The myth of the barter

Graeber recently passed away and I allow myself to share with you one of his most popular (and controversial) passages.

While he found a gold mine debunking some historical inaccuracies of “the myth of the barter” as usually presented by armchair economists, ironically he still managed to get the underlying economic principle that eventually explained the (Mengerian) origin of money (very) very wrong. Right facts, wrong interpretation. 

May he rest in peace.

“…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 city­ states, 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. 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. 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 just 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.

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 operate 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.

At this point, just 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-Innes­ the 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 intro­ duced 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 Eng­ lish] 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.

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. …”