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

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

Cryptocurrency and Credit Theory

The system of IOUs Graeber described when explaining Credit Theory, with Henry’s IOUs circulating all over the place, got me thinking.

He says something to the effect of “Of course Henry would have to be fabulously rich to have all transactions be carried out using tokens of his promise to pay a debt, which is why it’s usually the king who backs all that shit.”

Bitcoin/cryptocurrencies claim to be decentralized and thus revolutionary, but one of my big problems with them has always been that there’s no power backing them. It’s like they took the fiat idea of “all that matters is people’s faith in the currency’s value” to the extreme, totally ignoring the fact that people have faith in fiat currencies because they have faith in the entity that backs them’s power. Like, the dollar doesn’t just have value because people believe it does, the dollar has value cause the US will probably kill you if you say it doesn’t. At the very least it will be more inclined to let you live if you say it does.

What if, instead of mining and doing ledger work and all that, you earned bitcoin by putting up some property or service, some thing of value as backing for that coin? Loooots of regulating and enforcing has to go into this now, but of course the other huge problem with cryptocurrencies is their ridiculous game of make-believe about how they can run a power structure with no regulation or enforcement.

I don’t really know how this would work in practice, but the idea of a decentralized currency backed by the wealth and power of a great range of people instead of the wealth and power of a single entity is very appealing. Will have to flesh out further.

OK, so after reading the next paragraph of Debt I want to flesh this out a little further. Modern currency is backed by debt of the state, right? State sells bonds to banks which creates the debt that the banks then circulate. So what we’re talking about is the same thing, except letting people play the role that banks currently play. The Central Bank of our new system will take loans from people and give them currency in return.

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

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

Smith’s Founding Myth of Economics

“What, he begins, is the basis of economic life, properly speaking?”
-“certain propensity in human nature… the propensity to truck, barter, and exchange one thing for another. Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.” But humans always swap and compare things. Even logic and conversation are forms of trading, and “humans will always try to seek their own best advantage, to seek the greatest profit they can from the exchange.”
-Drive to exchange creates division of labor and thus civilization
-People naturally specialize into what they’re better at, and then they end up with surpluses. But if the other people in their societies don’t have the right surpluses to trade, everyone’s fucked. “So everyone will inevitably start stockpiling something they figure that everyone else is likely to want.” Which then makes that commodity even more valuable. Yadda yadda yadda, precious metals, yadda yadda yadda, currency.
-This creates the notion of “the economy” as a separate sphere of human life. It’s where trading takes place

pg 25-8

History of Myth of Barter

-Adam Smith used it in 1776 to create discipline of economics as a moral philosophy professor
-Aristotle used it in 330BC, speculating that families must have started by producing everything they needed themselves, then gradually specializing and trading, so money naturally developed to make trade easier
-During age of exploration barter stories disappeared because everyone was discovering old-fashioned tribes and weren’t none of them bartering. “Most sixteenth- and seventeenth- century ravelers in the West Indies or Africa assumed that all societies would necessarily have their own forms of money, since all societies had governments and all governments issued money.”
-Back to Smith: he vigorously objected to idea governments create money. Following in John Locke’s footsteps. Locke thought Govt begins in need to protect private property and operates best when limited to that. Smith added that property, money, and markets were older than political institutions, and were the very foundation of human society. If govts “should play any role in monetary affairs, it should limit itself to guaranteeing the soundness of the currency. It was only by making such an argument that he could insist that economics is itself a field of human inquiry with its own principles and laws– that is, as distinct from, say, ethics or politics.”

pg 24-5