Money & Debt: Crash Course World History 202 Video Lecture | A Complete Guide to World History : 2 - World Knowledge

Hi, I'm John Green. This is Crash Course World
History and today we're going to make it rain.
We're going to talk about money, the stuff
that makes the world go 'round. I'm not very
good at making it rain.
MFTP: Mr. Green! Mr. Green. I'm sorry, but
money doesn't make the world go round. It's
actually conservation of angular momentum.
It's the same thing that allows, like, figure
skaters to turn in circles.
John: Look, me from the past. I know you came
in fourth for physics, among all "C" students
in the entire state of Alabama in the 1994
state academic decathlon tournament, but that
doesn't actually make you good at science.
[Intro]
So, here is what economic textbooks say about
money. In general it has three functions:
medium of exchange, unit of account, and store
of value. And its first function is by far
the most important.
Like, this is a quote from my actual, physical
high school econ text book: "In primitive
economies, food might be traded for clothing,
or help in building a house might be exchanged
for help in clearing a field. But exchange
today in all economies -- market as well as
command -- takes place through the medium
of money."
A couple things about that quote, first off,
primitive is a cringe-y word. Secondly, a
market economy is basically all economies
these days, and a command economy is what
we called the Soviet Union's economy back
in the eighties.
Anyway, money is very important to history--like,
our old friend Adam Smith thought that, quote:
"property money and markets not only existed
before political institutions, but were the
very foundation of human society." Ehh, he
was pretty into economies, so he was probably
a little biased toward money, but it is important.
Smith also thought that before there was money,
there was barter, but barter could be cumbersome;
like if I make cheese and you make shoes,
and you're lactose intolerant, then barter
breaks down because I need shoes, but you
don't need cheese. Then I have to live like
a hobbit and get this very powerful ring,
it's like, really stressful, I end up having
to go to Mordor, it's just very complicated.
So, Smith's ideas that rather than adapt to
shoelessness, humans created a commodity that
they would agree upon ahead of time could
be used in exchange, and that commodity is
money. Yes, these are all ones.
Stan, I forgot to mention this, but you are
buying lunch today.
Now, we generally think of money as like coins,
or later, bills, but the material of money
is arbitrary. Smith wrote: "In all countries,
however, men seem at last to have been determined
by irresistible reasons to give the preference,
for this employment, to metals above all other
commodity." A sentence that shows you why
we didn't teach him in Crash Course Literature.
But of course, it's really inconvenient to
like, weigh and measure metals every time
you wanna buy or sell something, so people
hit upon the idea of making coins with a standard
size and weight. Now, Smith is probably right
that coins are much more convenient than bartering,
right? Like, especially if the main store
of value in your community is something like
cattle. I mean, let's say you still need a
pair of shoes, well, they aren't worth an
entire cow; trading in partial cows... fairly
messy. It's also very bad for the cow's health,
and the cow loses a lot of its value, because,
you know, it's no longer living.
So that all makes sense, but it's problematic
when Smith universalizes that observation
by claiming that as a matter of convenience,
every prudent man in every period of society
must naturally have endeavored to create money.
Smith -- man of the enlightenment that he
was -- is positing that the creation of money
is part of human nature. Like, in the second
chapter of Wealth of Nations, Smith explicitly
says that the division of labour is the, quote:
"consequence of a certain propensity in human
nature ... to truck, barter, and exchange
one thing for another."
But yet, no! Like, what made sense for eighteenth
century city and town dwellers like Adam Smith
doesn't necessarily apply to like, all human
beings over the course of many millennia.
And if you don't believe me, you can just
ask anthropologists. They love to talk about
this stuff.
So, here's the fascinating thing to me: when
you look at places where the social order
is not based on money, we find that people
actually don't barter at all. So David Graeber's
book "Debt: The First 5,000 Years" surveys
the literature of anthropology and discovers
that in societies without money, people don't
actually barter, but they do find ways to
exchange. He quotes an anthropologist named
Caroline Humphrey, who concluded: "No example
of a barter economy, pure and simple, has
ever been described, let alone the emergence
from it of money; all available ethnography
suggests that there has never been such a
thing."
Now, that's not to say that barter doesn't
exist or that it never has, I mean, I just
traded Stan two copies of my book Paper Towns
for the candy left in this pinata. Big money,
no whammies. Two things of Sweet Tarts?! Stan!
That's not fair.
Alright, let's go to the Thought Bubble.
So, according to Graeber, barter was reserved
for trade between strangers, even enemies.
For most of human history, humans lived in
small communities, and in those small communities,
most exchange took place using forms of credit.
Basically, when people know each other well,
they're willing to trade with the future expectation
that what one gives today will be repaid at
some future date with something of roughly
equivalent value. So in small, localized communities,
everyone is in debt to everyone else, and
there's no real need of physical money, like
coins, as a way of keeping a count, because,
you know, you remember when someone owes you
forty barrels of beer, or whatever.
We see this historically in the early civilizations
of the Fertile Crescent, where the basic monetary
unit was the shekel, and one shekel's weight
in silver was the equivalent of a bushel of
barley. Money in Ancient Sumer was actually
created by bureaucrats in order to keep track
of resources and move things back and forth
between departments. But that doesn't mean
that silver actually circulated freely. Graeber
writes: "While debts were calculated in silver,
they didn't have to be paid in silver."
So while some people seem to think that money
is naturally backed by precious metals, usually
gold or silver, that doesn't seem to have
been the case. It was enough to establish
that something was worth a shekel or a fraction
thereof, and then trade for something of equivalent
value -- meat, or whatever else, without actually
having to have the shekels change hands.
And this was especially helpful in economies
where taxes and payments to workers were both
in grain, rather than money.
Thanks, Thought Bubble. So, first, Graeber
blows our minds by telling us that Adam Smith
was all wrong about money evolving from barter
societies, but what about credit as the precursor
to money?
I mean, it's basically saying that credit
cards aren't an advancement so much as they're
a return to the glorious past, except instead
of trust, there are like, large, faceless
corporations with the power to sue you.
So the essence of credit is debt, and at least
according to Graeber, that's the glue that
holds social orders together, at least, if
you consider debt at its heart, to be about
obligation. At least one of the things that
binds us together as a community is the recognition
that we owe our neighbors something and that
they owe something to us in return. It's like
keeping your lawn mowed so that you can keep
your neighbor's property value high. It doesn't
make sense to have a lawn -- they're expensive
and time consuming, and you can't eat grass.
But you take care of your lawn for the same
reason your neighbors take care of theirs.
Out of the sense of mutual obligation.
But money changes our understanding of those
obligations, right? Because once we're able
to put a price on our obligations, we can
make them transferable, which wouldn't be
possible without money. Like, for instance,
it allows you to hire someone to mow your
lawn for you, but Graeber argues that money,
especially in the form of coinage, also may
chattel slavery, possibly.
So in West African social orders before the
arrival of Europeans, money was used, but
only for weddings, funerals, and other activities
that like, cemented human relationships. And
the money largely had symbolic value. But
when Europeans arrived, they introduced monetized
trade into the system, and in the process,
transformed that system. Money was no longer
about transferring value to solidify relationships
between individuals and families; it was about
quantifying debt and also making it transferable.
So, Graeber's theory links money as we know
it to slavery and war, like, coins began to
be used in India, China, and the soon to be
Persian province of Lydia, almost simultaneously,
all around 600 BCE. And in Graeber's view,
this happened because this was a period of
time that saw a shift from earlier forms of
honor-based warfare, like, what is described
in the Iliad, to a new, more state-based warfare.
Armies started fighting over things like territory
and resources, rather than, like, kidnapped
wives. So in a-- oh, it's time for the open
letter!
But first, let's see what's inside my globe
today. Oh, look, it's a molten core of nickel
and iron! Can--can you turn into coins? Oh!
Stan! Look how rich I am! Virtually.
Thought Bubble's clearly much better at making
it rain than I am. An open letter to honou-based
warfare.
Dear Honor-Based Warfare, um, I guess now
is the time in the video that I have to tell
you that I don't entirely agree with Mr. Graeber.
Like, with the Iliad we were telling ourselves
a story about why we went to war, right? We
went to war not for resources, but for glory.
Honor. Now, I don't want to sound cynical
and disbelieving, but we still tell ourselves
those stories. These days, the President rarely
goes on TV and says, "You know why we're going
to go to war? We need resources." No, we still
say it's about honor and ideas and standing
up for the defenseless, and et cetera, which
is all about as historically convincing as
the Iliad. In short, honor-based warfare,
I'm not entirely convinced that you, you know,
exist. Best wishes, John Green.
Anyway, so in all three of these governments
in India, China, and Lydia, they were pretty
small scale, especially compared to the empires
that would soon come, but they built their
power on professional armies that needed to
be paid, and coins were a great way to pay
them. It just works much better than like,
trying to split up the plunder among everybody.
The plundering method of payment is just like
a garage sale. The people who get there early
get all the good plunder, and then the rest
of the people, they're just left dividing
up, you know, old clothes.
Also, in Graeber's view, states began to encourage
the use of coins because of the uncertainty
of war -- like, violence creates uncertainty
for merchants, and decreases the likelihood
that they will accept payment in the form
of some kind of trust-based credit arrangement.
And soldiers aren't known for accepting credit
as payment, either, because, you know, soldiers
are keenly aware that they might die soon.
So, according to Graeber, this combination
of war and state-building led to the rise
of coinage. And then in order to keep paying
soldiers, rulers, like, say, Alexander the
Great, needed to continue their conquests.
So you need an army in order to have an empire,
and your army only likes to be paid in coins.
Now, you can seize some sweet, sweet metal
plunder and then melt it down and make coins,
but with an empire-sized army, that's not
gonna cut it. You need more silver. Where
are you gonna get new silver? Mining. Nope,
Stan, not miming, I said "mining", don't ever
put mimes in Crash Course again.
So now you need a steady supply of miners;
fortunately, you've conquered a bunch of people,
so you have lots of prisoners of war, and
now you have slavery.
This military-coinage slavery complex was
described explicitly in the Arthashastra,
a political guidebook written by Minister
Kautilya for the Mauryan dynasty, that made
it clear that coins and markets sprung up,
above all, to feed the machinery of war. He
wrote: "The treasury is based upon mining,
the army upon the treasury; he who has the
army and the treasury may conquer the earth."
And Graeber says that China followed a similar
pattern: he writes, "The same fractured political
landscape, the same rise of trained, professional
armies, and the creation of coined money largely
in order to pay them." So, if money is a creation
of the state and its military, then it follows
that when the state fails, as it did in Europe
after the fall of the Western Roman Empire,
coinage largely disappears. And that's exactly
what happened, actually, but of course, that
doesn't mean that transactions failed to take
place or that trade completely disappears,
but it did decline a lot. And in situations
like that, people often revert to the virtual
credit systems that we talked about earlier:
the ones that rely more on personal connections
than on like, state enforcement.
So Adam Smith's origin myth of money -- that
it derives from people's natural desire to
make barter more convenient through the creation
of a medium of exchange -- really doesn't
hold up to scrutiny. I mean, there are clearly
examples of an alternate history where production
and exchange work okay without actual coins
or bills changing hands. It's kind of like
today, actually -- money works as long as
there is some form of trust and a way to make
people meet their obligations. People used
to feel obligated because failure to meet
their obligations would hurt their standing
in their small, localized communities, and
now we meet our obligations because otherwise,
like, people take our houses or whatever.
But while we have evidence that money, as
we conceive of it today, isn't necessary for
exchange, it IS necessary, or, at least, very
useful, for states, and I think states are
probably good.
Oh, maybe not, I'm not positive. I just like
the internet so much; I don't think we would
have the internet without states.
So I wanna be clear that I don't entirely
buy Graeber's version of history. I might
be wrong, of course, but I'm not convinced
that coins necessarily lead to slavery. And
I don't think that ancient slavery is really
comparable to the chattel slavery that we
saw in the Americas. But I do think that it's
important to look at alternative points of
view when it comes to history, even when you
don't agree with them. It's helpful to understand
that there's more than one well-argued point
of view in the world. And I do think Graeber
very effectively challenges the idea that
human beings are like natural, rational, economic
actors who wouldn't be possible without money.
And in the face of overwhelming anthropological
evidence, at least this much is true: money
is not the product of human nature; it's the
product of human actions, like the formation
of governments and markets.
In short, and I know this will disappoint
some of the economics majors out there: ultimately,
I think my mom was right. We aren't made of
money. Thanks for watching, I'll see you next
week.
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