New Worlds: Before (and After) Money

(This post is part of my Patreon-supported New Worlds series.)

In an early essay for this Patreon, I made an offhand comment about how before we had monetary systems, the economies of early societies operated on the basis of barter.

I need to walk that back. Because it turns out, it probably isn’t true.

Not in the way you’re imagining, at least. And not in the way described by Adam Smith, the eighteenth-century Scottish philosopher who’s often spoken of as the father of economics. According to the description he gave — which has been uncritically repeated by countless introductory economics textbooks since then — the original economic system involved trading one commodity directly for another, e.g. the miller gave flour to the shepherd in exchange for wool. If the shepherd didn’t need flour right then, then miller had to find somebody who did want flour, then hand over whatever she got from that to the shepherd, or continue the daisy-chain of trades until he finally had a commodity on hand that the shepherd wanted.

Which sounds (and is) really inefficient. That, Smith said, is why human societies invented money: it was a solution to the massive inconveniences of directly bartering goods for one another. And this story has clung on ever since then.

Thing is, though . . . the more anthropologists and economists have dug around in the data, the less evidence there is to support Smith’s just-so story about early economies.

That isn’t to say barter doesn’t exist! It absolutely does. Heck, I see it in action at my local farmers’ market every Saturday, as some of the merchants there trade their products with each other. But that’s direct trade, not a daisy-chain where somebody from the bakery gives croissants to the person with Asian pears and then the pears to the egg lady and then the eggs to the chocolate guy for the hot chocolate that was their actual goal. (Which sounds like a convoluted quest chain in a computer game.)

The place where you do see that kind of system cropping up isn’t in societies that haven’t yet invented money. It’s in societies that used to have money, and for some reason don’t anymore. This happened in Europe after the fall of the western Roman Empire; with nobody minting coins anymore, cash became scarce, and people had to find ways to make do without it.

Sometimes those ways involved barter. Sometimes they involved tracking the money everybody would be paying each other if they had any, and then sporadically settling up accounts when there was coin available. Or a hybrid of sorts, where the miller lays claim to the shepherd’s entire stock of wool for the season to “zero out” what the shepherd owes her for all the flour he’s gotten over the preceding months. But what these methods all share is a transactional and quantified mentality: there’s a sense that each commodity has a value which can be translated into a certain amount of another commodity, and the important thing is to balance those out — or to leverage the “exchange rate” in your own favor.

When you stop to think about it, why should a pre-money society think in those terms?

Our ideas about early economies come with a giant asterisk, which is that we don’t have a time machine with which to go back and observe things directly. The best we can do is to study the reports of anthropologists working with societies that hadn’t really come into close contact with money economies. (I put that in the past tense because there are very few of these nowadays, so for the most part we’re relying on work done decades or a century ago, or extrapolating from historical accounts even older than that.) This kind of comparison is always fraught with uncertainty. But since it’s all we’ve got, let’s take a look at what we see.

Some of the systems we find are outright socialist. Among the Iroquois for example, there was a centralized collection of resources, and then councils of women made decisions about how to distribute them. The miller in this scenario isn’t trading with the shepherd at all, and it’s up to the council to make sure they both end up with the flour and wool they need.

Many of the systems, though, amounts to what we call a gift economy. I’ll have to dig more into the concept of gifts later — what can be given as a gift, when do we give them, how should they be received, and so forth — but for now, the thing to focus on is that again, there isn’t an overt trade happening. The shepherd needs some flour? The miller gives it to him. Months later, when the shepherd shears his flock, he takes some to the miller in thanks for her flour.

This isn’t just a matter of delayed trading, or a polite mask over a mercantile tally the miller and the shepherd are keeping in their heads. The shepherd might show his gratitude to the miller by doing her a favor like watching the kids while she goes to visit a relative. Or maybe he works alongside her to help the miller’s cousin repair his roof. Meanwhile, all around them the rest of their society is doing the same thing, because that’s how good neighbors behave.

To people enmeshed in a monetary economy, this looks howlingly vulnerable to exploitation. And in theory, it is! But in practice, it seems like things work out. If a bad actor comes into this situation, pretty soon they’ll be living a marginal life at best, as nobody feels like doing nice things for the jerk who doesn’t reciprocate. We also can’t underestimate the weight of societal pressure, and how effective that can be at encouraging the right kind of behavior.

Because the key thing to bear in mind is, this only works on a small scale. It relies heavily on social relationships to build that feeling of reciprocity and mutuality. When anthropologists look at non-monetary economies, they find that encounters with outsiders start looking a lot more like barter — though even then, it’s not the kind of process Smith described. For one thing, it tends to be far more ritualized, with feasting, dancing, mock fighting, and even sex between locals and newcomers . . . and somewhere during all of that, a trade happens.

The vast majority of our fiction takes place in monetary economies. But sometimes alternatives appear — and when they do, we should remember that the inefficient model Smith outlined is at best an extremely simplified construct, and at worst, a straight-up misrepresentation of how people in such societies think about and redistribute their goods.

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New Worlds: Before (and After) Money — 11 Comments

  1. Pingback: New Worlds: Before (and After) Money - Swan Tower

  2. The just-so story about money goes back to Aristotle, Politics Book 1:9, then repeated by the jurist Paulus around 200 AD.

    https://mindstalk.dreamwidth.org/322838.html

    My impression from Graeber is that where you do see barter is in low-frequency trade, typically in bulk, like silent trade between two kind-of hostile tribes, or maybe European traders visiting people they can’t talk to. If people trade a lot, some commodity will quickly become the local ‘money’ — maybe the just-so story is true, but on the scale of weeks, not generations!

    The other point I recall was about trust — if you have long-term relationships and trust that someone won’t run off or default on you, credit works, whether carefully tallied or in a hazy sense of “this gift offsets that gift”. In a low trust environment — like a big fair or city market of thousands of people — you need direct payment, whether hypothetically going to the temple together to authorize a transfer of grain ownership, or giving someone little bits of silver that they can pocket.

    • Fair point re: Aristotle — it’s usually Smith people cite, but he’s not actually the origin of the idea.

      Trust is absolutely the key for trades within the community. And it doesn’t scale well.

  3. And the other thing you get before money is credit. Yes, really. Formal, contractual credit systems. Compound interest goes at least as far back as Ancient Sumeria. There’s a demand for war reparations from the third millennium BC which requires that the losing party pay compensation for land they grabbed ninety years previously, complete with correctly calculated exponents for the ninety years of compound interest. All denominated in bushels of barley. There’s also evidence for more normal, interpersonal lending from cuneiform tablets.

    By contrast, money as we would comprehend it doesn’t get invented until the first metal coins in about 600 BC, two thousand years later.

    • I would say the bushels of barley were money. As was silver, weighed on the spot as needed. Round stamped coins were invented around 700-600 BC, but that’s not the invention of money.

      The economics definition of money is “medium of exchange, unit of account, and [IMO least important] store of value”. If most trades are done via X and prices are in units of X, X is money. X has been grain, goats, salt, cowry shells, silver, gold, cigarettes, cacao beans, ownership of great big stone wheels…

    • Wait a week or two — we’re getting there. 🙂

      But dittoing what others have said: there are plenty of “monetary” systems that aren’t based on metal coinage, but instead use something else as the unit of account. That came up back in the first year of this Patreon. (As did credit, but I’m going to dig into it more this month.)

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