Debt The First 5000 Years - Review

The reasons why anthropologists haven’t been able to come up with a simple, compelling story for the origins of money is because there’s no reason to believe there could be one. Money was no more ever “invented” than music or mathematics or jewelry. What we call “money” isn’t a thing at all; it’s a way of comparing things mathematically, as proportions: of saying one of X is equivalent to six of Y. As such it is probably as old as human thought.

Graeber takes down the common Econ 101 myth that debt came after money came after barter. Despite apocryphal accounts from the Bible of the Invisible Hand, anthropological research shows that the inverse is actually true: money materialised as the yardstick for debt. Barter only emerged in its absence, and often between strangers. As strangers, they were not participants in the mutually shared illusion that enabled one’s monetary system, and needed a low-trust alternative for transactions.

Debt, therefore, is not simply a quantitative exchange. It was a moral obligation that stitched together the fabric of human relationships. Consider this: while I owe you something, we have a tangible reason to remain in contact. In fact, you may protect me to ensure I am alive to repay you. Once I have paid off my loan, we no longer have a reason to interact. Graeber describes practices in villages where neighbours always repaid back something slightly less or slightly more in value to what they borrowed, sustaining the system of debt.

Rotating savings and credit associations are informal savings and lending groups that are common in developing countries. Members contribute a fixed amount of money every week, and the pot is distributed to one member each week. I recall studying arisans in Indonesia when several startups emerged to digitize some variant of it. More than just a substitute for formal systems, they also served as social support systems. As a result, default rates in ROSCAs are often ＜1%, compared to up to 10% in microfinance institutions, because those social relationships become greater accountability enforcers than any formal entity could.

If history shows anything, it is that there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt - above all, because it immediately makes it seem that it’s the victim who’s doing something wrong.

Graeber discusses the idea of primordial debt - the idea that humans are born into a state of obligation, whether to gods, society, family, or the state - as inextricably tied to morality. Forgive us our debts, as we forgive our debtors; debt became the “original sin” of economies. Even the language around debt, like “living beyond your means” or the somehow universally agreed to ethics of “pay back what you owe” is a value judgment.

The difference between a debt and an obligation is that a debt can be precisely quantified. This requires money. Not only is it money that makes debt possible: money and debt appear on the scene at exactly the same time. Some of the very first written documents that have come down to us are Mesopotamian tablets recording credits and debits, rations issued by temples, money owed for rent of temple lands, the value of each precisely specified in grain and silver.

Where debt deviated from the glue of trust networks to the depersonalization and exploitation of humanity was when it became a tool for systemic violence. When debt begins as a contractual relationship, it supposes the two parties as equals - otherwise there can’t be reciprocity. But as financial institutions formalized and scaled (the VC in me laugh-cries), it mutated into a hierarchy of power.

Take Haiti’s independence debt for example - after a successful slave revolt that led to independence in 1804, Haiti was forced to pay France a penalty of 150M francs as “compensation” for French slaveholders’ loss. This was financed by French banks at predatory rates, depleting resources that should have gone into development - up to 80% of Haiti’s wealth went towards debt payments for years. The loan was finally paid off in 1947 - the original loan was meant to be repaid in five years! - but the damage continues to ripple out today. Graeber criticizes the International Monetary Fund for perpetuating this: enforcing loans that were unfairly created in the first place, and compelling policies that often only made things worse. Consider IMF’s 2018 $57B loan to Argentina that only worsened Argentina’s economic situation through severe austerity measures. Instead of IMF’s projected growth of 0.4% for 2018 and 1.5% for 2019, Argentina’s GDP shrank by 2.6% and 2% respectively while poverty and unemployment skyrocketed. It was bad enough that even IMF admitted it failed.

If you owe the bank a hundred thousand dollars, the bank owns you. If you owe the bank a hundred million dollars, you own the bank. - American Proverb

Graeber touts the US dollar hegemony as another example of modern day dominance via debt systems. Most of the world’s international trade is conducted in dollars because of the US dollar’s “exorbitant privilege” as the global reserve currency. As of Q1 2023, the USD was ~59% of global FX reserves. This demand for USD means the US can issue bonds - take on debt - at a lower cost, giving it cheap financing for investment abroad. When the US prints money, it spreads out the resulting inflationary burden globally as other countries holding $-denominated assets experience a devaluation of their reserves.

Bitcoin crossed the 6-figure mark recently, and enthusiasts are piling on the hype train again. It wasn’t originally fashioned as a reserve, but its inherently deflationary nature and (theoretical) immunity to state policies made it attractive as such. El Salvador’s Bukele administration has been purchasing Bitcoin daily as a treasury asset since 2021, and the store recently was valued at over $500M as of today. You can see how bitcoin maxxers saw it as a tool to dislodge the American dollar dominance; it’s estimated that there are more non-American bitcoin holders than American. (Not that that’s surprising just from a sheer population size perspective). Unfortunately, human greed prevails. Institutional investors now hold 20% of US-traded bitcoin ETFs. Bitcoin correlation to the S&P 500 was ~0.03 in 2011-2019, and spiked to ~0.6 in 2020 and ~0.7 in 2022 - so much for being a diversified and decentralized asset.

Debt was published in 2011, before the launch of China’s Belt and Road Initiative in 2013. Under the program, China has pledged $1T+ in investments and loans to build trade and political relationships with other countries. It’s been denounced as “debt-trap diplomacy” very much in Graeber framing of “debt peonage”. (I recall when I visited Kenya in 2018, I was astounded by the number of Chinese-only signs in construction projects around the world. On my way back home, we had a layover in Nigeria, where I discovered a noodle place that only accepted WeChat Pay and AliPay.) A popular example is Sri Lanka, unable to repay a $1B loan for building Hambantota Port, ended up leasing the port to China for 99 years. There has been mixed results and is a discussion for another post, but it is an interesting modern day manifestation of geopolitical power dynamics from debt.

For every subtle and complicated question, there is a perfectly simple and straightforward answer, which is wrong.

I do agree that debt can be problematic without the supporting resources that allow the capital to be invested for growth. Banerjee and Duflo’s study of microfinance, such as with the Grameen Bank that earned its founder a Nobel Peace Prize, had mixed results depending on the corresponding education, infrastructure, and healthcare available. Buuuut. Graeber romanticizes pre-modern systems a little, sidestepping how reliable systems enabled progress across the world. A bunch of studies show quality of life improvements correlate with financial inclusion, like this 2024 one published in Nature.

I consider myself a pragmatist (as I get older, I understand better why Lee Kuan Yew shifted from a socialist to a “pragmatist” identity) and I believe humans respond to incentives, so capitalism is the best explanation of how our society works that I can muster. Thus financial institutions and systems are an emergent properties of human nature and can’t be wished away, and in many ways can be used for a greater good (whatever that means). But Graeber’s unpacking of debt as a moral - social - political relationship is fascinating and illuminating, and a reminder that humanity is endlessly complex. We have to be careful of only listening to a single myopic perspective.

AI and the Debt of Energy

Whether or not scaling laws continue the way they have been (question mark?), compute, and by extension, energy, remains the rate limiting factor for AI usage. The power demands of AI represent a form of debt we’re incurring against future generations. Just like the dollar allows the US to export inflation, the AI race allows powerful entities to export their environmental costs elsewhere, where much of rare earth mining and waste processing occurs. (My home region of Southeast Asia is the top importer of plastic waste from G7 countries, while ~70% of used plastics is exported by just 10 high income countries.) As access to energy and AI intelligence concentrates in the hands of a few, others - including possibly entire nation states - become indebted to these entities, paying indefinitely for access, very much in the technofeudalism paradigm that Varoufakis mentioned in his book of the same name. This highlights the structural inequality, the debasement of dignity and reduction to equations of power that Graeber so feared.

But what is the debt for? We’ve seen above that it’s not entirely a binary outcome. Anthropologist Leslie White has an interesting framework for this. White’s Law states that, ceteris paribus:

Culture evolves as the amount of energy harnessed per capita per year is increased, or as the efficiency of the instrumental means of putting the energy to work is increased.

He introduced a formula, C = ET, where E is energy consumed per capita per year; T is efficiency of technical factors utilizing the energy; and C is degree of cultural development. White defines cultural development as humanity’s ways of adapting to our environment, such as information systems, social organizations, and tool making.

In traditional societies, energy capture measurements are relatively straightforward: calories of food per person. This moves on to mechanical energy of domesticated animals, to steam combustion, to fossil fuel thermal energy. But with LLMs, energy per capita consumption growth is exponential. A single Google search is ~0.0003 kWh of energy (an old 2009 source tho). ChatGPT (presumably 4o?) takes 2.9Wh of energy to process a prompt, ~10x more. Our consumption of energy is reshaping our cultural and societal architecture at breakneck speeds we’ve never seen before.

In an AI world, cultural development is more than adapting to a physical environment; it’s adapting to an information environment. Guesstimates of new cultural artifacts to come:

• Emergent knowledge systems - synthesizing across domains we couldn’t before; biomimetic systems; new business organizations a la East India Company creating the joint-stock company structure and creating a notion of corporate sovereignty
• Cognitive augmentation - human-AI hybrids into a superintelligent organism a la single > multicellular organisams? new ways of logic and frameworks (maybe solve that nasty gap in our current formal system repertoire to explain consciousness)? literal mind palaces built by others you can inhabit?
• Computational creativity - the low hanging fruit answer is interactive and hyperpersonalized media, but we all kind of know that. I love jazz - what would “neural jazz” look like, or any other sort of improvisation-based art form with AIs as participants? With brain computer interfaces and the computational intelligence to modulate them, what kind of bidirectional aesthetic experiences can be conjured (projecting imagery, thought patterns, sensory elements directly into your mind?) Evolutionary art systems that evolve and develop on their own
• New religions- we already have twitter bros proclaiming their special sauce superprompts; will there be a class of “AI whisperers”? Widescale technological shifts have spurred religious revolutions - the industrial revolution coincided with the Second Grate Awakening that birthed Mormonism; the nuclear age spawned various UFO and apocalyptics cults like Raëlism. What religious or quasi-religious belief institutions will emerge?

This might seem silly and irrational, but my imagination is probably still limited. As Graeber concludes:

Is it possible that children born today might live to see the day when there is no longer an “economy,” when we can examine these matters in completely different terms? What would such a world even look like? From our current vantage, it’s very hard for us to even imagine. But if we are going to create a world that does not threaten to wipe out humanity every generation or so, this is exactly the scale on which we’re going to have to start re-imagining things.

Thanks to Claude & ChatGPT for helping me with this, and thanks to Kunal Shah for recommending this to me years ago when I briefly worked at CRED. Didn’t take too long to finish it, just 4 years!