Friday, 16 September 2011

Graeber on Debt (2011)

Not a review of economist/anthropologist Graeber's Debt: the First 5000 Years, with the utility orange cover there, which I have yet to read (though it looks very interesting indeed); but a reaction to a couple of online piece and interviews with Graeber covering some of the same ground, here on the origin of money, and here at the New Left Project (in two parts) on debt, promises and freedom. I enjoyed reading these very much, so much so that I'm going to quote some chunks by way of encouraging you to read and buy Graeber's book. Then I'm going to speculate in a freeform sfnal manner, as is my wont. But first:
NLP: In a recent column criticising right-wing Republicans for being cavalier about possibility of default, David Brooks made the following comment:
“The members of this movement [i.e. Tea Party Republicans] have no sense of moral decency. A nation makes a sacred pledge to pay the money back when it borrows money. But the members of this movement talk blandly of default and are willing to stain their nation’s honor.”
This intertwining of the language of debt with that of morality is a main theme of your book. Could you talk a bit about its history?

DG: The idea that ‘honour’ and ‘credit’ are the same thing occurs in situations in which people are trading with each other directly. If there is some kind of market, and debts are denominated in money, but you can’t haul someone off to jail or break their legs if they don’t meet their obligations, then to operate successfully as a business your honour is your greatest resource. In medieval Arabic law - Sharia law – credit was capital: your personal honour was a form of capital, and was legally recognised as such. So Brooks’s comments aren’t as crazy as all that, because states actually can’t force each other to pay.

But there is an irony in thinking of a promise made by a state to pay a debt as something absolutely sacred. After all, a debt is just a promise, and politicians make all sorts of different promises. They break most of them. So why are these promises the only ones that they can’t break? It is considered completely normal for someone like Nick Clegg to say, ‘well of course we promised not to raise school fees. But that’s unrealistic.’ ‘Unrealistic’ here means ‘obviously there’s no possibility of breaking my promises to bankers, even those linked to banks we bailed out and in some cases effectively own’. It’s striking that no-one ever points that out. Why is a promise made by a politician to the people who elected him considered made to be broken – it isn’t “sacred” in any way – whereas a promise the same politician makes to a financier is considered the “honour of our nation”? Why isn’t the “honour of our nation” in any way entailed in keeping our promises to people to provide healthcare and education? And why does everyone just seem to accept that, that this is just “reality”?

NLP: And why do you think that is?

DG: Because the latter promises are not typically framed in the language of ‘debt’. The language of debt is not an economic one; it’s a language of morality. It has been used for thousands of years by people in situations of vast inequalities of power. If you have a situation of complete inequality, particularly violent inequality – if you’ve conquered someone, or if you’re a mafioso extracting protection money – then framing the relationship in terms of debt makes it seem as though the extractors are magnanimous and the victims are to blame. “Well, you owe me, but I’ll be a nice guy and let you off the hook this month…” Before long the victims come to seem almost generically morally at fault by the very terms of their existence. And that logic sticks in people’s minds – it’s incredibly effective. Not universally effective, because it’s also true that the vast majority of revolts, insurrections, populist conspiracies and rebellions in world history have been about debts. When it backfires, it blows up in a big way. But nonetheless, that’s what people almost invariably do when they’re imposing a situation of complete inequality.

The irony of course is that when dealing with each other, rich and powerful people know that debts aren’t “sacred”, and they rearrange things all the time. They are often incredibly forgiving and generous when dealing with each other. The idea of the sacredness of debt is chiefly applied when we are talking about different sorts of people. Just as rich people will come to the aid of other rich people, so poor people also will bail each other out – they’ll make ‘loans’ that are really gifts, and so on. But when you’re dealing with debts owed by people without power to people with power, suddenly the debt becomes sacred and you can’t even question it.
So far, so right on, and hard to argue with. A couple more things. He goes on to talk about the difference between predominantly credit economies, where trust and reputation (or 'credit rating') are centrally important, to predominantly cash or bullion economies, where it they are much less vital:
DG: Credit-based systems are more like human economies, although they don’t go all the way.

NLP:  Because credit is not completely impersonal in the way that cash transactions can be?

DG: Yes, it relies on personal trust, but it’s also quantified and transferable, which makes it a debt rather than a simple moral obligation. This is where you get symptoms like those I have described – for example, in medieval Islam one’s honour is a form of capital; one’s reputation for being a decent person, for being trustworthy, becomes key. As Pierre Bourdieu said of contemporary Algeria, honour is superior to money because you can convert your honour into money, but you can’t convert your money into honour. I thought this was a brilliant discovery– that honour is a form of capital – until I discovered that in traditional Islamic law it is literally true: honour is legally recognised as a form of capital. That sort of system is similar to the kind of thing that prevailed in medieval Europe. In England, for example, you find expressions like “a worthy man” or “a man of no account”, which refer both to one’s personal reputation for decency and to one’s credit-worthiness. The two essentially could not be distinguished.

The interesting thing this brings out, I think, is that while markets emerge as a side-effect of military operations, in certain times and places in history they become something different. They become something which is neither dependent upon nor a side-effect of state actions, but instead become opposed to the state. The first time I’m aware of this happening is in medieval Islam, but you also see it in Ming China and there are traces of it in renaissance England. It is a kind of market populism that tends to occur when controls are instituted to ensure that credit systems don’t go crazy. So in medieval Islam, for example, there was a ban on usury. But that ban was not enforced by the state— people appealed to religious law to settle commercial disputes and contracts, but the state couldn’t haul someone off to jail for violating them. Abusive practices like usury and debt peonage had been typical of the Middle East for thousands of years, and were essentially made illegal under Islam. That’s one of the reasons why many people were so willing to convert – it was really through the judicial system that it all happened.

The way I put it is that the mercantile classes basically switched sides. Throughout most of Middle Eastern history they were allied with the government – they were the money-lenders, they were the people that others fell into debt traps with and became debt peons because of interest bearing loans. And essentially they said, ‘OK, OK, we’ll become the good guys. We will stop charging interest, we will outlaw slavery and debt peonage, and the government are the bad guys now, we won’t even talk to them, we’ll just work this stuff out among ourselves.’
And Graber has very interesting things to say about the origins of money. In a nutshell he repudiates the Classical Economics 101 model: first everybody bartered according to a mutually agreed scale ('one pig is worth six chickens' and so on); then the scale became formalised via tokens we call money. Not so, says Graeber.
The persistence of the barter myth is curious. It originally goes back to Adam Smith. Other elements of Smith’s argument have long since been abandoned by mainstream economists—the labor theory of value being only the most famous example. Why in this one case are there so many desperately trying to concoct imaginary times and places where something like this must have happened, despite the overwhelming evidence that it did not?

It seems to me because it goes back precisely to this notion of rationality that Adam Smith too embraced: that human beings are rational, calculating exchangers seeking material advantage, and that therefore it is possible to construct a scientific field that studies such behavior. The problem is that the real world seems to contradict this assumption at every turn. Thus we find that in actual villages, rather than thinking only about getting the best deal in swapping one material good for another with their neighbors, people are much more interested in who they love, who they hate, who they want to bail out of difficulties, who they want to embarrass and humiliate, etc.—not to mention the need to head off feuds.  Even when strangers met and barter did ensue, people often had a lot more on their minds than getting the largest possible number of arrowheads in exchange for the smallest number of shells.
I think this is brilliantly put; and Graeber goes on to give 'a couple examples from the book, of actual, documented cases of "primitive barter"', including this jolly-sounding set-up:
The Gunwinngu of West Arnhem land in Australia, famous for entertaining neighbors in rituals of ceremonial barter called the dzamalag. Here the threat of actual violence seems much more distant. The region is also united by both a complex marriage system and local specialization, each group producing their own trade product that they barter with the others.

In the 1940s, an anthropologist, Ronald Berndt, described one dzamalag ritual, where one group in possession of imported cloth swapped their wares with another, noted for the manufacture of serrated spears. Here too it begins as strangers, after initial negotiations, are invited to the hosts’ camp, and the men begin singing and dancing, in this case accompanied by a didjeridu. Women from the hosts’ side then come, pick out one of the men, give him a piece of cloth, and then start punching him and pulling off his clothes, finally dragging him off to the surrounding bush to have sex, while he feigns reluctance, whereon the man gives her a small gift of beads or tobacco. Gradually, all the women select partners, their husbands urging them on, whereupon the women from the other side start the process in reverse, re-obtaining many of the beads and tobacco obtained by their own husbands. The entire ceremony culminates as the visitors’ men-folk perform a coordinated dance, pretending to threaten their hosts with the spears, but finally, instead, handing the spears over to the hosts’ womenfolk, declaring: “We do not need to spear you, since we already have!” In other words, the Gunwinngu manage to take all the most thrilling elements in the Nambikwara encounters—the threat of violence, the opportunity for sexual intrigue—and turn it into an entertaining game (one that, the ethnographer remarks, is considered enormous fun for everyone involved). In such a situation, one would have to assume obtaining the optimal cloth-for-spears ratio is the last thing on most participants’ minds.
Here's Graeber's point, nutshelled for us:
Economists always ask us to ‘imagine’ how things must have worked before the advent of money. What such examples bring home more than anything else is just how limited their imaginations really are. When one is dealing with a world unfamiliar with money and markets, even on those rare occasions when strangers did meet explicitly in order to exchange goods, they are rarely thinking exclusively about the value of the goods. This not only demonstrates that the Homo Oeconomicus which lies at the basis of all the theorems and equations that purports to render economics a science, is not only an almost impossibly boring person—basically, a monomaniacal sociopath who can wander through an orgy thinking only about marginal rates of return—but that what economists are basically doing in telling the myth of barter, is taking a kind of behavior that is only really possible after the invention of money and markets and then projecting it backwards as the purported reason for the invention of money and markets themselves. Logically, this makes about as much sense as saying that the game of chess was invented to allow people to fulfill a pre-existing desire to checkmate their opponent’s king.
Ha! Take that, Homo Oeconomicus!

And now (briefly), thoughts. Graber's assertion that 'in actual villages, rather than thinking only about getting the best deal in swapping one material good for another with their neighbors, people are much more interested in who they love, who they hate, who they want to bail out of difficulties, who they want to embarrass and humiliate, etc.—' seems to me patently and obvious true. But perhaps the danger with the study of origins is that in situating oneself pre-historically, in order to prove wrongheadedness in other economists, one runs the risk of colouring one's grasp of the current state of affairs with retrospective tints. Which is to say: we no longer live in a village. The Adam Smith model, although it started out as putatively descriptive (and howsoever wrong that description was) has become something else: prescriptive, or more than that, normative.

Here's the SF thought: in the future, market trading and other aspects of economical and financial interaction will be increasingly undertaken by clever machines, guided by ingenious and complex algorithms as to when it is best to buy and when to sell, how to get the maximum modern equivalents-to-arrowheads for the minimum modern equivalents-to-shells. We may not act this way 'in real life', but we have invented a chessgame market where following these rules maximises our results. And our machines will be precisely the Homi Oeconomici Graeber so wittily skewers; they will indeed wander through our metaphorical orgies thinking only about marginal rates of return, not because they are monomaniacal sociopaths but because they are machines. It seems to me we're halfway to this state of affairs already; and the closer we approach it the more (paradoxically, perhaps) we will need Austrian or Smithian economics: not because it is right, but because with unconscious prescience Adam Smith envisaged a market populated by clever AIs rather than actual people. The invisible hand is invisible because it is virtual, not actual.

1 comment:

nnyhav said...

Corporations (legal persons) are already there, even though their procedures are imperfectly executed by people; governed by U.S. Code, enforcement of contracts sanctifies debt (loans algorithmic: receive principal, do loop pay interest, return principal [exception handling also specified]) ...

The SF follow-through becomes interesting with choice of algorithm becoming Rawlsian lotto ticket for drawing on prisoner's dilemma.