Grasping Reality on TypePad, by Brad DeLong

And then LizardBreath asked a question:

I picked up Debt: The First 5000 Years, by David Graeber, after a couple of people here recommended it. And halfway through, it's a very interesting discussion of the origins of money and credit, non-market systems of exchange. But there are some things that make me wonder whether any fact in the book I don't know for certain to be true can be trusted…. [H]e uses Apple Computers as an example:

Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages...

I don't know all that much about the history of Apple or of the computer business generally, but I'm pretty sure that's as wrong as it could possibly be. Apple was founded by two guys, neither of whom (AFAIK) worked for IBM (maybe for a very short time? But certainly not extendedly). It was notoriously a rigid, top-down hierarchy, it was founded in the '70s, not the '80s, and who had a laptop until the very end of the '80s? That's a whole lot of wrong for one sentence. Has anyone read the book with enough background knowledge to say if this is a fluke, or if the whole thing is like this?

To this question Graeber, at various times, gave three different (and inconsistent) answers:

(1) Graeber claimed that it was perfectly true, but not of Apple but of other companies (none of which he has ever named):

Graeber: Seminar on Debt: The First 5000 Years: The endlessly cited Apple quote was not supposed to be about Apple. Actually it was about a whole of series of other tiny start-ups created by people who’d dropped out of IBM, Apple, and similar behemoths. (Of them it’s perfectly true.)...

(2) Graeber, when questioned about the Apple passage by Mark Gimein, said that he believed he had been misled by Richard Wolff:

@davidgraeber: oh ask Mr [Richard] Wolff

@markgimein: You mean Tom Wolfe (this http://bit.ly/tuUz4O ?) But he was talking about HP, not Apple. [Gemein annotates: I though Graeber might have had in mind Tom Wolfe’s essay about the origins of Hewlett Packard and Silicon Valley. That was somewhat closer to the description in the book.]

@davidgraeber: no I mean Richard Wolff the Marxist economist whose student did a study of the origins of Apple and never published it

@markgimein: Don’t know about Wolff. But I don’t think Apple was founded by IBM refugees. And when it was founded there were no laptops.

@davidgraeber: the laptops thing was a result of a compression of two sentences, that as silly

@davidgraeber: Richard Wolff actually and I think he led me astray

@davidgraeber: yeah I know I think Wolff was just kind of wrong about a lot of this; I tried to check with him but he didn’t answer the email

@davidgraeber: it’s upsetting; it’s also possible he was talking about a different early start-up; anyway won’t be in the 2nd edition!

(3) And Graeber claimed that it was his editor/publisher's fault:

The passage got horribly garbled at some point into something incoherent, I still can’t completely figure out how, was patched back together by the copyeditor into something that made logical sense but was obviously factually wrong. I should have caught it at the proofreading stage but I didn’t. I did catch it when the book first came out, tried to get the publisher to take it out, and have been continually trying since July. All to no avail. I have absolutely no idea why a book can go through eight editions and it’s impossible to pull out a couple lines of obviously incorrect text but they just keep telling me, no, I have to wait until July...

Having given three inconsistent explanations of why he wrote that Apple "was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages", Graeber then assured his readers that the rest of the book was battle-tested and rock-solid:

Allow me to reassure the reader.... That one [Apple] sentence gets repeated a thousand times. No other one does. That’s because it’s the only sentence flagrantly wrong.... I’ve communicated with, or read reviews by, scholars of Greece, Mesopotamia, and Islam, Medievalists, Africanists, historians of Buddhism, and a wide variety of economists, etc, etc, and none have noticed any glaring errors—in fact, the most frequent reaction is that it’s remarkable that someone who is not an area specialist actually more or less gets it right (remember, these are scholars often loathe to admit even their own colleagues in the field get it more or less right.) The book is pretty meticulously researched and has stood up to scholarly review...

That made me prick up my ears, and say that that was not so. The example I gave was Graeber's claim that the:

Federal Reserve… is technically not part of the government at all, but a peculiar sort of public-private hybrid, a consortium of privately owned banks whose chairman is appointed by the United States president, with Congressional approval, but which otherwise operates without public oversight…

That is the kind of glaring error that Graeber claims he does not make.

Of the twelve votes on the Federal Open Market Committee, seven are cast either by the Governors of the Federal Reserve--who are officers of the United States government, nominated by the President, and confirmed by the Senate--and five are cast by Federal Reserve regional bank Presidents, who take office only when approved by a majority of the Governors.

Not one, but all twelve.

And, of course, the regional Federal Reserve banks are not private banks like Citigroup or Goldman Sachs. They are GSEs: whatever profits they earn do not go to private shareholders but are paid straight to the Treasury.

I--naively--thought that then we could have a discussion about where Graeber was in and where he was out of his comfort zone, and what pieces of the book were rock-solid, what were somewhat shakier, what were frankly speculative, and what were wrong.

Nope: Graeber on one of his critics, Gabriel Rossman:

Gabriel Rossman writes:

How the poor debtors still sell their daughters, How in the drought men still grow fat « Code and Culture: I recommend the book but that you stop on page 365, right before he gets his Chomsky on, but I honestly worry whether I can trust the parts of the book I’m not as informed about. This is the 13th chime of the clock, the brown M&Ms in the Van Halen dressing room; pick your metaphor, but this business about Apple computer and especially about Chinese t-bill holdings ultimately makes me take a “trust but verify” attitude towards a book that I found both extremely enjoyable and intellectually inspirational…

And David Graeber replies:

How does a strategy of de-legitimization proceed?... [S]tart... by... challenging [the author's] authority to make [an argument]. Proceed to either associat[e] him with some other individual... outside the bounds of respectable expression, and/or ignor[e] the intellectual tradition he is drawing on entirely, so as to suggest he is an isolated lunatic. Finally... present a wildly inaccurate version of the author’s argument, twisting it into something no reasonable person could possibly believe.... [Rossman] trundles out the Apple passage, quoting it in full and saying it calls all my qualifications as a scholar into question... [a]ssociate[s] me with Noam Chomsky, who I never cite or mention... doesn’t even address my actual arguments.... The passage in question says nothing even vaguely like he claimed. In fact it doesn’t refer to treasury bonds at all.... [T]he fact that he had now been caught twice wildly misstating my position gave him no pause whatsoever.... Rossman’s initial delegitimizing move was to find the only major error of fact in the entire book, one which has nothing to do with the actual matter at hand, so as to basically say nothing I say can be trusted.... Rossman’s own corpus should be considered worthless as well, since he made more egregious errors of fact in a few pages of description of the contents of my book than are contained in the entire 534-page book itself... mistakes so glaring that if Prof. Rossman had performed on that level consistently on his SAT exam, it is unlikely he would have gotten into college; if he had done so on his GREs, he certainly never would have gotten into grad school and became a professor at all...

So I guess I should not be surprised to be treated the same way upon pointing out that not the one that Graeber claims but all twelve members of the Federal Reserve's principal governing body are appointed by the President (and the Senate) or must be approved by the President's appointees, and that the regional Federal Reserve banks are in no wise as Graeber claims "private banks" like Citi and Goldman Sachs but instead arms of the United States government:

David Graeber:

DeLong and the economists on Debt, Chapter 12 | Savage Minds: for all his blustering about how Chapter 12 was full of factual errors, he had never managed to identify more than one – a minor point about the number of reserve board governors who are Presidential appointees (the main point, about the Fed not being part of the government and not operating under Presidential oversight DeLong does not contest.) After continual challenges, what does DeLong finally do? Triumphantly unveils: the very same one technical quibble I had mentioned in my own post before, mocking him for not having any other ones. Man, this is like playing poker with just no cards at all.

Notice what is going on? From saying that the book is bullet-proof save for Apple, now Graeber is claiming that I have "never managed to identify more than one" additional factual error, that it is "a minor point about the number of reserve board governors who are Presidential appointees", and that "the main point... DeLong does not contest". But I do contest what Graeber calls his main point. My answer:

David Graeber writes: “Not to mention that in my comments on DeLong, I remarked that for all his blustering about how Chapter 12 was full of factual errors, he had never managed to identify more than one – a minor point about the number of reserve board governors who are Presidential appointees (the main point, about the Fed not being part of the government and not operating under Presidential oversight DeLong does not contest.)”

I do contest it. I contest it strongly. That was my point.

The Federal Reserve is part of the government.

The Federal Reserve operates under substantial public oversight. All 12 of its highest decision makers are either Officers of the United States–appointed by the president and confirmed by the senate–or are approved by Officers before they take up their appointments. Plus the rest of the government could dissolve the Fed tomorrow were they unhappy with it and transfer all its powers to the Treasury, or elsewhere. The Federal Reserve operates under enormous amounts of public oversight.

Ah, but David Graeber says I do not contest his claim that the Federal Reserve is “not operating under Presidential oversight.”

But that wasn’t what Graeber had claimed: “The Federal Reserve… is… a consortium of privately owned banks whose chairman is appointed by the United States president, with Congressional approval, but which otherwise operates without public oversight”.

A claim of “without public oversight” then.

A claim that “DeLong does not contest” the “main point… the Fed… not operating under Presidential oversight” now.

Slippery little bastard, isn’t he?

---

And, of course, there are lots more errors in chapter 12 than just those. And I am going to tweet them until I get bored:

@davidgraeber Learned yet that Korean-Americans are not as a rule racists who assume "everyone [else]… to be Amalek"? Stay away until you do! #Graebererrors (Remember: God withdrew his favor from King Saul of Israel because Saul did not murder every Amelekite, but kept virgin girls as slaves)

@davidgraeber Learned yet that there are different reserve requirements for checking and savings deposits? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that bank deposits are assets of the depositors and liabilities of the bank? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Bank of England did too print money? That's why they were called "bank notes"! Stay away until you do! #Graebererrors (Claim that BofE shipped specie rather than banknotes to 18th C. British government may be weirdest error)

@davidgraeber Learned yet that there were other countries that switched to the euro besides Iraq, Iran, and North Korea? European countries? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Warsaw Pact had much better air defenses than the PLA? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Fed generally does not lend money to banks? That the Discount Window is rarely open? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Fed does not lend money to banks at the Prime Rate? Stay away until you do! #Graebererrors (The prime rate is the rate at which large private banks lend to their "prime" customers. On those occasions when the Fed lends to banks, it lends to them at the discount rate)

@davidgraeber Learned yet that the Federal Reserve is not unconstitutional because Congress allowed to delegate implantation of its Article I powers? Stay away until you do! #Graebererrors (in fact, establishing the Congress's constitutional power to more effectively regulate the economy by delegating its powers to independent regulatory agencies, commissions, and boards not under the direct control of the president was a big left-wing cause of the... 1890s, I believe...)

@davidgraeber Learned yet that the Federal Reserve is a creature of Congress, under close and constant public oversight? Stay away until you do! #Graebererrors (No, check that: Graeber's claim that the Federal Reserve is a consortium of "private banks" with one Presidential appointee at its head is the weirdest error)

@davidgraeber Learned yet that Regional Federal Reserve Bank Presidents must be confirmed by the Board of Governors of the Federal Reserve? Stay away until you do! #Graebererrors (No, presidents of regional Feds are not "private bankers" appointed by the stockholders of their banks to whom the bank's profits flow)

@davidgraeber Learned yet that not Fed Chair alone but all 19 FOMC meeting participants appointed by President or approved by Presidential appointees? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Federal Reserve is as much a part of the US government as the Social Security Administration or the Tennessee Valley Authority? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Governors of the Federal Reserve are not private bankers but officers of the US appointed by the President with the advice and consent of the Senate? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the 12 Regional Federal Reserve Banks are not private banks like Citigroup or Goldman Sachs? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the US government can and does print money every day? That it uses a GSE--the Fed--to do it doesn't mean it doesn't happen! Stay away until you do! #Graebererrors

@davidgraeber Learned yet that it is the ability to tax and the restriction of issue, not the ability to project military power overseas, that backs fiat money? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Vietnam War had been all but completely paid for before Nixon floated the dollar? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that even though modern money is a form of debt governments without large debts can still print money? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that countries that don't try to conqner their neighbors have no problem coining money? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that nobody in office save Rand Paul thinks we should end the Fed in the hope the market will be successfully self-regulating? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the US abandoned belief that market self-regulating with passage of Federal Reserve Act in 1913? Stay away until you do! #Graebererror

@davidgraeber Learned yet that the "research" you did on FRBNY gold custodial holdings is all in a pamphlet the FRBNY hands out to 8th graders? Stay away until you do #Graebererrors

@davidgraeber Learned yet that the other website you claim reports rumors of massive gold under WTC talks about 0.002% of the world's total monetary gold? Stay away until you do #Graebererrors (Graeber reports that after 911 widespread rumors of massive gold under WTC were common--but his references don't check out)

@davidgraeber Learned yet that there is 2000 times as much gold under the FRBNY as was ever in the WTC complex? Stay away until you do #Graebererrors (Graeber reports that after 911 widespread rumors of massive gold under WTC were common--but his references don't check out)

@davidgraeber Learned yet that it wasn't Nixon's closing of the gold window that set off inflation but rather inflation that triggered the closing of the gold window? Stay away until you do #Graebererrors (By 8/15/71, US troops Vietnam down to 150K from high of 550K. Bdn of fncing war not growing but falling, not trigger of Nixon shock)

@davidgraeber Learned yet that gold price rises have no effect on poor countries that do not mine and don't need gold reserves? Stay away until you do #Graebererrors (increases in the price of a commodity impoverish only those who need to and plan to buy that commodity--not those who don't)

@davidgraeber Learned yet that Nixon broke Bretton Woods because wanted lower interest rates and a boom in 1972, not because of burden of Vietnam? Stay away until you do #Graebererrors (By 8/15/71, US troops Vietnam down to 150K from high of 550K. Bdn of fncing war not growing but falling, not trigger of Nixon shock)

@davidgraeber Learned yet that one of the two websites you claim reports rumors of gold under WTC was written as fiction? Stay away until you do #Graebererrors (Graeber reports that after 911 widespread rumors of massive gold under WTC were common--but his references don't check out)

@davidgraeber Learned yet that money from countries without big air forces (e.g. Switzerland) as acceptable as money from countries with (US)? Stay away until you do! #Graebererrors (Graeber claims people accept dollars only because they fear being bombed by US air force. But ppl accept Swiss francs too)

@davidgraeber Learned yet that consumer surplus from undervalued Asian currencies only about 1.5% of US consumption spending? Stay away until you do! #Graebererrors (Graeber's idea that only Chinese payment of "tribute" to US has prevented a sharp decline in US living standards completely wrong)

@davidgraeber Learned yet whether creditors exploit debtors or debtors exploit creditors? Stay away until you do #Graebererrors (Check that, this is Graeber's weirdest error: his belief that the US is exploiting China by somehow forcing China to lend to the US at an unfairly low interest rate--and that the situation would be improved by... cancelling the US debt to China in some kind of Jubilee. If China getting a 0% real interest rate on its loans is unfair to it, changing that 0% to -100% does not make things better)

@davidgraeber Learned yet that if the problem is that China is lending US money at too-low an interest rate, cancelling the US debt to China does not resolve the problem? Stay away until you do #Graebererrors

@davidgraeber Learned yet that 1971 Nixon shock was not forced on Nixon by rising government debt levels? Stay away until you do. #Graebererrors (Rising debt-to-GDP levels can force countries to devalue their currencies, but US debt-to_GDP level not rising in 1960s and 1970s)

@davidgraeber Learned yet that Iraq is unlikely (1/300 chance) to be the origin of the next revolution in religio-economic affairs? Stay away until you do! #Graebererrors (There's nothing special in the water or soil of Iraq today that makes it a more favorable place for socio-cultural innovation than anyplace else on the globe)

@davidgraeber Learned yet that the mid- and late-axial age global economy was largely virtual credit-based? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the former USSR today has less KGB and a smaller army than the USSR had in 1985? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the bankruptcy "reform" of the mid-2000s was not pushed by people expecting the 2008 financial crisis? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Grameen Bank supercharges networks of trust rather than undermines them? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that money invested is never "completely detached from production and commerce", never "pure speculation"? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that Friedman's monetarism sought not to make money "scarce" but rather to make its value stable? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that Keynes did not make "radical noises" but viewed his theory as "moderately conservative in its implications"? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that not just Korea, Japan, and Taiwan but Italy, Spain, Portugal, Ireland "catapult[ed] themselves out of poverty"? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the US did not give large amounts of "tribute" to "Korea, Japan, Taiwan, certain favored allies in southeast Asia" during the Cold War? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that China does not buy US Treasury bonds "in exchange for [US] recognition of the Chinese Emperor as world-sovereign"? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that people in China do not want tighter monetary policy that would diminish US purchase of China's exports? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the US did not have to turn to China to finance its 2003 invasion of Iraq? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that US invasion of Iraq not primarily meant to terrorize overextended countries like Argentina? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that since its founding 1945 the IMF has existed to reschedule debts--replace higher-rate debt with lower-rate debt owed to the IMF? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that debt peonage is not the main principle of recruiting labor today in East Asia and Latin America? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that political leaders in global south are not terrified of invasion should they switch their reserves to euros? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that George W. Bush would not have left Saddam Hussein alone in 2003 if only he had sold oil in $? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that before 1991 the 300,000 US soldiers then in Germany were there at (West) Germany's request? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Swiss have a higher "tribute" ratio on their debt than the US even though they lack a air force? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the US provision of international monetary reserves is not a tax levied on but a benefit provided to the rest of the world? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that graphs showing a bunch of nominal dollar numbers rising over time are misleading? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the dollar became the world's principal monetary reserve not in 1971 but before 1945? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that the Bank of England did not typically lend the King gold but, rather, banknotes? Stay away until you do! #Graebererrors

@davidgraeber Learned yet that while before 1985 or so the US national debt was primarily a war debt, that has not been true since? Stay away until you do! #Graebererrors

But I guess I should give David Graeber the next-to-last words. How about the last words of the book:

I can speak with some authority here since I was myself born of humble origins and have advanced myself in life almost exclusively through my own incessant labors. I am well known by my friends to be a workaholic—to their often justifiable annoyance. I am therefore keenly aware that such behavior is at best slightly pathological, and certainly in no sense makes one a better person.

And:

For those who don't know how the Fed works: technically, there are a series of stages. Generally the Treasury puts out bonds to the public, and the Fed buys them back. The Fed then loans the money thus created to other banks at a special low rate of interest ("the prime rate"), so that those banks can then lend at higher ones. In its capacity as regulator of the banking system, the Fed also establishes the frac­tional reserve rate: just how many dollars these banks can "lend"--effectively, create-for every dollar they borrow from the Fed, or have on deposit, or can other­wise count as assets. Technically this is 10 to to 1, but a variety of legal loopholes allow banks to go considerably higher.

And let me give the last word to a commenter on the last:

I don't want to get involved with him because he's so damned crazy, but I just noticed that note 19 to chapter 12, p. 451. Egads. He has no idea what he's talking about. Not understanding the Treasury bond market in a book that purports to be a major treatise on debt???... Someone should tell him that deposits are liabilities for banks