Debt, slavery, and violence in history

August 23, 2009 7:31 AM

Debt: The first five thousand years. Anarchist anthropologist David Graeber (previously) writes about "debt and debt money in human history" in Eurozine. Lots of thought-provoking stuff here; I'll put a sample in the extended description. (Via wood s lot.)

Commodity money, particularly in the form of gold and silver, is distinguished from credit money most of all by one spectacular feature: it can be stolen. Since an ingot of gold or silver is an object without a pedigree, throughout much of history bullion has served the same role as the contemporary drug dealer's suitcase full of dollar bills, as an object without a history that will be accepted in exchange for other valuables just about anywhere, with no questions asked. As a result, one can see the last 5 000 years of human history as the history of a kind of alternation. Credit systems seem to arise, and to become dominant, in periods of relative social peace, across networks of trust, whether created by states or, in most periods, transnational institutions, whilst precious metals replace them in periods characterised by widespread plunder. Predatory lending systems certainly exist at every period, but they seem to have had the most damaging effects in periods when money was most easily convertible into cash.

posted by languagehat (44 comments total)

This looks great! Thanks languagehat.
posted by anotherpanacea at 7:37 AM on August 23, 2009

On a related note, NPR money reports that Gianni Zonin, an Italian bank chairman and wine producer, is proposing that banks accept expensive wines and legs of prosciutto as collateral on loans to producers.
posted by lahersedor at 7:44 AM on August 23, 2009 [1 favorite]

"Now we see the violence inherent in the system!"
Cheers lh, good solid reading.
posted by Abiezer at 8:25 AM on August 23, 2009 [1 favorite]

Taking this with me to a long, boring sit-around job this afternoon. I'll be looking especially for any discussion on something I've been wondering about lately, namely, why do we put up with the payment of interest? Credit I get, but how did we come to accept the idea that it's SOP to buy something on credit and pay a non-commodity-related premium, namely interest, that doesn't necessarily go to the seller, but to an unrelated third party? Why not just pay the buyer, over time, without credit? (Late night carpeting companies sell stuff all the time on no-credit deals, for instance.) I await enlightenment and the pointing out of both my naivete and my questionable (*cough*communist*cough*) tendencies.
posted by nax at 8:27 AM on August 23, 2009

why do we put up with the payment of interest? Credit I get, but how did we come to accept the idea that it's SOP to buy something on credit and pay a non-commodity-related premium, namely interest, that doesn't necessarily go to the seller, but to an unrelated third party?

Because it's what the market will bear. Sometimes a merchant will want to sell badly enough that they will be willing to add a sweetener to the credit part of the transaction, either reducing interest rates or eliminating them entirely ("0% interest for 12 months!"). But this costs the merchant money, so if they can make the sale without doing so, why wouldn't they?
posted by grouse at 8:32 AM on August 23, 2009

Oh I'll see your first 5,000 years and raise it to A History of Interest Rates by Sidney Homer and Richard Sylla. Coming from Wiley Finance it is not exactly coming from an anarchist perspective and takes on sort of a just-the-facts-ma'am perspective, but I enjoyed it nonetheless. It took a similar view that currency arose naturally as a result of the complexity of debt repayment, but not making the military origins of the article. In fact I think the inference the article tries to make is jumping to conclusions based on what little evidence we have from the era and our application of modern credit terms to ancient loans, from the aforementioned book:

These scraps of primitive interest rates are in fact all a part of modern history, not of ancient history or of the prehistory of credit. Inferences from them should be made with caution. They do, however, serve to illustrate the actual operation of primitive credit in kind and in very general terms show the type and magnitude of return the creditor often expected. In most cases per annum rates were not conventional and our translation into modern credit terms is forced. The term was the natural term of the transaction: from seed time to harvest, for example. But since such a seed loan can often be made only once a year, it might have been a matter of indifference to both debtor and creditor whether the term was six months or twelve months

It seems that going into near ancient times, from Sumerian and beyond, interest rates were regulated more on how well a central authority could enforce such regulations (which would follow the assertion that in peaceful times loan sharks less common). The stability of credit itself was actually a long, slow evolution as various terms were agreed upon. Penalty for payment? Penalty for non-payment? Rates of return? Rates at temples reflected such uncertainty the Temple of Arbela charged 25% ~732BC and in 608 BC Suka borrowed 3 mina of silver at an incredible 40% interest. This was not interest rate as we would think of them, but rather penalty for non-payment with non-payment expected, otherwise why would you be borrowing, if that makes any sort of sense. One more thing, since the article seems to address Alexandra the Great's conquest of Persia as a sort of pivotal moment, here's what the book says about that:

The end of the classical period of Greek history and the beginning of the Hellenistic period is usually dated from the conquests of Alexander, circa 325 B.C. These wars had revolutionary economic effects, two of which should be mentioned here. Alexander seized and distributed a vast hoard of Persian gold and silver. Much of it was subsequently coined, and it is said that the money stock of the Mediterranean world was multiplied several-fold in a few years. Prices rose and interest rates declined. Also, the opening of the East and of Africa and the unifying of the known world created a much wider trading area. This vastly increased the demand for, and supply of, goods and expanded trade.

posted by geoff. at 8:34 AM on August 23, 2009 [1 favorite]

...I've been wondering about lately, namely, why do we put up with the payment of interest?
Well...simple interest I can accept. I can't begrudge a lender making a bit of profit for taking a risk on my behalf. Compound and variable-rate interest, though, I have a much, much harder acceptance of. It seems that those two developments, especially when applied in-tandem (as Visa, Mastercard, etc. do), are a good reason why credit has come to be seen as a predatory business.
posted by Thorzdad at 8:35 AM on August 23, 2009 [2 favorites]

If you're up for 5 hours of Margaret Atwood, she's done some CBC Massey Lectures on "Debt and the shadow side of wealth"
posted by anthill at 8:44 AM on August 23, 2009 [1 favorite]

Excellent article. The nation state is slavery - free men rise up!
posted by Meatbomb at 8:48 AM on August 23, 2009

grouse: (nax)"why do we put up with the payment of interest? Credit I get, but how did we come to accept the idea that it's SOP to buy something on credit and pay a non-commodity-related premium, namely interest, that doesn't necessarily go to the seller, but to an unrelated third party?"

Because it's what the market will bear. Sometimes a merchant will want to sell badly enough that they will be willing to add a sweetener to the credit part of the transaction, either reducing interest rates or eliminating them entirely ("0% interest for 12 months!"). But this costs the merchant money, so if they can make the sale without doing so, why wouldn't they?

"What the market will bear." i.e. We're all a bunch of suckers who bear a lot of shit they shove at us unnecessarily...

That is: "Why are you hitting me?" Well, you're not fighting back?
posted by symbioid at 9:00 AM on August 23, 2009 [1 favorite]

>this costs the merchant money

How does selling something to me without interest cost the merchant money? If they are paying interest to someone else, wouldn't simply working that cost into my transaction cover that?
posted by nax at 9:08 AM on August 23, 2009

Since he's looking at ancient origins, probably as good a place to post this as any:

From 7000 to 4000 B.C. there existed an egalitarian society in Anatolia and the Balkan region with gender equality and where wars were unknown. Its high living standard for everyone was only achieved again millenniums later.

In the settlement of Çatalhöyük, up to ten thousand people lived together for more than one thousand years. From the archaeological findings, not only the egalitarian structure of society can be deduced but also insights can be gained into the cultural achievements of a free society.

Emergence and development of an egalitarian society - ancient communism in Turkey. We've had a post about Çatalhöyük before IIRC, but closed to new posts now.
posted by Abiezer at 9:10 AM on August 23, 2009 [6 favorites]

So, per geoff's quote, interest could be seen as a hedge against default? That would make some sort of sense to me.

Sorrty, should have read comments first, then I wouldn't be doubling.
posted by nax at 9:11 AM on August 23, 2009

If we see interest as a way to "mitigate risk" but also take a less predatory approach(HA!) -- what if we did "innocent until proven guilty" No interest to start, but once you fuck up, adjust interest a little bit The more you fuck up, the more interest becomes prohibitive (and reported to a credit rating agency). This then doesn't punish people right off the bat, but then does establish a scheme to help reduce losses through poor money management.

This assumes they're not just rapacious assholes, which, I believe, is the actual case.

I think I read of interest as the idea of wealth generation. That is -- you want a sheep? Well, sheep breed, increasing profit to you through time. What if only productive loans required interest? Of course, that would seem to reward non-productive borrowing, which is of course antithetical to the very foundations of this producer culture.

There are so many alternatives to the current system, it's pathetic how easy it is to let them just pop off the top of your head.

That said, I guess it's time I start to actually READ the article!
posted by symbioid at 9:16 AM on August 23, 2009

How does selling something to me without interest cost the merchant money? If they are paying interest to someone else, wouldn't simply working that cost into my transaction cover that?

They could increase the price for everyone to make up their costs in granting credit, but that would put them at a competitive disadvantage relative to people who would not. Let's say that at Matthew Haughey's Country Flea Market, jessamyn will sell you a widget for $25, and you optionally have six months to pay her back. Cortex won't give you interest-free credit, but he will sell it to you for $20, same as in town. If you have the cash today, who are you going to buy from?

The merchant incurs actual costs in the administration of your credit transaction at the very least, and will have to pay interest if they have to borrow to allow the credit transaction. And of course there is the risk of default, which if you're loaning to enough people, will definitely be a cost. As for the capital, if they happen to be sitting on an enormous pile of cash, they won't have to pay interest but they will incur an opportunity cost of foregoing the interest they could have easily made by loaning the money to someone else.
posted by grouse at 9:20 AM on August 23, 2009

...I've been wondering about lately, namely, why do we put up with the payment of interest?

Because we have central banks (the fed) which have monopoly control over money supply (interest). The solution is to get rid of money entirely. This book The End of Money and the Future of Civilization is well worth reading - it shows the problems with the current system (including the problem of interest as you rightly point out) and an alternative system that is more egalitarian and "open source" so to speak. Sort of what Wikipedia did to knowledge, get rid of the monopoly gatekeepers and open it up to full transparency and egalitarian control. It would eliminate the need for interest.
posted by stbalbach at 9:22 AM on August 23, 2009

the state monopoly on violence

I have seen statements like this many times in anarchist writings, and I wonder, does that imply a preference for a free market of violence with fair violent competition? I guess that does describe what actually happens in places without governments, but it doesn't describe what anarchist say should happen in the right kind of absence of government.
posted by idiopath at 9:24 AM on August 23, 2009 [2 favorites]

Because we have central banks (the fed) which have monopoly control over money supply (interest).

Whoa, no. We've had interest rates before we had currency, civilizations or anything resembling a bank. In fact, historically, interest rates have been lower when citizens have access to credit though means other than loan sharks and through strong central institutions. Even the temples of Greece had lower rates than personal loans. Secured debt is cheaper still and with a strong judicial system, secured debt loans become basically free if the security is strong.

Credit was in general use in ancient and in medieval times. Credit long antedated industry, banking, and even coinage; it probably antedated primitive forms of money. Loans at interest may be said to have begun when the Neolithic farmer made a loan of seed to a cousin and expected more back at harvest time. Be this as it may, we know that the recorded legal history of several great civilizations started with elaborate regulation of credit.
For example, about 1800 B.C., Hammurabi, a king of the first dynasty of ancient Babylonia, gave his people their earliest known formal code of laws. A number of the chief provisions of this code regulated the relation of debtor to creditor. The maximum rate of interest was set at 33 1⁄3% per annum for loans of grain, repayable in kind, and at 20% per annum for loans of silver by weight. All loans had to be accompanied by written contracts witnessed before officials. If a higher than legal interest rate was collected by subterfuge, the principal of the debt was canceled. Land and movables could be pledged for debt, as could the person of the creditor, his wife, concubine, children, or slaves. Personal slavery for debt, however, was limited to three years.

posted by geoff. at 9:37 AM on August 23, 2009

Eurozine is consistently excellent. If you're looking for viewpoints on Europe and society outside the halls of Paris, London, and Brussels, there are few better places to look.
posted by mdonley at 9:39 AM on August 23, 2009

To put the matter somewhat crudely: if one relegates a certain social space simply to the selfish acquisition of material things, it is almost inevitable that soon someone else will come to set aside another domain in which to preach that, from the perspective of ultimate values, material things are unimportant, and selfishness – or even the self – illusory.

[sigh]
posted by Brian B. at 10:05 AM on August 23, 2009

It's funny how we draw lines in the sand and use hypothetical constructs and then chains ourselves to it as if they were natural laws. Debts and economic recessions/depressions are a prime example of this -- when you think about it, neither should exist in a world of 6 billion people -- we don't need to eat? We don't need clothes, shelter, tools, antidotes, solutions? We talk ourselves into these messes, but we have a harder time collectively talking ourselves *out* of them. There is always a demand for things -- but we allow other people to trip us and stand in our way with rules that have no evidence of being productive or effective. Commerce is ruled by unproven folksy logic -- and then we wonder why people choke in debt and the world is terrorized into thinking there is a recession -- there is no recession -- we just have people standing in the way of progress because they think they know what's best...
posted by Alexandra Kitty at 10:08 AM on August 23, 2009 [1 favorite]

haven't even finished it yet, but wanted to interrupt myself to say thanks for this...really solid read and oodles of interesting insights.

Great post!
posted by Lutoslawski at 10:13 AM on August 23, 2009

...why do we put up with the payment of interest?

Credit allows for time-shifting the availability of money. Interest is the price you pay for that time shifting. You're basically renting someone else's money so you can do something with it now that you wouldn't have been able to do if you didn't have that sum of money up front. Maybe that's buying something that you want to have and use now rather than waiting until you've saved up the money. Or maybe, as described above, you're using the money to do something productive - you have a way to use the money to create more money, which will be sufficient to pay the interest. Either way, there's no particular reason for someone to hand you their money now and give up the use of it themselves unless they're getting something in return.

Sorry, feel like I'm contributing to a bit of a derail here - will read the full article with interest. (oops, pun)
posted by yarrow at 10:30 AM on August 23, 2009 [3 favorites]

"Alexandra the Great's conquest of Persia..." now that's the start of an awesome alternative history.
posted by geos at 10:34 AM on August 23, 2009 [1 favorite]

You're paying the lender for the lost opportunity cost. If the money was not lent to you it could be placed into productive use, like buying grain and growing crops, or whatever hypo you want to use. Your hypo that credit does not cost anything to the lender ignores the fact that the funds could be placed in alternate use rather than sitting quietly somewhere.
posted by miss tea at 10:34 AM on August 23, 2009 [1 favorite]

I'm not really following the violence argument in this article - the general thesis being that there are periods in history which are characterized by more violence and more reliance on commodity money and periods that are characterized by less violence and therefore more trust and the institutional support required for greater use of credit. I guess I see the logical tie between the concepts, I'm not sure what kind of evidence I'd need to buy that either facet was "dominant" in any given historical period.

In any case, either either type of "money" requires trust - for commodity money (which he's using to mean things like gold or silver), you have to trust that others will continue to value the commodity you have stockpiled, since it really is just a collective agreement that gives those things value. For credit obligations you have a more directed personal form of trust between the debtor and the creditor, but these have to exist within a set of institutional supports that allow for such trust. If the argument is that such trust exists only in the relative absence of violence... not sure I'm buying that. Or understanding it.
posted by yarrow at 10:59 AM on August 23, 2009 [1 favorite]

thinking about debt outside the twin intellectual straitjackets of state and market opens up exciting possibilities. For instance, we can ask: in a society in which that foundation of violence had finally been yanked away, what exactly would free men and women owe each other? What sort of promises and commitments should they make to each other?

money as credit, or social debt, is interesting to me, but i like to think of it more properly conceived as social memory (or information systems wrt trust and reputation), which, like graeber sez, means it doesn't have to be this way -- that we cycle continually thru specie and credit as forms of money, while historically and politically (behaviourally?) contingent perhaps, may ultimately be a failure of the (collective) imagination -- and, that understood, opens up the possibility for alternatives (principally, when the economic problem revolves around either scarcity or surplus...), e.g. transfers.

also btw, re: political dimensions (coercion), i think there too a new chapter [review] is being written :P

cheers!
posted by kliuless at 11:12 AM on August 23, 2009 [1 favorite]

I have seen statements like this many times in anarchist writings, and I wonder, does that imply a preference for a free market of violence with fair violent competition? I guess that does describe what actually happens in places without governments, but it doesn't describe what anarchist say should happen in the right kind of absence of government.
In one sense you could say answering this question has been at the core of of the social anarchist (as opposed to individualist) tradition and was one of the things that distinguished them from the statist communists ended up attempting to usher in utopia by engineering violent revolutionary coups. Certainly there's reams of theory on the topic if you are interested - to name just one example, I particularly like the work of the libertarian communist Maurice Brinton (pen name of Chris Pallis who was also a noted neurologist); his writing is a clear as his thinking and he addresses the issue, if not directly in the terms you've framed it then certainly to my mind in his discussion of self-management.
posted by Abiezer at 11:14 AM on August 23, 2009 [1 favorite]

...why do we put up with the payment of interest?

Interest was banned in Christianity and Islam, and Jews could not charge it to each other. The post-slavery question is, what is allowed to be used for collateral? Homes? Human organs? I think that the concept of inalienable human rights is a very powerful stabilizer for allowing things like interest to take place, in order to fill the economic demand for well-placed loans to innovators and service competitors. However, it is politically dangerous because human rights also reduce the need for corrupt but preachy social institutions such as religion, which exist to ideologically maintain submissive obedience to traditional abusive power (and not just to any one person, which helped to make it a constant in human history). In other words, human rights are dangerous because the logical basis of these stabilizing non-transferable rights is the concept of equality itself, which strike most people, in one way or another, as heretical to their childhood notion of an absolute moral authority.
posted by Brian B. at 11:32 AM on August 23, 2009

I can't begrudge a lender making a bit of profit for taking a risk on my behalf.

It's not just about risk. Even if there were zero risk in lending you money, a lender would still want to be paid for the time value of that money, because to lend you money the lender has to forgo the opportunity to use that money for other things.

Compound and variable-rate interest, though, I have a much, much harder acceptance of.

Compound interest is just math. (Or is that a defense here? A couple recent threads proved that game theorists will be first against the wall when the Metafilter revolution comes...)

Suppose I assess the opportunity cost of my money and the risk of your borrowing such that I don't want to loan you $1000 for a year without receiving $100 in return. Then by the same token I probably don't want to loan you $500 for a year without receiving $50 in return, or loan you $1100.00 for a year without receiving $110.00 in return.

But if $100 is what it's worth to me to loan you $1000 for a year, and if $110.00 is what it's worth for me to loan you $1100 for a year, what should it be worth to me to loan you $1000 for two years? The answer is just arithmetic: I loan you $1000 for a year, you pay me $1000+$100, then I loan you $1100 for the second year, and you pay me $1100+$110. Compound interest just skips the part where you scrounge up $1100 to hand to me in the middle of the loan so that I can hand it right back.

Variable rate interest refers to a few different concepts, is trickier to explain, and the explanation of why it's sometimes sensible would be derailed by the explanation of political and market failures that make it more common than is sensible. If your difficulty accepting it has steered you away from non-fixed-rate loans, though, congrats; a lot of Americans now wish they had your instincts.
posted by roystgnr at 12:36 PM on August 23, 2009 [2 favorites]

Also in PDF from : Mute.
posted by RoseyD at 1:32 PM on August 23, 2009

Credit I get, but how did we come to accept the idea that it's SOP to buy something on credit and pay a non-commodity-related premium, namely interest, that doesn't necessarily go to the seller, but to an unrelated third party? Why not just pay the buyer, over time, without credit?

1. The merchant needs the money now. They generally don't have a big pool of cash sitting around, and they have a lot of regular costs that they need to pay. Payroll is the most important, but they also have things like rent, utilities, and buying an item from their supplier to replace the one you just bought. When your purchase is financed through a bank, the merchant gets the money right away and can meet their obligations.

2. Many small business owners already wear too many hats. They have to manage people, logistics, marketing, accounting, etc. By going through a bank for your loan, they are essentially outsourcing the job of evaluating your creditworthiness and making sure you pay to an expert. They're also kind of insuring the transaction by making the bank take the risk. If the merchant extends you credit and you default, they take a loss. If a bank extends you credit and you default, the bank takes the loss and the merchant still gets paid.
posted by TungstenChef at 2:17 PM on August 23, 2009

I love it when authors are able to take a subject that would normally confuse me (economics) and turn it into something utterly fascinating. Great find!
posted by Marisa Stole the Precious Thing at 2:32 PM on August 23, 2009

why do we put up with the payment of interest? Credit I get, but how did we come to accept the idea that it's SOP to buy something on credit and pay a non-commodity-related premium, namely interest, that doesn't necessarily go to the seller, but to an unrelated third party? Why not just pay the buyer, over time, without credit?

Because, if I am a seller, it is my job to sell things, not lend money to people. Now, if I open a business that sells things, I could start extending credit to my customers to make it easier for them to buy my things, but I'd just as soon have my customers find someone else to lend them money to buy my things rather than doing it myself, which distracts me from my core business (selling things). Extending credit means that I have to deal with a whole other set of functions, like evaluating credit-worthiness, documenting open credit accounts, and creating mechanisms of dealing with those who fail to pay and possibly repossessing the goods. If I were really good at all of that, I would have opened a bank, rather than a store to sell things.
posted by deanc at 3:46 PM on August 23, 2009

Thanks all who answered my question, and for taking it so seriously, apologies to languagehat for getting his thread started off on a total derail, and thanks mods for letting me do it.

Only got partway through the article (who was I kidding thinking I could slip it in at work) and right off the bat, the fairly mind-blowing idea that debt was invented

"to produce what we like to call the market: an arena where anything can be bought and sold, because all objects are disembedded from their former social relations and exist only in relation to money.

As someone who's worked in the arts my whole life, this is a concept I struggle with daily-- the struggle between the soul's need for art and society's desire to commoditize everything.
posted by nax at 4:03 PM on August 23, 2009 [1 favorite]

society's desire to commoditize everything

Debt is not an instrument to "commoditize" anything. Society still plays an instrumental role in valuation, which has nothing to do with debt. Money and price are simply the lowest common denominator in the quest for value, and valuation. The fact that art is given a dollar value is simply a function of trying to exchange that good for other goods (food and shelter, for instance). The price put on art (low or high) has no relation to the theory of money or debt. That process of valuation is based on the set of societal constructs at any given time, and is subject to change based on society's whims.
posted by SeizeTheDay at 4:40 PM on August 23, 2009

> apologies to languagehat for getting his thread started off on a total derail

Are you kidding? There are derails and there are derails, and this was a terrific derail, especially compared to some we've seen around here lately. You asked an interesting question on a related topic and got great answers. Would that every thread had derails like that!

Glad people are enjoying the piece; I really think Graeber is one of the unheralded thinkers of our day. I hope he winds up getting the kind of attention someone like Amartya Sen does. (Just because I'm languagehat and this is how I geek out: Amartya Sen is pronounced AW-mortto SHAYN, more or less, in Bengali.)
posted by languagehat at 5:04 PM on August 23, 2009

"to produce what we like to call the market: an arena where anything can be bought and sold, because all objects are disembedded from their former social relations and exist only in relation to money.

As someone who's worked in the arts my whole life, this is a concept I struggle with daily-- the struggle between the soul's need for art and society's desire to commoditize everything.

That was actually the weakest part of the essay. It wasn't that the "social relations" of objects are disembedded and exist "only in relation to money." It's that the laws surrounding the recovery of debts hadn't yet defined a "maximum limit" (what we know as bankruptcy) that would prevent the borrower in default from becoming property of the lender.

Money and prices are simply ways of managing scarcity. I don't have an infinite amount of time. We don't have an infinite amount of raw materials. There isn't an infinite amount of food. The soul might have a desire for art, but the body has a desire for food and clothes. You can take some cloth and make it into clothes, or you can make it into a nice tapestry to hang on your wall. You might really want that tapestry on your wall, but so does everyone else, and the tapestry-maker only has a limited amount of time on his hands to make them and likely wants clothes, food, and a car that doesn't constantly break down for himself, so how do we manage the finite number of artistic items that exist and divide them up between people who want them? We allow people to determine how much they really want one item as opposed to others by putting a price on them. Since people generally have different personal values for different items, the priority someone is going to put on owning (or creating) a certain item is going to be different than someone else's, and market prices put a number on the priority individuals have for certain items.

The other things about debt is that I think in this era of consumer debt and credit cards we forget that debt was originally for: a means of getting the capital for businesses that provide money, which you can use to pay off the debt. If someone is selling a restaurant for $1 million that makes $100,000/yr in profit, that's great for you if you have $1 million lying around. If you don't, however, you can borrow $1 million from the bank at 5% interest, buy the restaurant, and give $60,000/yr of the profits to the bank until it's paid off. The restaurant owner could simply sell the restaurant on the installment plan to a new owner, but the original owner probably just wants all the money right away. The bank might consider getting a 10% return on its investment by buying the restaurant itself, rather than a 5% return from lending out the money, but the bank would rather lend money than get into the restaurant business (that's why they chose to be bankers instead of restauranteurs). It doesn't have to be a restaurant, of course, it could be anything: a farm that produces food which is sold, or a machine that takes milk, sugar, and ice and creates ice cream. If you have $1 million lying around, your choice is going to be either to buy one of those value-creating items or lending the money out to someone else to buy one of those things.

What was interesting about the essay was that it makes an argument that, counter to modern concepts about money, gold and silver aren't "real money"-- they were only a medium of exchange under certain circumstances at certain times. The idea of money as a metaphor for exchange is actually the earlier concept and the "gold standard" the more recent one.
posted by deanc at 5:29 PM on August 23, 2009 [2 favorites]

It strikes me as worrisome that all the art and anthro majors in this thread are going, "wow, what a fascinating and insightful article," and all the good-with-numbers people are going "Meh. Yeah I thought that bit was pretty flawed..."
posted by Diablevert at 10:04 PM on August 23, 2009 [2 favorites]

Yep, when are these mathematicians going to realise that's the least significant aspect of economics? :p
posted by Abiezer at 11:20 PM on August 23, 2009

I'm a dilettante when it comes to macroeconomics, but I think the original post is way too general in its claim that physical coinage is correlated with exploitation.

I may be a bit jaded because I've read too many possibly wackjob attempts at correlating ancient and modern history with a single principle. (It's interesting to see where the dates given in the previous link and the original post overlap, though.)

Anyway, the original post gives 1971 as the end of a long era where precious metals ruled. But the U.S. (and most other countries) went off the gold standard in the early 1930s. So in practical terms, most people weren't "gold slaves" in 1971 or for decades before then, and it's not clear to me why 1971 is an important turning point in any way.

I guess my biggest problem with the article is that it tries to correlate coinage with exploitation, but I'm not seeing that correlation. Slavery existed in most of Europe (and all over Islamic countries) between 600 and 1500 AD, when the claim in the article is that the credit-based societies in place during that time were somehow more advanced socially.

I think it would be worthwhile to settle on terms that correspond to things we think it's good that humanity has achieved, and then figure out what things, historically, have correlated with those terms. One such attempt at this is William Bernstein's excellent Birth of Plenty, which mostly tries to correlate economic growth with a few specific causes, but also discusses what seems to make us happy in general. For a lot of people, having more money increases their happiness, but it's certainly not the only thing that affects our well-being, and that's clear from many surveys that have been done in many countries.

Anyway, maybe the article is describing some well-defined features of a better society that we should be progressing towards, but it isn't doing so in a clear enough way for me to understand. I'd love to know what I'm missing.
posted by A dead Quaker at 12:49 AM on August 24, 2009 [3 favorites]

This looks great.q
posted by fantabulous timewaster at 9:11 AM on August 24, 2009

http://www.youtube.com/watch?v=cUou51iI4vw


Money As Debt II: Promises Unleashed
posted by rough ashlar at 11:00 AM on August 24, 2009

to me, thinking about it some more, central banks (and central banking) in general look to be in self-preservation mode; they're having to rethink the very concept of money and debt/credit creation and its relationship to growth/output (and how it's measured/priced), i.e. they have no idea (perhaps an inkling they might know much less than they thought) and that getting back to the way it was might not be such a great idea if the only thing left to inflate is your currency, so that leaves the ugly business of governing (and government), who to placate, and figuring out again the best way to bridge the uneasy relationship between power and production.
posted by kliuless at 6:54 AM on September 19, 2009