Debt: The First 5,000 Years

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“What is a “debt”, anyway? A debt is just a perversion of a promise. It is a promise corrupted by both math and violence.”

—David Graeber

The behavioural economist Uri Gneezy once ran a famous experiment on incentives at a chain of day care centres in Haifa. In order to incentivise parents to be on time to pick up their kids they introduced a small but meaningful “late fee” in some of the centres, for parents who were more than ten minutes late. Rather than this cutting reducing late pick-ups, average delinquency in those centres with the fine doubled. The fixed penalty put a value on the inconvenience: it converted a moral obligation into a financial one, and in doing so something meaningful was lost.

That something is the motivating force behind this highly entertaining, learned, and stimulating book. David Graeber’s history —and there’s plenty of history, right back to the myth — yes, myth — of the foundation of money in barter — poses this central question: what happens when we reduce our sense of morality and justice to the language of a business deal?

“What,” Graeber asks in the first chapter, “does it mean when we reduce moral obligations to debts?”

Now we denizens of the financial services industry should understand that David Graeber did not come at this question from what we would call a conventional place. He was an anthropologist, not an economist or a historian, and of the anarchist left: he was instrumental in establishing the Occupy Wall Street movement. But it would be a grave mistake to write off his book as a Marxist screed. There is so much of value here: in challenging conventional, lazy and simplistic ways we have at looking at the world. It is well reseatached and thoughtfully argued. Graeber perfectly understood the conventional wisdom. It is just that he was ... what’s the word? — oh that’s it: a contrarian.

The best thing to do is just pick out some challenging points.

Everyday communism

Playfully, Graeber introduces the notion of “everyday communism” — he could, less provocatively, have called it “communalism”, but where’s the fun in that — as an alternative to an economic life of sterile, impersonal, perfectly quantified transactions. By this he did not mean Bolshevism, but something more prosaic: our general disposition help each other out without question where the relative personal cost is not great. This stance: to be a good egg — to co-operate and not defect — is deeper and more critical to interpersonal relationships than are the outcomes of economic transactions which, rather, depend on that basic layer of probity. “If someone fixing a broken water pipe says, ‘Hand me the wrench,’ his co-worker will not, generally speaking, say, “And what do I get for it?’”

Yet monetarist orthodoxy cannot see it, and therefore treats it as imaginary.

Graeber would say, with justification, that his was not the radical view here. The idea that we can atomise these vital, ineffable social interrelationships — James C. Scott might have called them “illegible” — to a binary pattern of quantifiable economic transactions is pretty absurd. But that — “there’s no such thing as society” — has been orthodoxy in our lifetimes.

The distinction between a debt — quantifiable obligation to pay a sum of money on a certain date; which in its fungibility and transferability is an impersonal thing — and a personal obligation in the wider sense (rather similar to the one yours truly draws between a liability and an obligation) us profound, and we lose something important when we ignore it.

This, it seems to me, goes deep. It resonates strongly with observations by a diverse range of impressive writers – James Scott, Jane Jacobs, Rory Sutherland, W. Edwards Deming Nassim Taleb — that far from being indicators of of weakness qvulnerability, looseness, slack and redundancy are in fact vital to the durability and flexibility of any enterprise.

Graeber’s point: there should always be something left on the table. It builds trust, it strengthens ties, it reinforces the sense of relationship and personal obligation. The reductionist yen to convert all of this to to a ledger of account — to comprehensively monetise it — is folly. You literally cannot put a value on “doing the right thing”. The economic equivalent — “discharging one’s obligations” is to do the bare minimum. It is is a ”“cheapest to deliver” option. when the bare minimum fully discharges your contract jewel obligation, your relationship is is moot. As we have observed many times in these pages, the potential forward value of a business relationship necessarily exceeds the present value of any transaction.

Of course, the smartest firms perfectly realise this; only, over their accountants’ objections, whose ledger does not.

But the point goes even deeper than that, for we cannot, even if we want to, fully articulate the financial value, or risk, of our commercial situation, imperfect as our information is, and shifting as the dynamics of the landscape necessarily are.

Exchange and cancellation of debts

An ongoing relationship implies a complicated web of reciprocal obligations (in the wider sense): these are not an imposition of a cost to the relationship, but its fuel: in a sense a relationship is a preparedness to grant, and accept, indulgences over time. That one is “obliged” is a good thing: literally, to be in a relationship is to be bound to one another. Thus, to exactly reconcile one’s outstanding obligation to another exactly — to leave nothing on the table — is to indicate that one wants the relationship to end: one wants the freedom to leave.

“Cancel student loan debt? But that would be unfair to all those people who struggled for years to pay back their student loans.” Let me assure the reader as someone who struggled for years to pay back his student loans and finally did so, this argument makes about as much sense as saying it would be unfair to a mugging victim not to mug their neighbours too.

The question now is how to ratchet things down a bit: to configure society so that people can live a bit more by working less.