CHAPTER TWO
THE MYTH OF BARTER
The difference between “debt” and an “obligation” is that former can be quantified and later cannot. Money and debt appear on the scene at exactly the same time. Some of the earliest works of moral philosophy reflect on what it means to understand morality as debt- that is in terms of money.
A history of debt is a history of money and to understand the role that debt has played in human society is to follow the forms that money has taken and has been used over centuries and the arguments around making sense of what that means.
What economist have focused on when looking at the origins of money is the “history of coinage” (p.21) and anthropologists have been pointing out that actual economic life is conducted in real communities and marketplaces and most of these transactions take place without the use of currency. Part of the reason for this discrepancy is that coins are preserved in archeological record and credit arrangements are not but the problem runs deeper. This book will use tools of anthropology to reconstruct the real history of money, but before that in this chapter gets into understanding what is wrong with the conventional account.
The problem:
Economists speak of three functions of money: medium of exchange, unit of account, and store of value. Most emphasis is paid to money as a “medium of exchange” and all economic texts treat this as primary presenting the scenario without money as a purely imaginary exercise. The author argues that it is by arguing this same story that in 1776 Adam Smith a professor or moral philosophy (Uni of Glasgow) created the discipline of economics, based on Aristotle’s argument that money must have emerged as families moved from growing food for themselves to specialization (p.24). For Smith it is this “drive to exchange” which is uniquely human and which in turn creates the “division of labor responsible for all human achievement and civilization” (p.25). This leads to a story assuming the “natural” evolution of systems from barter to invention of money, to development of banks and credit. This story is the founding myth of our system of economic relations but there is no evidence of it in fact there is evidence against its existence.
Evidence Against:
1. Lewis Henry Morgan- mid 18th century discovered that amongst the Iroquois main economics institution were longhouses where goods were stockpiled and later distributed by the women’s councils, instead of trading arrowheads for slabs of meat (p.29). This evidence was ignored by economists.
2. Anthropologist Caroline Humphery of Cambridge work on barter concluded that “all available ethnography suggests that there never has been such a thing” (p.29 note 16)
Historically examples of barter is that between strangers or those practically like strangers. E.g. for the Nambikwara of Brazil or for the Gunwinggu people in Australia of festival or exchange dzamalag between people who might otherwise be enemies and negotiate a friendly means of exchange which may sometimes lead to war (p.30). Amongst the Pukhtun of Northern Pakistan barter exists but only with people that one is not bound to by ties of hospitality or kinship.
With these examples the author mocks the language of economic textbooks that call to “imagine a society without barter” as a lack of imaginative powers of most economist (p.32). Economics assumes a division between different spheres of human behavior that in these cases doesn’t exist. But the vision of the world that forms the basis of economic textbooks is such a part of our common sense that we find it hard to imagine otherwise.
Thus in economics textbooks problem “double coincidence of wants” for barter to happen is not immediate it is much more complicated than that. Instead of an immediate exchange of items, everyone simply keeps track of who owes what to whom. E.g. in money given at weddings in Pakistani weddings is noted down, similarly money given in closed envelopes at funerals in Indonesia is also put down in record.)
In most gift economies one establishes a series of ranked categories of things referred to by anthropologists as different “spheres of exchange” (p.36).
There is good reason to believe that barter is a recent phenomenon, wide spread in modern times. Scholars have now checked examples used by Adam Smith (examples of fish and nails and tobacco being used as money) and found that these people had been familiar with money and were using money as a unit of account (p.38).
The translation of Egyptian hieroglyphics and Mesopotamian cuneiform pushed back written history by three millennia to 3500 BC (Smith’s time was only till Homer circa 800 BC) and revealed that credit systems preceded the invention of coinage by thousands of years (p.38). Money was used in Sumerian economy by bureaucrats to keep track of resources and move things between departments, and it thus debts were calculate in form of Silver. Debts while calculated in Silver could be paid in any form from goats, to furniture or lapis Lazuli.
By early 20th century the theory of the history of money being systematically refuted by all this anthropological evidence was ripe for a rewriting. Mitchell-Innes ground breaking work in this regards are his two essays Banking Law Journal (1913 and 1914) where he lays out the false assumptions of existing economic history.
Reversal of Monetary History Mitchell-Innes suggested that what we need now is a “history of debt”. But this history was never written, economists didn’t refute him instead just ignored him.
Our standard account of monetary history is precisely backwards. Virtual money came first, coins came much later, with uneven use and never replacing credit systems. Barter was an accidental byproduct of use of coinage or paper money, which people used to cash transactions do when for some reason they don’t have access to currency.