Thoughts on the Graeber seignorage/tribute controversy

There’s a controversy brewing about some claims make by David Graeber in the concluding chapter of his recent book Debt: The First 5000 Years. It’s been a long time coming. Since the entertaining bout with the Austrian-school gremlins at mises.org shortly after the book’s publication, it’s been a smooth ride, epitomised by a glowing full-page review in the Financial Times which, incredibly, conceded Graeber’s claim that modern Americans working 2 jobs to service mortage/credit card/student debts really aren’t so different from slaves.

The new controversy centres on Graeber’s claim that the seignorage afforded by the $US role as global reserve currency represents a form of tribute. Here’s someone who disagrees. Here’s someone else who disagrees.

Just noting down some thoughts on this: My impression is that Graeber’s thesis in the final chapter is a bit underdeveloped, leaving it open to being caricatured, roughly as follows: “countries hold US T-bonds because they’re terrified that they’ll be bombed to smithereens if not”. I think Graeber is trying to get at something more subtle, but that he hasn’t properly specified yet. [edit: This isn’t really fair. Having now re-read the final chapter of Debt, I feel that what I wrote above concedes far too much to Graeber’s critics. It is they who are misrepresenting Graeber’s argument, whereas what he actually wrote is pretty clear — that is, if you’re not desperately seeking ways to knock down his argument.] It’s that elites in various countries are happy to hold T-bills (even if they aren’t great investments in purely pecuniary terms) because they’re investing in an international police force that protects their interests. It’s crucial to take into account the domestic and regional interests of these elites. They are not the targets of US military threat, but their rivals, at home or next door, emphatically are.

Tribute or… protection money? Potato, potahto.

Note that this discussion concerns the likes of Japan, South Korea, the oil states, West Germany, and afaik all major holders of T-bonds before, you guessed it, China. China, as all participants to the debate acknowledge, is a big exception, since its rulers have no obvious interest in bankrolling US militarism.

Most likely, China is doing it for the reasons we already know about: to prevent the yuan from appreciating against the dollar and thus maintain export competitiveness (Hudson) and because $US financial markets are unparalleled in their liquidity (Konings). Still, this leaves unanswered the question of what will happen now that the main holder of T-bills is no longer wedded to that posture from a military and geostrategic viewpoint.