[PDF]On the Invention of Money

On the invention of money


Notes on sex, adventure, monomaniacal sociopathy and the true function of
economics


David Graeber


September 13, 2011


Last week, Robert F. Murphy published a piece on the webpage of the Von Mises Institute
responding to some points I made ina recent interview on Naked Capitalism, where I mentioned
that the standard economic accounts of the emergence of money from barter appears to be wildly
wrong. Since this contradicted a position taken by one of the gods of the Austrian pantheon, the
19" century economist Carl Menger, Murphy apparently felt honor-bound to respond.

In a way, Murphy’s essay barely merits response. In the interview I’m simply referring to
arguments made in my book, “Debt: The First 5000 Years’. In his response, Murphy didn’t even
consult the book; in fact he later admitted he was responding at least in part not even to the
interview but to an inaccurate summary of my position someone had made in another blog!

We are not, in other words, dealing with a work of scholarship. However, in the blogsphere,
the quality or even intention of an argument often doesn’t matter. I have to assume Murphy was
aware that all he had to do was to write something—anything really—and claim it rebutted me,
and the piece would be instantly snatched up by a right-wing echo chamber, mirrored on half a
dozen websites and that followers of those websites would then dutifully begin appearing across
the web declaring to everyone willing to listen that my work had been rebutted. The fact that I
instantly appeared on the Von Mises web page to offer a detailed response, and that Murphy has
since effectively conceded, writing an elaborate climb-down saying that he had no intention to
cast doubt on my argument as a whole at all, only to note that I had not definitively disproved
Menger’s, has done nothing to change this. Indeed, on both US and UK Amazon, I have seen
fans of Austrian economics appear to inform potential buyers that Iam an economic ignoramus
whose work has been entirely discredited.

I am posting this more detailed version of my reply not just to set the record straight, but
because the whole question of the origins of money raises other interesting questions—not least,
why any modern economist would get so worked up about the question. Let me begin by filling
in some background on the current state of scholarly debate on this question, explain my own
position, and show what an actual debate might have been like.

First, the history:


1. Adam Smith first proposed in “The Wealth of Nations’ that as soon as a division of la-
bor appeared in human society, some specializing in hunting, for instance, others making
arrowheads, people would begin swapping goods with one another (6 arrowheads for a
beaver pelt, for instance.) This habit, though, would logically lead to a problem economists
have since dubbed the ‘double coincidence of wants’ problem—for exchange to be possi-
ble, both sides have to have something the other is willing to accept in trade. This was
assumed to eventually lead to the people stockpiling items deemed likely to be generally
desirable, which would thus become ever more desirable for that reason, and eventually,
become money. Barter thus gave birth to money, and money, eventually, to credit.


2. 198 century economists such as Stanley Jevons and Carl Menger’ kept the basic frame-
work of Smith’s argument, but developed hypothetical models of just how money might
emerge from such a situation. All assumed that in all communities without money, eco-
nomic life could only have taken the form of barter. Menger even spoke of members of
such communities “taking their goods to market”—presuming marketplaces where a wide
variety of products were available but they were simply swapped directly, in whatever way
people felt advantageous.


3. Anthropologists gradually fanned out into the world and began directly observing how
economies where money was not used (or anyway, not used for everyday transactions) ac-
tually worked. What they discovered was an at first bewildering variety of arrangements,
ranging from competitive gift-giving to communal stockpiling to places where economic
relations centered on neighbors trying to guess each other’s dreams. What they never
found was any place, anywhere, where economic relations between members of commu-
nity took the form economists predicted: “I'll give you twenty chickens for that cow.’ Hence
in the definitive anthropological work on the subject, Cambridge anthropology professor
Caroline Humphrey concludes, “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”


a. Just in way of emphasis: economists thus predicted that all (100%) non-monetary
economies would be barter economies. Empirical observation has revealed that the
actual number of observable cases—out of thousands studied—is 0%.


b. Similarly, the number of documented marketplaces where people regularly appear to
swap goods directly without any reference to a money of account is also zero. If any
sociological prediction has ever been empirically refuted, this is it.


4. Economists have for the most part accepted the anthropological findings, if directly con-
fronted with them, but not changed any of the assumptions that generated the false pre-
dictions. Meanwhile, all textbooks continue to report the same old sequence: first there


‘ Jevons, W. Stanley, Money and the Mechanism of Exchange. New York: Appleton and Company, 1885, and
Menger, Carl, “On the origins of money.” Economic Journal 1892 v.2 no 6, pp. 239-55

* Humphrey, Caroline, “Barter and Economic Disintegration.” Man 1985 v.20: 48. Other anthropologists have
gone even further, for instance Anne Chapman, “Barter as a Universal Mode of Exchange.” L’‘Homme 1980 v22 (3):
33-83), argues that if pure barter is to be defined as only about the things, and not about the people, it’s not clear that
it has ever existed—as the cases cited at the end of this essay indeed illustrate.


was barter, then money, then credit—except instead of actually saying that tribal societies
regularly practiced barter, they set it up as an imaginative exercise (‘imagine what you
would have to do if you didn’t have money!” or vaguely imply that anything actual tribal
societies did do must have been barter of some kind.


So what I said was in no way controversial. When confronted on why economists continue to
tell the same story, the usual response is: “Well, it’s not like you provide us with another story!”
In a way they have a point. The problem is, there’s no reason there should be a single story for
the origin of money. Here let me lay out my own actual argument:


1. If money is simply a mathematical system whereby one can compare proportional values,
to say 1 of these is worth 17 of those, which may or may not also take the form of a
circulating medium of exchange, then something along these lines must have emerged in
innumerable different circumstances in human history for different reasons. Presumably
money as we know it today came about through a long process of convergence.


2. However, there is every reason to believe that barter, and its attendant ‘double coincidence
of wants’ problem, was not one of the circumstances through which money first emerged.


a. The great flaw of the economic model is that it assumed spot transactions. I have
arrowheads, you have beaver pelts, if you don’t need arrowheads right now, no deal.
But even if we presume that neighbors in a small community are exchanging items
in some way, why on earth would they limit themselves to spot transactions? If your
neighbor doesn’t need your arrowheads right now, he probably will at some point
in the future, and even if he won’t, you’re his neighbor—you will undoubtedly have
something he wants, or be able to do some sort of favor for him, eventually. But
without assuming the spot trade, there’s no double coincidence of wants problem,
and therefore, no need to invent money.


b. What anthropologists have in fact observed where money is not used is not a system
of explicit lending and borrowing, but a very broad system of non-enumerated credits
and debts. In most such societies, if a neighbor wants some possession of yours, it
usually suffices simply to praise it (“what a magnificent pig!”); the response is to
immediately hand it over, accompanied by much insistence that this is a gift and the
donor certainly would never want anything in return. In fact, the recipient now owes
him a favor. Now, he might well just sit on the favor, since it’s nice to have others
beholden to you, or he might demand something of an explicitly non-material kind
(“you know, my son is in love with your daughter...””) He might ask for another pig, or
something he considers roughly equivalent in kind. But it’s almost impossible to see
how any of this would lead to a system whereby it’s possible to measure proportional
values. After all, even if, as sometimes happens, the party owing one favor heads you
off by presenting you with some unwanted present, and one considers it inadequate—
a few chickens, for example—one might mock him as a cheapskate, but one is unlikely
to feel the need to come up with a mathematical formula to measure just how cheap
you consider him to be. As a result, as Chris Gregory observed, what you ordinarily
find in such ‘gift economies’ is a broad ranking of different types of goods—canoes are
roughly the same as heirloom necklaces, both are superior to pigs and whale teeth,


which are superior to chickens, etc—but no system whereby you can measure how
many pigs equal one canoe.*


3. All this is not to say that barter never occurs. It is widely attested in many times and places.
But it typically occurs between strangers, people who have no moral relations with one
another. There is a reason why in just about all European languages, the words ‘truck and
barter’ originally meant ‘to bilk, swindle, or rip off* Still there is no reason to believe
such barter would ever lead to the emergence of money. This is because barter takes three
known forms:


a. Barter can take the form of occasional interactions between people never likely to
meet each other again. This might involve ‘double coincidence of wants’ problems but
it will not lead to the emergence of a system of money because rare and occasional
events won't lead to the emergence of a system of any kind.


b. If there are ongoing trade relations between strangers in moneyless economies, it’s
because each side knows the other side has some specific product(s) they want to
acquire—so there is no ‘double coincidence of wants’ problem. Rather than leading
to people having to create some circulating medium of exchange (money) to facili-
tate transactions, such trade normally leads to the creation of a system of traditional
equivalents relatively insulated from vagaries of supply and demand.


c. Sometimes, barter becomes a widespread mode of interaction when you have people
used to using money in everyday transactions who are suddenly forced to carry on
without it. This can happen, for instance, because the money supply dries up (Rus-
sia in the ‘90s), or because the people in question have no access to it (prisoners or
denizens of POW camps.) This cannot lead to the invention of money because money
has already been invented.>


So this is the actual argument, which Prof. Murphy could easily have ascertained with a glance
at the relevant chapter of the book.

It’s easy to see from this that his counter-arguments range from extremely weak to completely
irrelevant. Let me take them on in turn, such as they are





* Gregory, Chris, Gifts and Commodities. New York: Academic Press (1982): pp. 48-49. On gift economies, the
classic text is Mauss, Marcel, Essai sur le don. Forme et raison de l’échange dans les sociétés archaiques.” Annee
sociologique, 1924 no. 1 (series 2):30-186. On spheres on exchange in general see Bohannan, Paul “Some Principles
of Exchange and Investment among the Tiv,’ American Anthropologist 1955 v57:60-67; Barth, Frederick, “Economic
Spheres in Darfur” Themes in Economic Anthropology, ASA Monographs (London, Tavistock) 1969 no. 6, pp. 149-
174; cf Munn, Nancy, The Fame of Gawa: A Symbolic Study of Value Transformation in a Massim (Papua New Guinea)
Society, 1986, Cambridge, Cambridge University Press, and Akin, David and Joel Robbins, “An Introduction to Melane-
sian Currencies: Agencies, Identity, and Social Reproduction” in Money and Modernity: State and Local Currencies
in Melanesia (David Akin and Joel Robbins, editor), pp. 1-40. Pittsburgh: University of Pittsburgh Press.

* Servet, Jean-Michel, 1994 “La fable du troc? numero spécial de la revue XVIIle siécle, Economie et politique,
n°26: 103-115

° The classic work on the economics of POW camps, whence this argument derives, is Radford, R. A., “The
Economic Organization of a POW Camp.” Economica 1945 v.12 (48): 189-201. There is an excellent critique of the
assumptions underlying it in Ingham, Geoffrey, “Further Reflections on the Ontology of Money,’ Economy and Society
2006 v 36 (2): 264-65, which notes among other things the obvious point that the entire camp environment was
created and maintained by a bureaucratic organization that supplied all actual necessities—food, shelter, etc—through
administrative distribution.


+ 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 sci-
entist’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. Given the weight of the evidence, the
burden of proof is on the Murphys of the world to produce some plausible reason why
all observable cases of moneyless societies fail to operate the way Menger predicted, and
therefore, why we have any reason to believe some unknown age would have been any
different; and this, he does not even attempt to do.


« Murphy then goes on to produce a straw man saying that a system where people borrow
things from one another and then turn to political authorities to regulate the system would
not produce money. True enough, but it seems a bit irrelevant considering (a) I never say
people would be “borrowing” from each other in the way he describes, (b) I never attribute
any role to political authorities in this process, and (c) rather than saying the informal
>>>