I’m excited about a new book plucked from the pile this morning before I set off on my travels. It’s [amazon_link id=”0691152683″ target=”_blank” ]Pillars of Prosperity: The Political Economics of Development Clusters (The Yrjo Jahnsson Lectures)[/amazon_link] by Tim Besley and Torsten Persson. The three pillars were first set down by Adam Smith: “little else is required to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes and a tolerable administration of justice.” Easy, eh? The question is how to achieve these things. The blurb suggests the argument in this book is that a sense of common interests, ensuring the adequate provision of public goods, is key. More on this when I’ve read it.

[amazon_image id=”0691152683″ link=”true” target=”_blank” size=”medium” ]Pillars of Prosperity: The Political Economics of Development Clusters (The Yrjo Jahnsson Lectures)[/amazon_image]

It would be misleading to say I’d ‘devoured’ a 400 page anthropological study of debt from the dawn of time to the Great Financial Crisis, along with its 100 additional pages of footnotes and bibliography – but only slightly.

David Graeber’s [amazon_link id=”1933633867″ target=”_blank” ]Debt: The first 5000 years[/amazon_link] is an important and fascinating book. Anybody trying to make sense of the financial catastrophe continuing to unfurl around us – and who isn’t? – should read it. This is not to say I agree with everything its author says; nor that it offers ‘solutions’ to the situation we find ourselves in. However, the description of the links between money, debt and power in many societies and many eras casts illuminating shards of light on the present day. Having read the book, I don’t think there’s any hope of finding a reasonable path forward without much more careful and detailed political thought about what the nature and scope of debt says about society and power structures. (This is a thought I expressed in [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link] and other economists have also underlined, including Raghuram Rajan in [amazon_link id=”0691146837″ target=”_blank” ]Fault Lines [/amazon_link]and Simon Johnson and James Kwak in [amazon_link id=”0307379051″ target=”_blank” ]13 Bankers[/amazon_link]; but our approach is abstract while Graeber’s fills in the historical substance.)

The book’s first point is that the usual account of the origins of money as a natural evolution from barter economies, and debt as a follow-on to money, is historically utterly inaccurate. Primitive economies start as credit-based economies, with the flows of credit expressing social relations, and cash – bullion-based and then much later fiat money – follow on. Neighbours exchanged goods by running a tab, and from time to time these accounts would be generally settled in the village. This required a unit of account to compare, say, chickens and corn, but not actual money. The earliest written records are ledgers or tallies of debts. But the advent of cash enables the rise of the state and more broadly the accumulation of political power. Once cash had been invented in any place, local rulers seem to have always moved quickly to assert their monopoly over it, and to force people to participate in the cash economy by demanding that taxes were paid in cash.

Graeber then goes on to outline a common imperial pattern of a cycle of mining bullion to get the money to pay armies to conquer new lands to gain access to the gold and silver. “Historically, war, states and markets all tend to feed off one another. Conquest leads to taxes. Taxes tend to be ways to create markets, which are convenient for soldiers and administrators.” (p179) The growth of the money-based economy was, he argues, fundamentally enabled by violence and enabling of violence – the account of the slave trade is particularly compelling. There is a similarity between his account of the innate tension between the growth of the money economy and traditional social relations and other takes on the history of capitalism. Many authors have regretted – with, in my view, undue romanticism – the decline of traditional rural societies over time; for there are also benefits in the anonymity of markets and the opportunities offered by a restless economy. However, Graeber does not fall into the trap of rose-tinting traditional society, despite his evident scepticism about the benefits of the economy and society we have ended up with.

This is not an overtly polemical book. It makes its essential point – about the inextricable link between the power of the state, ultimately based on coercion, and the exaction of debts – through the steady accumulation of detail rather than excitable rhetoric. Graeber points out that in the past, states have all ultimately had to announce a general forgiveness of debts, whether regularly as in the ancient ‘jubilees’ or as one-offs. He concludes the book:

“It seems to me we are long overdue for some kind of Biblical-style Jubilee: one that would affect both international debt and consumer debt. It would be salutary not just because it would relieve so much genuine human suffering, but also because it would be a way of reminding ourselves that money is not ineffable, that paying one’s debts is not the essence of morality, that all these things are human arrangements and that if democracy is to mean anything, it is the ability of all to agree to arrange things in a different way.” (p390)

Powerful states always resist any breach of the principle that debts must be repaid, he notes. However, as we watch the leading powers dither helplessly in the face of the stand-off between powerful banks and less powerful states (such as Greece), and when allegations have emerged that Barclays made a major business out of helping banks avoid paying national taxes (FT: US tax authorities target global bank deals), it would obviously be a travesty of social justice if the banks get bailed out again by taxpayers while individuals without political power are turfed out of repossessed homes or taken to court over consumer debts they incurred to feed the economic boom.

[amazon_image id=”1933633867″ link=”true” target=”_blank” size=”medium” ]Debt[/amazon_image]

Now that my bookshelves are officially full, the rule is that if I want to keep a new book, an old book has to go, so this morning I was scanning the shelf for a sacrificial victim. Bob Woodward’s 2000 book [amazon_link id=”0743204123″ target=”_blank” ]Maestro: Greenspan’s Fed and the American Boom [/amazon_link] jumped into my hand. The preface says:

“Not only is he [Greenspan] a major figure in the world’s economic past, he is central to its future. He has been frank enough to stand before the new and amazing economic circumstances that he helped create and in the end declare them a mystery. It is impossible to account fully for the continuing high growth, record employment, low inflation and high stock market.”

So indeed it proved. Impossible because unsustainable. My 2001 paperback edition has an afterword entitled ‘After the Boom’ in which Woodward voices Greenspan’s justification for the sharp slowdown in the economy from the end of 2000. Essentially, the former Fed chairman says the problem was that taxes were too high. The book says of Greenspan’s view:

“With higher productivity, the federal government was going to be collecting more in tax revenue than expected over the next decade. He calculated that at a point in about six years the federal government could have paid off its entire debt of several trillion dollars and accumulated some $500 billion in excess surplus.”

Hah! It goes to show, one, that a decade is a long time in central banking, and two, how institutionally powerful the momentum for tax cuts was in the US at that time. Those deficit and debt calculations must have been, even without the benefit of hindsight, clearly over-optimistic and therefore cynical.

So the book has not worn well. Woodward was so dazzled by his subject, who obviously co-operated closely in this hagiography, that he lost all perspective. His only note of caution is to conclude that Greenspan should have been just a bit more vocal about the dangers of a financial bubble. I think this one has lost its bookshelf slot.

[amazon_image id=”0743204123″ link=”true” target=”_blank” size=”medium” ]Maestro: How Alan Greenspan Conducts the Economy[/amazon_image]

In [amazon_link id=”0224071785″ target=”_blank” ]The Hemlock Cup[/amazon_link] I came across this summary by Thucydides of Pericles’ description of the skills needed by a politician: “To know what must be done and be able to explain it; to love one’s country; and to be incorruptible.” Hmmm. Thinking about contemporary politicians, I can get two out of the three but can’t identify our Pericles.

[amazon_image id=”0224071785″ link=”true” target=”_blank” size=”medium” ]The Hemlock Cup: Socrates, Athens and the Search for the Good Life[/amazon_image]

There’s an interesting report about Yale University Press’s plans to publish a paperback series of books accompanying the free Open Yale Courses online lecture series. The article debates the question of whether enough people will pay for books when the source material is free.

This is an empirical question, of course, but I’ve always found the doubt about whether the answer can ever be ‘yes’ hard to understand. There are, after all, countless examples in the past of people assuming that goods and services are substitutes when in fact they are complements: telephony and face-to-face contact; online documents and paper documents; perhaps even free music paid-for music. What’s more, the economic theory is set out with admirable clarity in the excellent [amazon_link id=”087584863X” target=”_blank” ]Information Rules[/amazon_link], a 1998 book by Carl Shapiro and Hal Varian.

Free online access to the lectures seems to me more likely to generate demand for a paid-for book than to displace it. It will displace demand for something else, some other activity taking the users’ time and attention, but that displaced demand is likely to be spread across a range of activities. Anyway, I hope Yale University Press (follow them on Twitter, @YaleBooks) will keep us up to date with the results.

[amazon_image id=”087584863X” link=”true” target=”_blank” size=”medium” ]Information Rules: A Strategic Guide to the Network Economy[/amazon_image]