July 25, 2011

Debt crises may be in vogue now, but they're nothing new


Well, it’s Monday morning, and unless there were some fruitful, secret 3 am chats between the leaders of Congress and President Obama, the United States is no closer to a solution to the debt ceiling problem than it was on Friday. As Republicans whine and moan about how eventually the debt is going to cause a serious crisis in confidence and that one day US Treasury Bonds will no longer be used as the world’s reserve currency, they are essentially guaranteeing that will happen by forcing default.

Anyway, it’s all really wonky stuff, and it helps to have a longer view while thinking about all of it. Recently NPR’s Guy Raz spoke with Melville House author David Graeber (author of Debt: The First 5,000 Years) to find out what the current situation looks like when put into a deeper historical perspective…

Debt debates like the one playing out in Washington, D.C., are as old as money itself.

So says anthropologist David Graeber, who traces deficit spending back to ancient Mesopotamia in his new book Debt: The First 5,000 Years.

“Money at that time really meant credit,” Graeber says. “We think of ‘virtual money’ as this kind of brave new world that’s just happening now. Actually, it is the original form of money, and it has been the predominant form of money for most of history.”

Debt has piled up as long as there’s been money. And like today, that was a problem. Graeber describes how through history, as people would fall into debt, their property would be taken away.

“People would just start running away and joining nomadic bands and periodically kings would declare debt cancellations,” he says.

So for a long time it was individuals who were going into debt; actual countries didn’t take on debt like they do today until much later.

“The real beginnings of the modern money system seems to go back to the Bank of England in 1694,” Graeber explains. “A bunch of London merchants made a 1.2 million-pound loan to the king to conduct some war, the king thereby granted them the right to take the money that he then owed them, that 1.2 million, and loan it to other people in the form of bank notes.”

So British currency, Graeber says, is simply British debt.

“If the king ever paid back the debt, there would be no money.”

Graeber argues that the U.S. Federal Reserve is not that different — and he points out that the U.S. has always had a debt.

“The only person who tried to pay it down, and also eliminate the central bank, was Andrew Jackson, and it seems that that’s what led to the panic of 1836 and it led to catastrophic consequences,” he says.