Very interesting book on the history of trade and money

[innonimatu]

Or at least it seems so, I'm still waiting for it! Debt: The First 5,000 Years But from the several reviews I've read, it should be worth it. Basically, the author argues that money did not appear as the result of a barter economy, and that he idea of historical barter economies has always been a fantasy.

He describes some of his arguments here. Select quotes:

1) Adam Smith first proposed in ‘The Wealth of Nations’ that as soon as a division of labor 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 possible, 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) 19th century economists such as Stanley Jevons and Carl Menger [1] kept the basic framework 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, economic 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) actually 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 community 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” [2]

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…&#8221 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.

As I remarked above, occasional, irregular exchange between strangers will not generate a money system—since irregular, occasional exchange will not produce any kind of system. In ancient times, if you do see regular exchange between strangers, it’s because there are specific goods that each side knows they want or need. One has to bear in mind that under ancient conditions, long-distance trade was extremely dangerous. You don’t cross mountains, deserts, and oceans, risking death in a dozen different ways, so as to show up with a collection of goods you think someone might want, in order to see if they happen to have something you might want too. You show up because you know there are people who have always wanted woolens and who have always had lapis lazuli. As noted above, logically, what such a situation would lead to is a series of conventional equivalences—so many woolens for so many pieces of lapis lazuli—equivalences which are likely to be maintained despite contingencies of supply and demand, because all parties need to reduce risk in order to be able to continue to the trade at all. And once again, what logic would predict is precisely what we find. Even in periods of human history where money and markets did already exist, merchants often continue to conduct high-risk long distance trade through a system of conventional equivalents, or if money is used, administered prices, between specific commodities they know will be available, or in demand, at certain pre-established locations.

One might of course ask, could not such a system generate something like money of account—that is, the use of one or two relatively desirable commodities to measure the value of other ones, once more items were added to the mix (say, our merchant is making several stops)? The answer is yes. [...] All that is possible and likely as it did happen now and again—after all, we’re dealing with thousands of years here. Likely all sorts of things happened over this long period. However, there is no reason to assume that such a system would produce a concrete medium of exchange regularly used in making these transactions—in fact, given the dangers of ancient trade, insisting that some medium like silver actually be used in all transactions, rather than a credit system, would be completely irrational, since the need to carry around such a money-stuff would make one a far, far, more attractive target to potential thieves. A desert nomad band might not attack a caravan carrying lapis lazuli, especially if the only potential buyers were temples which would probably know all the active merchants and know that you had stolen the stuff (and even if you could trade for them, what are you going to do with a big pile of woolens anyway, you live in a desert?) but they’d definitely go after someone carrying around a universal equivalent. (This is presumably the reason why the great long-distance traders of the Classical World, the Phoenicians, were among the last to adopt coinage—if money was invented as a circulating medium for long-distance trade, they should have been the first.)

So even if some sort of rough system of fixed equivalences, measured by silver, might have emerged in the process of trade (note again: not a system of actual silver currency emerging from barter), it was the Temple bureaucracies that actually had some reason to extend the system from a unit used to compare the value of a limited number of rare items traded long distance, used almost exclusively by members of the political or administrative elite, to something that could be used to compare the values of everyday items. The development of local markets within cities, in turn, came as a side effect of these systems, and all evidence shows they too operated primarily through credit. For instance, Sumerians, though they had the technological means to do so, never produced scales accurate enough to weigh out the tiny amounts of silver that would have been required to buy a single cask of beer, or a woolen tunic, or a hammer—the clearest indication that even once money did exist, it was not used as a medium of exchange for minor transactions, but rather as a means of keeping track of transactions made on credit.

In many times and places, one sees a similar arrangement: two sorts of money, one, a common long-distance trade item, the other, a common subsistence item—cattle, grain—that’s stockpiled, but never traded. Still, Temple bureaucracies and their ilk are something of a rarity. In their absence, how else might a system of pricing, of proportional equivalents between the values of any and all objects, potentially arise? Here again, anthropology and history both provide one compelling answer, one that again, falls off the radar of just about all economists who have ever written on the subject. That is: legal systems.

If someone makes an inadequate return you will merely mock him as a cheapskate. If you do so when he is drunk and he responds by poking your eye out, you are much more likely to demand exact compensation. And that is, again, exactly what we find. 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’.)

I think I'll like it, I've always seen economic relations as a subset of power/social relations, not as some logical system which could by itself describe social relations. But perhaps it became one, in the modern world? (I don't really think so, but that may be unwarranted optimist).
Anyway, what do you think of the history proposed by that author - of his ideas and of his examples?

 

[innonimatu]

No one interested in economic history here?

I should have posted in OT, the noise/signal is usually greater but at least people will comment on everything!

 

[Masada]

I am, I just didn't have time to read through it

Also, looks rather interesting.

 

[Eretz Yisrael]

Hah Ill try to contribute something here

Are you suggesting that class divisions are always neccessary if not inevitable in societies as economic relations are a subset of power relations, which in turn service different people's interests?

 

[Cutlass]

So the author's contention is that credit preceded money? It's an interesting premise. I'm not sure how I feel about the contention that barter didn't really exist. It's harder to picture trade out of the area where people are well known to you without either barter or money. It is an interesting picture overall, though.

 

[innonimatu]

Hah Ill try to contribute something here

Are you suggesting that class divisions are always neccessary if not inevitable in societies as economic relations are a subset of power relations, which in turn service different people's interests?

I wouldn't say necessary, but I do say that they arise naturally from unbalanced divisions of power. Between the two simplistic schemes money-> power, and power-> money, I'd pick the second as the most accurate in describing human relations. Material Accumulation is, has always been, a "reward" self-granted by those in power, something which predates money.
Which is why I'd like to see greater focus on lessening power inequalities, instead of complaining about income inequality, for example. I still believe that a (broadly) classless society can exist, but the path to get there is far more complicated that simple redistribution of existing material wealth. Anyway, I invited this discussion through my remarks above, but it is a bit off-topic...

So the author's contention is that credit preceded money? It's an interesting premise. I'm not sure how I feel about the contention that barter didn't really exist. It's harder to picture trade out of the area where people are well known to you without either barter or money. It is an interesting picture overall, though.

That barter didn't really exist is the controversial one. Credit preceding money had to happen, because trade and stable international trade relations preceded money. If we admit that money means currency, it it only some 2600 years old.

I'll take a while to get that book, but what I've read of his arguments seem to make sense. That people didn't barter aimlessly but rather sought stable trading relations makes sense, stability has always been valued by people, more so in the more dangerous ancient times when one easily risked starvation. And, when Europe largely abandoned the use of currency for daily transactions during the middle ages, do we believe they bartered? I don't know much of medieval history, but what I do leads me to believe that currency was used for fairs and other "extraordinary" trading, and stable arrangements were used for daily needs: wasn't it usual, in many places into the 19th century, for employees to have wages specified in kind, namely in food? By then there was a marked economy in currency for any surplus, of course (clothing, food and metalwork were important common items of trade) but basics like food obtained outside the currency system were probably not bartered but rather gifted/exchanged on a stable basis: feudal tributes, rents, and privileges, charity, giving to your neighbor and expecting gifts later (still done today, we don't need to go into forests to see it!), etc. All these trades did not actually involve bartering because they were not "competitive markets" with people exchanging goods seeking the best possible price. Thus the standard economy theory of human behavior fails big time when compared to historical reality, never mind present reality.

 

[Cutlass]

I was thinking of it, and the idea that long distance traders carried little if any cash makes sense. Trade is based on the idea that things are worth more in one place than in other places. So one group of people has a lot of something, so it's not valuable to them. But something that they don't have is more valuable. So instead of carrying silver, it would make more sense to carry things that you know are difficult for those other people to acquire, and they want it enough to trade a lot for it.

For barter to not exist, and the author's contention to be correct, it seems to me that that would require fairly small and cohesive community. One where personal reputation has to be maintained. The type of fraud that the OP was talking about becomes much easier as the persons involved become more anonymous through large numbers.

Following this line of thought, money becomes more important as the transactions involve more people, and more to the point, more people that you are not well acquainted with.

 

[ParkCungHee]

I have to say, the stuff described isn't all that surprising to me, it's just surprising that these phenomenon were so...generalized.

 

[dutchfire]

Interesting article, pretty well written. I'd like to know what his critics have to say though, attractively written history is too often mistaken for correct history.