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I’ve been reading the book Debt, recently published to strong reviews. It’s all right there in the title: it’s about the history of debt, and how it came to occupy the center of our culture.

The book starts by addressing one of the myths we’re all taught in economics class, a myth I remember hearing myself. The story goes that, in the beginning, people lived in a barter economy. Joe made shoes and John sold butter; in order for this supposedly primordial system of barter to work, Joe has to want John’s butter, and vice versa.

How inconvenient is that? Very inconvenient.

So money was invented. Later on, as civilization become more advanced and sophisticated, we addred credit; and now here we are, at the apex of development, with virtual money – re: credit – in our lives too.

This is a myth because it never happened.

The historical record is clear: there were no barter economies. That is not the ‘first stage’, and never was; anthropologists have searched far and wide but have never been able to turn up any ‘primitive’ barter economies. The reason has to do with relationships: in order for barter to work, you have to be abstracted away from them in a way that rarely happens.

When you check the historical record, it turns out we have our history backwards. The first development is credit. Credit comes first, money later. And credit, instead of developing independently, comes from its parent and progenitor: the state.

As historians have pointed out, why did early kings impose taxes, when they could just appropriate the resources they wanted themselves? If you’re a king, and you had people mine metal for you, make coins, distribute them to the people and then have them hand it back to you, in the form of taxes – why not cut out the middleman? Appropriate the mines, take it all for yourself, omit the tax part and profit directly.  Yet this didn’t happen. Why not?

The reason is because that’s an inferior route for the king to take. It’s better for it to be a part of a system of debt instead, a system of obligations that keeps the cycle flowing back to you. That’s the real value of the coins and taxes: the ongoing relationship of indebtedness it creates.

Say you’re a king. You have an army. You could just pay people gold and silver to house and feed them. But armies are very expensive, especially if you plan to keep them for years at a time; there has to be a better way – and there is. You mint IOU’s (coins) that your subjects have to honor; to do that, they also have to exchange with you.


So you’ve ‘created’ money, and now have people coming to trade with you, who have to use your coins: much better than just throwing coins at them. This is the origin of our system, today. That’s our real economic ‘origin’ story.

And that, in a nutshell, is why it’s important to think critically about debt, and money. It didn’t arise in a laissez-faire way; it grew out of the state, co-originated with it. It also shows that debt is a dubious concept, the more you dig into it; it has ethical and moral implications that go beyond ‘pay your debts’, that have more to do with thinking critically about the system as a whole.

It starts with debt” that’s the take-away. Debt precedes money. In fact the ‘virtualization’ (read: computerization) of debt is nothing new; it’s part of the same pattern across the ages.

So don’t believe the hype about a ‘new age’ of credit; that’s always been around. It’s nothing special. States have always created money out of thin air, because money is just a solid-sounding form of trust. And knowing that is important to thinking critically about debt, and being wise to its influence on us all.


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