Money, Debt, and the Growth Imperative

16 minute read

When Marco Polo visited China during the 13th century, he was amazed at the spectacle before him. No, he was not ogling at the Great Wall. Rather, he marveled at people exchanging labor and goods for mere bits of paper—it were as if value was being created out of thin air. Emperor Kublai Khan’s avant garde currency experiment would be the first in a succession of pivotal monetary moves in history. 

But before delving into the history of money, its implications, and the debt-centric present we live in, perhaps it’s important to ask first: what is money, anyways? 

In modern economics, money is three things

  1. Store of value – money allows you to delay consumption until another date by acting as a placeholder or claim on future benefits.  
  2. Unit of account – allows you to assign a value to different goods without direct comparison. So instead of saying a Tesla is worth 26 cows, you could say it (or the cows) costs $42,000. 
  3. Medium of exchange – an easy and efficient way to trade goods and services between two people. 

History of Money

This purely transactional view of money has not always been and still isn’t the case everywhere. In his book, Debt: The First 5000 Years (Melville House, 2011), anthropologist David Graeber observes money in other economies being a way “to arrange marriages, establish the paternity of children, head off feuds, console mourners at funerals, seek forgiveness in the case of crimes, negotiate treaties, acquire followers.” Money, then, is not just for buying and selling stuff, but rather a way to structure social relationships.

Yet, what was there before the concept of money? Well, the first thing that may come to mind is: barter. Except no society has ever existed solely on bartering. The classic scenario of Neanderthal A trading a spear with Neanderthal B for a bow and arrow most likely didn’t happen. Rather, Cambridge anthropology professor Caroline Humphrey argues, evidence points to a gift economy: if you wanted something, you simply asked for it. (check out our discussion on egalitarianism here). 

Between barter and more familiar forms of money came cattle, beads, cowrie shells, and a bunch of other inanimate objects. The purpose was to bestow worth on an exchangeable object. Once everyone agrees that that object is valuable, the trading can begin. Physical tokens broke a lot of barriers, bypassing the double coincidence of wants and standardizing values for comparing two different things. However, this system only works if everyone agrees on the token and its value. 

How, then, did coins and paper money become the basis of trade? 

In China 1,000 B.C.E., the first cowrie imitations were being made from base metals like bronze and copper, eventually taking the round form of coins today. A few centuries later, during the 7th century B.C.E., in the small kingdom of Lydia (present-day Turkey), this technique was copied and refined by the Greek, Persian, Macedonian, and later the Roman empires. Unlike Chinese coins which depended on lower-grade metals, these new coins were made from precious metals such as silver, bronze, and gold, which had more inherent value (due to their rarity).

Lydia’s breakthrough was the standardized metal coin. Made of a gold-silver alloy, one coin was exactly like another—unlike, say, cattle. Also unlike cattle, the coins didn’t age, die, or otherwise change over time. Plus, they were much easier to carry around. Other kingdoms followed suit, and coins became ubiquitous throughout the Mediterranean, each kingdom stamping their own insignia on the coins they minted. This had a dual effect: it facilitated the flow of trade, and established state authority. Money was a versatile medium to transcend cultural borders, and an easy tool to fund armies for expansionist empires. This, in fact, is one enduring lesson of history: once even a small part of your economy is taken over by markets and money, it tends to colonize the rest of the economy, gradually forcing out other economic arrangements. Money redefines what people value, pushing them to view things in economic, rather than social, terms.

However, the adoption of coinage was not universal. Other economic arrangements existed outside of the money market. At the time, many were still subsistence farmers and had no use for money, instead relying on sharing or bartering for acquisition. Another environment in which money’s role was diminished is feudal society. The decline of the Roman Empire during the 3rd century C.E. and the rise of feudal society throughout Western Europe, at least, made money sort of useless. 

Relationships between master and serf, ruler and vassal, were not bound by payment in exchange for services. Rather, they were based on oaths of loyalty, promises of support, and the threat of violence. Land and goods were not bought and sold because ultimately, everything belonged to the king, who then divvied it up between lords, who then allocated some plots to serfs to work. Feudalism also discouraged trade, as each plot of land was intended to be private and self-sufficient, serving only its owner, eliminating the need for money and trade. 

Money’s decline in feudal times reveals certain aspects of its essential nature. For one thing, money is impersonal. With it, you can cut a deal with, say, a guy named Jeff Bezos, whom you don’t know and will probably never meet. But, as long as your money and his products are legit, you can do business. Similarly, money fosters a peculiar kind of equality. As long as you have sufficient cash, most doors are open to you. This is different from a hierarchical feudalistic society where your worth is determined by birth or caste, and you can only make deals with people who think you’re worth it. Finally, money encourages people to value things solely in terms of their market value, reducing worth to a single number.

These characteristics make money indispensable to modern financial systems. They encourage trade and the division of labor, reduce the cost incurred in executing an economic exchange, and make economies more efficient and productive. These qualities, though, are why money tends to corrode traditional social orders, and why it is commonly believed that when money enters the picture, economic relationships trump all others. 

That’s why feudal lords disregarded or perhaps were even wary of wealth accumulation, as it corroded the relational dynamics needed to maintain social order within a hierarchy. The impersonal, equalizing, and quantitative nature of money would have derailed their scheme to solidify power and keep people under oppressive rule.  

Nonetheless, money continued to spread. Rather than stay attached to lumps of metals like gold (which were risky to carry around), money transitioned to paper and banknotes. While Kublai Khan experimented in China with paper money, Europeans had a trade revival. At this time, money was not something to just spend and hoard, but rather something to be invested and put to use to make more money. A merchant class and banking industry emerged. These new institutions started using the concept of credit and debt. This became central to the economy as kings borrowed to finance military conquests and merchants borrowed to fund trade abroad. To do this, a bill of exchange was invented. Similar to a traveler’s check, the bill represented an amount of gold that could be exchanged for the real deal in another city. 

Evenso, money was still a physical thing. Banks could only issue bills based on the amount of gold or silver circulating in the economy. A gold coin had inherent value because of its material. A bill of exchange could only work with gold to back it up. This physical availability was limiting, which bothered Spanish and Portuguese rulers of the 15th-16th century, leading them to plunder “New World” colonies for precious metals. Vast exploitation and hoarding led to an influx of metals, triggering some tumultuous times in Europe as they grappled with rampant inflation

Fiat money has no inherent value and is no longer backed up by resources such as gold

The tethering of gold to money was standardized during the 1800s, encompassing nearly all countries except China. Under the Gold Standard, inflation was kept in check by avoiding over-issuance of money, as it was dependent on a finite source. However, this system ended following World War I and the Great Depression. Deflation proved to be crippling, and as populations and nations grew, there simply was no way for the gold supply to keep up. Printing paper money then became the solution to stimulate the economy in hard times. 

Nowadays, countries have central banks to manage their money supplies, as well as to set interest rates, combat inflation, and otherwise direct monetary policy. The United States has the Federal Reserve System, the Eurozone has the European Central Bank, Trinidad and Tobago has the Ministry of Finance, and so on. When the Federal Reserve wants to increase the money supply, it doesn’t sail the Atlantic, plundering for gold doubloons. Neither does it phone up the United States Mint and place a printing order. Instead, a series of complicated exchanges (which won’t be unpacked here) occur between the government and private banks to shift the balance up or down—except no physical exchange really happens. When banks loan out money, they don’t take the deposits they’ve received and put it in someone else’s account. Rather, they offset the value of the loan (recorded as an asset) by creating a new deposit of the same value (recorded as a liability). For every dollar of capital loaned out by the bank, one is conjured up on the balance sheet. Essentially, money is created out of thin air. 

Digital transactions through real-time payments are projected to reach 81.7% of payment volume by 2024 in the United States.

How is this possible?

Modern financial systems have been able to maintain expansionist economies through the transition to fiat money. Currencies today are fiat, meaning the money has no intrinsic value. It’s purely backed by the issuing government, and follows the same rules as tokens in which everyone using it has to believe in its value. If, tomorrow, people lost faith in the dollar, it would become worthless…and simply be a piece of paper. 

This may seem unnerving, having some numbers ticking in accounts and papers flying around untethered. Yet, even when it was tied to something solid like gold or cowries, money was still a social convention. The gold standard only worked because people believed that gold was valuable. Paper money made that arbitrary notion more obvious. With digital money, social faith in government-backed currency has been normalized. Now we don’t have to worry about whether we have enough real resources to back up our claims, we simply spend money and consider its value later. Credit cards further extend this notion: they extend our ability to claim and consume value, with a promise to pay it back in the future. The people you’re buying from give you the credit of trust that you’ll pay your dues, but for now, you owe them and are in debt. However, when this mechanism is applied en masse—as in, how the global economy operates—it leads to a fragile predicament. 

Yet, even when it was tied to something solid like gold or cowries, money was still a social convention. The gold standard only worked because people believed that gold was valuable. Paper money made that arbitrary notion more obvious. With digital money, social faith in government-backed currency has been normalized. Now we don’t have to worry about whether we have enough real resources to back up our claims, we simply spend money and consider its value later.

Trade deficits, national debt, and income inequality have circulated news headlines for ages—what’s less talked-about is the magnitude of debt the world is in right now. As of April 2020, global debt exceeds $255 trillion. At over 322% of global GDP, global debt is now 40% higher (+ $87 trillion) than when the 2008 Recession hit. Most of this debt sits in government and non-financial corporations, with governments worldwide accumulating ~$70 trillion in debt. All this as nations face a pandemic and rising unemployment. Going into more debt seems inevitable now, but the pursuit of debt has been an economic objective for decades. 

To understand why debt is critical to modern financial systems, we will focus on two things: 

  1. The Growth Imperative 
  2. Debt as an enabler of consumption

The Growth Imperative 

Under a competitive globalized market, capitalist firms are subject to a growth imperative. A growth imperative is the expectation of a positive economic growth rate, one where the overall economy grows year after year. With no growth, long-run business prospects certainly point towards bankruptcy. Profit uncertainties in the short run encourage high positive growth rates to compensate for the likelihood of falling income and wealth. On a macro level, governments assess their “business” or how well the nation is doing through a metric called GDP: Gross Domestic Product . This encompasses the total market value of all goods and services produced in an economy in one year. 

GDP is a fine marker when assessing manufacturing and services output; however, economics now conflate it with a nation’s actual well-being. GDP ignores economic inequity, ecological and human welfare, social cohesion, and a myriad of other qualitative and quantitative measures that account for real well-being. 

Growth is traditionally considered positive, with many believing a higher GDP is indicative of a productive, functioning society. Increased production will raise quality of life through wage attainment and technological innovation, reducing poverty as more people have more money to access more material wealth. This logic is at the core of global market capitalism: capital accumulation and the drive for profit. 

The “externalities” of this model are explored here and here, but a lesser covered topic enabling the growth imperative is debt. 


Debt serves as a future claim on resources. It allows nations to fuel domestic growth by borrowing from each other, regardless of whether it’s financially or physically affordable. Not all debt is bad, though. Some debt is self-liquidating, meaning the debt is invested in something productive that creates more wealth, and the debt pays itself off (e.g. infrastructure). Other debts that aren’t self-liquidating add to the total debt burden in an economy (e.g. military, welfare programs, and household consumption). Taking on debt creates the illusion of wealth creation, just as higher GDP creates the illusion of societal well-being. While borrowing to stimulate economic activity looks great on paper, it doesn’t do much for generating societal wealth. Nor is it sustainable, as economies eventually reach a debt capacity limit, leading to stagnant economic growth. 

Meanwhile, as nations race to the top for high GDP, the debt has to be paid back somehow. Debt must be repaid with interest. Banking on debt (no pun intended), necessitates the creation of more money that’s sufficient to pay back the principal plus interest. Remember when the Spaniards added more gold to their system? Inflation. But with central banks, the intricate dance of interest rate manipulation and other means keeps economies more or less afloat. Yet, how long can this last? 

In developed countries, debt is almost a necessity. The U.S. leads in first place for most debt in the world at ~$21 trillion. Since the U.S. is a mega-player in the financial arena, we can examine it to explain how the world runs on debt (or how debt runs the world). 

There are two ways to stay ahead in the competitive market game: 

The High Road: boost domestic productivity by investing in infrastructure, education, and technology, etc.

The Low Road: reduce relative wages directly (literally lower wages or impede wage growth like Germany did in 2003-2005) or indirectly (keep currency value low through tariffs, subsidizing, or transferring household wealth to other sectors)
Debt-to-GDP ratios are ballooning, meaning nations are taking on more debt than they are productively using money.

The low road is, obviously, easier and faster to implement. This essentially entails shrinking the household share of what a country produces (GDP). In other words, less compensation for production labor. Less compensation means households have less to spend, which lowers domestic demand. Lower consumption demand means a country is less able to absorb everything it produces. In a closed economy with no international trade, there’d be no choice but to let stuff pile up before shutting down factories or laying off people once firms are bogged down by inventory and debt. However, in a highly globalized economy, countries can now easily export their surplus. 

Here lies the problem. 

While domestic demand shrinks, the surplus country can compensate for this with foreign demand, increasing its international market share at the expense of its trade partners. When excess arrives in less developed countries, that country consumes the surplus and its savings flow to the more developed (wealthier) country which doesn’t need that extra savings money. 

Now you may object here and say yes, we in the U.S. do need that money as most people do not have much in their savings account and live paycheck to paycheck. Yet, the reason this reality exists is because the U.S. depends on running a surplus to export and keep domestic wages/demand low to bolster its international trade presence. With foreign capital flow coming in, investment in the U.S. increases. Those who benefit from this investment have an increase in savings. But investment benefits are not distributed evenly and are concentrated among those who are already wealthy, leading to further economic inequality. 

This is the simplified version. Nobody fully knows how the economy works, as it is an evolving and emergent force that transcends any individual action. Confidence, perception, and fear all factor into consumptive behavior, and the experiment goes on: sometimes busting, sometimes booming. While general trends in economies are relatively predictable, the 21st century is unprecedented in scale and complexity. 

Read on in our Money & Energy article to understand how the debt cycle continues to dominate economics today and the true currency of our world. For ideas on alternative economic models, check out our discussion on Degrowth.

Works Cited
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McLeay, Michael , Amar Radia, and Ryland Thomas. “Money Creation in the Modern Economy.” Bank of England , 2014.

Pettis, Michael . “Why U.S. Debt Must Continue to Rise.” Carnegie Endowment for International Peace, February 7, 2019.

Center on Budget and Policy Priorities. “Policy Basics: Deficits, Debt, and Interest,” March 12, 2009.

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Surowiecki, James. “A Brief History of Money.” IEEE Spectrum 49, no. 6 (June 2012): 44–79.

“The History of Money.” PBS, October 25, 1996.

Tiftik, Emre, and Khadija Mahmood. “Global Debt Monitor COVID-19 Lights a Fuse.” Institute of International Finance , April 6, 2020.