Debt: The First 5,000 Years

In Chapter 11, Graeber focuses on the “age of the great capitalist empires,” a period between 1450-1971 CE. While “all the Axial Age pieces reappeared” (308), they merged in completely new ways. The era begins with the return of coinage. Gold and silver poured into Europe because of the conquest of North America. While some sources suggest this led to the massive inflation of the 1500s and 1600s, Graeber takes issue with this claim. To him, the problem with this conventional story is that most of the metal ended up in China. Illegal mines cropped up in China at the end of the 15th century. The government, which was already suspicious of merchants, attempted to shut down the mines. These efforts sparked local insurrections, causing the government to stop “trying to suppress the inform economy” (310). Instead, the Chinese government legalized the mines and adopted coinage for taxation. The economy boomed and population increased, resulting in an even greater demand for metal. Europeans met this demand with metal from the Americas, which Graeber suggests is the reason for the success of the colonization of North America. Governments in Europe caused inflation “by insisting that gold and silver were money” (313), which undermined local systems of trust that had operated without metal currency.

Graeber turns to exploring exactly what is capitalism. He starts with one of the most infamous conquistadors, Hernán Cortés, and his soldiers. Graeber suggests that these men were motivated not by greed, but by a financial system centered on debt with unforgiving policies. Much of the Aztec wealth went to the imperial treasury. As a result, the soldiers, despite facing grueling warfare and death in Mexico, ended up with very little money to show for their efforts. Around this time, Spanish merchants arrived in Mexico, charging the soldiers exorbitant prices for necessities. Soldiers saw their debt increase. When these soldiers lead local administrations, tax collections, and labor regimes they treated the Indigenous peoples poorly because of their frantic need to pay down their debts and their “outrage at the idea that, after all they had gone through, they should be held to owe anything to begin with” (318).

Graeber uses Cortés to highlight the issues of capitalism. Cortés was beholden to his financiers, yet these financiers were too far away to monitor his actions. Cortés had to send some of his conquest to the King of Spain. He was also bad at managing his money. Thus, he was trapped in this vicious cycle of “attempting to use his conquests to acquire plunder, and enslaved people to work the mines with which he could pay his soldiers and suppliers cash to embark on even further conquests” (320). Institutions and people become centered on profit, which marks a radical departure from anything we have seen before in history. Money is no longer a political instrument, but its own autonomous force.

To Graeber, the origins of capitalism are about “how an economy of credit was converted into an economy of interest” (332). He posits that this transition began with the legalization of interest and the criminalization of debt. Laws began to impose harsh penalties on debtors. Creditors started to scheme, manipulate, and even bribe law officials to get their debtors into trouble. People started to mistrust virtual credit and the use of coinage was seen “as moral in itself” (335). Communities became rife with suspicion and animosity. Moral and religious thinkers started to use the notion of self-interest to describe human nature.

The disappearance of coins from European markets also brought about modern capitalism. In the 17th century, philosophers such as John Locke argued that metal made coins intrinsically valuable. When the value of silver had risen so high that British coins were worth less than their silver content, Locke and others proposed that “the only recourse was to recall the currency and restrike it at exactly the same value that it had before” (341). The results of this plan were disastrous. Coinage disappeared from circulation, prices of goods and services increased, wages shrank, and there was hunger and unrest among the populace. Despite this, most economists at the time accepted Locke’s position acting like “gold and silver were money” (341).