.

Meanwhile, money can be stolen and so works well without requiring any trust. So money is preferred in periods of frequent war.


(i) Agrarian empires (3500BC – 800BC): Credit

The earliest records of writing dates to around 3,000BC in Mesopotamia (present day Iraq). These earliest clay tablet inscriptions weren’t poetry or art, but plain old accounting. This guy owes this other guy 5 goats. That guy produced 15 bunches of barley. And so on.

Sumerian cuneiform tablets. Source

According to Graeber, across ancient Eurasia – Mesopotamia (3500-800BC), ancient Egypt (2650-716BC),  and  China (2200-771BC) – money arose more as a means of account. Rather than to enable trade in the first place.


(ii) Axial Age (800BC – 600AD): Money

Around 600BC, the earliest coinage started to appear independently in three places: northern China, northeast India, and Lydia (Turkey). 

First coins from Lydia (modern day Turkey). Source

As these innovations spread, many states started issuing their own coinage. That is, a piece of valuable metal, shaped into a standardized unit, with some authentication mark.

And one particularly effective application of coins was in conducting military expansion.

Large, standing armies could be provisioned. And professional mercenaries could be paid.

For example, the period when Greeks first used coinage was also the period when they developed their famous phalanx tactics. Which requires constant training, and payment of, full-time hoplite soldiers.

As Alexander the Great conquered Persia, slaves were captured and forced to work in silver mines. This silver would mint coins to keep soldiers on the payroll, fueling further expansion.

The author calls this the military-coinage-slavery-complex.

Not only that, with coins, conquered lands could be forced to only use the victor’s currency. This not only creates conveniently uniform national markets, but also makes the conquered much easier to control. Taxes were to be paid in the victor’s currency, so the conquered were forced to trade-in their produce for currency.

Similar trends can be observed in India and China around this time (~500 BC).

Now we turn to the potential influence of newly emerging coinage on philosophy.

If one looks at the foundations of philosophical inquiry in Greece and India, it begins with cosmological speculation. What is the underlying material behind the physical forms of objects in the world? What are Is everything made up of varying combinations of certain basic elements? If so what are the base elements?

It’s uncanny that the earliest founders of Greek philosophy, Thales, Anaximander and Anaximenes were all from Miletus around 600 BC. The first Greek city state to mint its own coins. Thales proposed water was the fundamental base element of all physical objects, Anaximenes proposed it was air, and Anaximander proposed a pure abstract substance ‘apeiron’ that could not be perceived. 

Perhaps the idea that something could be turned into anything, was inspired by coinage. Coins (money) could be used to purchase anything.

What was uniquely new about coins was that it represented the idea that it could be exchanged for any other object. They’re solid and tangible but also abstractions because they have the potential to turn into almost anything else.

“…in any materialist philosophy, we are dealing with an opposition between form and content, substance and shape; a clash between the idea, sign, emblem, or model in the creator’s mind, and the physical qualities of the materialist on which it is to be stamped, built, or imposed, from which it will be brought into reality.”

Graeber also makes some astute observations on the entanglement of Axial Age philosophy and coinage:

“The war between Spirit and Flesh, then, between the noble Idea and ugly Reality, the rational intellect versus stubborn corporeal drives and desires that resist it…

… even the idea that peace and community are not things that emerge spontaneously but that need to be stamped onto our baser material natures…

… all those ideas that came to haunt the religious and philosophical traditions of the Axial Age.”

As well as on Axial Age philosophy itself:

“China was unusual because philosophy there began with debates about ethics and only later turned to speculations about the nature of the cosmos. In both Greece and India, cosmological speculation came first.

In each, too, speculations about the nature of the physical universe quickly give way to speculation about mind, truth, consciousness, meaning, language, illusion, world-spirits, cosmic intelligence, and the fate of the human soul.”

Was surprised the book didn’t go into coinage in the Roman and Han empires though.


(iii) Middle Ages (600 – 1450): Credit

In the Axial Age, markets and the military became entangled.

In the Middle Ages, markets and religion became entangled.

As Axial Age empires began to collapse, new states formed. These new states came to fall increasingly under the influence of religious authorities. 

As religious authority grew, money (gold and silver) ended up in sacred places: churches, monasteries, and temples. And this gave pressure into reverting to credit systems. Money became virtual again.

The re-emergence of credit systems was primarily driven bottom-up than top-down. This makes the term “fiat money” (paper money backed only by state power) rather deceptive.

“Almost all new forms of paper money that emerged were not originally created by governments at all; they were simply ways of recognizing and expanding the use of credit instruments that emerged from everyday economic transactions.”

Jiaozi. Earliest paper money in Song China. Source

Paper money was developed in China, largely because it was the only state centralised and powerful enough to enforce its adoption. But also because it was sufficiently suspicious of its mercantile class.

In contrast, Islam had a positive view toward commerce from the beginning. Large networks of trust sprawled across routes stretching across Eurasia, and in the particular, the Indian Ocean.

Another result of growing religious authority was a widespread movement to curtail usury (predatory lending). In many instances, charging any interest at all was against religious law in both Christian and Islamic spheres of influence.

Persian texts written by Ghazali in 11th century (bearing striking similarity to Adam Smith’s Wealth of Nations) explain why usury was viewed as illegitimate.

“Dirhams and dinars are not created for any particular purpose; they are useless by themselves… They are symbols to know the value and grades of goods…

A thing can only be exactly linked to other things if it has no particular special form or feature of its own…”

So somewhat paradoxically, money is useful because of its fundamental uselessness on its own. From this it follows that lending money at interest is illegitimate, as it means money is being used as an end in itself.

Additionally, Islam took seriously the principle that profits are a compensation for taking on risk. Risks such as storms and shipwrecks. And financial rewards that avoided these risks (such as a fixed interest rate) were regarded as immoral.

At first Catholic attitudes towards usury were just as harsh as Muslim ones. For example in 1179, usury was made a mortal sin and usurers were excommunicated and denied Christian burial. In line with Biblical teachings: “If you lend money to My people, to the poor among you, you are not to act as a creditor to him; you shall not charge him interest.” – Exodus 22:25.

Here’s when the Jews come into the story. In the Old Testament, usury is not strictly forbidden to everyone. It’s only forbidden to charge interest to your own people: “Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury.” – Deuteronomy 23:19-20. Many European princes exploited the fact that Jews sat outside the Christian system. Jews were encouraged to operate as moneylenders under state protection, but were excluded from merchant and craft guilds.

But by the 13th century, Roman laws began to revive, beginning with the assumption of absolute private property. And over time, the Church found it difficult to contain market pressure to relax usury laws. A workaround was to alter the definition. Interesse, where our word interest originates from, was a compensation for loss suffered because of late payment. It’s a penalty, not a rent.

Additional notes in book on this section that made me think.

Perhaps China’s pro-market but anti-capitalist traditions are more deeply rooted than I thought:

“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 expanded 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.”

Distinguishing markets from capitalism:

“We’re used to assuming that capitalism and markets are the same thing… but in many ways they could equally well be conceived as opposites. While markets are a ways of exchanging goods through the medium of money (C-M-C, commodity-money-other commodity)… capitalism… is the art of using money to get more money (M-C-M)”

Shifting class structure brought on by Islam:

“In a way, one can see the establishment of Islamic courts as the ultimate triumph of the patriarchal rebellion that had begun so many thousands of years before…

The great urban civilizations of the Middle East had always been dominated by a de facto alliance between administrators and merchants, both of whom kept the rest of the population either in debt peonage or in constant peril of falling into it.

In converting to Islam, the commercial class… effectively agreed to change sides, abandon all their most hated practices, and become instead the leaders of a society that now defined itself against the state.”

Development of institutions in Asia vs Europe:

“Most characteristic medical institutions started so late in Europe compared to Asia, that we mistake them for the first stirrings of modernity.”

The intimate dance between money and morality:

“Inevitably, arguments about wealth and markets become arguments about debt and morality, and arguments about debt and morality become arguments about the nature of our place in the universe.”


(iv) Capitalist empires (1450 – 1971): Money

In the era beginning around 1450, colonially exploited gold and silver flowed from the Americas into Europe and then Asia. Credit economies shifted back to gold and silver. And Axial Age conditions that had remained largely suppressed during the Middle Ages reappeared:

“…vast empires and professional armies, massive predatory warfare, untrammeled usury and debt peonage, but also materialist philosophies, a new burst of scientific and philosophical creativity – even the return of chattel slavery.”

But these conditions would reappear in an entirely different way.

Over-simplified Medival European history. Bubonic plague in 1300s kills 1/3 of Europe. Labor shortage. Peasants revolt and get higher wages. Middle class rises. But inflation hits hard between 1500-1650. Prices in Europe rose 5x but real wages fell 40%. Conventional story is that this was due to the inflow of Spanish gold and silver from the New World.

But Graeber points out flaws in this conventional story. Very little of New World gold and silver lingered very long in Europe. Most gold ended up in Indian temples, and most silver were shipped to China. 

“If we really want to understand the origins of the modern world economy, the place is to start is not in Europe at all. The real story is of how China abandoned the use of paper money. It’s a story worth telling briefly, because very few people know it.”

Mongols conquer Song China in 1271. They keep paper money system in place. Ming dynasty overthrows Mongols in 1368. At first, they’re open to trade and commerce – funding Zheng He ‘treasure fleet’ voyages for example. But the Ming dynasty soon turns suspicious of commerce. Illegal silver mines emerge to keep markets functioning. Government tries to suppress these but this leads to even more peasant insurrections. So the government swings 180 degrees: they stopped issuing paper money, legalized the mines, and allowed silver to become the recognized currency for large transactions.

One problem: China needed an abundant silver supply. And it was Spanish silver from the Americas that provided exactly that. By the late 16th century China was importing about 50 tons of silver a year – almost 90% of its silver demand.

Global silver trade c1700. Source

“What really caused the inflation is that those who ended up in control of the bullion – governments, bankers, large-scale merchants – were able to use that control to begin changing the rules.

First by insisting that gold and silver were money…

… and second by introducing new forms of credit-money for their own use…

… while slowly undermining and destroying the local systems of trust that had allowed small-scale communities across Europe to operate largely without the use of metal currency.”

In short, the bullion standard became employed as a political utility.

By 1650, Protestant powers had come to terms that providing loans on modest interest rate (usually 5% pa) was not sinful.

Throughout the late 1600s and early 1700s, joint stock corporations emerged. This, along with speculative bubbles and central bank experiments, resulted in the widespread acceptance that money should have a solid, material foundation. The gold standard was adopted.

“Everyone concluded that there had to be some solid, material foundation to all this, or the entire system would go insane. True, economists were to spend centuries arguing about what that foundation might be (was it really gold, or was it land, human labor, the utility or desirability of commodities in general?) but almost no one returned to anything like the Aristotelian view.”

It was a shame that the rest of the book from here was more of a series of critiques on capitalism. It basically skimmed over the 19th and 20th centuries, which in my view contain some of the most important events that help us understand how we got to now. More on this in How The Dollar Became Fiat: An Oversimplified History.


(v) The beginning of something yet to be determined (1971 – current): Credit

Nixon announces end of Gold Standard on 15th Aug 1971. Source

On August 15th, 1971, US president Richard Nixon announced that the US dollar would no longer be convertible to gold. Just like that the Bretton Woods system was dismantled. A new era of credit-dominated history began.

Some argue that US military power is now the only thing backing up the US dollar. Somewhat complementary to what Chomsky would call the military-industrial-complex. While the US government can’t print fiat money directly, it issues Treasury Bonds (T-bonds) that the Federal Reserve (Fed) buys up.

US T-bonds, Graeber argues, has now become the ultimate store of value in the world (world’s “reserve currency”) and this yields the US enormous economic advantages.

Foreign central banks that earn US dollars don’t have much of a choice except to buy up more US T-bonds. Graeber then argues that these bonds are supposed to be loans that will eventually mature and be repaid, but rarely ever do. Basically, T-bonds depreciate in value in real terms so anyone forced to buy it is effectively paying the US a quasi-tribute

“… Treasury IOUs are being built into the world’s monetary base they will not have to repaid, but are to be rolled over infinitely.

This feature is the essence of America’s free financial ride, a tax imposed at the entire globe’s expense.”

I’m not really convinced by this “debt imperialism” point in the book though. The pros of Pax Americana are difficult to quantify as it’s hard to show what has been prevented.

Graeber then argues that the late 20th century saw the re-emergence of usury practices. Visa and MasterCard were introduced in 1968. And  Reagan-Thatcherism in the 1980s catalyzed the rise of increasingly sophisticated, privatized and deregulated lending instruments. Particularly those around mortgage financing – as we saw blow up in 2008. People were encouraged to borrow to fulfill the American dream.

“Finance capital became the buying and selling of chunks of that future, and economic freedom, for most of us, was reduced to the right to buy a small piece of one’s own permanent subordination.”

Perhaps my view on high-interest loans is less cynical than the authors. So long as it’s used for productive activities, access to capital, even if expensive, can be a ticket out of a vicious poverty cycle. And so long as creditors have skin in the game by taking on high risk in order to earn high reward. The unfortunate reality is stifled with corrupt use of funds by the entrenched elite on the debtor’s side, and asymmetric risk-taking on the creditor’s side.

Graeber also holds a grim view on the emerging US controlled “global bureaucracy” – namely the World Bank, IMF, and World Trade Organization. Much in line with left-leaning economists, they serve the interest of the creditor and not the debtor. 

My view: these global financial institutions have good intentions. They’re just insensitive to the difficulties of implementing policy in environments with weak institutions. 

“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 towards the creation of some sort of overarching institutions, global in scale, to protect debtors. What we have seen so far is the opposite. “

And I’m with Graeber on his broader point about the criticality of language. Debates around debt, markets, the state etc will continue to be reductive if they are framed by the same categories of thought. Or worse, by the same false dichotomies.

“The one thing that’s clear is that such new ideas cannot emerge without our jettisoning of much of our accustomed categories of thought …

… the false choice between state and market that so monopolized political ideology for the last centuries that made it difficult to argue about anything else.”

Language is the superstructure on which debates take place on:

“Economic language has always been  – and still is – fundamentally moral, even when it insists that is is not… and a genuine economic history must therefore also be a history of morality.”


4. Final thoughts

Debt: The First 5,000 Years is a fascinating work that challenges mainstream literature. David Graeber draws together subtle connections between markets, the state, military, religion, and even philosophy. Telling historical stories that are less known from a financial lens. Ultimately offering an alternate point of view on how money and credit came about. 

But above all, it points out that the mainstream has been asking the wrong questions. This doesn’t necessarily mean all of Graeber’s questions are right. Especially given that his left-leaning biases becomes more apparent in the later parts of the book. But it does challenge the reader to completely re-frame their perspective on the subject matter. And to me, that’s exactly what makes a book worthwhile.


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How The Dollar Became Fiat: An Oversimplified History.

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