by Tim Sommers
The fella says, we must never forget that we are human. And as humans we must dream. And when we dream, we dream of money. —David Mamet/The Spanish Prisoner (1998)
Long after Jesus held up a coin with Caesar’s picture on it and wisely counseled giving back to Caesar what, very obviously, was Caesar’s (‘Didn’t you see the picture?’), Adam Smith tried to tell us that money was not invented by governments. Money, and economic life entire, come from “a certain propensity in human nature,” he says, “the propensity to truck, barter, and exchange one thing for another.” Smith gives a detailed account of how such barter might arise in a group of shepherds or hunters. He does not pretend that this is an actual group of which he has actual knowledge. But what genre of story is this then?
Although many economists have told the “money comes from barter” story as nonfiction, contemporary economics textbooks tell it neither as fact nor fiction, but as a hypothetical. To see the benefits of money, one textbook advises, “imagine a barter economy.” “In a complex society with many goods,” says another, money replaces barter, since “barter exchanges involve an intolerable amount of effort.” More poetically, one textbook asks us to imagine that we “have roosters, but…want roses.”
The trouble is, as anthropologist Caroline Humphrey points out, “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.” Never?
Barter societies, where they exist at any scale, are what happens (initially, briefly) to societies that once used money after their central government collapses. So, while economists would have you believe that barter initially arises from “a certain propensity in human nature,” but that, given barter’s intolerable complexity, barter gives rise naturally to money, and that the use of money leads to credit and debt, David Graber argues that, basically, the opposite is true.
Money is invented out of the need for, and in the service of, a central government’s ability to collect taxes (mostly to fight wars). Formal, accurate debt is made possible by the existence of money, though actual money remains little used in many pre-modern societies except to quantify debt. Even now though it’s on servers and not cuneiform tablets or paper ledgers, 92% of the money in the world is virtual and created by the marking debts. The Federal Reserve in the US, for example, creates (and regulates) the money supply not by printing money (which it lacks the authority to do), but simply by taking on debt.
Why is this story – that money comes from barter, that money is the dream of barter – ubiquitous if it is not true? The idea, I take it, is that if bartering is basic and natural, and money merely formalizes what already exists, then this is part of who we are – not some later development or part of an optional social system. “Oh, buying and selling, Frank,” as Basie explains in Empire of the Sun. “You know. Life.”
Every time I work through this reasoning, and am ready to dismiss this story with some leftist platitudes, it hits me, like a bucket of cold water to the face, that my much of my work revolves around social contract theory. Hypothetical social contract theory. Am I in any position to cast stones?
There is a version of social contract theory that comes down to us from Socrates and Plato, Hobbes, Locke, and, in modern times, Nozick and Gauthier. This version says we are obligated to the state or to obey the law or to behave morally because we have agreed to enter into a social contract. The obvious problem is that we didn’t agree to anything. Or anyway I didn’t. Did you?
Usually, it is said that we tacitly or implicitly entered into a contract with the state, for example, by not moving to another country. But imagine this scenario from Nozick. Once a week for a year somebody comes by your house and throws books through the window. Some of these you have no use for, but some you are glad to get. Then on week fifty-three, someone shows up at your door with a bill for all those books. Do you have a tacit contract, having benefited from these books, obligating you to pay for them now?
I don’t want to defend that kind of social contract. I am interested in a different kind of contract theory. Here’s an example. John Rawls argues that justice is the principles that people would agree to from an original position behind a veil of ignorance that shields them from knowledge of (among other things) their social class, gender, race, religion, philosophical views, and their own ideas about the good and their own plan of life. All they know is that they are mutually disinterested parties hoping to grab as large a share of all-purpose social goods as possible. People would agree to prioritize basic liberties, Rawls argues, then fair equality of opportunity, and finally economic justice.
Is such a hypothetical contract an improvement on a tacit contract? Ronald Dworkin didn’t think so. “A hypothetical contract is not simply a pale form of an actual contract;” he wrote, “it is no contract at all.” As lawyers say of verbal contracts, they are not worth the paper they are written on. Not to mention, isn’t this the same route economists take? Money could hypothetically arise from barter. Justice could hypothetically arise from a certain kind of contract.
One last example. H.L.A. Hart, the preeminent legal theorist of the twentieth century, said that law is the “union of primary and secondary rules.” He aimed to show that law owed nothing to morality. Every society that persists for any length of time, he argued, has some rules – primary rules – that are generally followed, like don’t kill each other, don’t steal, etc. But primary rules do not a legal system make. Secondary rules are rules about how primary rules are made or changed. A legal system has to have both.
Hart argues for this by imagining a society with no secondary rules and, then, imagining what sort of rules would be necessary to create a functioning legal system. He cites a couple of anthropological sources, but in a cursory way. This is clearly another hypothetical. One of Hart’s most influential critics, Lon Fuller, follows the same method to reach a different view – that a kind of procedural morality is embedded in what we call law. He defends eight normative principles that he thinks define the rule of law and have some moral content – things like generality, publicity, and prospectivity – by imagining the failures of a king he calls simply Rex who tries to do without these rules.
Again, the implicit question raised by all of these hypotheticals is, ‘What are we like?’ What are people like? Hart and Fuller say we are both unruly and yet such rule-followers that we need rules about our rules. Adam Smith says that capitalism – or some system centered on buying and selling – is part of our very nature, inevitable. Rawls says we are rationalistic even about morality.
A fair objection to all of these views is that none of them prove that this is what we are like. All of these views simply assume that this is what we are like. Unfortunately, that is not the end of the matter.
The end is this. The hypothetical, rather than empirical, character of these views does not show that these views of what we are like are true. But it doesn’t show that they are false either. We can’t completely escape the question, the real question, What if this is what we are like?
Postscript/Sources
It’s not just economists who have heard the barter story. Graber reports being given the opportunity, during his fieldwork in Madagascar, to interview a supernatural being (a Kalanoro) who spoke only through a medium hidden behind a screen in what Graber describes as “an eerie, other-worldly quaver.” He asked what was used for money in ancient times when the Kalanoro was still a person. He writes that “The mysterious voice immediately replied…’we used to barter commodities directly’…”
This piece owes a huge debt to the late, great Graber. As Bob Mould said to David Grohl, after Grohl told Mould that he was his biggest influence as a songwriter, “Obviously.”
Graber, David, Debt: The First 5,000 Years, Melville House, 2011.
My, admittedly quite limited research suggests that all economics textbooks have the same name. Quoted in order in the text above.
Case, Fair, Gartner, and Heather, Economics, Pearsons, 1996.
Begg, Fischer, Dornbusch, Economics, McGraw-Hill, 2005.
Parkin and King, Economics, Addison Wesley, 1995.
For anthropologists on barter, see, Humphrey and Jones (eds), Barter, Exchange and Value: An Anthropological Approach, Cambridge, 1992.