Graeber, in his Debt, attacks what he refers to as ‘the myth of barter’ — the idea that money is a communal invention and agreed-upon standard to avoid the problem of having to barter. He’s entirely correct — such a myth is false. However, some of his overzealous fans are incorrect — he at no point claims that markets, or even something close enough to ‘money’ to bear the name, are impossible without states. They would just look very different. 

State-issued currency has the value it does partially because everyone knows that other people want it, partially because it is (sometimes) backed by commodities, and partially because a large number of people have to pay their taxes in it — or else the state will put them in cages and/or take their property. Further: it’s the state that backs it with commodities within a state-guarded warehouse, and people only know that other people want it because they know that they need it to pay taxes with and/or to exchange for commodities. Anyone who says that currency as it exists today (i.e., with the dynamics that state-issued currency has) is a consensual innovation is doing the state’s propaganda work for it for free, by treating the violence of the state as a mere passive effect of the laws of nature. 

However, this does not mean that stateless money is impossible. Graeber never claims such a thing, either. In fact, in that same book, Graeber says much the opposite. He repeatedly shows that people in areas where the state is largely or entirely absent can easily carry on market economies — but, that these markets often rely on complex systems of credit, such that everyone ends up in debt to everyone else. 

As he says:

in real communities and marketplaces, almost anywhere… one is much more likely to discover everyone in debt to everyone else in a dozen different ways, and that most transactions take place without the use of currency.

Even if there was ever a situation like that depicted in ‘the myth of barter’, it wouldn’t last. A situation in which no one trusted anyone enough to extend them credit, and yet people still wanted to exchange goods and services with each other, would at first lead to the issue of trying to satisfy the ‘double coincidence of wants’.

However, there would (quite likely) come to be some sort of good that enough people wanted for that good to be used as money, driven by its own natural high demand. Everyone would know that, if they accepted this high-demand good, they could easily trade it to someone else — and this usefulness as a trade-good would increase its demand still more. For a good like this to really work like money, of course, it would have to have a few other characteristics: it would have to be portable, fungible, etc.. There are numerous historical examples of things like this — economists call it ‘commodity money’. It’s likely most familiar to Americans in how cigarettes function as money inside of prisons. 

It’s only in communities as extreme as prisons, or in cases of economic interactions between strangers, that commodity money (or less efficient forms of barter) is used — after all, these are situations with low trust. Graeber says: 

…it begins to be clear why there are no societies based on barter. Such a society could only be one in which everybody was an inch away from everybody else’s throat; but nonetheless hovering there, poised to strike but never actually striking, forever. True, barter does sometimes occur between people who do not consider each other strangers, but they’re usually people who might as well be strangers-that is, who feel no sense of mutual responsibility or trust, or the desire to develop ongoing relations.

But commodity money has well-known problems, and is well-studied enough that there would be little-to-no point in writing an essay on the matter — commodity money is better than nothing at all, but is generally a poor store of value for two reasons. Firstly: like all physical things, it degrades over time. Secondly: all forms of commodity money have some intrinsic use to them, as well as being in some way producible, and in some way consumable — and, as such, savings in commodity money are likely to suffer unpredictable and uncontrollable deflation and inflation. 

So, commodity money is too boring and too well studied to be worth writing an essay about. It’s only really useful for zero-trust interactions — and most economies are not zero-trust. In fact, most economies — especially ones with minimal or no state — ultimately run on trust. The only exchanges that ever function without trust are short-term ones: you must always eventually use trust, or use violence — and long-term violence, too, engenders trust in the violence. So, shouldn’t our focus of analysis be on trust? 

Market economies where trust plays a large role, and the state plays a minimal or even non-existent one, are covered in Debt. Much of the early middle ages occurred this way:

When much of Europe “reverted to barter” after the collapse of the Roman Empire, and then again after the Carolingian Empire likewise fell apart, this seems to be what happened. People continued keeping accounts in the old imperial currency, even if they were no longer using coins.

…everyone continued to assess the value of tools and livestock in the old Roman currency, even if the coins themselves had ceased to circulate. 

This, however, would seem to present a certain awkwardness for left-wing market anarchists. Not a terribly great one, of course: here is a stateless economy, with markets, just as we have been saying. The issue, though, is that it didn’t happen how we’ve often said it would happen.

As Carson says in The Iron Fist Behind the Invisible Hand:

Individualist and mutualist anarchists like William Greene [Mutual Banking], Benjamin Tucker [Instead of a Book], and J. B. Robertson [The Economics of Liberty] viewed the money monopoly as central to the capitalist system of privilege. In a genuinely free banking market, any group of individuals could form a mutual bank and issue monetized credit in the form of bank notes against any form of collateral they chose, with acceptance of these notes as tender being a condition of membership. Greene speculated that a mutual bank might choose to honor not only marketable property as collateral, but the “pledging … [of] future production.” [p. 73].

Although some LWMAs have gone so far as to characterize the enforcement of statist currency as the central thing enforcing capitalism, it seems that there has been an overly narrow imagination around what non-statist currency must look like. There are two untrue assumptions about stateless currencies contained within the idea of mutual banking (as laid out above). Firstly, that such currencies must be issued by groups formed for the sole purpose of issuing that currency. Secondly, that the currency must be backed with something. 

You don’t have to back your IOUs with anything. Not with pre-existing property, and not even with promises of future labor. You just have to say “I’m good for it,” and –if people believe you– your IOUs will have worth. Now, of course, you can back it with promises of goods or labor — but people’s belief that you’ll honor that backing if they attempt to call it in is itself an act of trust. And, what’s more, promising to back your IOUs is nothing more than an attempt to increase the trust that people have in your promises by laying out a plan for how you’ll honor that promise. 

It all comes back to trust — nothing but trust. Money isn’t about coins! Money isn’t about backing those coins, either. With the state, money might be a matter of violence — as in taxation. But without it, money is nothing but a matter of trust.

Keep in mind, though, even this world of trust has limits — one’s IOUs are subject to inflation. The more IOUs one issues, past a certain limit of reasonability, the less anyone really expects you to actually try to pay them back — and thus, the less likely anyone is to accept them — and, when they do accept them, they’ll want more of them to compensate themselves for the risk of accepting your untrusted credit. Someone who promised more to others than they could really repay could easily get caught in a spiral of having to promise more and more, until none would accept their credit — and the only thing that could arrest a cycle like this would be the act of repayment — of taking one’s IOUs out of circulation. 

As Graeber says in Debt:

If money is a just a yardstick, what then does it measure? The answer was simple: debt. A coin is, effectively, an IOU. 

…How could credit money come about? Let us return to the… imaginary town. Say, for example, that Joshua were to give his shoes to Henry, and… Henry promises him something of equivalent value… an IOU. Joshua could wait for Henry to have something useful, and then redeem it. In that case Henry would rip up the IOU and the story would be over. But say Joshua were to pass the IOU on to a third party-Sheila-to whom he owes something else. He could tick it off against his debt to a fourth party, Lola-now Henry will owe that amount to her. Hence is money born. Because there’s no logical end to it. Say Sheila now wishes to acquire a pair of shoes from Edith; she can just hand Edith the IOU, and assure her that Henry is good for it. In principle, there’s no reason that the IOU could not continue circulating around town for years-provided people continue to have faith in Henry. In fact, if it goes on long enough, people might forget about the issuer entirely. 

…Keith Hart once told me a story about his brother, who… was a British soldier stationed in Hong Kong. Soldiers used to pay their bar tabs by writing checks on accounts back in England. Local merchants would often simply endorse them over to each other and pass them around as currency: once, he saw one of his own checks, written six months before, on the counter of a local vendor covered with about forty different tiny inscriptions in Chinese.

…the value of a unit of currency is not the measure of the value of an object, but the measure of one’s trust in other human beings.

This element of trust of course makes everything more complicated …generally, the difficulty …is to establish why people would continue to trust a piece of paper. After all, why couldn’t anyone just sign Henry’s name on an IOU? 

[bolding my own]

Why, indeed? That would seem to be one of the key problems that any massive, distributed, stateless monetary system would have to solve: preventing fraud. 

Graeber even gives further, more detailed, examples of these sorts of credit systems operating. First in the Muslim world:

…anyone of prominence was expected to keep most… wealth on deposit, and to make everyday transactions… by …Promissory notes

…Checks could be countersigned and transferred, and letters of credit… could travel across the Indian Ocean or the Sahara . If they did not turn into de facto paper money, it was because, since they operated completely independent of the state (they could not be used to pay taxes, for instance), their value was based almost entirely on trust and reputation. Appeal to the Islamic courts was generally voluntary or mediated by merchant guilds and civic associations. In such a context, having a famous poet compose verses making fun of you for bouncing a check was probably the ultimate disaster.

…in a credit economy that operates largely without state mechanisms of enforcement (without police to arrest those who commit fraud, or bailiffs to seize a debtor’s property), a significant part of the value of a promissory note is indeed the good name of the signatory. As Pierre Bourdieu was later to point out in describing a similar economy of trust in contemporary Algeria: it’s quite possible to turn honor into money, almost impossible to convert money into honor.

Second, in the world of renaissance Europe, especially England (though, he makes clear, it is beyond doubt that early medieval Europe was just as much a debt-based economy — we simply don’t have as rich and or as detailed records of it):

Inside the small towns and rural hamlets, where the state was mostly far away, Medieval standards survived intact, and “credit” was just as much a matter of honor and reputation as it had ever been. 

…in the poorer neighborhoods of cities or large towns, shopkeepers would issue their own lead, leather, or wooden token money; in the sixteenth century this became something of a fad, with artisans and even poor widows producing their own currency as a way to make ends meet. Elsewhere, those frequenting the local butcher, baker, or shoemaker would simply put things on the tab. The same was true of those attending weekly markets, or selling neighbors milk or cheese or candle-wax.

In a typical village, the only people likely to pay cash were passing travelers, and those considered riff-raff: paupers and ne’er-do-wells so notoriously down on their luck that no one would extend credit to them. Since everyone was involved in selling something …everyone was both creditor and debtor; most family income took the form of promises from other families; everyone knew and kept count of what their neighbors owed one another; and every six months or year or so, communities would held a general public “reckoning,” cancelling debts out against each other in a great circle, with only those differences then remaining when all was done being settled by use of coin or goods.

The reason that this upends our assumptions is that we’re used to blaming the rise of capitalism on something vaguely called “the market”-the breakup of older systems of mutual aid and solidarity, and the creation of a world of cold calculation, where everything had its price. Really, English villagers appear to have seen no contradiction between the two. On the one hand, they believed strongly in the collective stewardship of fields, streams, and forests, and the need to help neighbors in difficulty. On the other hand, markets were seen as a kind of attenuated version of the same principle, since they were entirely founded on trust. 

…In this world, trust was everything. Most money literally was trust, since most credit arrangements were handshake deals. When people used the word “credit,” they referred above all to a reputation for honesty and integrity; and a man or woman’s honor, virtue, and respectability, but also, reputation for generosity, decency, and good-natured sociability, were at least as important considerations when deciding whether to make a loan as were assessments of net income. As a result, financial terms became indistinguishable from moral ones. One could speak of others as “worthies,” as “a woman of high estimation” or “a man of no account,” and equally of “giving credit” to someone’s words when one believes what they say (“credit” is from the same root as “creed” or “credibility”) , or of “extending credit” to them, when one takes them at their word that they will pay one back.

At the end of his original description of the theory of these debt-based market economies, as quoted above, Graeber appends the following qualifier:

True, this sort of debt-token system might work within a small village where everyone knew one another, or even among a more dispersed community like sixteenth-century Italian or twentieth-century Chinese merchants, where everyone at least had ways of keeping track of everybody else. But systems like these cannot create a full-blown currency system, and there’s no evidence that they ever have. Providing a sufficient number of IOUs to allow everyone even in a medium-sized city to be able to carry out a significant portion of their daily transactions in such currency would require millions of tokens. To be able to guarantee all of them, Henry would have to be almost unimaginably rich.

And then he goes on to explain how some king or another of England, named Henry, created the modern English monetary system by giving a massive loan to the Bank of England. 

Graeber, essentially, has laid out three problems with ever scaling this system of credit: 

1. Inability to prevent forgery of signatures
2. Inability to issue a sufficient number of tokens 
3. Inability to keep track of who is and isn’t good for their debts

And he points out that these problems seem insurmountable, and have –in the past– always been solved through recourse to a single individual or organization (a king or a state) issuing tokens of debt, employing people to root out any forgers, and maintaining a reputation for accepting their own tokens. 

He’s right about this — this was the only way to solve this problem. Was. But technology has now advanced:

1. Blockchain technology, possibly with the addition of public-key/private-key signing, can easily create a system in which it’s difficult to forge someone’s signature on a record of debt. Not only is the issue of trusting the veracity of a signature solvable, so is the issue of issuing tokens and receipts. 
2. Providing a sufficient number of IOUs isn’t hard if the IOUs are digital. 
3. And keeping track of people, and their reputations, is easy with modern computers — in fact, many of the woes of modern life come about with just how easy it is to keep track of people. One would expect any serious digital monetary system (not necessarily a cryptocurrency, but probably a cryptocurrency) to do exactly that — for it to be less a way to exchange currency, and more a way to issue, exchange, and evaluate IOUs.

We can now absolutely create large-scale debt-based monetary systems. The technology is ready, it simply has to be assembled. 

So far, of course, the most famous digital currencies don’t work at all like this. PayPal exists as something less than a digital banking service. Bitcoin, and it’s relatives, attempt to (essentially) act like the tax-based currencies that we are all familiar with, but without the taxes.

Obviously, Bitcoin has not done great as a currency. Money is supposed to be a store of value, a unit of account, and a medium of exchange. Bitcoin is terrible at being a store of value, and equally terrible at being a unit of account — for the same reason, in both cases: its value fluctuates extremely rapidly. The ‘why?’ of its fluctuation is beyond the scope of this essay, and has already been covered to satisfaction elsewhere — but its success in spite of its issues must be covered here. 

Bitcoins have value because people are willing to pay for them in tax-based currency. People are willing to pay for them in tax-based currency because they can then use those Bitcoins to pay for illegal things online. Put another way: Bitcoin is, essentially, a scheme for obfuscating one’s financial data. That’s all it is, and –without a way to pay one’s taxes with it, or take out debts in it– it’s all that it can be. Bitcoin derives its value entirely from the existence of states. If all states disappeared tomorrow, Bitcoin would have no value — no would pay for it with (now worthless) tax-based statist currency, and no one would want to sell their (now perfectly legal) drugs for it. 

So, in many ways, Bitcoin is the opposite of what is needed to serve the needs of a stateless society — i.e., it uses pseudo-currency instead of credit and it does nothing to track trustworthiness. What is needed is a digital extension of the old networks of credit and trust. 

You’d want multiple and competing schemes like this. At least partially because different people will have different sorts of ideas about what sort features are good in something like this — people might want trust-based in one algorithm or another, or in principles based in various religions or philosophies. They may want to completely and directly forbid usury, hold regular and predictable debt jubilees, give a tenth of all debts that they receive to a designated church, or engage in other religiously mandated economic practices that I am unaware of. 

More than that, though, it’s nearly impossible to tell what (even secular/algorithmic) methods might be best at evaluating trust — it is, after all, a deeply human and metis-filled action. Computers are useful for a scheme like this not because computers are necessarily better at evaluating social relations and intentions than people are (all the available evidence suggests that, even under ideal conditions, computers at best tie with people) but because they are able to do so for a much greater number of relations, and without ever tiring. Any given scheme would work by quantifying and externally tracking the degree to which other people can be trusted (or, at least, trusted to repay their debts and accurately rate other people’s debt repayments) but the degree to which anyone trusts any given scheme is both unquantified and internally tracked.

Ultimately, these digital schemes would only ever be proxies for trusting in people. A given scheme trusts (or distrusts) a given person, and you trust (or distrust) a given scheme — and so, if the scheme trusts a person, and you trust that scheme, then you can trust that person. The schemes would only have value because they allow us to extend or receive credit, and more generally to trust, with a much larger number of people than we could unassisted. These schemes would be mental prosthetics, much as writing is a mental prosthetic — just as writing allows us to remember and communicate far more than we ever could without it, these schemes will allow us to trust far more people.

This is, among other reasons, why I am unable to entirely specify how such a scheme will work — not only am I not an expert in such fields, I also believe that there will have to be a great deal of empiricism in these systems, and that the existence of multiple competing schemes will keep each scheme from growing into a corrupted source of hierarchy and centralization. These various schemes will have to compete in the market, like so much else does, and so much more should. In fact, it’s even possible that this competition will lead them to make themselves capable of interfacing with each other — they may make it possible to move debts from one scheme to another, so as to increase the value and stability of any debts in a given system.

I can, however, take a swing at outlining some of the features that I can guess that such schemes could have, or should have. 

First and foremost, it seems as though any given scheme will need some way to deal with bad actors — some way to evaluate the trustworthiness of the data it gets from a given account, and weigh the data it gets accordingly. A sort-of meta-trust score — how much the system trusts you, not to repay your debts, but to evaluate debt repayment honestly. It may be that these are one and the same thing — perhaps your trustworthiness is an inherent characteristic, and does not change based on context. If that is the case, then everyone in a given scheme will likely end up with only one such score. If it is not, though, it will be necessary for the system to have some way to appeal ratings — perhaps through an entirely automated process, perhaps through some collective of moderators managing the scheme. 

This leads inexorably to the second feature I would expect to be universal: regardless of whether or not there are moderators, the scheme will likely need to treat itself as an actor within its own network of debts — an actor capable of issuing debts of its own. Of course, since the system is free to set its trust rating(s) at whatever it wants, it’s likely it would set them permanently to maximal. What this would really mean is that the system trusts itself maximally, and –as such– your trust in the system’s debts should always be the same as your trust in the system. As such, the debts of the scheme would always be valuable — them not being so suggests that the system isn’t trusted very well by its own users.

The scheme’s debts would be used by the collective to pay themselves, used to pay people for time on their devices to run the system through distributed computing (in current cryptocurrency, this is called ‘mining’), and/or issued to people who spend the time to rate their transactions with others — after all, the people providing the ratings are improving the overall trustworthiness of the system. And, of course, that’s the motive behind the system not over-paying those who add value to it — the more that the system issues debts, the less trustworthy it becomes, exactly the same as it works for anyone else.

All this, of course, leads to the third feature that I expect to be universal in these schemes: that the system’s debts can be redeemed for something. After all, a scheme’s IOUs are only worth something if the system buys something, or charges fees, or cancels out the IOUs in some way. Perhaps a given scheme will require everyone using it to pay it a monthly service fee, recapitulating some of the features of statist currency. Perhaps a scheme will issue large loans at interest, of the sort that most people would be unwilling and unable to offer to each other — i.e., the system could act as a bank (though, as has been noted elsewhere, with incredibly low interest rates and incredibly forgiving refinancing policies) with interest payable (of course) in its own IOUs. It’s rather hard to say for sure. But, we can know that people will have to run the system in some way, that there will have to be payment for that labor, and that the payment for that labor will have to have some eventual use if it is to be accepted in the first place. 

Fourth, and finally, I expect these schemes to commonly exhibit a sort-of de facto pseudo-demurrage. People and non-state organizations have much shorter lifespans than states tend to — as such, one would expect debt-based money to have much higher velocity of money than tax-based money, and for savings rates in debt-based money to be lower. One wouldn’t want to hang onto a debt for years or even decades, after all — what if the entity to which the debt is owed stops existing? Bankruptcy or inheritance norms might ameliorate this risk to some extent (by paying out to holders of debts) but there may be insufficient enforcement in general, or insufficient assets in specific cases. In any diversified wallet of debts, there is a natural and stochastic rate of demurrage.

So, if we can argue for how great they are — and even predict their features ahead of their existence — why don’t such schemes already exist? After all, personal cell phones have been common since the mid-2000s, and the blockchain was invented in 2008. Are we to believe that markets are so inefficient that it takes them over a decade to finish combining two obvious things? That is not the case — instead, this is a matter of statism making these sorts of schemes mostly useless.

Local Exchange Currency Systems (LETSs) and timebanking schemes are great examples of this — there are plenty of these throughout the world, but they have never really taken off. Regardless of how sound your monetary system is, it’s useless if the people you need to pay won’t accept it. And, under statism, most of the places where (most) people spend money, currently, are with large and non-negotiable institutions and persons — the grocery store will not let you pay them in an experimental scheme for exchanging debts, and neither will your landlord, or your student loan servicer, regardless of how trusted that scheme might say that you are. 

Even if they particularly wanted to do that (and, of course, they have good reason not to — the grocery store has no place for non-currency money in their internal bureaucracy, and neither your landlord nor your grocer would have any familiarity or trust in the scheme) they couldn’t — they can’t pay their taxes in it, and neither can anyone that they might want to use that money with. Importantly, too, is that you (if you own any taxable property) very likely need to pay your taxes in it, less you be jailed and/or the state seize what little property you have managed to accumulate. 

This is the core paradox of money without the state — it will inevitably be used without the state being there to stop its usage, but it cannot be used while the state is present. Again, the insurrectionary (rather than revolutionary) solution presents itself — as people free themselves from the state, moving beyond its reach and fighting back against it, they will begin to be able to (and, as the state retreats ever further, have to) carry on their affairs with each other. But, this infrastructure needs to be in place, waiting for them, before they need it. There won’t be time to build this stuff when we need it. If you’re reading this, and you have any capability to program an app, coin, or whatever that works like this, you need to do that — it is absolutely imperative that your version of this be out there, waiting for us, in case we need it.