Debt: The First 5,000 Years by David Graeber Melville House, 534 pp., $32.00; $22.00 (paper)

At the heart of the argument about how to revive a depressed economy is the question of debt. When political leaders and economists debate the subject, they refer mostly to public debt. To conservatives, the economy’s capacity for recovery is impaired by too much government borrowing. These escalating obligations, they claim, will be passed along to our children and grandchildren, leaving America a poorer country. Liberal economists, such as Paul Krugman and Joseph Stiglitz, have replied that only faster growth rates and higher gross domestic product will reduce the relative weight of past debts. Budget austerity, in their view, will shrink demand and slow growth, making the debt burden that much heavier.

As important as this debate is, there’s something missing. Public debt was not implicated in the collapse of 2008, nor is it retarding the recovery today. Enlarged government deficits were the consequence of the financial crash, not the cause.1 Indeed, there’s a strong case that government deficits are keeping a weak economy out of deeper recession. When Congress raised taxes in January at an annual rate of over $180 billion to avoid the so-called fiscal cliff, and then accepted a “sequester” of $85 billion in spending cuts in March, the combined fiscal contraction cut economic growth for 2013 about in half, according to the Congressional Budget Office. Moreover, some of the causes of public deficits, such as Medicare, reflect to a large extent inefficiency and inflation in health care rather than profligacy in public budgeting.

It was private speculative debts—exotic mortgage bonds financed by short-term borrowing at very high costs—that produced the crisis of 2008. The burden of private debts continues to hobble the economy’s potential. In the decade prior to the collapse of 2008, private debts grew at more than triple the rate of increase of the public debt. In 22 percent of America’s homes with mortgages, the debt exceeds the value of the house. Young adults begin economic life saddled with student debt that recently reached a trillion dollars, limiting their purchasing power. Middle-class families use debt as a substitute for wages and salaries that have lagged behind the cost of living. This private debt overhang, far more than the obsessively debated question of public debt, retards the recovery.

The debt debate is reminiscent of Tom Stoppard’s Rosencrantz and Guildenstern Are Dead. In a grand inversion, minor characters have usurped center stage, while the more important ones are out of sight. The quarrel about public debts is really a proxy for the argument about how to produce a strong recovery. To that end, we should be discussing how to relieve the burdens of private debts and prevent future abuses of the power of the financial industry to create debt and engage in speculation.

As the economic anthropologist David Graeber shows…