Friday, March 4, 2016

Money and Barter: Did Money Come First?

From Real World Economic Review:

In the beginning, there was barter. Then, and forever after, there was money
That’s the myth every student of economics learns, that money grows out of barter. The idea is that monetary exchange solves the problem of the double coincidence of wants—that a person who is interested in trading needs to find someone who wants what they have and has what they want. Money makes trade much easier, so the story goes, and thus becomes a remarkable example of both human ingenuity and economic progress.
The fact is, as Ilana E. Strauss [ht: ja] explains, the story is false. Human beings did not invent money to solve the difficulties of barter exchange. Barter turns out to be a historical myth.
various anthropologists have pointed out that this barter economy has never been witnessed as researchers have traveled to undeveloped parts of the globe. “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money,” wrote the Cambridge anthropology professor Caroline Humphrey in a 1985 paper. “All available ethnography suggests that there never has been such a thing.”
Humphrey isn’t alone. Other academics, including the French sociologist Marcel Mauss, and the Cambridge political economist Geoffrey Ingham have long espoused similar arguments.
When barter has appeared, it wasn’t as part of a purely barter economy, and money didn’t emerge from it—rather, it emerged from money. After Rome fell, for instance, Europeans used barter as a substitute for the Roman currency people had gotten used to. “In most of the cases we know about, [barter] 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,” explains David Graeber, an anthropology professor at the London School of Economics.
A good example is the kind of exchange described by Fibonacci in his Liber Abbaci. He devoted the ninth chapter to “barter of merchandise and similar things.” But it wasn’t pre-monetary barter. Instead, as Randy K. Schwartz explains,
A barter was often recorded as such in a register or account book, as if actual coins had been exchanged, when in fact no coins at all were involved.
Because coins were still scarce, the widespread custom among merchants was to set the barter price for a commodity by “marking up” the cash price by a certain percentage. The two barterers had to agree on the markup rate ahead of time, or else one would feel cheated.
In other words, this was exchange that took money as the unit of account but, because coins were scarce, it took the form of the direct exchange of goods—say, wool for cloth.
And there are many other examples in the historical and anthropological record of forms of exchange that precluded money—centralization and redistribution, gifts, potlatch, trade at the edges of and between non-monetary societies, and so on. But there was no original barter economy, which was then surpassed by the use of money.
That’s a myth that began with Adam Smith:...MORE