Where did money come from?

Doing the rounds on teh interwebs is this fantastic post by David Graeber, and anthrolopogist, on where money comes from.

The basic “story”, and it is only a story, is that first there was barter, then people realised you couldn’t always swap your stuff for what you wanted (no double coincidence of wants), so people invented money, then people invented lending money at interest, then, eventually, capitalism.

This is an economist’s fairytale but the truth, or at least what we know so far is infinitely more interesting…

The actual evidence is that in Mesopotamia—the first case we know anything about—these more widespread pricing systems in fact emerged as a side-effect of non-state bureaucracies. Again, non-state bureaucracies are a phenomenon that no economic model would even have anticipated existing. It’s off the map of economic theory. But look at the historical record and there they are. Sumerian Temples (and even many of the early Palace complexes that imitated them) were not states, did not extract taxes or maintain a monopoly of force, but did contain thousands of people engaged in agriculture, industry, fishing, and herding, people who had to be fed and provisioned, their inputs and outputs measured. All evidence that exists points to money emerging as a series of fixed equivalent between silver—the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc.—and grain, the stuff used to pay the most important rations from temple stockpiles to its workers.

[…]

The numismatist Phillip Grierson long ago pointed to the existence of such elaborate systems of equivalents in the Barbarian Law Codes of early Medieval Europe. [7]For example, Welsh and Irish codes contain extremely detailed price schedules where in the Welsh case, the exact value of every object likely to be found in someone’s house were worked out in painstaking detail, from cooking utensils to floorboards—despite the fact that there appear to have been, at the time, no markets where any such items could be bought and sold. The pricing system existed solely for the payment of damages and compensation—partly material, but particularly for insults to people’s honor, since the precise value of each man’s personal dignity could also be precisely quantified in monetary terms. One can’t help but wonder how classical economic theory would account for such a situation. Did the ancient Welsh and Irish invent money through barter at some point in the distant past, and then, having invented it, kept the money, but stopped buying and selling things to one another entirely?

The killer blow for economists comes here though…

Murphy argues that the fact that there are no documented cases of barter economies doesn’t matter, because all that is really required is for there to have been some period of history, however brief, where barter was widespread for money to have emerged. This is about the weakest argument one can possibly make. Remember, economists originally predicted all (100%) non-monetary economies would operate through barter. The actual figure of observable cases is 0%. Economists claim to be scientists. Normally, when a scientist’s premises produce such spectacularly non-predictive results, the scientist begins working on a new set of premises. Saying “but can you prove it didn’t happen sometime long long ago where there are no records?” is a classic example of special pleading. In fact, I can’t prove it didn’t. I also can’t prove that money wasn’t introduced by little green men from Mars in a similar unknown period of history.

Read it all, very interesting.

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7 thoughts on “Where did money come from?

  1. Remember, economists originally predicted all (100%) non-monetary economies would operate through barter.

    did they? I mean, I guess some of them must have done, otherwise that sentence wouldn’t have been written, but I was not under the impression that the economists were heavily invested in a particular account of the emergence of money.

    It does look like a rather silly thing for those economists to have “predicted” – I mean I’m not at all surprised to discover the world has at some point contained more means of organizing economies that 1. pure barter 2. monetary economies. There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy and all that.

    But I am surprised at the claim of 0% barter. How so what do you call documented examples of trade where a quantity of one good was exchanged for a quantity of another?

    I also don’t see anything that remarkable about prices in a non-market economy. Its interesting to see them formalized explicitly.

    (Maybe I should read the rest, as you recommend, but my impression from this post is of straw man demolition)

    1. “How so what do you call documented examples of trade where a quantity of one good was exchanged for a quantity of another?”

      Barter is not the mere exchange of one good for another.
      Barter is the direct spot exchange of goods between parties each trying to maximize their utility.

      Example 1)
      I exchange the pepper held by me. for the salt currently held by my mother.

      Even though we have the direct exchange between two parties of one good for a another good, it is not an example of barter.

      Example 2)
      I wish to trade a quantity of potatoes I own for a car owed by a stranger.
      We first necogiate, both seeking to get the most & to give the least, &, upon reaching an agreement, we then immediately exchange the specified quantity of potatoes for the car.

      This is an example of Barter.

  2. Saying “but can you prove it didn’t happen sometime long long ago where there are no records?” is a classic example of special pleading. In fact, I can’t prove it didn’t. I also can’t prove that money wasn’t introduced by little green men from Mars in a similar unknown period of history.

    This is correct, but misses an important point. Yes, no scientist should believe things without evidence. But the very nature of the past means that there is surely much more doubt around the average historical theory/fact, than the average physics one.

  3. Read the whole thing Luis, most economists are more flexible than he argues, but there are big flaws in thier argument as to how premodern economies became modern, which is an important failing.

    Sure, it can be modelled with aculturated rational actors, and I’m sure Douglass North is busy on it as we speak. However, the development of money is a “story” economists have told for sometime that has no basis in fact. It is the economist’s version of a Hobbesian state of nature. Political scientists occassionally use Hobbes like a historical example despite there being no evidence of warres of all agaisnt all.

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