Monday, June 11, 2012

Debt: The First 5,000 Years by David Graeber *****

Debt: The First 5,000 Years by David Graeber is an effort to correct update 5,000 years of economic history, starting with ubiquitous history of money taught in EVERY Economics course. You remember this: What are the three functions of money?
  1.  Medium of exchange (versus barter)
  2. Unit of accounting
  3. Store of value  
 Let's review them in reverse order. Store of value? A cursory review of economic history, especially periods of inflation, reminds the honest reader that money is only occasionally a short-term store of value, at best. Unit of accounting? This one is for real. Even during the dark ages in Europe, when there was no money in circulation, accounts were still kept in Roman currency, even though it had not existed for centuries. So maybe this function really has nothing to do with money after all.

Finally, medium of exchange? This is the first major eye opener in a fabulous book written by an historical anthropologist: Barter is a straw argument ... apparently never used by any society in the last 5,000 years ... ever! Since the use of money historically is extremely rare, most trade is done as an exchange of favors using human currency - and communism: from each according to abilities and to each according to needs. Families still operate in this tradition cash-less way.

OK, if money is not what has been taught since Adam Smith, what has been the central vehicle of economic activity? DEBT. So now it is revealed, the title "Debt," really signifies all economic activity over all history.

This book is not for the fainthearted - 400 pages of closely spaced, tiny type, but it delivers insights and revelations on economic history. For instance, what happened to all that gold and silver the Spanish and Portuguese extracted from the Americas? Well over 90% went to China and India. Many gold plate Buddhas, originated in Inca mines and were shipped half-way around the world in exchange for spices and cloth. Cloth? Yes! Before the British empire and mills, India exported cloth to Europe, not the other way around.

Virtual money or cashless transactions (credit cards, etc.) is not an innovation of the 21st century, but something that has been used extensively over history. In fact it was only during two imperial/empire periods (800 BCE - 600 CE) and (1450 -1971) that cash money was used.

Anyone with a serious interest in the economy and/or economics should read this.

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