PowerPoint Presentationwebcms.uct.ac.za/sites/default/files/image_tool/images/4/2017... · and pre-Mauryan India –there are obvious advantages to making ones transactions simple

Hayek from Road to Serfdom 1944)

Hayek on Inflation

The The

Hayek’s people vs Polanyi’s people

Sound Money vs Serve Society

Free Individuals

In competition

Trade is central

Concerned about

inflation, that money

will not hold its value

A Community

In co-operation

Getting production right is central

Money is a social convention

Concerned about deflation, that people may hoard money instead of investing in the real economy

Hayek’s people vs Polanyi’s people

Sound Money vs Serve Society

Faith that the freemarket will equilibrate(clear), that is, faiththat prices will adjustand quantities willclear

Started off thinkingthat money is neutral

Favours fixed rules for banks and Central Banks

Worries about financial instability

Concerned about the distribution of income and wealth

Favours regulation, monitoring and policing of the banking system

Prefers discretion to rules

Adam Smith (1723- 1790)

Adam Smith (1723- 1790)

Smith has barter as central to human nature. He imagines that having specialised by the division of labour, a producer of a particular product finds himself embarrassed by the excess of his production. He then imagines having producers seek out other producers of another product to barter with.

People soon realise the inconvenience of barter and so seek “some commodity or another, as he imagined that few people would be likely to refuse in exchange for the produce of their industry” (Smith; 1776: i.4.2). The only problem with this Account is that it is NOT TRUE. As Graeber, and for that matter Martin, shows “the most shocking blow to the conventional version of economic history came with the translation, first of Egyptian hieroglyphics, and then of Mesopotamian cuneiform, which pushed back knowledge of written history almost three millennia, from the time of Homer (800BC), where it hovered in Smith’s time, to roughly 3500BC. What the text revealed was that credit systems of exactly this sort actually preceded the invention of coinage by thousands of years” (Graeber; 2011: 38).

Adam Smith (1723- 1790)

Fry’s Planet World(2011)

Graeber, Martin and others, with the benefit of subsequent discoveries, begin their story of money with what Graeber describes as the FIRST AGRARIAN EMPIRES (3500BC to 800BC), dominated by virtual credit money.`

The next period is that of the Axial Age (800BC to 600AD), which saw the rise of coinage and a general shift to metal bullion as the main form of money. This is the first era that Smith had knowledge of when writing in 1776. This period was also characterised by higher levels of general violence, and particularly wars of conquest and, related to that, an explosion in the incidence of slavery. Then we will consider the Middle Ages from 600AD to 1450AD, which saw a return to virtual credit money, fewer wars of conquest and a huge drop in the incidence of slavery. What we won’t deal with, because there is not enough time, is the period from 1450AD to 1971, in which commodity money made a comeback, and which was also a period of increased violence including wars of conquest and an explosion in the incidence of slavery.

First Agrarian Empires (3500BC to 800BC)

Graeber then looks at the first agrarian empires, established between 3500BC and 800BC in Mesopotamia, Egypt and China. In this period, temples and palaces were the repositories of most precious metal with tavern keepers, and probably others, operating on credit (Graeber; 2011: 215). In this period, the terminology of “interest” comes into being, deriving from some word for “offspring”, causing some to speculate that it originates in livestock. More likely, the first widespread interest-bearing loans were commercial, with temples and palaces forwarding wares to merchants and commercial agents for trade (Graeber; 2011: 215).

First Agrarian Empires (3500BC to 800BC)

The phrase “The Axial Age” was coined by the German existentialist philosopher, Karl Jaspers. In the course of writing a history of philosophy, Jaspers became fascinated by the fact that figures like Pythagoras, who lived from 570BC to 495BC, the Buddha, who lived from 563BC to 483BC, and Confucius, who lived from 551BC to 479BC, were all alive at exactly the same time, and that Greece, India and China, in that period, all saw a sudden effervescence of debate between contending intellectual schools, each group apparently unaware of the others’ existence. Interestingly, it is in this period that coinage is invented and developed. It is also in this period that Greece starts to come into its own.

Axial Age (800 to 200BC)

A central ritual of these citizen-focussed lands was that of the “sacrificial feast consisting of the ceremonial killing of the victim, the burning of its entrails as an offering to the gods and the roasting and distribution of its meat to the congregation. All male members of the tribe participated, and the shares were distributed EQUALLY, the purpose of which was to express… the communality of the tribe… the individual was re-affirmed as an equal member of the tribe and as having equal obligation to ensure its survival” (Martin; 2013: 56). This Martin has as central to the second and third elements making up the components of money. The first being a system of accounts, the second being the idea of a universal value and the third being the idea of the self separate from society.


At the heart of Greek society, in other words, was nothing other than a nascent concept of UNIVERSAL VALUE and a standard against which to measure it... Here was an answer to the question begged by the new perspective on society and the economy. Where the new understanding of physical reality had man, the observer of an objective universe, the new understanding of the social reality had the IDEA OF THE SELF, separate from society – an objective entity consisting of relationships measureable in a standard unit on the universal scale of economic value. It was a critical conceptual development – the missing link, on the intellectual level in the invention of money” (Martin; 2013: 58-59).


Martin admits that this ritual equality as a foundation for the IDEA of the universal economic value cannot be proven, but points as supporting evidence to the root of the word for the earliest Greek monetary unit, the “OBOL, which was the term for the spits on which the celebrant’s portion of the sacrificial meat was distributed and the DRACHMA, which originally meant a handful, presumably of such spits” (Martin; 2013: 285)


It was a SOCIAL TRANSFORMATION. For some reason, in all of the afore-mentioned lands, “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” (Graeber; 2011: 212). This trend, from credit to cash, continued until about 600AD, when the trend went the other way. “Cash dried up. Everywhere there was a movement back to credit once again” (Graeber; 2011: 213).


Gold and silver coins are distinguished from credit arrangements by one spectacular feature: they CAN BE STOLEN. A debt is, by definition, a record, as well as a relation, of trust. In a world where war and the threat of violence are everywhere, these are obvious advantages and this appears to have been an equally accurate description of warring states in China, Iron Age Greece and pre-Mauryan India – there are obvious advantages to making ones transactions simple” (Graeber; 2011: 213). Smith’s barter scenario, made easier with commodity money, might sound absurd in a small rural community, but if this community is transacting with a passing mercenary, it suddenly begins to make a great deal of sense.


“The constant warfare of the Archaic Age of Greece, of the Janapadas of India, of the warring states of China, was a powerful impetus for the development of market trade, and in particular for the market trade based on the exchange of precious metal, usually in small amounts. If plunder brought precious metal into the hands of the soldiers, the market will have spread it throughout the population” (Schaps; 2006: 34).


The fate in the Axial Age of the Phoenicians, principally a nation of traders, is instructive. “Phoenician cities struck no coins until 365BC and while Carthage, the great Phoenician colony in North Africa that came to dominate commerce in the western Mediterranean, did so a bit earlier, it was only when forced to do so to pay Sicilian mercenaries… In the extraordinary violence of the Axial Age, being a great ‘trading nation’ (rather than, say, an aggressive military power like Persia, Athens or Rome) was not, ultimately, a winning proposition. Phoenician cities were destroyed by the Persian emperor in 351BC and by Alexander nineteen years later” (Graeber; 2011: 227).


Graeber shows that, contrary to what Smith suggests, “coins and markets sprung up above all to feed the machinery of war.” In India, “Magadha, which ultimately came out on top, did so largely because it controlled most of the mines. In an Indian political treaty at the time, one of the chief ministers for the Mauryan Dynasty that succeeded it (321BC – 185BC), stated the matter precisely: ‘The treasure is based upon mining, the army upon the treasury; he who has army and treasury may conquer the whole wide earth’” (Graeber; 2011: 233).


In China, Graeber notes that “the golden age of… philosophy was the period of chaos that preceded unification, and this followed the typical Axial Age pattern: the same fractured political landscape, the same rise of trained, professional armies and the creation of coined money largely in order to pay them” and yet China was in some respects different to the Greek and Indian examples. Firstly, the coins in circulation were cast bronze discs, not the usual previous metals.




1. The Axial Age was the first time in human history where familiarity with the written word was no longer limited to priests, administrators and merchants, but has become necessary to full participation in civil life. Related to this was the emergence of intellectual movements in Greece, Mesopotamia, India and China.

Axial Age: Summary (800 to 200BC)

2. In this environment in which literacy and intellectual movements had spread, war was an all too likely possibility, where coins, perhaps originally minted for the purposes of paying an army, were now in mass circulation. “One often had best not ask where the objects traded came from, and where no-one is interested in forming ongoingpersonal relationships anyway” (Graeber; 2011: 238). Graeber and Martin cite this specific environment for the birth of the calculation of profit, an environment in which “a radical simplification of motives… made it possible to begin speaking of concepts like ‘profit’ and ‘advantage’ – and imagining that this is what people are really pursuing in every aspect of existence, as if the violence of war or the impersonality of the market place allowed them to drop the pretence that they ever cared about anything else” (Graeber; 2011: 239).

Summary of the Axial Age(800 to 200BC)

3. In this ruthlessly materialist age, it was inevitable that there would be a philosophical and spiritual reaction against it. “All Axial Age religions emphasised the importance of charity, a concept that had barely exited before. Pure greed and pure generosity are complimentary concepts; neither could really be imagined without the other” (Graeber; 2011: 249). The larger historical achievements of these movements are not in fact insignificant. As they took hold, things began to change. Wars became less brutal and less frequent. Slavery faded as an institution, to the point at which, by the Middle Ages, it had become insignificant or even non-existent across most of Eurasia. Everywhere too, new religious authorities began to seriously address the social dislocations introduced by debt.

Summary of the Axial Age(800 to 200BC)

“If the Axial Age saw the emergence of complimentary ideas of commodity markets and universal world religions, the Middle Ages were the period in which those two institutions began to merge… One result was a widespread movement to control, or even forbid, predatory lending. Another was a return, across Eurasia, to various forms of virtual credit money” (Graeber; 2011: 251).

The Middle Ages(600 – 1450AD)

And so throughout China, India and Europe, there was a general move towards abstraction: real gold and silver ended up largely in churches, monasteries and temples, money became virtual again, and at the same time, the tendency everywhere was to set up over-arching moral institutions meant to regulate the process and, in particular, to establish certain protections for debtors” (Graeber; 2011: 268). The process that the Axial Age interrupted was now re-established with perhaps greater protection for the debtor. Reading Graeber, one is left with the thought that the fact that the number of slaves reduced significantly during the Medieval period and the fact that debtors enjoyed much greater protection are not two facts independent of each other. That great protection of the debtor and lower levels of slavery were connected.

The Middle Ages(600 – 1450AD)

Whereas in Europe and China the decline of the market economy meant a decline in literacy, commerce and efficient governance, “for most of the Middle Ages, the economic nerve centre of the world economy and the source of its most dramatic financial innovations was neither China nor India, but the West, which, from the perspective of the rest of the world, meant the world of Islam” (Graeber; 2011: 271). Relative to the Christian world, the Islamic world enjoyed a greater separation between the religious leaders and the political ones. “After Khalif al-Ma’mum’s abortive attempts to set up a theocracy in 832AD, the government took a hands-off approach on questions of religion. The various schools of Islamic law were free to create their own educational institutions and maintain their own separate system of religious justice. Rafiq Zakaria (1988) in his The Struggle Within Islam: the Conflict Between Religion and Politics argues that this was an essential element in the success of Islamic states in the Middle Ages.

The Middle AgesThe Near West: Islam

‘Islamic law took aim at just about all the most notorious abuses of earlier Axial Age societies. Slavery through kidnapping, judicial punishment, debt, and the exposure or sale of children, even through the voluntary sale of one’s own person – all were forbidden or rendered unenforceable. Likewise with all other forms of debt peonage that had loomed over the heads of poor Middle Eastern farmers and families since the dawn of recorded history. Finally, Islam strictly forbade usury, which it interpreted to mean any arrangement in which money or a commodity was loaned at interest for any purpose whatsoever’” (Graeber; 2011: 274-275).


Whereas Christian institutions in the Middle Ages frowned on usury, they also frowned on commerce. By contrast “Islam had a positive view towards commerce, Mohammed himself had begun his adult life as a merchant; and no Islamic thinker ever treated the honest pursuit of profit as itself intrinsically immoral or inimical to faith. Neither did the prohibition against usury… in any sense mitigate against the growth of commerce, or even the development of complex credit instruments. To the contrary, the early centuries of the Khalifait saw an immediate effervescence in both, In this period, Islamic merchants developed the cheque. Cheques could be counter-signed and transferred and letters of credit could travel across the Indian Ocean or the Sahara. If they did not return into de facto paper money, it was because, since they operated completely independent of the State…, their value was based almost entirely on trust and reputation… When it came to finance, instead of interest-bearing investments, the preferred approach was partnerships, where (often) one party would supply the capital, the other carry out the enterprise. Instead of fixed return, the investor would receive a share of the profits. Even labour arrangements were often organised on a profit-sharing basis” (Graeber; 2011: 276).


“The mercantile classes of the Medieval (Islamic) near west had pulled off an extraordinary feat. By abandoning the usury practises that had made them so obnoxious to their neighbours for untold centuries before, they were able to become – alongside religious teachers – the effective leaders of their communities: communities that are still seen as organised, to a large extent, around the twin poles of mosque and bazaar… But the very fact that this was, in a certain way, a genuine free market, not one created by the government and backed by its police and prisons - a world of handshake deals and paper promises backed only by the integrity of the signer – meant that it could never really become the world imagined by those who later adopted the same ideas and arguments: one of purely self-interested individuals vying for material advantage by any means at hand” (Graeber; 2011: 282).


On the Islamic side, we have Sinbad, a successful merchant adventurer whose feats do not involve blood, guts and gore, but rather travel, buying, selling and making a profit.


Let us take one example given to us by Graeber. “In November 1199, a large number of knights at a tournament at the castle of Ecry in Champagne, sponsored by Henry’s son, Theobald, were seized by a great religious passion, abandoned there gains and swore a vow instead to re-take the Holy Land. The Crusader army then proceeded to commission the Venetian fleet for transport in exchange for a promise of a 50% share in all resulting profits. In the end, rather than proceeding to the Holy Land, they ended up sacking the (much wealthier, orthodox) Christian city of Constantinople after a prolonged and bloody siege. A Flemish count named Baldwin was installed as “Latin Emperor of Constantinople”, but attempting to govern a city that had been largely destroyed and stripped of everything of value, ensured that he and his barons soon ended up in great financial difficulty.


If the Axial Age was the age of materialism, the Middle Ages were, above all else, the age of transcendence. The collapse of the ancient empires did not, for the most part, lead to the rise of new ones. Instead, once subversive popular religious movements were catapulted into the status of dominant institutions. Slavery declined or disappeared, as did the overall level of violence… 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. If one considers Christian barbarity in the burning of witches or the massacring of heretics as an exception to an otherwise relatively peaceful era, then we are able to consider that “if there is an essence to Medieval thought, it lies not in blind obedience to authority, but rather in a dogged insistence that the values that govern our ordinary daily affairs – particularly those of the court and the market place – are confused, mistaken, illusory or perverse. True value lay elsewhere, in a domain that cannot be directly perceived, but only approached through study or contemplation” (Graeber; 2011: 297).

The Middle Ages: Summary(600 – 1450AD)

The Venetians “created a veritable merchant empire over the course of the 11th century, seizing islands like Crete and Cyprus and establishing sugar plantations that eventually – anticipating a pattern eventually to become all to familiar in the new world – came to be staffed largely by African slaves. Genoa soon followed suit: one of their most lucrative businesses was raiding and trading along the Black Sea to acquire slaves to sell to the Mamluks in Egypt or to work mines leased from the Turks” (Graeber; 2011: 292-293).

The Middle Ages: Summary(600 – 1450AD)

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PowerPoint Presentationwebcms.uct.ac.za/sites/default/files/image_tool/images/4/2017... · and pre-Mauryan India –there are obvious advantages to making ones transactions simple