Link Search Menu Expand Document

Debt - The First 5000 Years

"WHAT IS THE DIFFERENCE between a mere obligation, a sense that one ought to behave in a certain way, or even that one owes something to someone, and a debt, properly speaking? The answer is simple: money. The difference between a debt and an obligation is that a debt can be precisely quantified. This requires money."


"The crucial thing, though, is that by now, this story has become simple common sense for most people. We teach it to children in schoolbooks and museums. Everybody knows it. “Once upon a time, there was barter. It was difficult. So people invented money. Then came the development of banking and credit.” It all forms a perfectly simple, straightforward progression, a process of increasing sophistication and abstraction that has carried humanity, logically and inexorably, from the Stone Age exchange of mastodon tusks to stock markets, hedge funds, and securitized derivatives."


"The problem is there’s no evidence that it ever happened, and an enormous amount of evidence suggesting that it did not."


"by mid-century, Lewis Henry Morgan’s descriptions of the Six Nations of the Iroquois, among others, were widely published—and they made clear that the main economic institution among the Iroquois nations were longhouses where most goods were stockpiled and then allocated by women’s councils, and no one ever traded arrowheads for slabs of meat. Economists simply ignored this information."


"to this day, no one has been able to locate a part of the world where the ordinary mode of economic transaction between neighbors takes the form of “I’ll give you twenty chickens for that cow.”"


"The definitive anthropological work on barter, by Caroline Humphrey, of Cambridge, could not be more definitive in its conclusions: “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money;"


"Barter, then, for all the festive elements, was carried out between people who might otherwise be enemies and hovered about an inch away from outright warfare—and, if the ethnographer is to be believed—if one side later decided they had been taken advantage of, it could very easily lead to actual wars."


"What all such cases of trade through barter have in common is that they are meetings with strangers who will, likely as not, never meet again, and with whom one certainly will not enter into any ongoing relations. This is why a direct one-on-one exchange is appropriate: each side makes their trade and walks away."


"Recall here the language of the economics textbooks: “Imagine a society without money.” “Imagine a barter economy.” One thing these examples make abundantly clear is just how limited the imaginative powers of most economists turn out to be.21"


"it begins to be clear why there are no societies based on barter. Such a society could only be one in which everybody was an inch away from everybody else’s throat; but nonetheless hovering there, poised to strike but never actually striking, forever."


"It would have been easy enough to standardize the ingots, stamp them, create some authoritative system to guarantee their purity. The technology existed. Yet no one saw any particular need to do so. One reason was that while debts were calculated in silver, they did not have to be paid in silver—in fact, they could be paid in more or less anything one had around. Peasants who owed money to the Temple or Palace, or to some Temple or Palace official, seem to have settled their debts mostly in barley, which is why fixing the ratio of silver to barley was so important. But it was perfectly acceptable to show up with goats, or furniture, or lapis lazuli. Temples and Palaces were huge industrial operations—they could find a use for almost anything.34"


"One of the popular fallacies in connection with commerce is that in modern days a money-saving device has been introduced called credit and that, before this device was known, all purchases were paid for in cash, in other words in coins. A careful investigation shows that the precise reverse is true. In olden days coins played a far smaller part in commerce than they do today. Indeed so small was the quantity of coins, that they did not even suffice for the needs of the [Medieval English] Royal household and estates which regularly used tokens of various kinds for the purpose of making small payments. So unimportant indeed was the coinage that sometimes Kings did not hesitate to call it all in for reminting and reissue and still commerce went on just the same.36"


"our standard account of monetary history is precisely backwards. We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, never completely replacing credit systems. Barter, in turn, appears to be largely a kind of accidental byproduct of the use of coinage or paper money: historically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency."


"Smith was trying to make a similar, Newtonian argument.2 God—or Divine Providence, as he put it—had arranged matters in such a way that our pursuit of self-interest would nonetheless, given an unfettered market, be guided “as if by an invisible hand” to promote the general welfare. Smith’s famous invisible hand was, as he says in his Theory of Moral Sentiments, the agent of Divine Providence. It was literally the hand of God.3"


"Money is unimportant. Economies—“real economies”—are really vast barter systems. The problem is that history shows that without money, such vast barter systems do not occur. Even when economies “revert to barter,” as Europe was said to do in the Middle Ages, they don’t actually abandon the use of money. They just abandon the use of cash. In the Middle Ages, for instance, everyone continued to assess the value of tools and livestock in the old Roman currency, even if the coins themselves had ceased to circulate.6"


"Credit Theorists insisted that money is not a commodity but an accounting tool. In other words, it is not a “thing” at all. You can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter. Units of currency are merely abstract units of measurement, and as the credit theorists correctly noted, historically, such abstract systems of accounting emerged long before the use of any particular token of exchange.8"


"If money is a just a yardstick, what then does it measure? The answer was simple: debt. A coin is, effectively, an IOU."


"What credit theorists like Mitchell-Innes were arguing is that even if Henry gave Joshua a gold coin instead of a piece of paper, the situation would be essentially the same. A gold coin is a promise to pay something else of equivalent value to a gold coin. After all, a gold coin is not actually useful in itself. One only accepts it because one assumes other people will. In this sense, the value of a unit of currency is not the measure of the value of an object, but the measure of one’s trust in other human beings."


"money is simply a unit of measure, it makes sense that emperors and kings should concern themselves with such matters. Emperors and kings are almost always concerned to established uniform systems of weights and measures throughout their kingdoms."


"According to Knapp, whether or not the actual, physical money stuff in circulation corresponds to this “imaginary money” is not particularly important. It makes no real difference whether it’s pure silver, debased silver, leather tokens, or dried cod—provided the state is willing to accept it in payment of taxes. Because whatever the state was willing to accept, for that reason, became currency."


"One of the most important forms of currency in England in Henry’s time were notched “tally sticks” used to record debts. Tally sticks were quite explicitly IOUs: both parties to a transaction would take a hazelwood twig, notch it to indicate the amount owed, and then split it in half. The creditor would keep one half, called “the stock” (hence the origin of the term “stock holder”) and the debtor kept the other, called “the stub” (hence the origin of the term “ticket stub.”) Tax assessors used such twigs to calculate amounts owed by local sheriffs. Often, though, rather than wait for the taxes to come due, Henry’s exchequer would often sell the tallies at a discount, and they would circulate, as tokens of debt owed to the government, to anyone willing to trade for them.14"


"In fact this is precisely the logic on which the Bank of England—the first successful modern central bank—was originally founded. In 1694, a consortium of English bankers made a loan of £1,200,000 to the king. In return they received a royal monopoly on the issuance of banknotes. What this meant in practice was they had the right to advance IOUs for a portion of the money the king now owed them to any inhabitant of the kingdom willing to borrow from them, or willing to deposit their own money in the bank—in effect, to circulate or “monetize” the newly created royal debt. This was a great deal for the bankers (they got to charge the king 8 percent annual interest for the original loan and simultaneously charge interest on the same money to the clients who borrowed it), but it only worked as long as the original loan remained outstanding. To this day, this loan has never been paid back. It cannot be. If it ever were, the entire monetary system of Great Britain would cease to exist."


"On the other hand, if one simply hands out coins to the soldiers and then demands that every family in the kingdom was obliged to pay one of those coins back to you, one would, in one blow, turn one’s entire national economy into a vast machine for the provisioning of soldiers, since now every family, in order to get their hands on the coins, must find some way to contribute to the general effort to provide soldiers with things they want. Markets are brought into existence as a side effect."


"it is very clear that markets did spring up around ancient armies; one need only take a glance at Kautilya’s Arthasasatra, the Sassanian “circle of sovereignty,” or the Chinese “Discourses on Salt and Iron” to discover that most ancient rulers spent a great deal of their time thinking about the relation between mines, soldiers, taxes, and food. Most concluded that the creation of markets of this sort was not just convenient for feeding soldiers, but useful in all sorts of ways, since it meant officials no longer had to requisition everything they needed directly from the populace or figure out a way to produce it on royal estates or royal workshops. In other words, despite the dogged liberal assumption—again, coming from Smith’s legacy—that the existence of states and markets are somehow opposed, the historical record implies that exactly the opposite is the case. Stateless societies tend also to be without markets."


"L. Frank Baum’s book The Wonderful Wizard of Oz, which appeared in 1900, is widely recognized to be a parable for the Populist campaign of William Jennings Bryan, who twice ran for president on the Free Silver platform—vowing to replace the gold standard with a bimetallic system that would allow the free creation of silver money alongside gold.21 As with the Greenbackers, one of the main constituencies for the movement was debtors: particularly, Midwestern farm families such as Dorothy’s, who had been facing a massive wave of foreclosures during the severe recession of the 1890s. According to the Populist reading, the Wicked Witches of the East and West represent the East and West Coast bankers (promoters of and benefactors from the tight money supply), the Scarecrow represented the farmers (who didn’t have the brains to avoid the debt trap), the Tin Woodsman was the industrial proletariat (who didn’t have the heart to act in solidarity with the farmers), the Cowardly Lion represented the political class (who didn’t have the courage to intervene). The yellow brick road, silver slippers, emerald city, and hapless Wizard presumably speak for themselves.22 “Oz” is of course the standard abbreviation for “ounce.”23 As an attempt to create a new myth, Baum’s story was remarkably effective. As political propaganda, less so. William Jennings Bryan failed in three attempts to win the presidency, the silver standard was never adopted, and few nowadays even remember what The Wonderful Wizard of Oz was originally supposed to be about."


"Richard Nixon’s decision in 1971 to unpeg the dollar from precious metals entirely, eliminate the international gold standard, and introduce the system of floating currency regimes that has dominated the world economy ever since. This meant in effect that all national currencies were henceforth, as neoclassical economists like to put it, “fiat money” backed only by the public trust."


"The core argument is that any attempt to separate monetary policy from social policy is ultimately wrong. Primordial-debt theorists insist that these have always been the same thing. Governments use taxes to create money, and they are able to do so because they have become the guardians of the debt that all citizens have to one another. This debt is the essence of society itself. It exists long before money and markets, and money and markets themselves are simply ways of chopping pieces of it up."


"The first kings were sacred kings who were either gods in their own right or stood as privileged mediators between human beings and the ultimate forces that governed the cosmos. This sets us on a road to the gradual realization that our debt to the gods was always, really, a debt to the society that made us what we are."


"The “primordial debt,” writes British sociologist Geoffrey Ingham, “is that owed by the living to the continuity and durability of the society that secures their individual existence.”"


"The German historian Bernard Laum long ago pointed out that in Homer, when people measure the value of a ship or suit of armor, they always measure it in oxen—even though when they actually exchange things, they never pay for anything in oxen. It is hard to escape the conclusion that this was because an ox was what one offered the gods in sacrifice."


"From Sumer to Classical Greece, silver and gold were dedicated as offerings in temples. Everywhere, money seems to have emerged from the thing most appropriate for giving to the gods."


"If you start from the barter theory of money, you have to resolve the problem of how and why you would come to select one commodity to measure just how much you want each of the other ones. If you start from a credit theory, you are left with the problem I described in the first chapter: how to turn a moral obligation into a specific sum of money, how the mere sense of owing someone else a favor can eventually turn into a system of accounting in which one is able to calculate exactly how many sheep or fish or chunks of silver it would take to repay the debt."


"If taxes represent our absolute debt to the society that created us, then the first step toward creating real money comes when we start calculating much more specific debts to society, systems of fines, fees, and penalties, or even debts we owe to specific individuals who we have wronged in some way, and thus to whom we stand in a relation of “sin” or “guilt.”"


"“primitive currencies” of this sort are only rarely used to buy and sell things, and even when they are, never primarily to buy and sell everyday items such as chickens or eggs or shoes or potatoes. Rather than being employed to acquire things, they are mainly used to rearrange relations between people. Above all, to arrange marriages and to settle disputes, particularly those arising from murders or personal injury. There is every reason to believe that our own money started the same way—even the English word “to pay” is originally derived from a word for “to pacify, appease”—as in, to give someone something precious, for instance, to express just how badly you feel about having just killed his brother in a drunken brawl, and how much you would really like to avoid this becoming the basis for an ongoing blood-feud.43"


"If Henry gives Joshua a pig and feels he has received an inadequate counter-gift, he might mock Joshua as a cheapskate, but he would have little occasion to come up with a mathematical formula for precisely how cheap he feels Joshua has been. On the other hand, if Joshua’s pig just destroyed Henry’s garden, and especially, if that led to a fight in which Henry lost a toe, and Henry’s family is now hauling Joshua up in front of the village assembly—this is precisely the context where people are most likely to become petty and legalistic and express outrage if they feel they have received one groat less than was their rightful due. That means exact mathematical specificity: for instance, the capacity to measure the exact value of a two-year-old pregnant sow."


"We don’t know precisely when and how interest-bearing loans originated, since they appear to predate writing."


"Most likely, Temple administrators invented the idea as a way of financing the caravan trade. This trade was crucial because while the river valley of ancient Mesopotamia was extraordinarily fertile and produced huge surpluses of grain and other foodstuffs, and supported enormous numbers of livestock, which in turn supported a vast wool and leather industry, it was almost completely lacking in anything else."


"From quite early times, then, Temple administrators developed the habit of advancing goods to local merchants—some of them private, others themselves Temple functionaries—who would then go off and sell it overseas. Interest was just a way for the Temples to take their share of the resulting profits."


"These are also the intellectual and political circles that shaped the thought of Emile Durkheim, the founder of the discipline of sociology that we know today, who in a way did Comte one better by arguing that all gods in all religions are always already projections of society—so an explicit religion of society would not even be necessary. All religions, for Durkheim, are simply ways of recognizing our mutual dependence on one another, a dependence that affects us in a million ways that we are never entirely aware of. “God” and “society” are ultimately the same."


"To take one notorious example, this was how the Soviet Union used to justify forbidding their citizens from emigrating to other countries. The argument was always: The USSR created these people, the USSR raised and educated them, made them who they are. What right do they have to take the product of our investment and transfer it to another country, as if they didn’t owe us anything? Neither is this rhetoric restricted to socialist regimes. Nationalists appeal to exactly the same kind of arguments—especially in times of war. And all modern governments are nationalist to some degree."


"This is a great trap of the twentieth century: on one side is the logic of the market, where we like to imagine we all start out as individuals who don’t owe each other anything. On the other is the logic of the state, where we all begin with a debt we can never truly pay. We are constantly told that they are opposites and that between them they contain the only real human possibilities. But it’s a false dichotomy. States created markets. Markets require states. Neither could continue without the other, at least, in anything like the forms we would recognize today."


"Look at a coin from your pocket. On one side is “heads”—the symbol of the political authority which minted the coin; on the other side is “tails”—the precise specification of the amount the coin is worth as payment in exchange. One side reminds us that states underwrite currencies and the money is originally a relation between persons in society, a token perhaps. The other reveals the coin as a thing, capable of entering into definite relations with other things."


"in certain cities in nineteenth-century Siam, small change consisted entirely of porcelain Chinese gaming counters—basically, the equivalent of poker chips—issued by local casinos. If one of these casinos went out of business or lost its license, its owners would have to send a crier through the streets banging a gong and announcing that anyone holding such chits had three days to redeem them."


"Up here we say that by gifts one makes slaves and by whips one makes dogs.”"


"Rather than seeing himself as human because he could make economic calculations, the hunter insisted that being truly human meant refusing to make such calculations, refusing to measure or remember who had given what to whom, for the precise reason that doing so would inevitably create a world where we began “comparing power with power, measuring, calculating” and reducing each other to slaves or dogs through debt."


"Christians practically say as much every time they recite the Lord’s Prayer and ask God to “forgive us our debts, as we also forgive our debtors.”25 It repeats the story of the parable almost exactly, and the implications are similarly dire. After all, most Christians reciting the prayer are aware that they do not generally forgive their debtors. Why then should God forgive them their sins?26"


"Levi-Strauss, who became a kind of intellectual god in anthropology, made the extraordinary argument that human life could be imagined as consisting of three spheres: language (which consisted of the exchange of words), kinship (which consisted of the exchange of women), and economics (which consisted of the exchange of things). All three, he insisted, were governed by the same fundamental law of reciprocity.3"


"while most of us can imagine what we owe to our parents as a kind of debt, few of us can imagine being able to actually pay it—or even that such a debt ever should be paid. Yet if it can’t be paid, in what sense is it a “debt” at all? And if it is not a debt, what is it?"


"All of us act like communists a good deal of the time. None of us act like a communist consistently. “Communist society”—in the sense of a society organized exclusively on that single principle—could never exist. But all social systems, even economic systems like capitalism, have always been built on top of a bedrock of actually-existing communism."


"One might even say that it’s one of the scandals of capitalism that most capitalist firms, internally, operate communistically. True, they don’t tend to operate very democratically. Most often they are organized around military-style top-down chains of command. But there is often an interesting tension here, because top-down chains of command are not particularly efficient: they tend to promote stupidity among those on top and resentful foot-dragging among those on the bottom. The greater the need to improvise, the more democratic the cooperation tends to become. Inventors have always understood this, start-up capitalists frequently figure it out, and computer engineers have recently rediscovered the principle: not only with things like freeware, which everyone talks about, but even in the organization of their businesses."


"communism is the foundation of all human sociability."


"“baseline communism”: the understanding that, unless people consider themselves enemies, if the need is considered great enough, or the cost considered reasonable enough, the principle of “from each according to their abilities, to each according to their needs” will be assumed to apply."


"Baseline communism might be considered the raw material of sociality, a recognition of our ultimate interdependence that is the ultimate substance of social peace."


"Kings knew that the really important game was not economic, but one of status, and theirs was absolute."


"the logic of identity is, always and everywhere, entangled in the logic of hierarchy. It is only when certain people are placed above others, or where everyone is being ranked in relation to the king, or the high priest, or Founding Fathers, that one begins to speak of people bound by their essential nature: about fundamentally different kinds of human being."


"When objects of material wealth pass back and forth between superiors and inferiors as gifts or payments, the key principle seems to be that the sorts of things given on each side should be considered fundamentally different in quality, their relative value impossible to quantify—the result being that there is no way to even conceive of a squaring of accounts. Even if Medieval writers insisted on imagining society as a hierarchy in which priests pray for everyone, nobles fight for everyone, and peasants feed everyone, it never even occurred to any of them to establish how many prayers or how much military protection was equivalent to a ton of wheat. Nor did anyone ever consider making such a calculation."


"one could judge how egalitarian a society really was by exactly this: whether those ostensibly in positions of authority are merely conduits for redistribution, or able to use their positions to accumulate riches."


"often admit this, if you ask them in the right way. Markets aren’t real. They are mathematical models, created by imagining a self-contained world where everyone has exactly the same motivation and the same knowledge and is engaged in the same self-interested calculating exchange. Economists are aware that reality is always more complicated; but they are also aware that to come up with a mathematical model, one always has to make the world into a bit of a cartoon."


"Even in the Bible, the admonition in the Ten Commandments not to “covet thy neighbor’s wife” clearly referred not to lust in one’s heart (adultery had already been covered in commandment number seven), but to the prospect of taking her as a debt-peon—in other words, as a servant to sweep one’s yard and hang out the laundry."


"Historically, commercial economies—market economies, as we now like to call them—are a relative newcomer. For most of human history, human economies predominated."


"When a Fijian suitor’s family presents a whale tooth to ask for a woman’s hand in marriage, is this an advance payment for the services the woman will provide in cultivating her future husband’s gardens? Or is he purchasing the future fertility of her womb? Or is this a pure formality, the equivalent of the dollar that has to change hands in order to seal a contract? According to Rospabé, it’s none of these. The whale tooth, however valuable, is not a form of payment. It is really an acknowledgment that one is asking for something so uniquely valuable that payment of any sort would be impossible. The only appropriate payment for the gift of a woman is the gift of another woman; in the meantime, all one can do is to acknowledge the outstanding debt."


"Money, then, begins, as Rospabé himself puts it, “as a substitute for life.”14 One might call it the recognition of a life-debt. This, in turn, explains why it’s invariably the exact same kind of money that’s used to arrange marriages that is also used to pay wergeld (or “bloodwealth,” as it’s sometimes also called): money presented to the family of a murder victim so as to prevent or resolve a blood-feud."


"Money almost always arises first from objects that are used primarily as adornment of the person. Beads, shells, feathers, dog or whale teeth, gold, and silver are all well-known cases in point. All are useless for any purpose other than making people look more interesting, and hence, more beautiful. The brass rods used by the Tiv might seem an exception, but actually they’re not: they were used mainly as raw material for the manufacture of jewelry, or simply twisted into hoops and worn at dances. There are exceptions (cattle, for instance), but as a general rule, it’s only when governments, and then markets, enter the picture that we begin to see currencies like barley, cheese, tobacco, or salt.40"


"The slave trade, of course, represented violence on an entirely different scale. We are speaking here of destruction of genocidal proportions, in world-historic terms, comparable only to events like the destruction of New World civilizations or the Holocaust. Neither do I mean in any way to blame the victims: we need only imagine what would be likely to happen in our own society if a group of space aliens suddenly appeared, armed with undefeatable military technology, infinite wealth, and no recognizable morality—and announced that they were willing to pay a million dollars each for human workers, no questions asked. There will always be at least a handful of people unscrupulous enough to take advantage of such a situation—and a handful is all it takes."


"How common was this? The African slave trade was, as I mentioned, an unprecedented catastrophe, but commercial economies had already been extracting slaves from human economies for thousands of years. It is a practice as old as civilization."


"there is every reason to believe that slavery, with its unique ability to rip human beings from their contexts, to turn them into abstractions, played a key role in the rise of markets everywhere."


"At the very least, there was always seen to be something disreputable and ugly about slavery. Anyone too close to it was tainted. Slave-traders particularly were scorned as inhuman brutes. Throughout history, moral justifications for slavery are rarely taken particularly seriously even by those who espouse them. For most of human history, most people saw slavery much as we see war: a tawdry business, to be sure, but one would have to be naïve indeed to imagine it could simply be eliminated."


"Slavery is the ultimate form of being ripped from one’s context, and thus from all the social relationships that make one a human being. Another way to put this is that the slave is, in a very real sense, dead."


"one becomes a slave in situations where one would otherwise have died. This is obvious in the case of war: in the ancient world, the victor was assumed to have total power over the vanquished, including their women and children; all of them could be simply massacred. Similarly, he argued, criminals were condemned to slavery only for capital crimes, and those who sold themselves, or their children, normally faced starvation."


"slave could not owe debts, because in almost every important sense, a slave was dead. In Roman law, this was quite explicit. If a Roman soldier was captured and lost his liberty, his family was expected to read his will and dispose of his possessions. Should he later regain his freedom, he would have to start over, even to the point of remarrying the woman who was now considered his widow."


"What makes Medieval Irish laws seem so peculiar from our perspective is that their exponents had not the slightest discomfort with putting an exact monetary price on human dignity. For us, the notion that the sanctity of a priest or the majesty of a king could be held equivalent to a million fried eggs or a hundred thousand haircuts is simply bizarre. These are precisely the things that ought to be considered beyond all possibility of quantification. If Medieval Irish jurists felt otherwise, it was because people at that time did not use money to buy eggs or haircuts."


"Already by the age of Socrates, while a man’s honor was increasingly tied to disdain for commerce and assertiveness in public life, a woman’s honor had come to be defined in almost exclusively sexual terms: as a matter of virginity, modesty, and chastity, to the extent that respectable women were expected to be shut up inside the household and any woman who played a part in public life was considered for that reason a prostitute, or tantamount to one."


"the thing that really seemed to bother them about money was simply that they wanted it so much. Since money could be used to buy just about anything, everybody wanted it. That is: it was desirable because it was non-discriminating. One could see how the metaphor of the porne might seem particularly appropriate. A woman “common to the people”—as the poet Archilochos put it—is available to everyone. In principle, we shouldn’t be attracted to such an undiscriminating creature. In fact, of course, we are.68 And nothing was both so undiscriminating, and so desirable, as money."


"money introduced a democratization of desire."


"In the first century AD, for example, it was not uncommon for educated Greeks to have themselves sold into slavery to some wealthy Roman in need of a secretary, entrust the money to a close friend or family member, and then, after a certain interval, buy themselves back, thus obtaining Roman citizenship. This despite the fact that, during such time as they were slaves, if their owner decided to, say, cut one of his secretary’s feet off, legally, he would have been perfectly free to do so.109"


"This is why I developed the concept of human economies: ones in which what is considered really important about human beings is the fact that they are each a unique nexus of relations with others—therefore, that no one could ever be considered exactly equivalent to anything or anyone else. In a human economy, money is not a way of buying or trading human beings, but a way of expressing just how much one cannot do so."


"an ancient Greek would certainly have seen the distinction between a slave and an indebted wage laborer as, at best, a legalistic nicety."


"There is a shape to the past, and it is only by understanding it that we can begin to have a sense of the historical opportunities that exist in the present."


"Coinage appears to have arisen independently in three different places, almost simultaneously: on the Great Plain of northern China, in the Ganges river valley of northeast India, and in the lands surrounding the Aegean Sea, in each case, between roughly 600 and 500 BC. This wasn’t due to some sudden technological innovation: the technologies used in making the first coins were, in each case, entirely different.4 It was a social transformation. Why this happened in exactly this way is an historical mystery. But this much we know: for some reason, in Lydia, India, and China, local rulers decided that whatever longstanding credit systems had existed in their kingdoms were no longer adequate, and they began to issue tiny pieces of precious metals—metals that had previously been used largely in international commerce, in ingot form—and to encourage their subjects to use them in day-to-day transactions."


"For much of human history, then, an ingot of gold or silver, stamped or not, has served the same role as the contemporary drug dealer’s suitcase full of unmarked bills: an object without a history, valuable because one knows it will be accepted in exchange for other goods just about anywhere, no questions asked."


"while credit systems tend to dominate in periods of relative social peace, or across networks of trust (whether created by states or, in most periods, transnational institutions like merchant guilds or communities of faith), in periods characterized by widespread war and plunder, they tend to be replaced by precious metal. What’s more, while predatory lending goes on in every period of human history, the resulting debt crises appear to have the most damaging effects at times when money is most easily convertible into cash."


"is also one of the earliest mentions of a debt prison.21 Under the Ptolemies, the Greek dynasty that ruled Egypt after Alexander, periodic clean slates had become institutionized."


"Jaspers became fascinated by the fact that figures like Pythagoras (570–495 BC), the Buddha (563–483 BC), and Confucius (551–479 BC) were all alive at exactly the same time, and that Greece, India, and China, in that period, all saw a sudden efflorescence of debate between contending intellectual schools, each group apparently unaware of the others’ existence."


"For Jaspers, the period begins with the Persian prophet Zoroaster, around 800 BC, and ends around 200 BC, to be followed by a Spiritual Age that centers on figures like Jesus and Mohammed. For my own purposes, I find it more useful to combine the two. Let us define the Axial Age, then, as running from 800 BC to 600 AD.3 This makes the Axial Age the period that saw the birth not only of all the world’s major philosophical tendencies, but also all of today’s major world religions: Zoroastrianism, Prophetic Judaism, Buddhism, Jainism, Hinduism, Confucianism, Taoism, Christianity, and Islam.4"


"one theory is that the very first Lydian coins were invented explicitly to pay mercenaries.11 This might help explain why the Greeks, who supplied most of the mercenaries, so quickly became accustomed to the use of coins, and why the use of coinage spread so quickly across the Hellenic world, so that by 480 BC there were at least one hundred mints operating in different Greek cities, even though at that time, none of the great trading nations of the Mediterranean had as yet showed the slightest interest in them. The Phoenicians, for example, were considered the greatest merchants and bankers of antiquity.12 They were also great inventors, having been the first to develop both the alphabet and the abacus. Yet for centuries after the invention of coinage, they preferred to continue conducting business as they always had, with unwrought ingots and promissory notes."


"In brief, one might say that these conflicts over debt had two possible outcomes. The first was that the aristocrats could win, and the poor remain “slaves of the rich”—which in practice meant that most people would end up clients of some wealthy patron. Such states were generally militarily ineffective.16 The second was that popular factions could prevail, institute the usual popular program of redistribution of lands and safeguards against debt peonage, thus creating the basis for a class of free farmers whose children would, in turn, be free to spend much of their time training for war.17 Coinage played a critical role in maintaining this kind of free peasantry—secure in their landholding, not tied to any great lord by bonds of debt."


"Alexander’s army, which numbered some 120,000 men, required half a ton of silver a day just for wages."


"Kautilya’s Arthasastra, a political treatise written by one of the chief ministers for the Mauryan dynasty that succeeded it (321–185 BC), stated the matter precisely: “The treasury is based upon mining, the army upon the treasury; he who has army and treasury may conquer the whole wide earth.”"


"Greek sources report that Magadha could put to the field a force of 200,000 infantry, 20,000 horses, and about 4,000 elephants—and that Alexander’s men mutinied rather than have to face them."


"state was inserting itself into every aspect of the process: Kautilya suggests paying soldiers apparently generous wages, then secretly replacing hawkers with government agents who could charge them twice the normal rates for supplies, as well as organizing prostitutes under a ministry in which they could be trained as spies, so as to make detailed reports on their clients’ loyalties."


"To understand what had changed, we have to look, again, at the particular kind of markets that were emerging at the beginning of the Axial Age: impersonal markets, born of war, in which it was possible to treat even neighbors as if they were strangers."


"As a general principle, when an enemy’s army comes, it seeks some profit. Now if they come and find the prospect of death instead, they will consider running away the most profitable thing to do. When all one’s enemies consider running to be the most profitable thing to do, no blades will cross. This is the most essential point in military matters.57"


"In the numerous manuals on statecraft produced at the time, everything was cast as a matter of recognizing interest and advantage, calculating how to balance that which will profit the ruler against that which will profit the people, determining when the ruler’s interests are the same as the people’s and when they contradict.58"


"Rather than offering to provide candles for a specific ritual, or servants to attend to the upkeep of the monastic grounds, she would provide a certain sum of money—or something worth a great deal of money—that would then be loaned out in the name of the monastery, at the accepted 15-percent annual rate. The interest on the loan would then be earmarked for that specific purpose.5 An inscription discovered at the Great Monastery of Sanci sometime around 450 AD provides a handy illustration. A woman named Harisvamini donates the relatively modest sum of twelve dinaras to the “Noble Community of Monks.”6 The text carefully inscribes how the income is to be divided up: the interest on five of the dinaras was to provide daily meals for five different monks, the interest from another three would pay to light three lamps for the Buddha, in memory of her parents, and so forth. The inscription ends by saying that this was a permanent endowment, “created with a document in stone to last as long as the moon and the sun”: since the principal would never be touched, the contribution would last forever.7"


"There were decades in Chinese history when the rate of recorded peasant uprisings was roughly 1.8 per hour.21 What’s more, such uprisings were frequently successful. Most of the most famous Chinese dynasties that were not the product of barbarian invasion (the Yuan or Qing) were originally peasant insurrections (the Han, Tang, Sung, and Ming). In no other part of the world do we see anything like this."


"We are used to thinking of such bureaucratic interventions—particularly the monopolies and regulations—as state restriction on “the market”—owing to the prevailing prejudice that sees markets as quasi-natural phenomena that emerge by themselves, and governments as having no role other than to squelch or siphon from them. I have repeatedly pointed out how mistaken this is, but China provides a particularly striking example."


"The Confucian state may have been the world’s greatest and most enduring bureaucracy, but it actively promoted markets, and as a result, commercial life in China soon became far more sophisticated, and markets more developed, than anywhere else in the world."


"Normally, the easiest way to do this is by establishing some kind of formal or de facto monopoly. For this reason, capitalists, whether merchant princes, financiers, or industrialists, invariably try to ally themselves with political authorities to limit the freedom of the market, so as to make it easier for them to do so.27 From this perspective, China was for most of its history the ultimate anti-capitalist market state.28 Unlike later European princes, Chinese rulers systematically refused to team up with would-be Chinese capitalists (who always existed)."


"Tallies weren’t just used for loans, but for any sort of contract—which is why early paper contracts also had to be cut in half and one half kept by each party.52 With paper contracts, there was a definite tendency for the creditor’s half to function as an IOU and thus become transferable."


"By the early Song dynasty (960–1279 AD), local banking operations all over China were running similar operations, accepting cash and bullion for safekeeping and allowing depositors to use their receipts as promissory notes, as well as trading in government coupons for salt and tea. Many of these notes came to circulate as de facto money.54"


"In Islamic society, the merchant became not just a respected figure, but a kind of paragon: like the warrior, a man of honor able to pursue far-flung adventures; unlike him, able to do so in a fashion damaging to no one."


"The veneration of the merchant was matched by what can only be called the world’s first popular free-market ideology. True, one should be careful not to confuse ideals with reality. Markets were ever entirely independent from the government. Islamic regimes did employ all the usual strategies of manipulating tax policy to encourage the growth of markets, and they periodically tried to intervene in commercial law.81 Still, there was a very strong popular feeling that they shouldn’t."


"In fact, many of the specific arguments and examples that Smith uses appear to trace back directly to economic tracts written in medieval Persia. For instance, not only does his argument that exchange is a natural outgrowth of human rationality and speech already appear both in both Ghazali (1058–1111 AD) and Tusi (1201–1274 AD); both use exactly the same illustration: that no one has ever observed two dogs exchanging bones."


"The differences, however, are just as significant as the similarities. One telling example: like Smith, Tusi begins his treatise on economics with a discussion of the division of labor; but where for Smith, the division of labor is actually an outgrowth of our “natural propensity to truck and barter” in pursuit of individual advantage, for Tusi, it was an extension of mutual aid:"


"A thing can only be exactly linked to other things if it has no particular special form or feature of its own—for example, a mirror that has no color can reflect all colors. The same is the case with money—it has no purpose of its own, but it serves as medium for the purpose of exchanging goods."


"From this it also follows that lending money at interest must be illegitimate, since it means using money as an end in itself: “Money is not created to earn money.”"


"spread of Islam allowed the market to become a global phenomenon, operating largely independent of governments, according to its own internal laws."


"Such stories about the extraction of Jewish teeth, skin, and intestines are, I think, important to bear in mind when thinking about Shakespeare’s imaginary Merchant of Venice demanding his “pound of flesh.”117 It all seems to have been a bit of a guilty projection of terrors that Jews had never really visited on Christians, but that had been directed the other way around."


"the persecutions and appropriations were an extension of the logic whereby kings effectively treated debts owed to Jews as ultimately owed to themselves, even setting up a branch of the Treasury (“the Exchequer of the Jews”) to manage them."


"Our image of the Middle Ages as an “age of faith”—and hence, of blind obedience to authority—is a legacy of the French Enlightenment. Again, it makes sense only if you think of the “Middle Ages” as something that happened primarily in Europe. Not only was the Far West an unusually violent place by world standards, the Catholic Church was extraordinarily intolerant. It’s hard to find many medieval Chinese, Indian, or Islamic parallels, for example, to the burning of “witches” or the massacre of heretics. More typical was the pattern that prevailed in certain periods of Chinese history, when it was perfectly acceptable for a scholar to dabble in Taoism in his youth, become a Confucian in middle age, then become a Buddhist on retirement."


"When Aristotle argued that coins are merely social conventions, the term he used was symbolon—from which our own word “symbol” is derived. Symbolon was originally the Greek word for “tally”—an object broken in half to mark a contract or agreement, or marked and broken to record a debt. So our word “symbol” traces back originally to objects broken to record debt contracts of one sort or another. This is striking enough. What’s really remarkable, though, is that the contemporary Chinese word for “symbol,” fu, or fu hao, has almost exactly the same origin.148"


"In the world of Islam, where theologians held that God recreated the entire universe at every instant, market fluctuations were instead seen as merely another manifestation of divine will."


"The striking thing is that the Confucian condemnation of the merchant and the Islamic celebration of the merchant ultimately led to the same thing: prosperous societies with flourishing markets, but where the elements never came together to create the great merchant banks and industrial firms that were to become the hallmark of modern capitalism. It’s especially striking in the case of Islam."


"At the height of the Caliphate, some of these merchants were in possession of millions of dinars and seeking profitable investment. Why did nothing like modern capitalism emerge? I would highlight two factors. First, Islamic merchants appear to have taken their free-market ideology seriously. The marketplace did not fall under the direct supervision of the government; contracts were made between individuals—ideally, “with a handshake and a glance at heaven”—and thus honor and credit became largely indistinguishable. This is inevitable: you can’t have cutthroat competition where there is no one stopping people from literally cutting one another’s throats. Second, Islam also took seriously the principle, later enshrined in classical economic theory but only unevenly observed in practice, that profits are the reward for risk."


"Financial mechanisms designed to avoid these risks were considered impious. This was one of the objections to usury: if one demands a fixed rate of interest, the profits are guaranteed."


"The Inexhaustible Treasuries were inexhaustible because, by continually lending their money out at interest and never otherwise touching their capital, they could guarantee effectively risk-free investments. That was the entire point. By doing so, Buddhism, unlike Islam, produced something very much like what we now call “corporations”—entities that, through a charming legal fiction, we imagine to be persons, just like human beings, but immortal, never having to go through all the human untidiness of marriage, reproduction, infirmity, and death. To put it in properly medieval terms, they are very much like angels."


"The legal idea of a corporation as a “fictive person” (persona ficta)—a person who, as Maitland, the great British legal historian, put it, “is immortal, who sues and is sued, who holds lands, has a seal of his own, who makes regulations for those natural persons of whom he is composed”166—was first established in canon law by Pope Innocent IV in 1250 AD, and one of the first kinds of entities it applied to were monasteries—as also to universities, churches, municipalities, and guilds.167"


"All this is worth emphasizing because while we are used to assuming that there’s something natural or inevitable about the existence of corporations, in historical terms, they are actually strange, exotic creatures. No other great tradition came up with anything like it.170 They are the most peculiarly European addition to that endless proliferation of metaphysical entities so characteristic of the Middle Ages—as well as the most enduring."


"Between 1500 and 1650, for instance, prices in England increased 500 percent, but wages rose much more slowly, so that in five generations, real wages fell to perhaps 40 percent of what they had been. The same thing happened everywhere in Europe. Why? The favorite explanation, ever since a French lawyer named Jean Bodin first proposed it in 1568, was the vast influx of gold and silver that came pouring into Europe after the conquest of the New World. As the value of precious metals collapsed, the argument went, the price of everything else skyrocketed, and wages simply couldn’t keep up."


"the Chinese government had gone back to its old policy of encouraging markets and merely intervening to prevent any undue concentrations of capital. It quickly proved spectacularly successful, and Chinese markets boomed. Indeed, many speak of the Ming as having accomplished something almost unique in world history: this was a time when the Chinese population was exploding, but living standards markedly improved."


"Had China in particular not had such a dynamic economy that changing its metallic base could absorb the staggering quantities of silver mined in the New World over three centuries, those mines might have become unprofitable within a few decades. The massive inflation of silver-denominated prices in Europe from 1500 to 1640 indicates a shrinking value for the metal there even with Asia draining off much of the supply.8"


"Or if there is a demand for sugar in England, and enslaving millions is the easiest way to acquire labor to produce it, then it is inevitable that some will enslave them. In fact, history makes it quite clear that this is not the case. Any number of civilizations have probably been in a position to wreak havoc on the scale that the European powers did in the sixteenth and seventeenth centuries (Ming China itself was an obvious candidate), but almost none actually did so.12"


"When dealing with conquistadors, we are speaking not just of simple greed, but greed raised to mythic proportions. This is, after all, what they are best remembered for. They never seemed to get enough."


"Money always has the potential to become a moral imperative unto itself. Allow it to expand and it can quickly become a morality so imperative that all others seem frivolous in comparison."


"The structure of the corporation is a telling case in point—and it is no coincidence that the first major joint-stock corporations in the world were the English and Dutch East India companies, ones that pursued that very same combination of exploration, conquest, and extraction as did the conquistadors."


"is a structure designed to eliminate all moral imperatives but profit. The executives who make decisions can argue—and regularly do—that, if it were their own money, of course they would not fire lifelong employees a week before retirement, or dump carcinogenic waste next to schools. Yet they are morally bound to ignore such considerations, because they are mere employees whose only responsibility is to provide the maximum return on investment for the company’s stockholders. (The stockholders, of course, are not given any say.)"


"Capital, then, is not simply money. It is not even just wealth that can be turned into money. But neither is it just the use of political power to help one use one’s money to make more money."


"The history of modern financial instruments, and the ultimate origins of paper money, really begin with the issuing of municipal bonds—a practice begun by the Venetian government in the twelfth century when, needing a quick infusion of income for military purposes, it levied a compulsory loan on its taxpaying citizens, for which it promised each of them five percent annual interest, and allowed the “bonds” or contracts to become negotiable, thus creating a market in government debt."


"the Bank of England was created when a consortium of forty London and Edinburgh merchants—mostly already creditors to the crown—offered King William III a £1.2 million loan to help finance his war against France. In doing so, they also convinced him to allow them in return to form a corporation with a monopoly on the issuance of banknotes—which were, in effect, promissory notes for the money the king now owed them. This was the first independent national central bank, and it became the clearinghouse for debts owed between smaller banks; the notes soon developed into the first European national paper currency."


"The Dutch Republic, which pioneered the development of stock markets, had already experienced this in the tulip mania of 1637—the first of a series of speculative “bubbles,” as they came to be known, in which future prices would first be bid through the ceiling by investors and then collapse."


"The famous South Sea Bubble in 1720—in which a newly formed trading company, granted a monopoly of trade with the Spanish colonies, bought up a considerable portion of the British national debt and saw its shares briefly skyrocket before collapsing in ignominy—was only the culmination."


"“You have plenty of gold lying somewhere underneath your lands,” notes Faust. “Just issue notes promising your creditors you’ll give it to them later. Since no one knows how much gold there really is, there’s no limit to how much you can promise.”"


"They had a much more fundamental problem with the market: greed. Market motives were held to be inherently corrupt. The moment that greed was validated and unlimited profit was considered a perfectly viable end in itself, this political, magical element became a genuine problem, because it meant that even those actors—the brokers, stock-jobbers, traders—who effectively made the system run had no convincing loyalty to anything, even to the system itself."


"It would seem that almost all elements of financial apparatus that we’ve come to associate with capitalism—central banks, bond markets, short-selling, brokerage houses, speculative bubbles, securization, annuities—came into being not only before the science of economics (which is perhaps not too surprising), but also before the rise of factories, and wage labor itself.88 This is a genuine challenge to familiar ways of thinking. We like to think of the factories and workshops as the “real economy,” and the rest as superstructure, constructed on top of it. But if this were really so, then how can it be that the superstructure came first? Can the dreams of the system create its body?"


"The word was originally invented by socialists, who saw capitalism as that system whereby those who own capital command the labor of those who do not."


"Proponents, in contrast, tend to see capitalism as the freedom of the marketplace, which allows those with potentially marketable visions to pull resources together to bring those visions into being."


"For a century, one such private, profit-seeking corporation governed India. The national debts of England, France, and the others were based in money borrowed not to dig canals and erect bridges, but to acquire the gunpowder needed to bombard cities and to construct the camps required for the holding of prisoners and the training of recruits."


"Europeans had no compunctions about aggressively marketing opium in China as a way of finally putting an end to the need to export bullion. The cloth trade only came later, after the East India Company used military force to shut down the (more efficient) Indian cotton export trade."


"British overlords in India, starting with the East India Company but continuing under Her Majesty’s government, institutionalized debt peonage as their primary means of creating products for sale abroad."


"Our dominant image of the origins of capitalism continues to be the English workingman toiling in the factories of the industrial revolution, and this image can be traced forward to Silicon Valley, with a straight line in between. All those millions of slaves and serfs and coolies and debt peons disappear, or if we must speak of them, we write them off as temporary bumps along the road. Like sweatshops, this is assumed to be a stage that industrializing nations had to pass through, just as it is still assumed that all those millions of debt peons and contract laborers and sweatshop workers who still exist, often in the same places, will surely live to see their children become regular wage laborers with health insurance and pensions, and their children, doctors and lawyers and entrepreneurs."


"There is, and has always been, a curious affinity between wage labor and slavery. This is not just because it was slaves on Caribbean sugar plantations who supplied the quick-energy products that powered much of early wage laborers’ work; not just because most of the scientific management techniques applied in factories in the industrial revolution can be traced back to those sugar plantations; but also because both the relation between master and slave, and between employer and employee, are in principle impersonal: whether you’ve been sold or you’re simply rented yourself out, the moment money changes hands, who you are is supposed to be unimportant; all that’s important is that you are capable of understanding orders and doing what you’re told.101"


"We are, nowadays, used to associating factories eighteen months in arrears for wages with a nation in economic free-fall, such as occurred during the collapse of the Soviet Union; but owing to the hard-money policies of the British government, who were always concerned above all to ensure that their paper money didn’t float away in another speculative bubble, in the early days of industrial capitalism, such a situation was in no way unusual. Even the government was often unable to find the cash to pay its own employees."


"for those who spend most of their waking hours working at someone else’s orders, the ability to pull out a wallet full of banknotes that are unconditionally one’s own can be a compelling form of freedom."


"Let me fill in some of the gaps in our story. After burning his boats, Cortés began to assemble an army of local allies, which was easy to do because the Aztecs were widely hated, and then he began to march on the Aztec capital. Moctezuma, the Aztec emperor, who had been monitoring the situation closely, concluded that he needed to at least figure out what sort of people he was dealing with, so he invited the entire Spanish force (only a few hundred men) to be his official guests in Tenochtitlán. This eventually led to a series of palace intrigues during which Cortés’s men briefly held the emperor hostage before being forcibly expelled."


"There were similar rules in board games, such as Cortés and Moctezuma were playing: if, by some freak stroke of luck, one of the dice landed on its edge, the game was over, and the winner took everything. This, Clenninden suggests, must have been what Moctezuma was really waiting for. After all, he was clearly in the middle of extraordinary events. Strange creatures had appeared, apparently from nowhere, with unheard-of powers. Rumors of epidemics, of the destruction of nearby nations, had presumably already reached him. If ever there was a time that some grandiose revelation was due from the gods, then surely this was it."


"Moctezuma was above all a warrior, and all warriors are gamblers; but unlike Cortés, he was clearly in every way a man of honor. As we’ve also seen, the quintessence of a warrior’s honor, which is a greatness that can only come from the destruction and degradation of others, is his willingness to throw himself into a game where he risks that same destruction and degradation himself—and, unlike Cortés, to play graciously, and by the rules."


"there may be a deeper, more profound relation between gambling and apocalypse. Capitalism is a system that enshrines the gambler as an essential part of its operation, in a way that no other ever has; yet at the same time, capitalism seems to be uniquely incapable of conceiving of its own eternity."


"they insist that it is the only possible viable economic system: one that, as they still sometimes like to say, “has existed for five thousand years and will exist for five thousand more.” On the other hand, it does seem that the moment a significant portion of the population begins to actually believe this and, particularly, starts treating credit institutions as if they really will be around forever, everything goes haywire. Note here how it was the most sober, cautious, responsible capitalist regimes—the seventeenth-century Dutch Republic, the eighteenth-century British Commonwealth—the ones most careful about managing their public debt—that saw the most bizarre explosions of speculative frenzy, the tulip manias and South Sea bubbles."


"the French Revolution introduced several profoundly new ideas in politics—ideas which, fifty years before the revolution, the vast majority of educated Europeans would have written off as crazy, but which, fifty years afterward, just about anyone felt they had to at least pretend they thought were true."


"The first is that social change is inevitable and desirable: that the natural direction of history is for civilization to gradually improve. The second is that the appropriate agent to manage such change is the government. The third is that the government gains its legitimacy from an entity called “the people.”111"


"a strange story because we are used to thinking of the Enlightenment as the dawn of a unique phase of human optimism, borne on assumptions that the advance of science and human knowledge would inevitably make life wiser, safer, and better for everyone—a naïve faith said to have peaked in the Fabian socialism of the 1890s, only to be annihilated in the trenches of World War I."


"In Chicago, for instance, a friend once took me on a drive down a beautiful old street, full of mansions from the 1870s: the reason, he explained, that it looked like that, was that most of Chicago’s rich industrialists of the time were so convinced that the revolution was immanent that they collectively relocated along the road that led to the nearest military base."


"Almost none of the great theorists of capitalism, from anywhere on the political spectrum, from Marx to Weber, to Schumpeter, to von Mises, felt that capitalism was likely to be around for more than another generation or two at the most."


"it does seem strange that capitalism feels the constant need to imagine, or to actually manufacture, the means of its own imminent extinction."


"Presented with the prospect of its own eternity, capitalism—or anyway, financial capitalism—simply explodes. Because if there’s no end to it, there’s absolutely no reason not to generate credit—that is, future money—infinitely. Recent events would certainly seem to confirm this. The period leading up to 2008 was one in which many began to believe that capitalism really was going to be around forever; at the very least, no one seemed any longer to be able to imagine an alternative. The immediate effect was a series of increasingly reckless bubbles that brought the whole apparatus crashing down."


"ON AUGUST 15, 1971, United States President Richard Nixon announced that foreign-held U.S. dollars would no longer be convertible into gold—thus stripping away the last vestige of the international gold standard."


"The consensus among historians is that Nixon had little choice. His hand was forced by the rising costs of the Vietnam War—one that, like all capitalist wars, had been financed by deficit spending. The United States was in possession of a large proportion of the world’s gold reserves in its vaults in Fort Knox (though increasingly less in the late 1960s, as other governments, most famously Charles de Gaulle’s France, began demanding gold for their dollars);"


"The immediate effect of Nixon’s unpegging the dollar was to cause the price of gold to skyrocket; it hit a peak of $600 an ounce in 1980. This of course had the effect of causing U.S. gold reserves to increase dramatically in value."


"little research and discovered that, no, actually, it’s true. The United States Treasury’s gold reserves are indeed kept at Fort Knox, but the Federal Reserve’s gold reserves, and those of more than one hundred other central banks, governments, and organizations, are stored in vaults under the Federal Reserve building at 33 Liberty Street in Manhattan, two blocks away from the Towers."


"“The gold stored at the Federal Reserve Bank of New York is secured in a most unusual vault. It rests on the bedrock of Manhattan Island—one of the few foundations considered adequate to support the weight of the vault, its door, and the gold inside—eighty feet below street level and fifty feet below sea level … To reach the vault, bullion-laden pallets must be loaded into one of the Bank’s elevators and sent down five floors below street level to the vault floor … If everything is in order, the gold is either moved to one or more of the vault’s 122 compartments assigned to depositing countries and official international organizations or placed on shelves. ‘Gold stackers,’ using hydraulic lifts, do indeed shift them back and forth between compartments to balance credits and debts, though the vaults have only numbers, so even the workers don’t know who is paying whom.”"


"Under the free-market orthodoxy that followed, we have all been asked, effectively, to accept that “the market” is a self-regulating system, with the rising and falling of prices akin to a force of nature, and simultaneously to ignore the fact that, in the business pages, it is simply assumed that markets rise and fall mainly in anticipation of, or reaction to, decisions regarding interest rates by Alan Greenspan, or Ben Bernanke, or whoever is currently the chairman of the Federal Reserve.5"


"There’s a reason why the wizard has such a strange capacity to create money out of nothing. Behind him, there’s a man with a gun."


"causing such an enormous strain on the U.S. gold reserves. Many hold that by floating the dollar, Nixon converted the U.S. currency into pure “fiat money”—mere pieces of paper, intrinsically worthless, that were treated as money only because the United States government insisted that they should be. In that case, one could well argue that U.S. military power was now the only thing backing up the currency."


"the U.S. government can’t “just print money,” because American money is not issued by the government at all, but by private banks, under the aegis of the Federal Reserve System."


"Federal Reserve—despite the name—is technically not part of the government at all, but a peculiar sort of public-private hybrid, a consortium of privately owned banks whose chairman is appointed by the United States president, with Congressional approval, but which otherwise operates without public oversight."


"The arrangement is just a variation of the scheme originally pioneered by the Bank of England, whereby the Fed “loans” money to the United States government by purchasing treasury bonds, and then monetizes the U.S. debt by lending the money thus owed by the government to other banks."


"The difference is that while the Bank of England originally loaned the king gold, the Fed simply whisks the money into existence by saying that it’s there. Thus, it’s the Fed that has the power to print money.10"


"apparently paradoxical result of Nixon’s floating the currency was that these bank-created dollars themselves replaced gold as the world’s reserve currency: that is, as the ultimate store of value in the world, yielding the United States enormous economic advantages."


"Meanwhile, the U.S. debt remains, as it has been since 1790, a war debt: the United States continues to spend more on its military than do all other nations on earth put together, and military expenditures are not only the basis of the government’s industrial policy; they also take up such a huge proportion of the budget that by many estimations, were it not for them, the United States would not run a deficit at all. The U.S. military, unlike any other, maintains a doctrine of global power projection: that it should have the ability, through roughly 800 overseas military bases, to intervene with deadly force absolutely anywhere on the planet."


"The essence of U.S. military predominance in the world is, ultimately, the fact that it can, at will, with only a few hours’ notice, drop bombs at absolutely any point on the surface of the planet.11 No other government has ever had anything remotely like this sort of capability."


"a case could well be made that it is this very power that holds the entire world monetary system, organized around the dollar, together."


"effect of Nixon’s floating of the dollar was that foreign central banks have little they can do with these dollars except to use them to buy U.S. treasury bonds."


"over time, the combined effect of low interest payments and the inflation is that these bonds actually depreciate in value—adding to the tax effect, or, as I preferred to put it in the first chapter, “tribute.” Economists prefer to call it “seigniorage.”"


"What’s more, the global status of the dollar is maintained in large part by the fact that it is, again since 1971, the only currency used to buy and sell petroleum, with any attempt by OPEC countries to begin trading in any currency stubbornly resisted by OPEC members Saudi Arabia and Kuwait—also U.S. military protectorates."


"When Saddam Hussein made the bold move of singlehandedly switching from the dollar to the euro in 2000, followed by Iran in 2001, this was quickly followed by American bombing and military occupation.14 How much Hussein’s decision to buck the dollar really weighed into the U.S. decision to depose him is impossible to know, but no country in a position to make a similar switch can ignore the possibility."


"If history holds true, an age of virtual money should mean a movement away from war, empire-building, slavery, and debt peonage (waged or otherwise), and toward the creation of some sort of overarching institutions, global in scale, to protect debtors."


"IMF policies of insisting that debts be repaid almost exclusively from the pockets of the poor were met by an equally global movement of social rebellion (the so-called “anti-globalization movement”—though the name is profoundly deceptive), followed by outright fiscal rebellion in both East Asia and Latin America. By 2000, East Asian countries had begun a systematic boycott of the IMF. In 2002, Argentina committed the ultimate sin: they defaulted—and got away with it."


"Seemingly everywhere he went on a recent tour of China, Dallas Fed President Richard Fisher was asked to deliver a message to Federal Reserve Chairman Ben Bernanke: “stop cre–ating credit out of thin air to purchase U.S. Treasuries.”"


"Some might question why, if these really are tribute payments, the United States’ major rival would be buying treasury bonds to begin with—let alone agreeing to various tacit monetary arrangements to maintain the value of the dollar, and hence, the buying power of American consumers.19"


"From a longer-term perspective, China’s behavior isn’t puzzling at all. In fact, it’s quite true to form. The unique thing about the Chinese empire is that it has, since the Han dynasty at least, adopted a peculiar sort of tribute system whereby, in exchange for recognition of the Chinese emperor as world-sovereign, they have been willing to shower their client states with gifts far greater than they receive in return."


"There is every reason to believe that, from China’s point of view, this is the first stage of a very long process of reducing the United States to something like a traditional Chinese client state. And, of course, Chinese rulers are not, any more than the rulers of any other empire, motivated primarily by benevolence. There is always a political cost, and what that headline marked was the first glimmerings of what that cost might ultimately be."


"the white working class of the North Atlantic countries, from the United States to West Germany, were offered a deal. If they agreed to set aside any fantasies of fundamentally changing the nature of the system, then they would be allowed to keep their unions, enjoy a wide variety of social benefits (pensions, vacations, health care …), and, perhaps most important, through generously funded and ever-expanding public educational institutions, know that their children had a reasonable chance of leaving the working class entirely."


"One key element in all this was a tacit guarantee that increases in workers’ productivity would be met by increases in wages: a guarantee that held good until the late 1970s. Largely as a result, the period saw both rapidly rising productivity and rapidly rising incomes, laying the basis for the consumer economy of today."


"Economists call this the “Keynesian era,” since it was a time in which John Maynard Keynes’ economic theories, which already formed the basis of Roosevelt’s New Deal in the United States, were adopted by industrial democracies pretty much everywhere."


"Keynes fully accepted that banks do, indeed, create money “out of thin air,” and that for this reason, there was no intrinsic reason that government policy should not encourage this during economic downturns as a way of stimulating demand—a position that had long been dear to the heart of debtors and anathema to creditors."


"Certainly, when both Ronald Reagan in the United States and Margaret Thatcher in the UK launched a systematic attack on the power of labor unions, as well as on the legacy of Keynes, it was a way of explicitly declaring that all previous deals were off."


"This was accompanied, at first, by a return to “monetarism”: the doctrine that even though money was no longer in any way based in gold, or in any other commodity, government and central-bank policy should be primarily concerned with carefully controlling the money supply to ensure that it acted as if it were a scarce commodity."


"In the new dispensation, wages would no longer rise, but workers were encouraged to buy a piece of capitalism. Rather than euthanize the rentiers, everyone could now become rentiers—effectively, could grab a chunk of the profits created by their own increasingly dramatic rates of exploitation."


"One of the guiding principles of Thatcherism and Reaganism alike was that economic reforms would never gain widespread support unless ordinary working people could at least aspire to owning their own homes; to this was added, by the 1990s and 2000s, endless mortgage-refinancing schemes that treated houses, whose value it was assumed would only rise, “like ATMs,”—as the popular catchphrase had it—though it turns out, in retrospect, it was really more like credit cards."


"Just as the United States had managed to largely get rid of the problem of political corruption by making the bribery of legislators effectively legal (it was redefined as “lobbying”), so the problem of loan-sharking was brushed aside by making real interest rates of 25 percent, 50 percent, or even in some cases (for instance, for payday loans) 120 percent annually, once typical only of organized crime, perfectly legal—and therefore, enforceable no longer by just hired goons and the sort of people who place mutilated animals on their victims’ doorsteps, but by judges, lawyers, bailiffs, and police.25"


"finance” to the “financialization of everyday life.”26 Outside the United States, it came to be known as “neoliberalism.” As an ideology, it meant that not just the market, but capitalism (I must continually remind the reader that these are not the same thing) became the organizing principle of almost everything."


"The credit crisis has provided us with a vivid illustration of the principle set out in the last chapter: that capitalism cannot really operate in a world where people believe it will be around forever."


"For most of the last several centuries, most people assumed that credit could not be generated infinitely because they assumed that the economic system itself was unlikely to endure forever. The future was likely to be fundamentally different. Yet, somehow, the anticipated revolutions never happened."


"There is very good reason to believe that, in a generation or so, capitalism itself will no longer exist—most obviously, as ecologists keep reminding us, because it’s impossible to maintain an engine of perpetual growth forever on a finite planet, and the current form of capitalism doesn’t seem to be capable of generating the kind of vast technological breakthroughs and mobilizations that would be required for us to start finding and colonizing any other planets."


"there seems to have been a profound contradiction between the political imperative of establishing capitalism as the only possible way to manage anything, and capitalism’s own unacknowledged need to limit its future horizons, lest speculation, predictably, go haywire."


"the last time we shifted from a bullion economy to one of virtual credit money, at the end of the Axial Age and the beginning of the Middle Ages, the immediate shift was experienced largely as a series of great catastrophes."


"If this book has shown anything, it’s exactly how much violence it has taken, over the course of human history, to bring us to a situation where it’s even possible to imagine that that’s what life is really about."


"historically, impersonal, commercial markets originate in theft. More than anything else, the endless recitation of the myth of barter, employed much like an incantation, is the economists’ way of exorcising it."


"That giant debt machine that has, for the last five centuries, reduced increasing proportions of the world’s population to the moral equivalent of conquistadors would appear to be coming up against its social and ecological limits."


"I would like, then, to end by putting in a good word for the non-industrious poor.41 At least they aren’t hurting anyone. Insofar as the time they are taking off from work is being spent with friends and family, enjoying and caring for those they love, they’re probably improving the world more than we acknowledge. Maybe we should think of them as pioneers of a new economic order that would not share our current one’s penchant for self-annihilation."