Red-Blooded Risk Aaron Brown

Wiley, pp.432, 23.99

Debt: The First 5000 Years David Graeber

Melville House, pp.224, 21.99

I was racking my brains, trying to understand money, trying to grasp exactly what it is, when I came across these two books. One is written by Aaron Brown, who is the risk manager of a large Wall Street hedgefund. The other is by David Graeber, the anarchist who has been called the leader — and, sometimes, the anti-leader — of the Occupy Wall Street movement. Both have written brilliant books about the history of money.

As you’d expect, Brown thinks that money, in its various forms, has made the world a prosperous and interesting place, and Graeber thinks that money has divided the world into two tribes — a tiny, and shrinking, number of very rich people (like Brown), and a vast, and growing, army of debtors. In a way, they’re both right.

So what is money? It’s an idea, or a set of conventions, that, in order to work, must exist in my head and your head at the same time. It’s a sort of language. It’s something that we use in order to have better, or at least more productive, relationships with each other. But it can cause terrible problems. It started out as a useful way of arranging the world around us. But these days, we seem to be using the world around us to arrange it. It seems to be manipulating us. For instance, why do our economies have to grow all the time? Why can’t we just stay the same size? Because money says so, that’s why.

Money had to start somewhere. The received wisdom, says Graeber, is that people in prehistoric tribes used to barter with each other, swapping chickens for fish, or axes for loincloths. And this wasn’t much good, because everybody would have to simultaneously remember the loincloth price of fish, the chicken price of axes, and so on. And if you had a spare axe, and I had a spare chicken, we couldn’t do business unless, simultaneously, I wanted an axe, and you wanted a chicken. Half the time we’d be looking for a third party, so I could swap my chicken for his fish to get your axe, or whatever. And then, goes the received wisdom, somebody had a brilliant idea: if we all agreed on a medium of exchange, we could buy what we wanted, when we wanted it. And bingo! Civilisation dawned.

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But this is rubbish, says Graeber. Barter barely existed in prehistoric tribes. These were small groups of people, who knew each other intimately. They all pulled their weight, each according to his ability; if you shirked, or ripped somebody off, everybody would know. Every single person in the tribe would understand what everybody else wanted and needed, what their status was, and what their skills were. If the tribe was to survive, each of the individuals within it would have to strive, all the time, to match each other’s needs, however complex and specific.

Money came along much later, says Graeber, as a by-product of the Mesopotamian temple culture. After that, people started to lend it, charging interest, and, pretty soon, a few people were rich, and the rest were debt slaves. The main difference between then and now, he says, is that in the old Mesopotamian days, governments tended to side with the debt slaves rather than the usurers; every so often, they would step in and declare an amnesty. Now it’s the other way around; our leaders support the usurers.

Brown’s history of money, and his projection into the future, is beautiful in its logic. He’s an incredibly elegant thinker. He explains how money, once it emerged, became like an invisible stock exchange, or clearing-house, for trade. He gets us to see that precious metal works as money, but it’s cumbersome, and a liability. He explains how paper money stimulated the economy, because it favoured people with ideas, rather than people who were already rich. He explains the trouble with paper money, which is that nobody is ever quite sure what it’s worth.

There are lots more things here, including superb sections on investment, the history of Wall Street, and the Dutch tulip mania, when people began to think tulips were money, which was not at all unlike the recent mortgage mania, when people began to think that houses, and the contracts people entered into to buy them, were money.

The future, says Brown, lies with derivatives. Soon, paper money will seem less important, like coins. That’s because paper money is issued by banks, in the form of loans. Loans are like bets — so the bank, like a bookmaker, is always covering itself, fixing the odds at your expense. Derivatives, says Brown are not like that; they are contracts tailored to your exact needs, matched, through a computer, with a counter party. Using derivatives, then, is more like dealing with a betting exchange, such as Betfair, than a bookie.

In the future, he says, derivatives will rule — we’ll enter what we want to give, and what we want to get, into our computers, and our desires will be silently matched to others. The computer will rate us according to our skills and status. We’ll all strive to match each other’s needs. We’ll all have to pull our weight. Brown’s derivative world might be the driver of great economic prosperity. And it is, in the end, exactly like Graeber’s prehistoric tribe.

This article first appeared in the print edition of The Spectator magazine, dated

Tags: Book review, Debt, Finance, Money, Non-fiction