Yes, Money in Fact Arose from Barter

The Story is Just More Interesting than We Thought

By Aaron Cuevas

 

There has been an incessant attack on economic theory from left leaning academics. According to anthropologists, there is no observable evidence that monetary exchanges arose from barter. Actually, they have not found any ancient society that ever practice barter. Therefore, they conclude that economic science has been debunked—and so Austrian Economics disagree.

What anthropologist have discovered is that members of small rural communities would use gift-giving and promises of future payment in specie as medium of exchange among themselves. And so we agree, people inside of communities of trust practiced barter, but inter-temporal barter. The critics of economic science just do not know that money is a time management mechanism. To be more precise, money is the tool that arose from social interaction to manage consumption over time. It was just natural that money would arise from inter-temporal barter because money is an inter-temporal tool, and so it became an accounting tool because of its wide acceptance.

The more nuance story of the genesis of money is that in dealing with strangers, on spot barter happened in the tribal life. Why? Because inter-temporal barter—unsophisticated credit if you wish—was impossible between strangers. Following David Graeber, a critic of economic science himself, we affirm that the “barter scenario might be absurd when applied to transactions between neighbors in the same small rural community, but when dealing with a transaction between the resident of such a community and a passing mercenary, it suddenly begins to make a great deal of sense" (pg. 213). When you wanted to trade with a stranger to your community, there was no way to see him again nor have the social bond connection that would facilitate the fulfilment of the barter promise later in time. Therefore on spot barter happened.

If you wanted to convince a stranger to trade his extra, say, fur for your milk or other perishable product, he would reject it together with your promise to pay him with milk or the like in the future. So, what else could have be thought out to be a good medium of exchange for the stranger to use later, far away from the place of the trade? The natural medium of exchange with a stranger in the tribal life would be to exchange ornaments or jewelry for specific products. Jewelry or ornaments would function as goods that would last long enough to be exchange for consumer goods later, long after the monetary/jewelry exchange happened. A good reason why gold is the natural money. You can use it as jewelry or as a medium of exchange over time, not only on spot. The wide acceptance of gold as medium of exchange, even and mostly among strangers, turned gold into the medium of account, and so it became money. Gold has an inter-temporal quality, it last long and is portable.

  Therefore, gold becomes money when money is needed the most, during difficult times (i.e. among strangers or during war time). Graeber helps us see it. "For much of human history…an ingot of gold or silver, stamped or not, has served the same role as the contemporary drug dealer's suitcase full of unmarked bills: an object without a history, valuable because one knows it will be accepted in exchange for other goods just about anywhere, no questions asked" (ibid). If Graeber could only see that he just made the case that gold makes the greatest medium of exchange because it will be accepted, no questions asked, even under environments of mistrust. Money, not promises, is used to deal with strangers on any circumstance. And historically the best money—an inter-temporal medium of exchange—is gold.

"As a result, while credit systems tend to dominate in periods of relative social peace, or across networks of trust (whether created by states or, in most periods, transnational institutions like merchant guilds or communities of faith), in periods characterized by widespread war and plunder, they tend to be replaced by precious metals" (ibid).  In explaining the function of precious metals, Graeber gave us the key to understand the genesis of money—exchanges among strangers. This we call commerce, not friendship, and that is fine. Following Hayek, the anxiety that socialist types suffer when dealing intellectually with e concept of money “is based on ignorance of the indispensable role money plays in making possible…human cooperation” through its communication, calculation, and incentive power. “Money is indispensable for extending reciprocal cooperation beyond the limits” of the tribal life. So by expanding the opportunities to trade with strangers that we might never know, civilization ensued and we left the tribal life.

In conclusion, money did in fact arose from barter, but inter-temporal barter. Although communities of trust could rely on exchange promises among their members, cooperating with strangers was difficult. So money arose out of the necessity to avoid unfulfilled promises, to control consumption over time, and to aid in the calculation of demand and supply in distant unknown places to trade with. Gold’s inter-temporal qualities and wide acceptance for other uses, made it the perfect unit of account, and so the best commodity money available.