Money Myths Matter
This is a re-post from a 2016 article in the Atlantic with added questions and no ads. (Bold type and parenthetical insertions are my own.)
Money Myth #1
The Myth of the Barter Economy
Adam Smith said that quid-pro-quo exchange systems preceded economies based on currency, but there’s no evidence that he was right.
FEBRUARY 26, 2016
What are your associations with the term “quid-pro-quo” ? How might future human systems and relationships improve if we consider past possibilities beyond quid-pro-quo?
Imagine life before money. Say, you made bread but you needed meat.
But what if the town butcher didn’t want your bread? You’d have to find someone who did, trading until you eventually got some meat.
You can see how this gets incredibly complicated and inefficient, which is why humans invented money: to make it easier to exchange goods. Right?
This historical world of barter sounds quite inconvenient. It also may be completely made up.
The man who arguably founded modern economic theory, the 18th-century Scottish philosopher Adam Smith, popularized the idea that barter was a precursor to money. In The Wealth of Nations, he describes an imaginary scenario in which a baker living before the invention of money wanted a butcher’s meat but had nothing the butcher wanted. “No exchange can, in this case, be made between them,” Smith wrote.
This sort of scenario was so undesirable that societies must have created money to facilitate trade, argues Smith. Aristotle had similar ideas, and they’re by now a fixture in just about every introductory economics textbook. “In simple, early economies, people engaged in barter,” reads one. (“The American Indian with a pony to dispose of had to wait until he met another Indian who wanted a pony and at the same time was able and willing to give for it a blanket or other commodity that he himself desired,” read an earlier one.)
But 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. (Marks on tally sticks recorded most transactions as quantities of Roman coin that were never to be held or had.)
“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.
So if barter never existed, what did? Anthropologists describe a wide variety of methods of exchange — none of which are of the “two-cows-for-10-bushels-of-wheat” variety.
Communities of Iroquois Native Americans, for instance, stockpiled their goods in longhouses. Female councils then allocated the goods, explains Graeber. Other indigenous communities relied on “gift economies,” which went something like this: If you were a baker who needed meat, you didn’t offer your bagels for the butcher’s steaks. Instead, you got your wife to hint to the butcher’s wife that you two were low on iron, and she’d say something like “Oh really? Have a hamburger, we’ve got plenty!” Down the line, the butcher might want a birthday cake, or help moving to a new apartment, and you’d help him out.
The barter myth implies humans have always had a sort of quid pro quo, exchange-based mentality.
On paper, this sounds a bit like delayed barter, but it bears some significant differences. For one thing, it’s much more efficient than Smith’s idea of a barter system, since it doesn’t depend on each person simultaneously having what the other wants. It’s also not tit for tat: No one ever assigns a specific value to the meat or cake or house-building labor, meaning debts can’t be transferred.
And, in a gift economy, exchange isn’t impersonal. If you’re trading with someone you care about, you’ll “inevitably also care about her enough to take her individual needs, desires, and situation into account,” argues Graeber. “Even if you do swap one thing for another, you are likely to frame the matter as a gift.”
…
No academics I talked to were aware of any evidence that barter was actually the precursor to money, despite the story’s prevalence in economics textbooks and the public’s consciousness. Some argue that no one ever believed barter was real to begin with — the idea was a crude model used to simplify the context of modern economic systems, not a real theory about past ones.
Human interactions, as it turns out, are far more quirky.
…
Part of the difficulty in imagining a pre-money world lies in the fact that currency has been around for so long. The first Indian money appeared during the sixth century B.C. and consisted of silver bars. The world’s first coins appeared in Lydia (modern-day Syria) around the same time.
But even though money has been around for a long time, humans have been around for hundreds of thousands of years longer, and it may be a mistake to imagine that modern economics reflects some sort of primordial human nature.
“Economic theory has always got to be historically bounded,” Beggs says. “I think it’s a mistake to think you’ll find the workings of modern money by going back to the origins of money.” He does point out that, while barter may not have been widespread, it’s possible that it happened somewhere and led to money, just given how much is unknown about such a large period of time.
Even though some anthropologists have long known the barter system was just a thought experiment, the idea is incredibly widespread. And this isn’t just an academic curiosity — the idea of barter may have altered history.
“The vision of the world that forms the basis of the economics textbooks … has by now become so much a part of our common sense that we find it hard to imagine any other possible arrangement,” writes Graeber in Debt: The First 5,000 Years.
Graeber asserts that the barter myth implies humans have always had a sort of quid pro quo, exchange-based mentality, since barter is just a less efficient version of money. But if you consider that other, completely different systems existed, then money starts to look like less of a natural outgrowth of human nature, and more of a choice.
For one thing, the barter myth “makes it possible to imagine a world that is nothing more than a series of cold-blooded calculations,” writes Graeber in Debt. This view is quite common now, even when behavioral economists have made a convincing case that humans are much more complicated — and less rational — than classical economic models would suggest.
But the harm may go deeper than a mistaken view of human psychology. According to Graeber, once one assigns specific values to objects, as one does in a money-based economy, it becomes all too easy to assign value to people, perhaps not creating but at least enabling institutions such as slavery (in which people can be bought) and imperialism (which is made possible by a system that can feed and pay soldiers fighting far from their homes).
Is this going too far? What is money? Does it inherently risk the commodification of people? Is that just human nature? How about the design of the “money”- what role might that play? (Consider wampam vs. Federal Reserve Notes.)
Whether or not one agrees with such broad claims, it’s worth noting that monetary debt, a byproduct of currency, has regularly been used by some groups to manipulate others. Thomas Jefferson, for instance, suggested that the government encourage Native Americans to purchase goods on credit so they’d fall into debt and be forced to sell their lands. Today, black neighborhoods are disproportionately plagued by debt-collection lawsuits. Even after taking income into account, debt collection suits are twice as common in black neighborhoods as in white ones. $34 million was seized from residents of St. Louis’ mostly black neighborhoods in suits filed between 2008 and 2012, much of which was seized from debtors’ paychecks. In Jennings, a St. Louis suburb, there was one suit for every four residents during those years.
So if money is a produce of human design, what designs have emerged? How would their success be measured? Is it possible to design modern money to be in service of a collective purpose, rather than in service of its own perpetual growth? Is it possible to design an economy to work toward relationship building, rather than extraction and exploitation of planet and people?
It’s hard to answer those questions without actually seeing alternatives in action. (And broadening our sense of imagination and possibility.)
Luckily, modern gift economies actually do exist. On a small scale, they exist among friends, who might lend each other a vacuum or a cup of flour. There’s even an example of a gift economy on a much larger scale, albeit one that’s not always in operation: The Rainbow Gathering, an annual festival in which about 10,000 people gather for a month in the woods (it rotates among various national forests around the country each year) and agree not to bring any money. Groups of attendees set up “kitchens,” in which they prepare and serve food for thousands of people every day, all for free. Classical economists might guess that people would take advantage of such a system, but, sure enough, everyone is fed, and the people who don’t cook play music, set up trails, teach classes, gather firewood, and perform in plays, among other things.
Then again, it’s one thing to keep a community alive and well when everyone’s camping in a forest and they’ve all opted into that vision. It’s quite another to imagine a gift economy enabling humans to build skyscrapers, invent iPhones, put air conditioners in every house, and explore space. (The same goes for collecting taxes and running large businesses.) Not that it’s an all-or-nothing situation: We already have gift economies among friends and family. Perhaps expanding that within small communities is possible; it’s certainly desirable.
Some examples of such dynamic, purpose and relationship-oriented economies are below. What programs and projects would you add? What would you design?
Some Historical Examples
Tally sticks- Readily available anti-counterfeit ledger allowed local trade in Medieval times.
Stones- Large, visible Rai stones provided an orally distributed open source ledger of accounts.
Shells- Wampum represented respectful relationships between groups to extend sharing of resources and knowledge (extending the gift culture).
Feathers- Bright red feathers were gathered for long coils representing wealth. (Notably, somehow, the bird population remained in tact.)
Colonial scrip- Colonial America was a huge stage of currency experimentation and factor of comparative freedom and prosperity. This deserves far more consideration from economists and historians with a new lens of possibility.
Wörgle Work Certificates- Amidst the crippling debt of World War I, a constoritium of 400 Austrian mayors gathered to learn how the town of Wörgle had gone from debt to flourishing in a matter of months using work certificates. Unfortuntely, the Central Bank shut them down for infringing on the bank’s monopoly of money. The idea was based upon the work of economist Silvio Gessell in his 1916 book, The Natural Economic Order.
Depression Era scrip- Again, necessity drove innovation, and various certificates began to be circulated. Leading economists like John Maynard Keyenes and Irving Fisher both supported scaling the adoption of alternative currencies to end the Depression.
Present-day examples
Community currencies:
Grassroots Economics- an open-source humanitarian organization empowering communities in Kenya to create their own blockchain-based community currencies.
Cambiatus- an open-source platform for community exchange in Costa Rica.
Circles- platform for creating local UBI/community currency
Timebanking & Mutual Aid:
Timebanking USA- Timebanking is a non-taxable form of community exchange, usually based upon the hour-to-hour philosophy of Edgar Kahn.
Simbi- a non-profit time bank that is free and easy to use, connecting people’s gifts and services locally and internationally. Does not follow hour-to-hour.
HUMANS- Run by the tireless work of Stephanie Rearick, the Mutual Aid Network connects communities to share resources “to demonstrate the economy is what we make it.”
Purpose Currencies and DAOs (Decentralized Autonomous Organizations, ie micro-economies with micro-governments):
KlimaDAO- incentivizing open investment in carbon sequestration.
MoonJelly- a DAO for global ocean conservation
Seeds- a currency that aligns money with value.
Celo- making money with a purpose: prosperity for all.
FWB-Friends with Benefits supports members work in arts and culture.
… and growing everyday…
