The Popular History of Money is a Myth

Econintersect: The standard history of money has the following sequence developing over the millennia: First there was barter; then there were forms of currency that could be exchanged for goods (beads, rare stones, metal coins, etc.); and finally there developed as system of credit and accounting.

According to a feature today at Naked Capitalism, the archeological record does not support the traditional story – it is a myth, says economic anthropologist David Graeber.Graeber says the development of social systems of exchange actually occurred in the reverse order of the myth. First credit and accounting, followed thousands of years later by coinage and only in the cases where coinage and credit systems have failed has barter been used.

It seems that the archeological record indicates that coinage came into wide use to pay soldiers – more or less simultaneously in China, India and the Mediterranean region, according to Graeber. This was long after the first complex credit and accounting system in the archeological record was established in Mesopotamia more than 5,000 years ago.

Graeber discusses the two broad theories of money. One is that money is a commodity (an object representing “wealth” – this editor’s term, not Graeber’s). The other is that it is credit (a medium of exchange which can have varying relationships to “wealth” over time – again a relationship inferred by this editor).

The two forms of money have had alternating periods of predominance over history. Graeber says we are likely coming to (or are in the middle of) the end of multi-century period of commodity money. He also says that we may not know that for sure for another 400 years or more.

Graeber also says the prospect of this transition period is not necessarily something to look forward to:

The last time we saw a broad shift from commodity money to credit money it wasn’t a very pretty sight. To name a few we had the fall of the Roman Empire, the Kali Age in India and the breakdown of the Han dynasty… There was a lot of death, catastrophe and mayhem. The final outcome was in many ways profoundly libratory for the bulk of those who lived through it – chattel slavery, for example, was largely eliminated from the great civilizations. This was a remarkable historical achievement. The decline of cities actually meant most people worked far less. But still, one does rather hope the dislocation won’t be quite so epic in its scale this time around. Especially since the actual means of destruction are so much greater this time around.

Graeber also has some harsh words for the structure of the modern political-financial world. He says that throughout all history the worst case scenario societies imagined involved the concentration of wealth in the top 1-2%, with the masses all deeply indebted. The outcome of such a situation was feared to be anarchy as the enslaved revolted. That led many societies throughout the millennia to protect against insufferable debt, all the way back to Mesopotamia.

Graeber says in the last decades we have gone to the exactly the opposite place:

Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

Read the entire article (it is in the form of an interview by Philip Pilkington) at Naked Capitalism (link below).

Also, read Prof. Dirk Bezemer’s essay on Babylonia debt and the clean slate.

Source: Naked Capitalism