Barbarian Law Codes

After the breakdown of the Roman Empire, Germanic peoples and then later tons of other people “from Russia to Ireland” created very extensive law codes detailing the proper compensation for all kinds of wrongs, in minute detail. Like for stealing sheep of various ages and genders or for losing a hand vs finger vs various fingernails.

“Compensation in the Welsh laws is reckoned primarily in cattle and in the Irish ones in cattle or bondmaids, with considerable use of precious metals in both. In the Germanic codes it is mainly in precious metal… in the russian codes it was silver and furs”

Graeber: it’s difficult “to imagine how a system of precise equivalences– one young healthy milk cow is equivalent to exactly thirty-six chickens– could arise from most forms of gift exchange. 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.”

“Say the fine is in marten pelts but the culprit’s clan doesn’t have any martens. How many squirrel skins will do? or pieces of silver jewelry?”

Since these cultures were in the post-roman age, they converted everything through roman money. Lots of things were listed in these codes which weren’t really for sale on the open market at the time. So their price relationship wasn’t being determined by some sort of market equilibrium. It was just about using money as a pass-through for all these goods that might need to be equivalitized. This does seem to be a pretty decent approximation of the barter system economists imagine, even though its history and purpose is wildly different.

pg 60-62

From Primordial Debt to real debt

How do we get from the debt we owe the cosmos creating us to actual debts between people? By creating a system to calculate the specific debts we owe society through fines, fees, penalties, and debts to specific individuals. All the people “to whom we stand in a relation of ‘sin’ or ‘guilt'”.

Related note that I’m sticking in here: cattle is so often used as a currency by early societies because it was the most common sacrifice to the gods.

There’s lots of anthropological data on how stateless societies’ economies worked, but economists don’t like it because they used currency more for arranging relationships between people than they did for buying and selling things. Mostly they were used to “arrange marriages and settle disputes, particularly those arising from murders or personal injury.”

The phrase “to pay” comes from a word for “to pacify, appease”, meaning it’s about making up for something that pissed someone off. “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.”

pg 59-60

Primordial-debt Theory

“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.”

-At first debt was expressed by religion, not states. See the Sanskrit religious literature like the Vedas and Brahmanas. Earliest Vedic poems from like 1500-1200 BC are very concerned with debt, which is “treated as synonymous with guilt and sin.”

-In very early texts, “Debt seems to stand in for a broader sense of inner suffering, from which one begs the gods… for release.”

-The Brahmanas started weaving together a more comprehensive philosophy in which human existence itself is a debt to the gods. “A man, being born, is a debt; by his own self he is born to Death, and only when he sacrifices does he redeem himself from death.”

-Leads to the question, “If our lives are on loan, who would actually wish to repay such a debt? To live in debt is to be guilty, incomplete. But completion can only mean annihilation.” So the tribute of ritual sacrifice is like an interest payment, and the sacrificer’s life is the principal.

-Two famous passages in the Brahmanas: “We are born as a debt not just to the gods, to be repaid in sacrifice, but also to the Sages who created the Vedic learning to begin with, which we must repay through study; to our ancestors, who we must repay by having children; and finally, to humanity as a whole, to be repaid by offering hospitality to strangers.”

-Primordial-debt theory say these ideas aren’t peculiar to “a certain intellectual tradition of early Iron Age ritual specialists in the Gange valley, but that they are essential to the very nature and history of human thought.”

-Sovereign powers’ legitimacy comes from their representation of the entire cosmos, and so they invented money as a way of settling debts. So instead of owing the unpayable debt of your life to death, now you have money that you can use to settle more manageable debts. That currency is put into circulation, and then you have to repay it in taxes, and that is a much more reasonable ask than “You owe your life to the God of Death.”

-“The primordial debt is that owed by the living to the continuity and durability of the society that secures their individual existence.”

Armies and Early Currency

Markets did spring up around ancient armies. See Kautilya’s Arthasastra, Sassanian “circle of sovereignty,” Chinese “Discourses on Salt and Iron”, they show “that most ancient rulers spent a great deal of their time thinking about the relation between mines, soldiers, taxes, and food. Generally they realize creating markets help not just feed soldiers but also helped them get a lot of other stuff out of their people too.

They used to need royal estates or workshops to produce things, or to “requisition” it directly from workers. But now they can just use markets to incentivize production of what they needed.

pg 50

Why did they make subjects pay taxes at all?

State Theory helps us solve one of the mysteries of the fiscal policy of early kingdoms: Why did they make subjects pay taxes at all?

If Adam Smith were right, and gold and silver naturally became money because free markets wanted them, then why wouldn’t the king just grab control of the gold and silver mines and become powerful that way?

Lots of early kings DID do that. But then what was the point of extracting the gold, stamping a picture on it, circulating it, and then demanding that people give it back again?

But if money and markets DON’T emerge naturally, it makes sense. That’s how you create a market.

If you want to support a standing army of 50,000 men, feeding them is really hard. But if you just give them coins and then demand that everyone in the whole kingdom pay you some of those coins, you turn your whole economy into a big machine to feed soldiers, because now everyone in the kingdom has to find a way to help feed soldiers so they can get the coins they need to pay you.

pg 49-50

State Theory of Money

So the big issue with Credit Theory is that whoever is writing all these IOUs that a money supply is based on has to be obscenely wealthy, which is why it’s usually The King or whoever who does it.

“The real impetus for the Chartalist position, in fact, came out of what came to be known as the ‘German Historical School,’ whose most famous exponent was the historian G.F. Knapp, whose State Theory of Money first appeared in 1905.”

Emperors and kings had always handled units of measure, so it makes sense they’d handle money too, under the chartalist model.

Monetary systems of measurement are remarkably stable. Under Henry II from 1154-1189, almost everyone in Europe was still using Charlemagne’s system from about 350 years earlier, even though some of the coins in his system never even existed, almost none of his coins were still around, and the ones that were were wildly variable in size/quality.

Actually Charlemagne’s system stayed in place for over 800 years, coming to be referred to as “imaginary money,” and derniers and livres were only abandoned as units of account around the time of the French Revolution.

But according to State Theory, what the money is made of (Silver or leather or fish or paper) doesn’t matter, as long as the state takes payment for taxes in it, because that becomes currency.

Actual modern banknotes are kind of the opposite though. They’re not backed by debts OF The King’s, they’re backed by debts TO the king. The Bank of England was founded in 1694 with a loan made by a consortium of bankers worth about 1.2 million Pounds. In return, they got a royal monopoly on issuing banknotes, basically that they could circulate IOUs from the king to them for that loan. (King owes bankers money for that loan, King writes a million IOUs, bankers give those IOUs to people to use as currency).

pg 47-8

Credit Theory of Money

Gavin Mitchell-Innes was an early thinker in the area, got support mostly in US and Germany (two up and coming powers at the time, not in Britain, the power at the time. This feels significant). Another name is Chartalism (from latin charta, meaning “token”).

Theory i sthat money is not a commodity but an accounting tool. “For a Credit Theorist can no more touch a dollar or a deutschmark than you can touch an hour or a cubic centimeter.”

“Historically, such abstract systems of accounting emerged long before the use of any particular token of exchange.”

Money matters because it’s an IOU. Conventional wisdom says banknote should be a promise to pay a certain amount of real money (gold/whatever), Credit Theory says banknote is just a promise to pay *something* of a certain value.

“Conceptually, the idea that a piece of gold is really just an IOU is always rather difficult to wrap one’s head around, but something like this must be true, because even when gold and silver coins were in use, they almost never circulated at their bullion value.”

This theory allows for the trading of debts. I give you something, you give me an IOU, I can give that IOU to a third party for something else. They can then give the IOU to someone else, etc, etc. All that matters for the IOU to have value is people’s faith that the original issuer is good for it.

“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.”

pg 46-7

Why Economics started in 1776

-Money and trade had been around like, forever, so why did we only get a discipline of Economics in 1776?
-We needed government policy creating markets, like England was doing at the time. Beyond laws and police, they were also implementing monetary policy pegging the value of currency to silver but by only “pegging” and not directly using, they were also greatly increasing the money supply
-That required careful regulation of the banks supplying paper money. France and Sweden had already tried creating state-supported central banks, but they failed because they let the currencies get too speculative. So theorists of Smith’s day felt pegging money to precious metals was the answer

Why do they cling to barter?

-Smith’s goal was to create a Newtonian Physics of economics. Concept of a separate sphere called “The Economy” was relatively new in his day, and he wanted to show that it operated by rules like physics
-Newton was a Deist, believed in a clockmaker god who set the universe in order, Smith wanted to show the same thing. This is the “invisible hand” of the market
-This assumption of a kind of divine providence behind the market depends on a voluntary contract type model of exchange, in which all trades are barter for mutual advantage.
-So basically the fundamental belief of modern economics depends on viewing The Economy as a sphere of mutually beneficial trades orchestrated by a divine invisible hand. Allowing the more human relationships into this model raises questions about the divine perfection of it all.

Real uses of barter: when money fails

-The real uses of barter come when people who were used to money don’t have much of it anymore. Like immediately post-Soviet Russia or Argentina in 2002. Or in POW camps and prisons.
-Early medieval Europe after the collapse of the Roman Empire, and again after Carlingian empire collapsed. People keep accounts in the old imperial currency, even though they no longer have the coins.
-Adam Smith’s examples all come from societies where they did use money as a unit of account, but since it was slightly scarce they would trade in goods until it was more available.

“The law making tobacco legal tender in Virginia seems to have been an attempt by planters to oblige local merchants to accept their products as a credit around harvest time.”

pg 37-8