A debt is the obligation to pay a certain sum of money. This makes debts simple, cold, and impersonal — which makes them transferable. And transferability is the feature that turns an interpersonal obligation into an economic system. Money has the capacity to turn morality into a matter of impersonal arithmetic — and by doing so, to justify things that would otherwise seem outrageous or obscene.
Simple Picture
You write an IOU to your neighbor for a bag of grain. Your neighbor uses the IOU to pay the baker, because the baker trusts that you’re good for it. The baker uses it to pay the blacksmith. The IOU is now circulating as money. Now ask: what if the IOU were a gold coin instead? It is the same thing — a promise to pay something else. One accepts it because one assumes others will. The value of a unit of currency is really a measure of one’s trust in other human beings.
Now the punchline: this IOU system only works as long as the person who issued the IOU doesn’t actually pay his debt. Because then the IOU would be voided and removed from circulation. This is, quite literally, how the Bank of England was founded.
The Barter Myth
The standard story: humans used to barter, barter was inconvenient, so we invented money, then came banking and credit. Adam Smith codified it. Every economics textbook repeats it.
The problem: there is no evidence for it, and lots of evidence that it did not happen this way. People in the past did not barter with their kin because they were bonded by ties of hospitality and kinship. You do not haggle with your brother. You give, and you trust that the community will give back.
Elaborate barter systems do crop up — but only in modern contexts where money has become unreliable. Cigarettes in prisons are the famous example. These are people who grew up using money and now have to make do without it. They are not discovering barter as a primordial human behavior; they are recreating a simplified version of what they lost.
The Myth of Barter cannot go away because it is central to the entire discourse of economics. It grounds the assumption that markets are natural, spontaneous, and prior to the state. Remove the myth and you remove the foundation — which reveals that markets do not emerge spontaneously. States create markets. This is the load-bearing illusion at the base of economic theory: the story that markets are natural is what makes the current arrangement seem inevitable, and questioning the story threatens the arrangement.
States Create Markets
Why would a king extract gold, stamp his face on it, circulate it among his subjects, then demand they give it back as taxes? The answer makes perfect sense once you abandon the barter myth: the king needs to feed an army of 50,000 men.
He could try to provision them directly — requisitioning grain from every farmer, organizing logistics across a kingdom. Or he can stamp coins, pay the soldiers, and decree that taxes must be paid in those coins. Now every subject must acquire coins, which means every subject must produce something that soldiers want to buy. The market emerges not from human nature but from the state’s need to mobilize resources at scale. Money is not a convenient medium of exchange that arose organically. It is a technology of state power.
This reframes the credit cycle entirely: credit is not a clever financial innovation built on top of a natural money system. Credit — obligation, trust, reciprocity — came first. Money was layered on top of it by states that needed to convert diffuse social trust into concentrated, taxable, transferable units.
Most “Money” Is Debt
The number in your bank account is the amount the bank owes you. Federal reserves are the debt of the central bank. Treasuries are the debt of the country. Even accounts in Venmo, PayPal, and Apple Pay are debt — these companies act as shadow banks.
Every time you look at your bank account, think “This is how much my bank owes me.”
All digital money exists as a ledger — a formal protocol to track who owes who what. Countries do not hoard each other’s paper; they open accounts at each other’s central banks. Numbers in databases. This makes money vulnerable to political weaponization: sanctions (as with Russia) happen when the ledger-keeper refuses to honor the ledger.
“Decentralized” ledgers — physical cash, bitcoin, gold — are immune to political pressure because they have no central authority with the power to freeze or void entries. The central banking system works in the opposite direction: it maintains the fiction that all forms of pseudo-money (deposits, reserves, treasuries, money market shares) are interchangeable — and the moment any equivalence breaks, the cascade begins. They trade the efficiency of centralized trust for the robustness of not needing it. The gold argument for scarce assets is really an argument for ledgers that cannot be politically captured.
Banks create money by issuing loans — mostly mortgages. The loan is an asset on the bank’s balance sheet, offset by the deposit it creates (a liability). The bank does not lend out existing deposits. It creates new money every time it makes a loan. The Fed creates “base” money (M0/M1); banks use fractional reserve banking to generate “broad” money (M2). But as the Dalio frame makes clear, neither base money nor broad money causes inflation directly — spending does. All the categories of money are windows into spending patterns, not spending itself.
Violence and Quantification
Violence, or the threat of violence, turns human relations into mathematics. It’s the ultimate source of the moral confusion surrounding the topic of debt.
When you look closely, violence and quantification are intimately linked. It is almost impossible to find one without the other. The slave becomes a number — a price — only through the violence of capture and the threat of continued violence. The debtor becomes a number — an obligation — only because the creditor has recourse to enforcement. Strip away the enforcement and the debt is just a request.
This is the dark underside of the reflexive loop: the story of money creates the reality of money, but the story is ultimately backed by the state’s monopoly on violence. The mimetic process that inflates asset bubbles runs on top of a coercive infrastructure that nobody discusses during the bubble and everyone confronts during the bust. The sacrifice at the end of the Girardian cycle is not metaphorical — it is the real violence that emerges when the mathematical abstraction of debt can no longer paper over the human relationships underneath.
Debt as Sin
The earliest known historical reflections on debt come from Sanskrit literature — the Vedas and Brahmanas — where debt is treated synonymously with guilt and sin. Words for debt are synonymous with those for sin across multiple ancient languages. This is not metaphorical. The felt experience of owing is the felt experience of moral failure.
Our debt to the gods was always, really, a debt to the society that made us what we are.
It is not just criminals who owe a debt to society. We are all, in a certain sense, guilty — even criminals. The social contract is an unpayable debt, which is precisely what makes it functional: like the Bank of England’s founding IOU, the system works because the debt is never fully discharged. Paying it off would void the currency of obligation that holds the community together. The beautiful deleveraging is impossible at the social level because the debt is the relationship.
Dimwit / Midwit / Better Take
The dimwit take is “money is gold, or paper backed by gold, and the government just needs to stop printing it.”
The midwit take is “money is a social construct, a shared fiction, and any sufficiently trusted token could serve as money.”
The better take is that money is a technology of violence that converts diffuse social obligations into transferable, quantifiable units — and the conversion is never neutral. The barter myth tells us markets are natural and states are interlopers. History tells us the opposite: states created markets to provision armies, and the impersonal arithmetic of money was designed to make obligations extractable from people who had no choice. The “shared fiction” framing is too gentle — money is a shared fiction backed by the capacity to destroy anyone who rejects it. The Chinese model of financial repression makes this visible: the state controls the ledger, traps capital inside the border, and uses the savings of citizens to fund its own projects. But every monetary system does this to varying degrees — the question is not whether the state captures the ledger but how much.
Main Payoff
Smith assumed that humans left to their own devices will inevitably begin swapping and comparing things — that even logic and conversation are forms of trading. This is the deepest load-bearing illusion in economics: the naturalization of market behavior. If exchange is human nature, then markets are inevitable, then capitalism is natural, then alternatives are utopian. But if credit and obligation came first — if the original currency was kinship, reciprocity, and trust — then money is an interruption of natural human relations, not their expression. The interruption was useful. It scaled cooperation beyond the tribe. But it did so by converting relationships into arithmetic, and arithmetic does not care about the people inside the numbers.
References:
- David Graeber, Debt: The First 5,000 Years
- Joseph Wang, Central Banking 101