I just read an interesting book review (posted on Salon, but originally from the LA Review of Books) about the role of debt in civilization and history. The book, Debt: The First 5,000 Years, was written by David Graeber, who apparently played a big role in the Occupy Wall Street movement. I’m not a huge fan of anti-capitalist polemics, and some Amazon reviews accuse this book of being such. However, the review intrigues me by arguing that historians have traditionally overlooked the role of debt in culture.
Intuitively, I agree. I see how debt leads to enslavement in various forms. The problem is that debt, like all economic mechanisms, is vulnerable to abuse. Perhaps that’s why the Bible forbade the collection of interest – it’s too hard to manage a primitive economy fairly when you have such a mechanism. On the other hand, the author Hernando de Soto (The Mystery of Capital) argues that South American economies would become incredibly prosperous if the residents of favelas in São Paulo and other giant cities – as well as farmers in the countrysides – had legitimate titles to their living spaces and could mortgage them.
Graeber argues that debt is a “primary institution” of human culture and that it predates money, barter, and other classic elements that make up our notion of an ‘economy.’ Graeber is an anthropologist, so perhaps he has information to base this on, or perhaps he doesn’t. Intuitively, I find this a reasonable argument.
I also see intuitively how debt impacts power relationships. Growing up in Virginia, we learned about “indentured servitude,” by which a person in England could borrow the cost of a trip to the American colonies in exchange for several years’ labor. The classic story from the American labor movement is about the workers in a company town who are stuck there by virtue of their employment and their debt to the “company store.” No matter how bad things get, a family can’t afford to leave.
- How power relationships can invert between a creditor and an unusually large debtor. This is actually the mechanism behind labor movement success: by unionizing, indebted workers can use their collective power both as a source of labor and as surety for existing debts.
- The role of debt in the recent economic collapse. The review notes how home value directly affects personal finances, since higher home values allow higher home equity loans, and thus more household spending. I wonder if there’s something similar in the interaction of derivatives. Maybe not – my limited understanding of them suggests a blossoming of insurance abuses.