How did the idea of debt between two parties become the basis for a multi-hundred-trillion-dollar global financial system?
Prior to the advent of commercially exchanged debt notes, the accrued or otherwise enforced debts of individuals could be used as a means to extract physical labor. Here we have the example of slavery, slave trade, and ideas such as indentured servitude. Party A holds Party B captive either indefinitely or until Party B’s debts are paid. Slaves and indentured servants could be traded in exchange for other slaves, goods, and services. Formal ledgers of such transactions can be traced back to ancient Sumer, at the advent of money, trade, agriculture and debt-based social hierarchy.
Thousands of clay cuneiform tablets recovered from southern Mesopotamia detail commercial loans, interest rates, sales contracts, and judicial reforms concerning unfree labor. Financial transactions, promissory notes, and receipts stamped with cylinder seals were routinely pressed into clay. Loans of barley and silver carried standard interest rates — frequently around 20% — which would accumulate rapidly during poor harvest seasons. Families unable to repay their creditors often had to surrender themselves or family members into temporary or long-term physical labor to work off the balance. The burden of debt grew so severe that Sumerian rulers (such as Enmetena of Lagash around 2400 BCE) periodically issued cancellations of agraian debts and freed debt slaves.
Slaves were acquired through prisoners captured in foreign wars, criminal punishment, human trafficking, or self-and-family pledging due to unpayable debts. Slaves were treated as legal property and could be bought, sold, or inherited. Legal records indicate that Sumerian slaves could occasionally purchase their own freedom, be legally adopted by their masters, or be freed via specific contractual clauses. (1, 2, 3, 4)
Early agricultural loan contracts first emerged on clay tablets around 3500 BCE - 3000 BCE. Anthropologists and economic historians like David Graeber in Debt: The First 5,000 years, categorize the entire Bronze Age block as an era of “virtual credit money,” where physical coins did not exist and economies operated entirely on credit, ledgers, and barley/silver equations.
But how did it all begin? Archeological evidence unearthed at Gobekli Tepe and surrounding sites indicate that humanity’s shift to modern agriculture, trade, religion and money was sudden — not gradual. The implementation of large-scale agriculture and water canals emerged at the same time as a ruling class that held the information necessary to plan the agriculture, labor, and system of debts. Prior to agriculture, humans consumed food almost immediately after gathering or hunting it. Agriculture changed the human relationship with time and ushered in the first systems of accounting. Because farmers planted seeds in the spring but could not harvest until the autumn, the family paid for food, tool maintenence, and renting of draft animals with a “tab,” or future promise to pay. Here we see the origins of numerical accounting for a time delay between labor and reward.
Sumerian Temples (and later the royal palaces) were the first institutions to organize labor, design intricate water canals and store massive surpluses of grain. The temples advanced seeds, tools, plow animals, and food rations to independent farmers. At the time of harvest, farmers were legally required to bring their yield to the communal “threshing floor” to settle their tabs with the temple leaders. The region was subject to floods, crop blights, droughts, and conflicts. If a farmer was unable to pay off the advance — plus interest, which often ranged from 20% to 33% — the debt would carry over into the following year.
At the time of the advance, a farmer would pledge assets such as land rights or family cattle, to the temple. If the collateral was not sufficient to pay the debt, the farmer had to pledge human labor. The farmer might hand over his daughters, sons, or wife to work off debt. Over generations, the practice of offering an advance on resources between the spring and autumn became a means for concentrating people and resources in the hands of the temple administrators. Independent families were systemically converted into landless sharecroppers and debt slaves.
The ruling class was the priesthood, which oversaw the temples and became the world’s first literate bureaucracy. The priests were the only citizens capable of reading and writing the complex cuneiform records needed to track massive debts, deposits, and payments. Sumerian temples established the foundational mechanisms used by commercial banks today.
People deposited valuables, such as bags of grain, jars of olive oil, and silver in the temple. The temple scribe recorded the deposit on a clay tablet, sealed it, and placed it in the temple archives. The depositor received a token or a clay duplicate as a receipt. The surpluses of grain, olive oil, and silver were lended out in a process that mimics the fractional reserve lending utilized by commercial banks today. Barley loans carried an interest rate of 33.3%, while silver carried an interest rate of 20%. Temple priests would also issue checks to traveling merchants that could be exchanged for silver shekels at a temple in a neighboring city.
Who were the priests who established the system? Ancient artifacts indicate the lineage of priest-managers emerged from Ubaid, the civilization which existed during 6500 BC - 4000 BC, preceding Sumeria. Its origin remains a mystery. How did they rule? On hypothesis is that the human population grew rapidly, resulting in competition for resources and an inability to travel for food. The establishment of sedentary villages resulted in vulnerability to extreme weather events, such as drought or flood. Because the landscape was so flat and dry, the canal system run by the priest managers served as a means to distribute water. Moreover, the ability to store grain resulted in the ability to administer its distribution among the villages.
Debt Currency: A Mysterious Origin
