Debt: the Myth of Barter

This is part 3 of an ongoing series about David Graeber’s Debt.

In the second chapter David Graeber explodes a foundational myth of economics. In textbooks all around the world the history of economics is summarized thusly: first came barter, then money, only later were credit and debt invented. The problem with this presentation is that “barter” economies pretty much never existed. We don’t find them either in anthropological study of any human cultures around the world, nor in historical records anywhere. In fact, the very first records of any kind are of credits and debits in Mesopotamian tablets.

But the story of barter is so ingrained in us we probably find the fact that it didn’t really happen dumbfounding. I mean, of course people barter. Don’t they? If I have wheat and you have ham and I want ham but I don’t have any money I just trade you my wheat for your ham, right?

Graeber shows how the idea of barter was created in exactly this way: as a thought experiment by economists trying to explain their discipline. But the myth of barter was never really compared against actual human societies. It was was simply assumed that barter must be what people do when they don’t have money and all sorts of imaginary scenarios were concocted, without reference to historical records, to explain the invention of money and gradually increasing complexity of this new thing they called “the economy”.

This doesn’t mean that barter doesn’t exist at all, but that it didn’t precede money or debt and it never formed the basis of trade within a society. Barter happens in two main situations: between people who are relative strangers who will probably never meet again, and in large societies accustomed to using money where money is temporarily in short supply. What these two scenarios have in common is that the parties entering the exchange expect it to be an unencumbered, even antagonistic affair, where everyone is acting primarily in self-interest.

Economists imagine that complications arising from barter are what gave the impetus for creating money. For example they describe something called the double coincidence of needs: you and I both have to need what the other has for a direct trade to work. But the truth is much simpler. Barter doesn’t work in a small village or tribal setting because it presumes antagonism between the people involved in the exchange. If we live in a village where we see each other on a daily basis though, we can’t afford this kind of antagonism. I can’t seek my own gain at your loss because we are in a long-term relationship. Instead we will come up with a way of accounting for debts. When you need wheat I will give it to you with the understanding that when I need ham you will return the favor.

This is what we actually see happening in ethnographic study and in the historical record. Means of accounting for credits and debts arose first. Money came later as a way to make these debts transferable and barter only happens on the fringes, between people of different tribes where a direct one-time exchange makes sense, or alternatively in societies like ours where we are so accustomed to trade being conducted in self-interest or where we trade so often with people with whom we have no long-term relationships that when money is scarce we resort to barter.

Here is what I think the take-away from this mistaken historiography should be: the foundational myth of economics establishes the entire system on the basis of antagonistic transactions of self-interest when in truth the story of debt is a story about human relationships. Debt was originally the answer to the question of how you and I can meet each others’ needs and remain friends.

  • DwaininAztec

    From my reading and talking with those dealing with our past, the first economic system was communal or tribal or clan in that the community or tribe owned everything and members of the community or tribe or clan used the resources to better the community or tribe or clan.

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  • DamienMcKenna

    In rural communities it is very common to barter with neighbors instead of directly paying them for things, e.g. I’ll give you X loads of Y if you can help me with job Z because you have a Thingumajig that I don’t have – I grew up in rural Ireland and saw my dad and others in the community do this all the time. Yes, there was also lots of work & products paid for directly, but possibly just as much bartering.

    • aricclark

      The key sentences are these: ”
      This doesn’t mean that barter doesn’t exist at all, but that it
      didn’t precede money or debt and it never formed the basis of trade
      within a society. Barter happens in two main situations: between people
      who are relative strangers who will probably never meet again, and in
      large societies accustomed to using money where money is temporarily in
      short supply.”

      Barter happens in money-based economies to supplement normal activity for sure, though usually there is some sort of informal monetary calculation going on. As in: I’ll give you x bales of hay for y bags of potatoes because that is approximately their monetary value. What Graeber points out that is important is that there has never been an economy based on barter and barter doesn’t precede money or credit arrangements it actually follows them.

      • DamienMcKenna

        I don’t argue his main point, that bartering would have come after other forms of payment. My point is that his two situations where he believes bartering is used excluded this exceedingly common usage, which has nothing to do with a short supply of money and is based, as you explain, on a perceived monetary value for the product / service.

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