Arnold Kling  

On the History of Money

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David Graeber writes,


Anthropology is full of examples of societies without markets or money, but with elaborate systems of penalties for various forms of injuries or slights. And it is when someone has killed your brother, or severed your finger, that one is most likely to stickle, and say, "The law says 27 heifers of the finest quality and if they're not of the finest quality, this means war!" It's also the situation where there is most likely to be a need to establish proportional values: if the culprit does not have heifers, but wishes to substitute silver plates, the victim is very likely to insist that the equivalent be exact. (There is a reason the word 'pay' comes from a root that means 'to pacify'.)

In the standard economic view, money emerges as a solution to the problem of "double coincidence of wants." In my alternative view, money emerges as a way for rulers to obtain services from soldiers. ("Here is some silver. Go fight. When you come back with booty, you can exchange this silver for your share.")

In Graeber's view, we are both wrong. Money emerges as a system for compensating people for suffering inflicted by others.

Read the whole post. Pointer from Jim Hamilton.


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CATEGORIES: Economic History , Money



COMMENTS (21 to date)
Andrew M writes:

Maybe money emerged as a way to solve multiple problems at once? These different theories don't seem mutually exclusive to me.

JD writes:

Paying soldiers with money came about long after the widespread use of money as a medium of exchange. Plunder is often the preferred currency of soldiers.

steve writes:

I like much of what Austrian economics has to say about credit bubbles. The Keynesian argument that the solution to one bubble popping is to create another one seems wrong.

Having said that no field of study or school of thought is without error. David Graeber seems to have thoroughly discredited the Austrians standard story about the origins of money. Good for him.

Did the Austrians respond in knee jerk denials. Yes at least some did. Einsteins response to new theories about quantum mechanics was knee jerk as well. He famously said “God does not play dice.”

Another witticism with some truth to it is science advances one funeral at a time. In time, I expect a new crop of Austrians to adopt a new origin of money story, just like the old crop of physicists who discounted quantum mechanics as an effective mathematical model but not representative of reality was replaced by a younger crowd who really did believe the implications of the math that electrons exist in multiple locations at once.

rpl writes:

Isn't Graeber's view just a variant on the theme of double coincidence of wants? Custom demands a certain payment in goods as restitution for the infliction of some kind of suffering, and either the offender doesn't have the exact good or the victim doesn't really want it. So you substitute some medium that the offender can readily get in exchange for whatever he does have and the victim can readily exchange for whatever he does want. It's really no different than any other transaction.

Arnold's theory, on the other hand, seems a little dubious. To accept paying soldiers as "the" reason for money, we would have to assume that it would be difficult or impossible to get soldiers to fight for plunder directly and that money would never take off without soldiers' demands for a medium of payment. Neither seems very plausible. It seems more likely to me that soldiers simply suffer from the same coincidence of wants problem that everybody else does, so they were happy to take money as payment once somebody got around to inventing it.

Tracy W writes:

On the one hand, I admire David Graeber's post for the quality of evidence he brings to it.
On the other hand, I find myself with a significant desire to sever his finger, for the scathing tone of his writing and in particular his implicit assumption of bad faith on the part of economists, for example: "At this point, it’s easier to understand why economists feel so defensive about challenges to the Myth of Barter, and why they keep telling the same old story even though most of them know it isn’t true."
Now, I have a graduate degree in economics, and I have read a number of books by anthropologists, out of general interest, and I never ever before came across any of the examples that Graeber cites. I think here that Graeber is making the mistake of assuming that because he's very familiar with something, anyone who doesn't know that is therefore an idiot.

Graeber certainly illustrates the advantages of writing in a more neutral tone, as a persuasive method, as you and Bryan advocate.

Duncan writes:

Graeber endorses the view that money - specifically coinage - emerged as a way to pay soldiers, towards the end of this interview with Moira Gunn (and presumably in his new book, too.)

Jonathon Hunt writes:

@ steve

I totally disagree with the notion of "knee jerk reactions" by the Austrians. For example, Murphy wrote a good article questioning David's interpretations of his findings or lack thereof.

Bob Murphy writes:

Tracy W wrote:

I think here that Graeber is making the mistake of assuming that because he's very familiar with something, anyone who doesn't know that is therefore an idiot.

Just to clarify though, Tracy W, go re-read the quote from Graeber. He's not saying we're idiots, he's saying we're liars.

Peter T writes:

Tracy W

You have to ask - why did you not come across this basic bit of history? I did a an intro unit of ancient history at Uni, and the late origins of coinage (and the very early evolution of finance mechanisms) were there on casual display - just part of the scene. Any reference work that mentions the subject will tell you coinage came in c 7th or 8th centuries BC - did no economist ever wonder how Sumerians, Babylonians, Assyrians, Phoenicians, Egyptians etc did business? If not, why not? Did no economist ever wander through the Smithsonian or the British Museum and see the clay tablets recording debts, loans (with interest) and other transactions?

Lair may be too strong, but very selectively attentive could hardly be denied.

Bob Murphy writes:

Peter T wrote:

Any reference work that mentions the subject will tell you coinage came in c 7th or 8th centuries BC - did no economist ever wonder how Sumerians, Babylonians, Assyrians, Phoenicians, Egyptians etc did business? If not, why not? Did no economist ever wander through the Smithsonian or the British Museum and see the clay tablets recording debts, loans (with interest) and other transactions?

Peter T, what are you talking about? We're not arguing over whether money existed in the past. We're arguing over how it came into existence.

I am getting a copy of Graeber's book to review for The American Conservative. But so far, a lot of his interpretations strike me as speculative. For a simple example, there's no reason silver should have been chosen as the money for the reasons given by Graeber's account. But using the conventional economist account, it makes perfect sense why it was silver (and not something else).

Peter T writes:

That's Graeber's point - "money" in its origins was not silver (or any metal) - it was a tally stick or clay tablet or similar denoting a debt. These became transferable, then denominated in a standard commodity unit (often first grain, then silver), then also issued by rulers, and then (sometimes) embodied in silver or gold for special purposes (usually military expenses). Gold and silver were irrelevant to most transactions for most of history - and still are.

In other words, it grew out of the normal social relations of gift and obligation. This is standard, demonstrable history, not a strange interpretation. We can actually read very early records on this.

The Anti-Gnostic writes:
Anthropology is full of examples of societies without markets or money, but with elaborate systems of penalties for various forms of injuries or slights.

Graeber is inherently, unavoidably and irredeemably wrong. Markets and a medium of exchange are ubiquitous, and would necessarily pre-exist the penal code. The very existence of the penal code to compensate for involuntary exchanges follows naturally from a prior practice of voluntary exchange: you take something, you gotta pay for it. The ancients understood TANSTAAFL, even if Graeber doesn't.

Graeber's argument is specious and very, very slippery. He retrospectively interprets the absence of a prior written record to mean that the archaic written tallies somehow show the "invention" of money by decree. The hidden motive is to discredit market exchange as an organic human institution.

You've got to hand it to the Marxists, they never give up.

The Anti-Gnostic writes:
In other words, it grew out of the normal social relations of gift and obligation.

But whence did gift and obligation arise? In its earliest form, it would be in the context of intra-familial and later intra-tribal relations. Primevally, people want to have sex and they know other people want to have sex. So we find ways to get sex in exchange for giving other things of value. "Money" is not in the equation yet, but market exchange is already here.

As different tribes come in contact with each other, they might want to exchange more than just sperm and ova and barter arises. As the capital stock increases and labor subdivides, we naturally get indirect exchange. Money. This is the way the universe works.

Tracy W writes:

Bob Murphy: Good point.

Peter T: I've been to the Smithsonian and British Museums, I've seen the clay tablets, but I don't recall having seen any exhibits about what Graeber described, that of societies without money trading in the ways he describes. I recall seeing maps of historical trading routes in many places, but nothing about how the trade actually took place.
Perhaps the descriptions were there, but I was just distracted by other things. And I haven't come across it in the anthropological books I've read, not that I've set about a systematic exploration. I wouldn't be that surprised if the the reason I haven't come across this basic bit of history is that anthropologists, on the whole, aren't that focused on it.

Liar may be too strong, but very selectively attentive could hardly be denied.

Possibly, but who was selectively attentive? The economists, or the anthropologists?

Tracy W writes:

Now I've hit post, I suddenly think I should add that I'm not being particularly critical of anthropologists here. The field of anthropology covers so much that is so interesting that I find it easy to believe that anthroplogists do have to be selective about what they present because there are only so many hours in the day. Graeber's material, while very interesting, doesn't strike me as being as foundational to anthropology as a whole in the same way that the theory of evolution is to biology, as in being something that every introductory book has to cover. I've read fascinating anthropologically-based material about child-rearing techniques, language development, incest rules, rules for conservation of common resources, levels of violence, rites of adulthood, etc, by anthropologists that don't touch at all on the details of trade, and, having read Graeber's article, I don't see how the results would be affected by his work one way or another.

Peter T writes:

Tracy W

Graeber's point is (partially) that we do not have to speculate - we have numerous good anthropological accounts, and a reasonable historical record. If you read a standard work such as George Roux's Ancient Iraq (first published 1964), never mind more recent stuff, you can find the origins of accounting and banking, development of a common unit of account, notes on the trade routes that brought goods from Afghanistan and India to Mesopotamia and more. We have actual bills of sale, bills of exchange, and so on. All without speculation. We do not need to construct a story about sex - we have the actual story. Surely worth paying attention to?

We can note that the development of coinage occurred in areas where states needed to pay mercenaries, and had little to do with trade. That, eg, the Phoenicians managed long distance trade networks for millenia without coinage. You do not even have to believe Graeber - he is just collating a lot of evidence that is unexceptional to anthropologists and historians.

The Anti-Gnostic writes:

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Tracy W writes:

Peter T, now you are talking about the development of coinage, which is only a subset of money (consider the use of cigarettes in POW camps in WWII, money but not coins.)

And the evidence that Graeber draws on in the linked article is not only historical, it's about modern non-money using cultures. Indeed to me that's the most convincing bit of his article.

Bryan Willman writes:

I'm part way through Graeber's book. I suppose it has some good points, and may in some ways be informative in the current circumstance.

But in general, whether debt and money arise before or after barter, are naturally fair or unfair, etc. etc. aren't very important. Suppose the "barter myth" is wrong.

So what?

Suppose it was unsavory governments, or unsavory religious movements, or very clever mimes, who created both money and a tax on it to persuade people to do things.

So what?

It's very clear that a large part of human history is about some people persuading other people to do something (go to war, build a pyramid) that wouldn't make sense under normal circumstances.

If Graeber has a substantive point (so far), it's that lots of what goes on in human existence isn't mediated by commercial mechanisms. How much has clearly changed. Understanding this, and how it interacts with commerce, seems to me to be very worthwhile.


Tracy W writes:

Today I went to the British Museum, and specifically went to the room dedicated to the history of money and coins. That room doesn't match with Graeber's description. The oldest clay tablet there was described as "Clay tablet from Ur, 3rd dynasty, dated 2046 BC. The text records the purchase of plough-oxen. "4 plough-oxen at 7 1/2 shekels each (from) Ur-shaga. 3 oxen at 7 1/2 shekels each (from) Ur-guenna. Total: 7 plough-oxen at 7 1/2 shekels each; silver 5/6 mina and 2 1/2 shekels (for) oxen purchased from various merchants."
Another old one was Grain: "Summerian stone table c. 2400 BC. The tablet lists purchases of land by a man named Tupsikka with bayments made in baskets of barley. One transaction reads: "The price of the field is 90 gur-sag-gal (21,600 litres) of barley; the additional payment is 8 gur-sag-gal (1,920 litres) of barley, 16 pounds of wool (and) 16 quarts of oil."
A timeline on the wall for the development of money, in the section on Asia reads:
"2000 BC: Grain and silver used in Mesopotamia, c, 2000 BC
1000 BC: Mesopotamian law codes specify payment of fines in weighted silver. "

Another sign was titled "Before Coinage" and read "Initially, ancient states did not trade using coins. In fact, kingdoms such as those in Mesopotamia and Egypt flourished without official coinage. They simply used units of valuable commodities such as silver or gold to trade and make payments. "

Of course the Smithsonian may be different, but it would be quite impressive for anyone to look at this room and decide that the history of barter leading to the development of money was completely wrong.

The displays did refer to a book on the history of money, which was more supportive of Graeber's view, saying that the Mesopotamian and Egyptian empires appear to have been based on a more redistributive economy (although the book didn't explain if that was so, what prompted those tablets reporting ordinary payments), and when it came to money's development outside of the Middle East, India and East Asia, querying how much money was used and regarded in other cultures, and saying that it was often used as a means of keeping track of payments rather than as trade, but it didn't go as far as Graeber, or sound as definitely.

Graeber is correct. As a numismatist, I have been studying the origins of coinage since 1992. (One of my early articles was cited by Robert Mundell in a monograph on the origins of coinage.) I am this morning about to write a review of the works of Denise Schmandt-Besserat who investigates the origins of writing. (Accounting for debts was the beginning of a system of tokens which evolved into writing. Along the way, large numbers such as 4, 5, and 6, were invented.)

Economists are largely ignorant of numismatics though that study of the arts and sciences of the forms and uses of money actually provides the real data which even Austrian economists simply invent - wrongfully - out of their imagination.

I downloaded Graeber's 6,000 word essay and requested his book from my local library. His ideas and findings about so-called "primitive" origins of money correlate highly with what numismatist Charles Opitz has long reported.

[broken url fixed--Econlib Ed.]

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