Tuesday, September 18, 2012

In Defense of Debt

I have a new post up at the Jacobin, responding to Mike Beggs' critical review of David Graeber's Debt. It's a much longer, and hopefully more convincing, version of some arguments I was having with Mike and others over at Crooked Timber last month. Mike things there is no useful economics in Debt; I think that on the contrary, the book fits well with important strands of heterodox economics going back to Marx and Keynes (not to mention Schumpeter and Wicksell).

In particular, I think the historical and anthropological material in Debt helps put concrete social flesh on two key analytic points. First, that we need to think of capitalism primarily organized around the accumulation of money, with economic decision taken in terms of money flows and money commitments; not as a system for the mutually beneficial exchange of goods. And second, within capitalism, we can distinguish between economies where the medium of exchange is primarily commodity or fiat money, and economies where it is primarily bank-created credit money. Textbook economic analysis tends to work strictly in terms of the former, but both kinds of economies have existed historically and they behave quite differently.

(There's a lot more in the book than this, of course, but what I am trying to do -- I don't know how successfully -- is clarify the points where Debt contributes most directly to economics debates about money and credit.)

If this sounds at all interesting, you should first read Mike's review, if you haven't, and then read my very long response.

... and then, you should read all the other great stuff at The Jacobin. For my money, it's the most exciting new political journal to come along in a while.


  1. great article JW! thank you!

    you say "it’s a fair criticism that the book as a whole is long on stories and short on explicit statements of theory", do you think you could write a post with bibliography to better understand the theory part?
    you mention a few authors, but it would be great if you could also point out some of the books and articles.

    also, what readings would you recommend to understand marx's monetary theory?


  2. For Marx's monetary theory, I think the best place to start is Jim Crotty's article "The Centrality of Money, Credit, and Financial Intermediation in Marx’s Crisis Theory."

    I will try to put together a longer bibliography shortly.

  3. hey josh,

    I'm glad your defense was published. To be blunt, the initial review simply annoyed me, and was not a very welcoming introduction (for me - it was the first thing I read there) to the journal. The whole "I dislike mainstream monetary theory, but how dare some anthropologist who doesn't do real economics criticize it" vibe was really off-putting.

    There is no shortage of Marxian writing on money, however uneven it may be, but imo the best place to go is still a thoughtful reading of Capital (yes, even volume 1). This might be a minority position, but I think most of the important points made in the Grundrisse, for example, are in Capital, just with less sexy language.

    1. Hey Joe,

      Your take on his piece was good too -- will link to it in a followup post. I probably would have written an angry piece like yours if I din't know Mike Beggs (somewhat) and hadn't had some email exchanges with him. He is one of us.

      The question of Marx and money is an extremely interesting one (much more interesting, to be honest, than Beggs on Debt.) I admit I take a conventional view of the organization of Capital, where Volume I is developing the relationship between the capitalist in general and the worker in general. That somewhat limits the scope for discussion of credit, which (IIRC) hardly appears there. But we should talk about this -- I'll email you.

    2. No need to link my rage-venting. If I deleted posts I would probably get rid of it. It just annoyed me precisely because Beggs (from what I could tell) is indeed one of us. I read the exchange between you two on CT, and that was cool and productive and had something to do with economics, but the tone of the initial review undermined the points he was trying to make.

      You are completely correct about Volume 1. Certainly, if you want to see Marx being explicit about credit (and its relationship to cycles and crises) V3 is the place to go. I still, however, think that value theory is important and Marx is not very explicit about how the broader scope of V2 and V3 reshapes the discussion of value and money in V1. Without thinking through the first parts of Capital in what I could consider a deconstructive fashion (I honestly do not like using that term but I think it is technically correct) we either (1) abandon value theory, which you might not be worried about, or (2) keep value theory but view credit/finance as somehow derived (logically and/or historically) from commodity money.

  4. I found Graeber very difficult to read. Too many words per unit of meaning. I put the book down.

  5. Well, wrote something much longer, which did not fit in the 4096 signs. But: the seventeenth century Frisian 'loan books', which I am investigating, show that there was a lively capital market in this commercialized part of the early modern world. And most of these loans were 'credit-transaction' based, i.e. not loans of comodity money. And only a tiny minority of these officially registered loans were between inhabitants of the same village - these inhabitants did not seem to feel the need to register their credits officially. Which shows that Graeber has some points. The pro-verbial neo classical village economy, used to explain the mutual coincidence of want and the genesis of commodity money, created much of its own means of payment. Commerce was based upon social networks and cultural capital. Not upon exchanging gold and silver. Graeber was right.

    Merijn Knibbe

  6. Your Jacobin article is very good.
    Crotty's article is also very interesting but it seems to me that he is basically inserting Minsky into Marx.

    1. Jim would say that Minsky is already there in Marx, he is just pointing him out. :-)

  7. Great review Josh. Its good to see someone who actually understands the credit-money paradigm from a theoretical economic standpoint tackle Graeber's book. There is a straight line from the world Graeber describes through the English Financial Revolution via Henry Thornton's world, Schumpeter/Marx, Keynes, Minsky all the way through to our current repo-driven system. Metallic money or fiat money only defined the limits of the elasticity of this credit system - with only one exception during the middle of the 20th century when reserve requirements really were sacrosanct and operationally relevant.

  8. Thanks JW, I found this a very helpful intro to the contrast between neoclassical and heterodox views on money. As a non-economist, I found it useful to see the contrast framed at a conceptual level, instead of diving into technical distinctions too quickly.

    Here's a question that occurred to me. Suppose I walk into the bank tomorrow and ask to borrow a million dollars. On the pure credit theory, what would stop the bank from simply giving me the money? To say that they worry about me not paying it back doesn't answer the question, because I could walk into the next bank down the block and borrow more money to pay back the first debt, and so on. So there's obviously some constraint on credit creation by the banks. And it's hard for me to see what that constraint could be, other than that in the end the money has to be a claim to something that's not-money, goods or services. Is that right? If that's right, then doesn't it suggest that the 'real' economy constraints credit creation, and so determines the rate of interest?

    As for Graeber, I'm sorry but I hated the book. I put it down after failing to understand, despite sustained effort, whether money was supposed to arise out of debt in general or out of special debt that can never be repaid.

  9. Hey Josh - you probably saw it already, but my response is up now:


  10. Dropping in once more.

    Just read the response from Mike Beggs. Really a great exchange. You should edit and publish the emails.

  11. In Graeber's less middle-brow "Towards an Anthropological Theory of Value" he puts forward a substantial 'anthropological' critique of marxist economics... which is to say that he's not exactly a happy member of the heterodox family.