Before Money: The Debt

An account pressed into mud

In the mud-brick cities of southern Mesopotamia, more than four thousand years ago, a temple official would take a lump of damp clay between his fingers, flatten it against his palm and, with the cut end of a reed, press into it a sequence of cuneiform signs. He was not writing a poem or a prayer. He was recording a debt: so much barley delivered to such a person, to be returned after the harvest, with an agreed surplus. Then he would let the tablet dry in the sun, or bake it if the obligation mattered, and store it in an archive alongside hundreds of others. Once the debtor had paid, the tablet would be destroyed, or cancelled with a stroke; so long as it remained intact, it was the proof of an obligation, something suspended between two people like a taut rope.

It is worth pausing on this scene, for it contains, in miniature, a thesis that overturns the usual way of telling the origin of money. The oldest economic documents humanity has left us are not receipts of sale, slips recording exchanges settled on the spot. They are records of credit: promises of future delivery, loans, advances, arrears. Writing itself, according to a reconstruction now widely shared, was born to keep these accounts — the administration of temples and palaces needed to remember who owed what to whom, and the memory of a single man no longer sufficed [Goetzmann 2016]. Before poems, before laws, man set down his debts in writing. If that is so, then money — understood as the way we keep account of what is worth something and what is owed — is far older than any coin, and has little to do with the discs of metal we are accustomed to picture when we think of its origins.

This chapter tells the story of that world: the economy of debt that preceded the invention of coined money by millennia. It is a story that first requires dismantling a stubborn fable, that of barter, and replacing it with something less intuitive but far better documented. And it is also, from these opening pages, the occasion to pose the question that will run through the whole book like an underground vein: what, in the end, is money? A particularly convenient commodity, or the record of a promise? The answer one gives to this question is no detail for specialists: it shapes the way one looks at everything that comes after, all the way down to the central banks and digital currencies of our own day.

The fable of barter

For more than two centuries, nearly every economics textbook has begun the story of money in the same way. Once upon a time, it is said, there was a world without money, in which men obtained what they did not produce by exchanging it directly: the shoemaker gave shoes to the baker for bread, the baker gave bread to the farmer for grain, and so on. This system, the story continues, was terribly inefficient, because it demanded what economists call the double coincidence of wants: for an exchange to take place, I had to have exactly what you wanted and you had to have exactly what I wanted, at the same moment. Finding such a fit was rare and laborious. And so, to escape this impasse, men are supposed to have agreed by degrees to use an intermediate commodity — cattle, salt, shells, finally precious metal — that everyone gladly accepted because everyone knew they could re-exchange it. That intermediate commodity would become money, and money would have been born in this way, as the spontaneous lubricant of exchange.

This is the story Adam Smith placed, in 1776, at the opening of The Wealth of Nations, and which passed from him, almost unchanged, into generations of treatises. It has all the merits of a good explanation: it is simple, logical, it makes money appear as a rational solution to a concrete problem, and it invokes neither the state nor any authority, since money arises here from below, from the initiative of merchants pursuing their own advantage. For anyone who wishes to see in the market a natural order, prior to political institutions, this fable of origins is almost perfect. It is no surprise that it has had such a long career.

There is just one problem, and it is no small one: no one has ever managed to find that world. When anthropologists, in the nineteenth and twentieth centuries, went to study societies without money — village communities, tribal economies, worlds money had not yet reached — they observed nothing resembling the barter of the textbook, the permanent scramble of individuals exchanging objects in immediate settlement and seeking the double coincidence of wants [Graeber 2011]. Barter, where it existed at all, was a marginal and occasional phenomenon, reserved for the most part for exchanges with strangers or enemies — with people, that is, with whom one had no lasting relationship. Within the community, among people who knew one another and would go on dealing with one another, a completely different mechanism was at work. And that mechanism was debt.

It is worth asking why a reconstruction so poorly grounded in fact has enjoyed such enduring fortune, surviving intact through generations of discoveries that contradicted it. The reason, in part, is its logical elegance: the fable of barter is not a historical account but a deduction, an argument about how things must have gone if one begins from the premise that men are, first of all, individuals who truck, barter and exchange for their own advantage. From that premise money follows almost necessarily, as the rational solution to a problem of efficiency, and the deduction is so clean that verifying it seems almost superfluous. In the nineteenth century the Austrian economist Carl Menger gave it a refined formulation, showing how, in purely theoretical terms, a commodity-money might emerge spontaneously from exchange without anyone decreeing it, simply because each person prefers to accept in payment the most easily re-exchangeable good, and this preference, becoming general, ends by concentrating on a single commodity. It is an ingenious argument, and as a theoretical model it retains a value of its own. But its persistence has roots that go beyond pure logic: the fable of the market origins of money is congenial to those who wish to think of the market as a natural order, spontaneous, prior to and independent of the state and political power. If money arises of itself, from the meeting of individuals seeking their own advantage, then the economic sphere has an original autonomy of its own, and the intervention of authority appears in it as a late intrusion into an order that would work perfectly well by itself. The story the documents tell is a different one, and more inconvenient for this view: in it money appears from the very beginning entangled with the temple, the palace, the law, the authority that keeps the accounts and enforces the debts.

In any case, it is wise to handle this correction with a certain measure, so as not to replace one dogma with another. To say that barter was never a generalised economic system is not to say that Adam Smith was a fool: he reasoned with the tools of his time, and his reconstruction was a plausible conjecture, not the fruit of a field observation that in his day no one had yet made. The fable of barter is wrong as history, but it remains useful as a thought experiment, because it brings into focus a real problem — the inefficiency of direct exchange — to which, however, human societies responded by a path other than the one Smith imagined. Not by inventing a commodity-money, but by instituting, and then refining over millennia, the practice of keeping account of mutual obligations.

The village that remembers

To understand how an economy without money really works, it helps to abandon for a moment the figure of the two merchants facing each other with goods in hand, and to picture instead the life of a village in which everyone knows everyone else. If my neighbour slaughters a pig, he will have more meat than he can eat before it spoils, and he will give me a share. He will ask nothing of me in return on the spot: among neighbours, it would be almost an insult to haggle over a cut of meat. But neither he nor I will forget that the meat was given, and when it is my hen that lays more eggs than I need, or when I need a hand mending the roof, the account — never written and always present — will come back into balance. What circulates, in such a village, is not good against good: it is a dense web of mutual obligations, of favours given and expected, of moral debts that bind people to one another and are settled over the long run, without haste and without explicit bookkeeping.

The anthropologists who studied societies without money gave a name to this way of organising exchange: they called it the gift economy. The term is in some ways misleading, if it conjures up disinterested generosity, because the gift in question is not free at all: it is, on the contrary, strictly binding. Whoever receives a gift contracts, by that very act, the obligation to reciprocate, sooner or later, in equal or greater measure; and the refusal to reciprocate, or the inability to do so, is a form of submission, a loss of standing. In many of these societies prestige was measured not by what one accumulated but by what one was able to give, because to give meant to place others in debt, and the debt of others was a form of power. Behind the apparent good nature of the gift, in short, the same logic of credit was at work: a giving that establishes a duty to repay, a chain of obligations binding people in a web of mutual dependence. It is no accident that, in a great many languages, the words for guilt and the words for debt blur and overlap: one who has done wrong is “in debt”, must “pay” for what he has done, and in the most ancient religions the very relationship between man and the divine was often conceived as an obligation, an unpayable debt contracted with the one who gave us life. The idea of debt thus sinks its roots far below economics, into something that touches the very meaning of obligation and moral bond.

This is the point the fable of barter does not see. In a small community, debt is not an accident or an exception: it is the very fabric of the economy, and it is also the fabric of social relations, because to give and to receive, to lend and to repay, are the gestures by which men keep themselves bound to one another. Money, in such a world, is not for buying: it is, if anything, for measuring. When the village grows, when exchanges become more numerous and debtors more numerous still, keeping everything in memory becomes impossible, and the need arises for a unit in which to express the value of heterogeneous obligations — how much a pig is worth in days of labour, a day’s labour in barley, barley in silver. There is no need for this unit to circulate physically, to pass from hand to hand. It is enough that it exist as a yardstick, as a term of comparison in which accounts can be written and set side by side. And this, as we shall see, is precisely the first form of Mesopotamian money: a unit of account, not a means of exchange.

Here a kinship surfaces that is no mere play on words, and that ties this book to its companion volume devoted to measurement. Money, before it is ever a thing, is a unit of measure: the way a community renders commensurable the most disparate goods and services, reducing them to a single scale along which they can be compared and summed. To measure a cloth by the arm and to measure the value of that cloth in barley or silver are surprisingly similar operations: in both cases it is a matter of projecting the variety of the world onto a shared yardstick, so that different people can come to agreement. The difference is that the measure of length concerns a physical property of objects, whereas the measure of value concerns something more elusive — desire, utility, obligation — which lies not in objects but in the relations between people. It is a difference that will weigh upon the whole history to follow.

Barley and silver

When we pass from village societies, which we can only reconstruct by analogy, to the first urban civilisations of Mesopotamia, we finally leave the ground of conjecture and enter that of documentation, because here we have the archives. The Sumerian and later Babylonian cities of the third and second millennia before our era have left us tens of thousands of clay tablets, and a considerable part of them concerns economic administration: rations, wages, rents, loans, debts. From this mass of documents emerges a picture that fully confirms the primacy of credit over coined money — which, it is worth recalling, did not yet exist and would not appear for more than another millennium.

The Mesopotamian economy knew two great units of account, and the relation between them is telling. On one side, barley, the staple grain, measured by volume: it was in barley that workers’ rations were paid, the rents of fields, much of the everyday business of ordinary people. On the other, silver, weighed according to a system of weights that centred on the shekel, a small unit of weight. Silver was the measure of value for transactions of greater account and for the bookkeeping of temples and palaces, the great institutions that dominated the economy. The two yardsticks were connected by conventional ratios, often fixed by decree, so that one could pass from one to the other: so many litres of barley for a shekel of silver. But — and this is the crucial point — neither barley nor silver was money in the sense we give the word today. The silver was not coined, it bore the seal of no authority guaranteeing its weight and fineness; it circulated, when it circulated, as raw metal, in ingots, rings, fragments, to be weighed at each transaction on the scales. And above all, in the overwhelming majority of cases, it did not circulate at all: it served as the unit in which accounts were written, not as an object to be exchanged. One could contract a debt of ten shekels of silver and settle it in barley, in wool, in oil, in days of labour, without a single gram of metal ever changing hands.

It is hard to overstate the importance of this distinction. It means that, already in the most ancient civilisation whose accounts we possess, money existed as pure information — a number, a measure, a record — long before it existed as a thing. The immaterial banknote and the electronic balance of our own day, which seem to us the vertiginous culmination of a process of abstraction, in a sense do no more than return to the starting point: money as bookkeeping, as a sign in a ledger. Metal coinage, that solid disc which tradition places at the origin of everything, was in reality a late parenthesis, lasting some millennia, to be sure, but set between an earlier age of money-as-writing and the present age that has returned to money-as-writing.

To understand how this system could hold together without money, one must keep in mind who governed its accounts. The economy of the Mesopotamian cities was not a free market of individuals, but gravitated around two institutions: the temple and the palace. It was these enormous complexes — owners of land, of flocks, of storehouses, of craft workshops — that gathered the produce of the countryside, stored it, redistributed it in the form of rations to those who worked for them, and kept meticulous account of everything in those units of silver and barley already described. A considerable part of what we would today call economic activity did not pass through exchange between private persons at all, but through this centralised, accounting, bureaucratic administration, which levied, accumulated and distributed. Silver as a measure of value arose largely as an instrument of this institutional bookkeeping, a unit in which to express and compare quantities otherwise incommensurable — the work of a labourer, a day’s rent of a field, a jar of oil — before it was ever a means of buying and selling on the market. Such worlds have been called “redistributive” or “storehouse” economies, to distinguish them from the market economies familiar to us, and the label captures something true, provided one does not make it rigid: alongside the temple and the palace there were also merchants, private loans, contracts between individuals, and that private sphere grew over time. But the centre of gravity, at least in the most ancient ages, lay in the great institutions and their registers, not in the marketplace [Davies 2002].

It is worth looking closely at how one of these debt contracts actually appeared, because its form reveals the deep nature of the operation. A typical loan tablet recorded the name of the creditor and that of the debtor, the quantity lent expressed in the agreed unit, the interest stipulated, the term of repayment — often tied to an event of the agricultural calendar, such as the harvest — and the names of the witnesses present at the act. The document might be sealed, sometimes enclosed in a clay envelope itself inscribed, a kind of casing that protected the original and repeated its contents, so that it could not be altered in secret. When the debt was settled, the tablet lost all value and was destroyed or cancelled: its very material existence coincided with the existence of the obligation. So long as the tablet was there, the debt was there; once the tablet was broken, the debt ceased to exist. Here one touches with one’s hand a truth that will run through the whole book: money, in its most ancient forms as in its most modern, is first of all a register, a writing that certifies who owes what to whom, and its force lies not in the matter on which it is written but in the collective recognition of what that writing attests. A clay tablet, a bank ledger, a distributed database are, in this respect, but three different technologies for doing the same thing: keeping account of promises.

In this world interest was already at home, and this is another fact that confounds common intuition. We tend to think of interest as a late refinement of finance, something that requires developed markets and a theory of capital; and yet loans at interest are attested in Mesopotamia from the most ancient documents, well before money [Homer & Sylla 2005]. The rates were often high by our standards, and tended to differ according to the substance of the loan: by convention and by law, loans of barley bore a heavier interest than those of silver, a difference that probably reflects the greater perishability and greater risk of the grain compared with the metal. Where the very idea of interest came from is a debated question, and one of the most suggestive hypotheses ties it precisely to the agricultural and pastoral world: the Sumerian term for interest was the same as that for the young of livestock, as though the loan of a capital ought naturally to “breed” a surplus, in the same way that a flock given into custody grows by new births [Goetzmann 2016]. Whether or not this etymology is exact, the image captures something profound: interest as the fruit of time, as the recognition that a wealth lent out, working through time, must yield more than it was. On this intuition, and on the moral resistances it would meet over the centuries, we shall dwell at length in the book.

When debt becomes a chain

There is a dark underside to this economy of credit, and the Mesopotamian civilisations knew it well. Debt binds, and for that very reason it can crush. So long as accounts are settled over the long run of a community bound by solidarity, debt is the thread that holds people together; but when debt becomes exigible, when it bears interest, when it can be demanded by a creditor who is no longer a neighbour but an institution or a landowner, then the rope stretched between two people can become a noose. A bad harvest, an illness, a flood out of season were enough to leave a small cultivator unable to repay the loan he had received for the sowing. Interest, accumulating, swelled the debt beyond any possibility of payment. And the consequences, in that world, were dreadful: the insolvent debtor could lose his field, then his tools, then the freedom of his children, finally his own, ending himself in debt bondage, reduced to labouring for the creditor until the extinction of what he owed — an extinction that, with interest running, might never come.

A society that lets this mechanism run on indefinitely heads toward ruin, and not only a moral one. When a growing share of free cultivators slips into debt bondage, the body of taxpayers and soldiers thins, the countryside is emptied of free men, wealth concentrates in the hands of a few creditors, and the sovereign finds himself with fewer arms to enlist and fewer taxes to collect. Debt, left to itself, devours the very base on which power rests. The Mesopotamian kings understood this, and adopted a remedy as radical as it is revealing: the periodic cancellation of debts. At intervals — often at the beginning of a reign, or on the occasion of great festivals, or when social pressure became intolerable — the sovereign would proclaim what the sources call a “remission”, an act by which debts of a certain kind were annulled, debt slaves freed, alienated lands restored to their former owners. The tablets that recorded those debts were broken. It was a zeroing of accounts, a return to a starting state, a restoration of order.

It is worth dwelling on what such a gesture means, for it illuminates the nature of money better than any abstract definition. If debt were a material thing, a really existing object, it could not be cancelled by decree: no royal proclamation can make a sack of barley already consumed disappear. But debt is not the sack of barley: it is a relation, an obligation that exists only because a community recognises that it exists, because it is written on a tablet that the same community can decide to break. To cancel debts by decree is possible precisely because debt — and with it, in the end, money itself — belongs to the order of social conventions, not to that of physical things. It is an institution, something men create by an agreement and can, by another agreement, undo. This intuition, which the Babylonian sovereigns put into practice by breaking clay tablets, is the same that, four thousand years later, allows a central bank to create money by a bookkeeping entry or a state to restructure its debt by negotiation. Money is something we make, not something we find.

The law of debt

That credit was, in Mesopotamia, too serious a matter to be left to the discretion of private persons is attested by the fact that, very early, it entered the law. The most famous of the legal codes of the ancient Near East, that promulgated by Hammurabi of Babylon in the eighteenth century before our era, devotes a notable portion of its provisions precisely to questions of debt, loan and pledge — a sign of how central these practices were to daily life, and of how dangerous was their potential for conflict. The code fixed maximum interest rates allowed, distinct for loans in barley and for those in silver, placing a legal limit on the creditor’s greed; it regulated pledge and security; and — a provision of great humanity, and at once of lucid political calculation — it limited debt bondage in time, establishing that the family member handed over to a creditor to settle an obligation must be freed after a certain number of years of labour, and could not be held for life [Homer & Sylla 2005]. Debt could reduce a man to slavery, but not forever: the law set a bound, implicitly recognising that a society which lets its members sink without return into debt ends by destroying itself.

The same legislative framework took care to protect the integrity of the measures on which every transaction rested, and here our theme meets again that of the companion volume on measurement. To falsify a weight, to alter the capacity of a jar, to cheat on the quantity of barley or silver were severely punished frauds, because they struck at the very foundation of trust in exchange: if the dishonest merchant’s shekel weighs less than the honest one’s, the whole system of accounts wavers. To measure value and to measure weight were, in practice, the same operation — silver was weighed on the scales — and to protect the first measure meant to protect the second. The sovereign who guaranteed weights and measures thereby guaranteed money, and this coincidence between the authority that certifies the measure and the authority that founds the currency will run through the whole history we shall tell, down to the king’s seal on the first coins and beyond.

Here too a caution is in order. Codes like Hammurabi’s are not to be read naively as photographs of daily practice: they were in part royal proclamations, declarations of a sovereign’s ideal of justice, and we do not know exactly how far and in what way they were applied in actual courts. The very dates of these sovereigns and their codes are known with a margin of uncertainty measured in decades, and every precise figure must be taken with the prudence that archaeology imposes when it questions so remote a past. But even with all these reservations, the picture that emerges is unequivocal and precious for us: in a civilisation without money, debt was already a fully developed institution, regulated by law, governed by rates, tempered by limits — a complex and mature social machine, centuries before it occurred to anyone to strike the first disc of metal.

Commodity or promise: a question that does not close

We come thus to the underlying question, the one that from this chapter will radiate over the whole book. What is money? Two great answers have faced each other for centuries, and the story we have just told weighs, though it does not resolve, in favour of one of the two.

The first answer is the one the fable of barter presupposes, and it goes by the name of the metallist, or commodity, theory of money. According to this conception money is, in origin and in essence, a commodity: a particular commodity, chosen by the market for its qualities — durability, divisibility, scarcity, portability — but a thing all the same, endowed with its own intrinsic value. Gold is worth something because it is gold; a coin is worth something insofar as it contains, or represents, a certain quantity of precious metal. In this perspective money arises from exchange and for exchange, independently of the state, and its value sinks its roots in the matter of which it is made. It is the theory that vindicates those who, even today, see in gold the only “true” money and in paper a pale and dangerous imitation of it.

The second answer overturns the first, and goes by the name of the chartalist, or credit, theory of money. According to this conception money is, in origin and in essence, a credit: the record of an obligation, the measure of a promise to pay. Its value lies not in the matter — the clay tablet is worth nothing, just as the banknote is worth nothing — but in the relation it documents and in the authority that guarantees it. In this perspective money is the child of debt and, in the last analysis, of the power that certifies and enforces debts: the state, the temple, the sovereign. Precious metal, when it enters the scene, is not the origin of money but an instrument in its service, a convenient way of making an obligation portable and anonymous. The gold coin is worth something not because it is gold, but because it is money, and the gold is only the support, from time to time, on which money has been written.

The Mesopotamian documentation, with its money-as-writing predating coinage by millennia, with its debts cancellable by decree, with its silver that measures without circulating, lends robust support to the second conception, the credit one. And it is the perspective that this book, I declare it openly, will find more fruitful in telling the long history that follows: because it better explains paper money, bank credit, fiat money, and everything that owes almost nothing to the matter of money. It would be a mistake, however — the opposite and symmetrical mistake to that of barter — to turn this too into a closed and definitive fable of origins. The thesis that debt everywhere and always precedes money is a strong one, vigorously defended by those who have brought it back to the centre of debate in recent decades [Graeber 2011], but it is also contested: there are historians and economists who judge it too clear-cut, who recall that commodity-money and credit-money probably coexisted from the beginning, intertwining rather than succeeding one another, and who distrust every reconstruction of origins built to bend the present to a thesis. The truth, for the little that remote origins allow us to see, is almost certainly more nuanced than either fable.

There is a way of thinking about money that, without claiming to close the dispute, helps one not to lose one’s way, and that is worth carrying along from these first pages. Money, in every age, is not a homogeneous substance but a hierarchy of promises of differing rank. Even today, in our pockets and our accounts, there coexist forms of money that do not all stand on the same level: the banknote issued by the central bank and the balance in a current account at a private bank are spent in the same way and count for us as the same thing, yet they are obligations of different parties, with a different degree of solidity — the one a promise of the state, the other a promise of an institution that might, in theory, fail. In normal conditions the difference is invisible, and the whole pyramid holds because each level is convertible into the one above; but in moments of crisis, when trust wavers, the hierarchy re-emerges brutally, and everyone rushes to convert the weaker promises into the stronger ones, the deposit into cash, the cash into gold. This graded structure of money — promises propped on other promises, in a pyramid whose base rests on something agreed to be final — is already wholly present, in embryonic form, in the Mesopotamian world, where the barley of the village and the silver of the temple formed distinct and convertible levels of a single scale. We shall meet it again, magnified and made visible, when we tell of the birth of banks and of paper money, and then again in the crises that have shaken our own time.

What matters, for the story that is beginning, is not to close the dispute but to keep it open in the right way. The reader will do well to carry along, chapter after chapter, this double key of reading — money as commodity and money as credit — and to observe how, from time to time, one or the other seems to explain better what is happening: the gold of empires and the seigniorage of kings, the bills of exchange of merchants and the forced loans of cities, convertible banknotes and then their severance from metal, down to the purely fiduciary money of today and the currencies that claim to do without it. The reader will see that neither key, alone, opens every door; and that precisely in this unresolved tension — between the thing and the promise, between the metal and the trust — lies much of what makes the history of money so absorbing and so timely. For now let us be content with the starting point, solid as a tablet baked in the sun: before money, before coined gold, before the market as we imagine it, there was debt. And money was born to measure it.