I recently wrote a Mises Daily article defending Carl Menger’s theory of the origin of money from the critique set forth by anthropologist David Graeber, in an interview where Graeber was discussing his new book. I wasn’t disputing Graeber’s (obviously) superior command of the historical evidence. Rather, I was claiming that his conclusions failed to appreciate the standard Austrian position.
In the comments attached to the original article, Graeber gave a lengthy response. (We have compiled his comments into a stand-alone post here). In the present post, I want to reiterate my original claim and use Graeber’s elaboration to underscore my points.
I Didn’t Read His Book
Graeber first objects that I wrote a critique of his views, without having gotten and read his book. That’s true. But in my defense, I didn’t say that Graeber’s book was wrong; I said the views he expressed in the interview struck me as wrong. It wasn’t as if Graeber were referring to unspecified evidence that the reader of the interview would need to look up in the book to verify; Graeber did a good job laying out his basic position and its evidence in the interview.
Remember, my main point here is not to challenge the historical evidence that Graeber and his colleagues have assembled. I claim that they are falsely concluding that the Mengerian logic must be wrong. Since I saw Graeber making such an invalid leap in the interview, I didn’t think I had to go get the book before offering my opinion.
It’s true, in general it’s always safer to get a book before saying anything about its thesis. But then the internet would be a much lonelier place. In any event, what tipped me off to Graeber in the first place were two posts (here and here) where the bloggers, on the basis of the interview, told their readers that the standard economist story had been overturned by anthropologists. Dr. Graeber, can you believe there’s such shoddy scholarship out there?! Please chastise these two lazy bloggers for the audacity of praising your interview, without having first taken the time to read your book and verify that you were making sense. Release the hounds!
Using Goods Versus Engaging in Barter
At least in the interview (as I admitted, I haven’t read his book), Graeber thought he had dealt the Smithian/Mengerian account a decisive blow by saying that we have no evidence that there were ever societies based on barter. In the comments to my article, Graeber wrote:
Here the evidence is simply in and you’d think an honest economist would acknowledge it. As Caroline Humphreys of Cambridge in the definitive anthropological work on barter put it, “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.” (By “barter economy” of course she means a community in which this is how everyday goods are normally distributed amongst neighbors.) Arguing that it might have been a brief period of history which we never happen to have noticed anywhere is a perfect example of special pleading. That argument might stand up if we had no examples at all of moneyless economies, so we had to guess what a moneyless economy would actually look like, but in fact, we have endless examples and they don’t look like what the model predicts. A responsible scholar would try to reassess their theory if it proves non-predictive. Saying “yeah, how do you know they weren’t doing in a time and place for which we can’t have evidence?” strikes me as an act of pure defiance of all normal principles of empirical science.
I have underlined the two relevant phrases above. As I pointed out in the original article, the Mengerian theory does not predict (or at least, it need not predict–I don’t know if Menger himself ever attached a time frame to it) that humans would be in a state of barter for a long period, with money emerging perhaps decades or centuries later due to the problems of a double coincidence of wants.
This is not Monday morning quarterbacking. We have actual case studies of communities starting from barter—the famous POW camp described in this economics journal article, and the whimsical Halloween dining room “economy” Jeff Tucker described. In both cases, the participants developed money very quickly—in about 15 minutes in the Tucker household.
This is why I’m hesitant to trust Graeber when he claims that the evidence has clearly overturned the standard explanation: Graeber doesn’t accurately tell us what the evidence would look like, if the standard explanation were correct. So why should I believe him when he says it’s been falsified?
In his latest reply, Graeber handles the POW camp and similar cases by saying that these people were already familiar with money-using economies, and so it’s not surprising that things played out the way economists would have expected. Graeber is saying that we have no evidence that historically this is how money first originated.
That’s fine, but again, the limited purpose of those examples was to show that Graeber is subjecting the Smithian/Mengerian theory to a false “test.”
I think partly what’s happening here is that Graeber (erroneously) assumes that an economist in the Mengerian tradition assumes that human beings always used private property and engaged in voluntary exchange. Yet this isn’t the case. I personally have no problem if Graeber and other anthropologists tell me that humans relied on all sorts of non-market institutional frameworks to turn resources into goods and services, perhaps for thousands of years, before the development of what I would classify as “private property.”
Indeed, except for Austrian economists who adopt a literal interpretation of the Bible and believe in a young Earth, modern Mengerians presumably accept the standard scientific view that humans evolved from ape-like ancestors millions of years ago. Such economists wouldn’t say, “Those creatures must have been using barter all along, until they finally invented money.” No, there clearly was a period in (pre-)human history when our ancestors did not use money, or barter, in the property sense of the word—we don’t say that apes right now engage in barter transactions, unless we’re speaking metaphorically.
So we see that the existence of communities—whether in the distant past or even in our times, in isolated regions of the planet—where the members don’t use money or barter, is hardly a problem for the economist. What I do have a problem with, is Graeber telling me that money could have emerged from such a non-market framework. This was my fairly modest point. In spite of the fascinating details of past societies that Graeber provides in his elaboration, I still maintain that position. In fact, the more Graeber talks about the evidence, the surer I become that Graeber is indeed erroneously rejecting the basic Mengerian account.
Spot versus Credit Transactions
In a crucial passage, Graeber says:
[T]he flaw in the barter theory of the origin of money is that barter presumes SPOT TRANSACTIONS. There is no reason whatsoever to presume that neighbors would limit themselves to spot transactions in dealing with one another. However, if one does not presume spot transactions, then the notorious problem of the “double coincidence of wants” does not occur. You end up with a system of broad, non-enumerated credits, and this is precisely what those who actually did research on communities that do not use money did find.
This is an excellent point, and Graeber is right: In the standard exposition of a barter economy, economists typically think in terms of spot transactions. But in principle, there’s no reason to restrict ourselves in this way. If we can imagine a farmer trading a pig for an axe, we can also imagine a farmer trading a pig for a promise to deliver an axe in two weeks.
Graeber is also right that the possibility of credit transactions expands the scope of a moneyless economy, and mitigates the problem of finding a double coincidence of wants. However, it doesn’t eliminate the problem. After all, we saw that money emerged in the POW camp and in Jeff Tucker’s dining room very quickly indeed.
Still, my fundamental objection is that Graeber thinks this elaborate system of “non-enumerated credits” can be amalgamated into a common system of enumerated credits, without having objective measures of the proper exchange ratios between the various heterogeneous goods.
It’s true, I can’t prove that it’s logically impossible for money to have emerged in this way. And Graeber’s points about legal penalties are well-taken. But let me wrap up this blog post by pointing to something that, if Graeber is correct and Menger is wrong, has to be one of the most amazing coincidences in world history.
An Interesting Coincidence
Look at Graeber when he describes a little more fully the “unit of account” developed by the temples, in an account that Graeber thinks discredits the Mengerian story:
The actual evidence is that in Mesopotamia – the first case we know anything about – these more widespread pricing systems in fact emerged as a side-effect of non-state bureaucracies. Again, non-state bureaucracies are a phenomenon that no economic model would even have anticipated existing. It’s off the map of economic theory. But look at the historical record and there they are. Sumerian Temples (and even many of the early Palace complexes that imitated them) were not states, did not extract taxes or maintain a monopoly of force, but did contain thousands of people engaged in agriculture, industry, fishing, and herding, people who had to be fed and provisioned, their inputs and outputs measured. All evidence that exists points to money emerging as a series of fixed equivalents between silver – the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc – and grain, the stuff used to pay the most important rations from temple stockpiles to its workers. Hence a silver shekel was fixed as the amount of silver equivalent to the numbers of bushels of barley that could provide 2 meals a day for a temple worker over the course of a month. It was the Temples that actually had a need to extend a silver 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 of the societies in question – to something that could be used to compare the values of everyday items, like planks of wood, jugs of beer, and so forth.
The standard Mengerian account easily explains why silver (and gold) emerged as the “natural” money in decentralized, private property settings. So if Menger is totally wrong, and Graeber is instead giving us an alternate history of the origin of money, isn’t it an astounding coincidence that the temples didn’t use a generic unit—such as the Temple Unit as I suggested in my original article—but instead they used silver as their money?
(Note too that this wasn’t merely a case of sloppy reading on my part: What originally set me down the path of reading Graeber was a post from Gene Callahan, who thought Graeber had demonstrated that fiat money preceded commodity money. But as it turns out, Graeber is showing nothing of the kind; at best he’s explaining that the commodity silver emerged as money for reasons different from the ones Menger gave. But in fairness to Gene, Graeber himself gave that impression in the interview, when he said, “So really, rather than the standard story – first there’s barter, then money, then finally credit comes out of that – if anything its precisely the other way around. Credit and debt comes first, then coinage emerges thousands of years later…”)
Graeber admits too that the temple authorities didn’t just independently pick silver because it was lying around. No, he says that silver was what was used to facilitate trades with foreigners.
This is exactly what I said the situation looked like, based on my reading of Graeber’s interview. Therefore, far from refuting my article, Graeber is here confirming it.
In conclusion, I still maintain that Graeber has yet to show us that the standard Mengerian story is wrong. Menger said that for money to emerge, you need to have antecedent barter transactions where at least one commodity outstrips its rivals in marketability. It then becomes the commonly accepted medium, and its exchange rate with other goods and services is determined through voluntary trades.
Graeber’s account is still consistent with that general explanation. The fact that the temples used silver as money, a practice which even he says they copied from the merchants who traded with foreigners, proves the point of my original article.
Last point: To repeat, I am not saying Graeber’s knowledge is useless. His discussion is fascinating, especially when he talks about the vitality of stateless communities. (Graeber might be surprised to see that I’ve written on that myself, from a theoretical rather than historical perspective.)
All I am saying is that Graeber hasn’t overturned the Mengerian theory of the origin of money.