Graeber: Myth of Barter – econ

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Graeber: Myth of Barter

1.    Economists, from Adam Smith to the present, argue that money evolved out of a barter

economy. How do they arrive at this conclusion? Explain their thinking. Why does this “myth”

have such staying power?

2.    Graeber argues that acts of barter typically only take place between strangers or enemies. Why?

What is it about the nature of Barter that makes it an unlikely basis for society?

Wray: Modern Money

3.    According to MMT, why must the state spend


it can collect taxes or borrow?

4.    According to MMT how does the Federal Government spend? What happens to money when

taxes are collected?

5.    If taxes do not finance government spending what do taxes do?

6.    If bonds don’t finance government spending what do bonds do?


Debt: The First 5000 Years (2011), by David Graeber


For every subtle and complicated

question, there is a perfectly simple

and straightforward answer, which is

wrong. -H.L. Mencken

WHAT IS THE DIFFERENCE between a mere obligation, a sense that

one ought to behave in a certain way, or even that one owes something

to someone, and a debt, properly speaking? The answer is simple:

money. The difference between a debt and an obligation is that a debt

can be precisely quantified. This requires money.

Not only is it money that makes debt possible: money and debt appear

on the scene at exactly the same time. Some of the very first written

documents that have come down to us are Mesopotamian tablets

recording credits and debits, rations issued by temples, money owed

for rent of temple lands, the value of each precisely specified in grain

and silver. Some of the earliest works of 1p0ral philosophy, in turn, are

reflections on what it means to imagine morality as debt-that is, in

terms of money.

A history of debt, then, is thus necessarily a history of money-and

the easiest way to understand the role that debt has played in human

society is simply to follow the forms that money has taken, and the

way money has been used, across the centuries-and the arguments

that inevitably ensued about what all this means. Still, this is necessarily

a very different history of money than we are used to. When

economists speak of the origins of money, for example, debt is always

something of an afterthought. First comes barter, then money; credit

only develops later. Even if one consults books on the history of money

in, say, France, India, or China, what one generally gets is a history

of coinage, with barely any discussion of credit arrangements at all.

For almost a century, anthropologists like me have been pointing out

that there is something very wrong with this picture. The standard

economic-history version has little to do with anything we observe

when we examine how economic life is actually conducted, in real

communities and marketplaces, almost anywhere–where one is much

more likely to discover everyone in debt to everyone else in a dozen

different ways, and that most transactions take place without the use

of currency.

Why the discrepancy?

Some of it is just the nature of the evidence: coins are preserved in

the archeological record; credit arrangements usually are not. Still, the

problem runs deeper. The existence of credit and debt has always been

something of a scandal for economists, since it’s almost impossible to

pretend that those lending and borrowing money are acting on purely

“economic” motivations (for instance, that a loan to a stranger is the

same as a loan to one’s cousin) ; it seems important, therefore, to begin

the story of money in an imaginary world from which credit and debt

have been entirely erased. Before· we can apply the tools of anthropology

to reconstruct the real history of money, we need to understand

what’s wrong with the conventional account.

Economists. generally speak of three functions of money: medium

of exchange, unit of account, and store of value. All economic textbooks

treat the first as primary. Here’s a fairly typical extract from

Economics, by Case, Fair, Gartner, and Heather (1996) :

Money is vital to the working of a market economy. Imagine

what life would be like without it. The alternative to a monetary

economy is barter, people exchanging goods and services

for other goods and services directly instead of exchanging via

the medium of money.

How does a barter system work? Suppose you want croissants,

eggs and orange juice for breakfast. Instead of going to

the grocer’s and buying these things with money, you would

have to find someone who has these items and is willing to

trade them. You would also have to have something the baker,

the orange juice purveyor and the egg vendor want. Having

pencils to trade will do you no good if the baker and the orange

juice and egg sellers do not want pencils.

A barter system requires a double coincidence of wants for

trade to take place. That is, to effect a trade, I need not only

have to find someone who has what I want, but that person

must also want what I have. Where the range of traded goods

is small, as it is in relatively unsophisticated economies, it is

not difficult to find someone to trade with, and barter is often


This latter point is questionable, but it’s phrased in so vague a way that

it would be hard to disprove.

In a complex society with many goods, barter exchanges involve

an intolerable amount of effort. Imagine trying to find

people who offer for sale all the things you buy in a typical trip

to the grocer’s, and who are willing to accept goods that you

have to offer in exchange for their goods.

Some agreed-upon medium of exchange (or means of payment)

neatly eliminates the double coincidence of wants problem.2

It’s important to emphasize that this is not presented as something

that actually happened, but as a purely imaginary exercise. “To see

that society benefits from a medium of exchange” write Begg, Fischer

and Dornbuch (Economics, 2oos), “imagine a barter economy. ” “Imagine

the difficulty you would have today,” write Maunder, Myers, Wall,

and Miller (Economics Explairzed, 1991) , “if you had to exchange your

labor directly for the fruits of someone else’s labor.” “Imagine,” write

Parkin and King (Economics, 1995) , “you have roosters, but you want

roses. “1 One could multiply examples endlessly. Just about every economics

textbook employed today sets out the problem the same way.

Historically, they note, we know that there was a time when there

was no money. What must it have been like? Well, let us imagine an

economy something like today’s, except with no money. That would

have been decidedly inconvenient! Surely, people must have invented

money for the sake of efficiency.

The story of money for economists always begins with a fantasy

world of barter. The problem is where to locate this fantasy in time

and space: Are we talking about cave men, Pacific Islanders, the American

frontier? One textbook, by economists Joseph Stiglitz and John

Driffill, takes us to what appears to be an imaginary New England or

Midwestern town:

One can imagine an old-style farmer bartering with the blacksmith,

the tailor, the grocer, and the doctor in his small town.

For simple barter to work, however, there must be a double

coincidence of wants . . . Henry has potatoes and wants shoes,

Joshua has an extra pair of shoes and wants potatoes. Bartering

can make them both happier. But if Henry has firewood and

Joshua does not need any of that, then bartering for Joshua’s

shoes requires one or both of them to go searching for more

people in the hope of making a multilateral exchange. Money

provides a way to make multilateral exchange much simpler.

Henry sells his firewood to someone else for money and uses

the money to buy Joshua’s shoes.4

Again this is just a make-believe land much like the present, except

with money somehow plucked away. As a result it makes no sense:

Who in their right mind would set up a grocery in such a place? And

how would they get supplies? But let’s leave that aside. There is a

simple reason why everyone who writes an economics textbook feels

they have to tell us the same story. For economists, it is in a very real

sense the most important story ever told. It was by telling it, in the

significant year of 1776, that Adam Smith, professor of moral philosophy

at the University of Glasgow, effectively brought the discipline of

economics into being.

He did not make up the story entirely out of whole cloth. Already

in 330 Be, Aristotle was speculating along vaguely similar lines in his

treatise on politics. At first, he suggested, families must have produced

everything they needed for themselves. Gradually, some would presumably

have specialized, some growing corn, others making wine, swapping

one for the other.5 Money, Aristotle assumed, must have emerged

from such a process. But, like the medieval schoolmen who occasionally

repeated the story, Aristotle was never clear as to how.6

In the years after Columbus, as Spanish and Portuguese adventurers

were scouring the world for new sources of gold and silver,

these vague stories disappear. Certainly no one reported discovering a

land of barter. Most sixteenth- and seventeenth-century travelers in the

West Indies or Africa assumed that all societies would necessarily have

their own forms of money, since all societies had governments and all

governments issued money.7

Adam Smith, on the other hand, was determined to overturn the

conventional wisdom of his day. Above all, he objected to the notion

that money was a creation of government. In this, Smith was the intellectual

heir of the Liberal tradition of philosophers like John Locke,

who had argued that government begins in the need to protect private

property and operated best when it tried to limit itself to that function.

Smith expanded on the argument, insisting that property, money and

markets not only existed before political institutions but were the very

fou dation of human society. It followed that insofar as government

should play any role in monetary affairs, it should limit itself to guaranteeing

the soundness of the currency. It was only by making such an

argument that he could insist that economics is itself a field of human

inquiry with its own principles and laws-that is, as distinct from, say

ethics or politics.

Smith’s argument is worth laying out in detail because it is, as I

say, the great founding myth of the discipline of economics.

What, he begins, is the basis of economic life, properly speaking?

It is “a certain propensity in human nature . . . the propensity to truck,

barter, and exchange one thing for another. ” Animals don’t do this.

“Nobody,” Smith observes, “ever saw a dog make a fair and deliberate

exchange of one bone for another with another dog. “8 But humans, if

left to their own devices, will inevitably begin swapping and comparing

things. This is just what humans do. Even logic and conversation are

really just forms of trading, and as in all things, humans will always

try to seek their own best advantage, to seek the greatest profit they

can from the exchange.9

It is this drive to exchange, in turn, which creates that division of

labor responsible for all human achievement and civilization. Here the

scene shifts to another one of those economists’ faraway fantasylandsit

seems to be an amalgam of North American Indians and Central

Asian pastoral nomads: 10

In a tribe of hunters or shepherds a particular person makes

bows and arrows, for example, with more readiness and dexterity

than any other. He frequently exchanges them for cattle

or for venison with his companions; and he finds at last that

he can in this manner get more cattle and venison, than if he

himself went to the field to catch them. From a regard to his

own interest, therefore, the making of bows and arrows grows

to be his chief business, and he becomes a sort of armourer.

Another excels in making the frames and covers of their little

huts or moveable houses. He is accustomed to be of use in this

way to his neighbours, who reward him in the same manner

with cattle and with venison, till at last he finds it his interest

to dedicate himself entirely to this employment, and to become

a sort of house-carpenter. In the same manner a third becomes

a smith or a brazier; a fourth a tanner or dresser of hides or

skins, the principal part of the clothing of savages . . .

It’s only once we have expert arrow-makers, wigwam-makers, and

so on that people start realizing there’s a problem. Notice how, as in

so many examples, we have a tendency to slip from imaginary savages

to small-town shopkeepers.

But when the division of labor first began to take place, this

power of exchanging must frequently have been very much

clogged and embarrassed in its operations. One man, we shall

suppose, has more of a certain commodity than he himself has

occasion for, while another has less. The former consequently

would be glad to dispose of, and the latter to purchase, a part

of this superfluity. But if this latter should chance to have nothing

that the former stands in need of, no exchange can be made

between them. The butcher has more meat in his shop than

he himself can consume, and the brewer and the baker would

each of them be willing to purchase a part of it. But they have

nothing to offer in exchange . . .


In order to avoid the inconveniency of such situations, every

prudent man in every period of society, after the first establishment

of the division of labor, must naturally have endeavored

to manage his affairs in such a manner, as to have at all times

by him, besides the peculiar produce of his own industry, a

certain quantity of some one commodity or other, such as he

imagined that few people would be likely to refuse in exchange

for the produce of their industry .11

So everyone will inevitably start stockpiling something they figure

that everyone else is likely to want. This has a paradoxical effect,

because at a certain point, rather than making that commodity less

valuable (since everyone already has some) it becomes more valuable

(because it becomes, effectively, currency) :

Salt is said to be the common instrument of commerce and

exchanges in Abyssinia; a species of shells in some parts of

the coast of India; dried cod at Newfoundland; tobacco in

Virginia; sugar in some of our West India colonies; hides or

dressed leather in some other countries; and there is at this day

a village in Scotland where it is not uncommon, I am told, for

a workman to carry nails instead of money to the baker’s shop

or the ale-house. 12

Eventually, of course, at least for long-distance trade, it all boils

down to precious metals, since these are ideally suited to serve as currency,

being durable, portable, and able to be endlessly subdivided into

identical portions.

Different metals have been made use of by different nations

for this purpose . Iron was the common instrument of commerce

among the ancient Spartans; copper among the ancient

Romans; and gold and silver among all rich and commercial



Those metals seem originally to have been made use of for this

purpose in rude bars, without any stamp or coinage . . .


The use of metals in this rude state was attended with two very

considerable inconveniencies; first with the trouble of weighing;

and, secondly, with that of assaying them. In the precious

metals, where a small difference in the quantity makes a great

difference in the value, even the business of weighing, with

proper exactness, requires at least very accurate weights and

scales. The weighing of gold in particular is an operation of

some nicety . . .13

It’s easy to see where this is going. Using irregular metal ingots is

easier than barter, but wouldn’t standardizing the units-say, stamping

pieces of metal with uniform designations guaranteeing weight and

fineness, in different denominations-make things easier still? Clearly it

would, and so was coinage born. True, issuing coinage meant governments

had to get involved, since they generally ran the mints; but in the

standard version of the story, governments have only this one limited

role–to guarantee the money supply-and tend to do it badly, since

throughout history, unscrupulous kings have often cheated by debasing

the coinage and causing inflation and other sorts of political havoc in

what was originally a matter of simple economic common sense.

Tellingly, this story played a crucial role not only in founding the

discipline of economics, but in the very idea that there was something

called “the economy,” which operated by its own rules, separate from

moral or political life, that economists could take as their field of study.

“The economy” is where we indulge in our natural propensity to truck

and barter. We are still trucking and bartering. We always will be.

Money is simply the most efficient means.

Economists like Karl Menger and Stanley Jevons later improved

on the details of the story, most of all by adding various mathematical

equations to demonstrate that a random assortment of people with

random desires could, in theory, produce not only a single commodity

to use as money but a uniform price system. In the process, they also

substituted all sorts of impressive technical vocabulary (i.e., “inconveniences”

became “transaction costs”) . The crucial thing, though, is that

by now, this story has become simple common sense for most people.

We teach it to children in schoolbooks and museums. Everybody knows

it. “Once upon a time, there was barter. It was difficult. So people invented

money. Then came the development of banking and credit.” It

all forms a perfectly simple, straightforward progression, a process of

increasing sophistication and abstraction that has carried humanity,

logically and inexorably, from the Stone Age exchange of mastodon

tusks to stock markets, hedge funds, and securitized derivatives. 14

It really has become ubiquitous. Wherever we find money, we also

find the story. At one point, in the town of Arivonimamo, in Madagascar,

I had the privilege of interviewing a Kalanoro, a tiny ghostly creature

that a local spirit medium claimed to keep hidden away in a chest

in his home. The spirit belonged to the brother of a notorious local

loan shark, a horrible woman named Nordine, and to be honest I was

a bit reluctant to have anything to do with the family, but some of my

friends insisted-since after all, this was a creature from ancient times.

The creature spoke from behind a screen in an eerie, otherworldly quaver.

But all it was really interested in talking about was money. Finally,

slightly exasperated by the whole charade, I asked, “So, what did you

use for money back in ancient times, when you were still alive?”

The mysterious voice immediately replied, “No. We didn’t use

money. In ancient times we used to barter commodities directly, one

for the other . . . ”


The story, then, is everywhere. It is the founding myth of our system of

economic relations. It is so deeply established in common sense, even

in places like Madagascar, that most people on earth couldn’t imagine

any other way that money possibly could have come about.

The problem is there’s no evidence that it ever happened, and an

enormous amount of evidence suggesting that it did not.

For centuries now, explorers have been trying to find this fabled

land of barter-none with success. Adam Smith set his story in aboriginal

North America (others preferred Africa or the Pacific). In Smith’s

time, at least it could be said that reliable information on Native American

economic systems was unavailable in Scottish libraries. But by

mid-century, Lewis Henry Morgan’s descriptions of the Six Nations

of the Iroquois, among others, were widely published-and they made

clear that the main economic institution among the Iroquois nations

were longhouses where most goods were stockpiled and then allocated

by women’s councils, and no one ever traded arrowheads for slabs of

meat. Economists simply ignored this information. 15 Stanley Jevons,

for example, who in 1871 wrote what has come to be considered the

classic book on the origins of money, took his examples straight from

Smith, with Indians swapping venison for elk and beaver hides, and

made no use of actual descriptions of Indian life that made it clear that

Smith had simply made this up. Around that same time, missionaries,

adventurers, and colonial administrators were fanning out across the

world, many bringing copies of Smith’s book with them, expecting to

find the land of barter. None ever did. They discovered an almost endless

variety of economic systems. But to this day, no one has been able

to locate a part of the world where the ordinary mode of economic

transaction between neighbors takes the form of “I’ll give you twenty

chickens for that cow. ”

The definitive anthropological work on barter, by Caroline Humphrey,

of Cambridge, could not be more definitive in its conclusions:

“No example of a barter economy, pure and simple, has ever been

described, let alone the emergence from it of money; all available ethnography

suggests that there never has been such a thing. ” 16

Now, all this hardly means that barter does not exist-or even

that it’s never practiced by the sort of people that Smith would refer to

as “savages.” It just means that it’s almost never employed, as Smith

imagined, between fellow villagers. Ordinarily, it takes place between

strangers, even enemies. Let us begin with the Nambikwara of Brazil.

They would seem to fit all the criteria: they are a simple society without

much in the way of division of labor, organized into small bands

that traditionally numbered at best a hundred people each. Occasionally

if one band spots the cooking fires of another in their vicinity, they

will send emissaries to negotiate a meeting for purposes of trade. If the

offer is accepted, they will first hide their women and children in the

forest, then invite the men of other band to visit camp. Each band has

a chief; once everyone has been assembled, each chief gives a formal

speech praising the other party and belittling his own; everyone puts

aside their weapons to sing and dance together-though the dance is

one that mimics military confrontation. Then, individuals from each

side approach each other to trade:

If an individual wants an object he extols it by saying how fine

it is. If a man values an object and wants much in exchange for

it, instead of saying that it is very valuable he says that it is no

good, thus showing his desire to keep it. “This axe is no good,

it is very old, it is very dull,” he will say, referring to his axe

which the other wants.

This argument is carried on in an angry tone of voice until

a settlement is reached. When agreement has been reached

each snatches the object out of the other’s hand. If a man has

bartered a necklace, instead of taking it off and handing it

over, the other person must take it off with a show of force.

Disputes, often leading to fights, occur when one party is a

little premature and snatches the object before the other has

finished arguing .17

The whole business concludes with a great feast at which the women

reappear, but this too can lead to problems, since amidst the music

and good cheer, there is ample opportunity for seductions. 18 This sometimes

led to jealous quarrels. Occasionally, people would get killed.

Barter, then, for all the festive elements, was carried out between

people who might otherwise be enemies and hovered about an

inch away from outright warfare-and, if the ethnographer is to be

believed-if one side later decided they had been taken advantage of, it

could very easily lead to actual wars.

To shift our spotlight halfway around the world to Western Amhem

Land in Australia, where the Gunwinggu people are famous for

entertaining neighbors in rituals of ceremonial barter called the dzamalag.

Here the threat of actual violence seems much more distant.

Partly, this is because things are made easier by the existence of a moiety

system that embraces the whole region: no one is allowed to marry,

or even have sex with, people of their own moiety, no matter where

they come from, but anyone from the other is technically a potential

match. Therefore, for a man, even in distant communities, half the

women are strictly forbidden, half of them fair game. The region is also

united by local specialization: each people has its own trade product to

be bartered with the others.

What follows is from a description of a dzamalag held in the 1940s,

as observed by an anthropologist named Ronald Berndt.

Once again, it begins as strangers, after some initial negotiations,

are invited into the hosts’ main camp. The visitors in this particular

example were famous for their “much-prized serrated spears”-their

hosts had access to good European cloth. The trading begins when

the visiting party, which consisted of both men and women, enters

the camp’s dancing ground of “ring place,” and three of them began

to entertain their hosts with music. Two men start singing, a third accompanies

them on the didjeridu. Before long, women from the hosts’

side come and attack the musicians:

Men and women rise and begin to dance. The dzamalag opens

when two Gunwinggu women of the opposite moiety to the

singing men “give dzamalag” to the latter. They present each

man with a piece of cloth, and hit or touch him, pulling him

down on the ground, calling him a dzamalag husband, and

joking with him in an erotic vein. Then another woman of the

opposite moiety to the pipe player gives him cloth, hits and

jokes with him.

This sets in motion the dzamalag exchange . Men from the

visiting group sit quietly while women of the opposite moiety

come over and give them cloth, hit them, and invite them to

copulate; they take any liberty they choose with the men, amid

amusement and applause, while the singing and dancing continue

. Women try to undo the men’s loin coverings or touch

their penises, and to drag them from the “ring place” for coitus.

The men go with their dzamalag partners, with a show of

reluctance, to copulate in the bushes away from the fires which

light up the dancers. They may give the women tobacco or

beads. When the women return, they give part of this tobacco

to their own husbands, who have encouraged them to go dzamalag.

The husbands, in turn, use the tobacco to pay their own

female dzamalag partners . . . 19

New singers and musicians appear, are again assaulted and dragged

off to the bushes; men encourage their wives “not to be shy,” so as to

maintain the Gunwinggu reputation for hospitality; eventually those

men also take the initiative with the visitors’ wives, offering cloth, hitting

them, and leading them off into the bushes. Beads and tobacco

circulate. Finally, once participants have all paired off at least once,

and the guests are satisfied with the cloth they have acquired, the

women stop dancing and stand in two rows and the visitors line up to

repay them.

Then visltlng men of one moiety dance towards the women

of the opposite moiety, in order to “give them dzamalag.”

They hold shovel-nosed spears poised, pretending to spear the

women , but instead hit them with the flat of the blade. “We

will not spear you, for we have already speared you with our

penises . ” They present the spears to the women . Then visiting

men of the other moiety go through the same actions with the

women of their opposite moiety, giving them spears with serrated

points. This terminates the ceremony, which is followed

by a large distribution of food.20

This is a particularly dramatic case, but dramatic cases are revealing.

What the Gunwinggu hosts appear to have been able to do here,

owing to the relatively amicable relations between neighboring peoples

in Western Arnhem Land, is to take all the elements in Nambikwara

barter (the music and dancing, the potential hostility, the sexual intrigue)

, and turn it all into a kind of festive game–one not, perhaps,

without its dangers, but (as the ethnographer emphasizes) considered

enormous fun by everyone concerned.

What all such cases of trade through barter have in common is that

they are meetings with strangers who will, likely as not, never meet

again, and with whom one certainly will not enter into any ongoing relations.

This is why a direct one-on-one exchange is appropriate: each

side makes their trade and walks away. It’s all made possible by laying

down an initial mantle of sociability, in the form of shared pleasures,

music and dance–the usual base of conviviality on which trade must

always be built. Then comes the actual trading, where both sides make

a great display of the latent hostility that necessarily exists in any exchange

of material goods between strangers-where neither party has

no particular reason not to take advantage of the other-by playful

mock aggression, though in the Nambikwara case, where the mantle

of sociability is extremely thin, mock aggression is in constant danger

of slipping over into the real thing. The Gunwinggu, with their more

relaxed attitude toward sexuality, have quite ingeniously managed to

make the shared pleasures and aggression into exactly the same thing.

Recall here the language of the economics textbooks: “Imagine a

society without money.” “Imagine a barter economy.” One thing these

examples make abundantly clear is just how limited the imaginative

powers of most economists turn out to be.21

Why? The simplest answer would be: for there to even be a discipline

called “economics,” a discipline that concerns itself first and foremost

with how individuals seek the most advantageous arrangement

for the exchange of shoes for potatoes, or cloth for spears, it must

assume that the exchange of such goods need have nothing to do with

war, passion, adventure, mystery, sex, or death. Economics assumes a

division between different spheres of human behavior that, among people

like the Gunwinngu and the Nambikwara, simply does not exist.

These divisions in turn are made possible by very specific institutional

arrangements: the existence of lawyers, prisons, and police, to ensure

that even people who don’t like each other very much, who have no

interest in developing any kind of ongoing relationship, but are simply

interested in getting their hands on as much of the others’ possessions

as possible, will nonetheless refrain from the most obvious expedient

(theft) . This in turn allows us to assume that life is neatly divided between

the marketplace, where we do our shopping, and the “sphere

of consumption,” where we concern ourselves with music, feasts, and

seduction. In other words, the vision of the world that forms the basis

of the economics textbooks, which Adam Smith played so large a part

in promulgating, has by now become so much a part of our common

sense that we find it hard to imagine any other possible arrangement.

From these examples, it begins to be clear why there are no societies

based on barter. Such a society could only be one in which everybody

was an inch away from everybody else’s throat; but nonetheless

hovering there, poised to strike but never actually striking, forever.

True, barter does sometimes occur between people who do not consider

each other strangers, but they’re usually people who might as well be

strangers-that is, who feel no sense of mutual responsibility or trust,

or the desire to develop ongoing relations. The Pukhtun of Northern

Pakistan, for instance, are famous for their open-handed hospitality.

Barter is what you do with those to whom you are not bound by ties

of hospitality (or kinship, or much of anything else) :

A favorite mode of exchange among men is barter, or adalbadal

(give and take) . Men are always on the alert for the

possibility of bartering one of their possessions for something

better. Often the exchange is like for like: a radio for a radio,

sunglasses for sunglasses, a watch for a watch. However, unlike

objects can also be exchanged, such as, in one instance, a

bicycle for two donkeys. Adal-badal is always practiced with

non-relatives and affords men a great deal of pleasure as they

attempt to get the advantage over their exchange partner. A

good exchange, in which a man feels he has gotten the better

of the deal, is cause for bragging and pride. If the exchange is

bad, the recipient tries to renege on the deal or, failing that, to

palm off the faulty object on someone unsuspecting. The best

partner in adal-badal is someone who is distant spatially and

will therefore have little opportunity to complain. 2 2

Neither are such unscrupulous motives limited to Central Asia.

They seem inherent to the very nature of barter-which would explain

the fact that in the century or two before Smith’s time, the English

words “truck and barter,” like their equivalents in French, Spanish,

German, Dutch, and Portuguese, literally meant “to trick, bamboozle,

or rip off. ” 23 Swapping one thing directly for another while trying to

get the best deal one can out of the transaction is, ordinarily, how

one deals with people one doesn’t care about and doesn’t expect to

see again. What reason is there not to try to take advantage of such

a person? If, on the other hand, one cares enough about someone-a

neighbor, a friend-to wish to deal with her fairly and honestly, one

will inevitably also care about her enough to take her individual needs,

desires, and situation into account. Even if you do swap one thing for

another, you are likely to frame the matter as a gift.


To illustrate what I mean by this, let’s return to the economics textbooks

and the problem of the “double coincidence of wants.” When

we left Henry, he needed a pair of shoes, but all he had lying around

were some potatoes. Joshua had an extra pair of shoes, but he didn’t

really need potatoes. Since money has not yet been invented, they have

a problem. What are they to do?

The first thing that should be clear by now is that we’d really have

to know a bit more about Joshua and Henry. Who are they? Are they

related? If so, how? They appear to live in a small community. Any two

people who have been living their lives in the same small community

will have some sort of complicated history with each other. Are they

friends, rivals, allies, lovers, enemies, or several of these things at once?

The authors of the original example seem to assume two neighbors

of roughly equal status, not closely related, but on friendly terms-that

is, as close to neutral equality as one can get. Even so, this doesn’t say

much. For example, if Henry was living in a Seneca longhouse, and

needed shoes, Joshua would not even enter into it; he’d simply mention

it to his wife, who’d bring up the matter with the other matrons,

fetch materials from the longhouse’s collective storehouse, and sew him

some. Alternately, to find a scenario fit for an imaginary economics

textbook, we might place Joshua and Henry together in a small, intimate

community like a Nambikwara or Gunwinggu band.


Henry walks up to Joshua and says “Nice shoes!”

Joshua says, “Oh, they’re not much, but since you seem to like

them, by all means take them.”

Henry takes the shoes.

Henry’s potatoes are not at issue since both parties are perfectly

well aware that if Joshua were ever short of potatoes, Henry would

give him some.

And that’s about it. Of course it’s not clear, in this case, how long

Henry will actually get to keep the shoes. It probably depends on how

nice they are. If they were just ordinary shoes, this might be the end of

the matter. If they are in any way unique or beautiful, they might end

up being passed around. There’s a famous story that John and Lorna

Marshall, who carried out a study of Kalahari Bushmen in the ‘6os,

once gave a knife to one of their favorite informants. They left and

came back a year later, only to discover that pretty much everyone in

the band had been in possession of the knife at some point in between.

On the other hand, several Arab friends confirm to me that in less

strictly egalitarian contexts, there is an expedient. If a friend praises a

bracelet or bag, you are normally expected to immediately say “take

it”-but if you are really determined to hold on to it, you can always

say, “yes, isn’t it beautiful? It was a gift.”

But clearly, the authors of the textbook have a slightly more impersonal

transaction in mind. The authors seem to imagine the two

men as the heads of patriarchal households, on good terms with each

other, but who keep their own supplies. Perhaps they live in one of

those Scottish villages with the butcher and the baker in Adam Smith’s

examples, or a colonial settlement in New England. Except for some

reason they’ve never heard of money. It’s a peculiar fantasy, but let’s

see what we can do:


Henry walks up to Joshua and says, “Nice shoes!”

Or, perhaps-let’s make this a bit more realistic-Henry’s wife

is chatting with Joshua’s and strategically lets slip that the state of

Henry’s shoes is getting so bad he’s complaining about corns.

The message is conveyed, and Joshua comes by the next day to

offer his extra pair to Henry as a present, insisting that this is just

a neighborly gesture. He would certainly never want anything in


It doesn’t matter whether Joshua is sincere in saying this. By doing

so, Joshua thereby registers a credit. Henry owes him one.

How might Henry pay Joshua back ? There are endless possibilities.

Perhaps Joshua really does want potatoes. Henry waits a

discrete interval and drops them off, insisting that this too is just a

gift. Or Joshua doesn’t need potatoes now but Henry waits until he

does. Or maybe a year later, Joshua is planning a banquet, so he

comes strolling by Henry’s barnyard and says “Nice pig . . . ”

In any of these scenarios, the problem of “double coincidence of

wants,” so endlessly invoked in the economics textbooks, simply disappears.

Henry might not have something Joshua wants right now. But

if the two are neighbors, it’s obviously only a matter of time before

he will.24

This in turn means that the need to stockpile commonly acceptable

items in the way that Smith suggested disappears as well. With it goes

the need to develop currency . As with so many actual small communities,

everyone simply keeps track of who owes what to whom.

There is just one major conceptual problem here-one the attentive

reader might have noticed . Henry “owes Joshua one . ” One what?

How do you quantify a favor? On what basis do you say that this

many potatoes, or this big a pig, seems more or less equivalent to a

pair of shoes ? Because even if these things remain rough-and-ready

approximations, there must be some way to establish that X is roughly

equivalent to Y, or slightly worse or slightly better. Doesn’t this imply

that something like money, at least in the sense of a unit of accounts

by which one can compare the value of different obj ects, already has

to exist?

In most gift economies, there actually is a rough-and-ready way

to solve the problem. One establishes a series of ranked categories of

types of thing. Pigs and shoes may be considered objects of roughly

equivalent status, one can give one in return for the other; coral necklaces

are quite another matter, one would have to give back another

necklace, or at least another piece of jewelry-anthropologists are used

to referring to these as creating different “spheres of exchange. “25 This

does simplify things somewhat. When cross-cultural barter becomes a

regular and unexceptional thing, it tends to operate according to similar

principles: there are only certain things traded for certain others

(cloth for spears, for example) , which makes it easy to work out traditional

equivalences. However, this doesn’t help us at all with the

problem of the origin of money. Actually, it makes it infinitely worse.

Why stockpile salt or gold or fish if they can only be exchanged for

some things and not others?

In fact, there is good reason to believe that barter is not a particularly

ancient phenomenon at all, but has only really become widespread

in modern times. Certainly in most of the cases we know about,

it takes place between people who are familiar with the use of money,

but for one reason or another, don’t have a lot of it around. Elaborate

barter systems often crop up in the wake of the collapse of national

economies: most recently in Russia in the ‘9os, and in Argentina around

2002, when rubles in the first case, and dollars in the second, effectively

disappeared.26 Occasionally one can even find some kind of currency

beginning to develop: for instance, in POW camps and many prisons,

inmates have indeed been known to use cigarettes as a kind of currency,

much to the delight and excitement of professional economists.27

But here too we are talking about people who grew up using money

and now have to make do without it-exactly the situation “imagined”

by the economics textbooks with which I began.

The more frequent solution is to adopt some sort of credit system.

When much of Europe “reverted to barter” after the collapse of the

Roman Empire, and then again after the Carolingian Empire likewise

fell apart, this seems to be what happened. People continued keeping

accounts in the old imperial currency, even if they were no longer using

coins.28 Similarly, the Pukhtun men who like to swap bicycles for

donkeys are hardly unfamiliar with the use of money. Money has existed

in that part of the world for thousands of years. They just prefer

direct exchange between equals-in this case, because they consider it

more manly.29

The most remarkable thing is that even in Adam Smith’s examples

of fish and nails and tobacco being used as money, the same sort of

thing was happening. In the years following the appearance of The

Wealth of Nations, scholars checked into most of those examples and

discovered that in just about every case, the people involved were quite

familiar with the use of money, and in fact, were using money-as a

unit of account.30 Take the example of dried cod, supposedly used as

money in Newfoundland. As the British diplomat A. Mitchell-Innes

pointed out almost a century ago, what Smith describes was really an

illusion, created by a simple credit arrangement:

In the early days of the Newfoundland fishing industry, there

was no permanent European population; the fishers went there

for the fishing season only, and those who were not fishers

were traders who bought the dried fish and sold to the fishers

their daily supplies. The latter sold their catch to the traders at

the market price in pounds, shillings and pence, and obtained

in return a credit on their books, with which they paid for their

supplies. Balances due by the traders were paid for by drafts on

England or France.31

It was quite the same in the Scottish village. It’s not as if anyone

actually walked into the local pub, plunked down a roofing nail, and

asked for a pint of beer. Employers in Smith’s day often lacked coin

to pay their workers; wages could be delayed by a year or more; in

the meantime, it was considered acceptable for employees to carry off

either some of their own products or leftover work materials, lumber,

fabric, cord, and so on. The nails were de facto interest on what their

employers owed them. So they went to the pub, ran up a tab, and when

occasion permitted, brought in a bag of nails to charge off against the

debt. The law making tobacco legal tender in Virginia seems to have

been an attempt by planters to oblige local merchants to accept their

products as a credit around harvest time. In effect, the law forced all

merchants in Virginia to become middlemen in the tobacco business,

whether they liked it or not; j ust as all West Indian merchants were

obliged to become sugar dealers, since that’s what all their wealthier

customers brought in to write off against their debt.

The primary examples, then, were ones in which people were

improvising credit systems, because actual money-gold and silver

coinage–was in short supply. But the most shocking blow to the conventional

version of economic history came with the translation, first of

Egyptian hieroglyphics, and then of Mesopotamian cuneiform, which

pushed back scholars’ knowledge of written history almost three millennia,

from the time of Homer (circa 8oo Be) , where it had hovered in

Smith’s time, to roughly 3500 BC. What these texts revealed was that

credit systems of exactly this sort actually preceded the invention of

coinage by thousands of years.

The Mesopotamian system is the best-documented, more so than

that of Pharaonic Egypt (which appears similar) , Shang China (about

which we know little) , or the Indus Valley civilization (about which

we know nothing at all) . As it happens, we know a great deal about

Mesopotamia, since the vast maj ority of cuneiform documents were

financial in nature.

The Sumerian economy was dominated by vast temple and palace

complexes. These were often staffed by thousands: priests and officials,

craftspeople who worked in their industrial workshops, farmers and

shepherds who worked their considerable estates. Even though ancient

Sumer was usually divided into a large number of independent citystates,

by the time the curtain goes up on Mesopotamian civilization

around 3500, temple administrators already appear to have developed

a single, uniform system of accountancy-one that is in some ways

still with us, actually, because it’s to the Sumerians that we owe such

things as the dozen or the 24-hour day.32 The basic monetary unit was

the silver shekel. One shekel’s weight in silver was established as the

equivalent of one gur, or bushel of barley. A shekel was subdivided

into 6o minas, corresponding to one portion of barley-on the principle

that there were 30 days in a month, and Temple workers received

two rations of barley every day. It’s easy to see that ” money” in this

sense is in no way the product of commercial transactions. It was actually

created by bureaucrats in order to keep track of resources and

move things back and forth between departments.

Temple bureaucrats used the system to calculate debts (rents, fees,

loans . . .) in silver. Silver was, effectively, money. And it did indeed

circulate in the form of unworked chunks, “rude bars” as Smith had

put it.33 In this he was right. But it was almost the only part of his account

that was right. One reason was that silver did not circulate very

much. Most of it j ust sat around in Temple and Palace treasuries, some

of which remained, carefully guarded, in the same place for literally

thousands of years. It would have been easy enough to standardize the

ingots, stamp them, create some authoritative system to guarantee their

purity. The technology existed. Yet no one saw any particular need to

do so. One reason was that while debts were calculated in silver, they

did not have to be paid in silver-in fact, they could be paid in more

or less anything one had around. Peasants who owed money to the

Temple or Palace, or to some Temple or Palace official, seem to have

settled their debts mostly in barley, which is why fixing the ratio of silver

to barley was so important. But it was perfectly acceptable to show

up with goats, or furniture, or lapis lazuli. Temples and Palaces were

huge industrial operations-they could find a use for almost anything.34

In the marketplaces that cropped up in Mesopotamian cities, prices

were also calculated in silver, and the prices of commodities that

weren’t entirely controlled by the Temples and Palaces would tend to

fluctuate according to supply and demand . But even here, such evidence

as we have suggests that most transactions were based on credit. Merchants

(who sometimes worked for the Temples, sometimes operated

independently) were among the few people who did, often, actually use

silver in transactions; but even they mostly did much of their dealings

on credit, and ordinary people buying beer from “ale women,” or local

innkeepers, once again, did so by running up a tab, to be settled at

harvest time in barley or anything they might have had at hand.35

At this point, j ust about every aspect of the conventional story of

the origins of money lay in rubble. Rarely has an historical theory been

so absolutely and systematically refuted. By the early decades of the

twentieth century, all the pieces were in place to completely rewrite

the history of money. The groundwork was laid by Mitchell-Innesthe

same one I’ve already cited on the matter of the cod-in two essays

that appeared in New York’s Banking Law Journal in 1913 and 1914.

In these, Mitchell-Innes matter-of-factly laid out the false assumptions

on which existing economic history was based and suggested that what

was really needed was a history of debt:

One of the popular fallacies in connection with commerce is

that in modern days a money-saving device has been introduced

called credit and that, before this device was known,

all, purchases were paid for in cash, in other words in coins. A

careful investigation shows that the precise reverse is true. In

olden days coins played a far smaller part in commerce than

they do to-day. Indeed so small was the quantity of coins, that

they did not even suffice for the needs of the [Medieval English]

Royal household and estates which regularly used tokens

of various kinds for the purpose of making small payments. So

unimportant indeed was the coinage that sometimes Kings did

not hesitate to call it all in for re-minting and re-issue and still

commerce went on just the same.36

In fact, our standard account of monetary history is precisely

backwards. We did not begin with barter, discover money, and then

eventually develop credit systems. It happened precisely the other way

around. What we now call virtual money came first. Coins came much

later, and their use spread only unevenly, never completely replacing

credit systems. Barter, in turn, appears to be largely a kind of accidental

byproduct of the use of coinage or paper money: historically, it has

mainly been what people who are used to cash transactions do when

for one reason or another they have no access to currency.

The curious thing is that it never happened. This new history was

never written. It’s not that any economist has ever refuted Mitchell-Innes.

They just ignored him. Textbooks did not change their story–even if

all the evidence made clear that the story was simply wrong. People

still write histories of money that are actually histories of coinage, on

the assumption that in the past, these were necessarily the same thing;

periods when coinage largely vanished are still described as times when

the economy “reverted to barter,” as if the meaning of this phrase is

self-evident, even though no one actually knows what it means. As a

result we have next-to-no idea how, say, the inhabitant of a Dutch

town in 950 AD actually went about acquiring cheese or spoons or hiring

musicians to play at his daughter’s wedding-let alone how any of

this was likely to be arranged in Pemba or Samarkand.17


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