moneytalk2In a recent exercise in intramural pot stirring in the house of social science George Selgin of the Cato Institute launched yet another doomed advance into the noman’s land of the barter origins of money. Selgin, apparently fishing for a customised refutation from David Graeber (presumably such things are prized status symbols among certain peregrine tribes of the Econ), precedes to nitpick his way to a critique of Graeber’s earlier response to Robert Murphy. Graeber has wisely not responded himself and all the better for the Big Men of those Econ tribes since as any microeconomics textbook will tell you, the marginal utility of a good collapses as the quantity supplied explodes. Thus if his rebukes became abundant they would no doubt lose their sheen and this is of no utility to anyone.

It began with Selgin’s post on “The Myth of the Myth of Barter”.

It starts by accusing Graeber of ignorance” of economic theory (over a matter that’s clearly a difference of interpretation): in other words, he telegraphs from the start that he is not writing a polite disagreement between scholars, but intends to make matters as mean and nasty as he can. After a gripe about the plight of the economist besieged as he is on all sides by the forces of empiricism, Selgin then trots out largely the same old talking points that Murphy used earlier, with a brief comic interlude in which he intimates that there may in fact have been societies that perished because of their failure to invent money. If this indeed is a thing that has happened then we must immediately dispatch archaeologists to find the remains of a people with, for instance, an abundance of food and water but appear to have succumbed alternately to starvation and dehydration apparently due to their inability to negotiate a market equilibrium. It truly would have been a Sophoclean tragedy that befell such a society that their quixotic devotion to property rights and utility optimisation led them to choose eradication over Pareto inefficiency.

When Graeber refused to be baited, and instead linked to a response he gave to Robert Murphy’s article on the Von Mises Institute website several years earlier, Selgin decided to double down by posting to the Cato Institute website a piece entitled “Graeber, Once More”. Following a preamble grumbling about how the nasty anthropologist man had been mean to him on Twitter we are invited to consider two points which he claims were unanswered in Graeber’s previous article. The first is the bizarre claim that Graeber thought that Smith and Menger hadn’t heard of gift giving.

“Graeber had wrongly accused Smith and Menger of supposing that there was no alternative to either barter or monetary exchange — that is, of supposing that there were no such things as gift giving and other sorts of nonquidproquo goods transfers, or societies that relied upon such…”

This is an odd claim, considering, in fact, Graeber mentions Menger precisely once in his entire book and then only in passing. His real target is Smith, who he quotes extensively. But even so: this is simple hair splitting. Selgin goes on to quote passages of both where both Smith and Menger imagine that early societies gave gifts but that this process must inexorably have led them to quid pro quo exchange and then to money. This does nothing to advance his cause as it remains the case that Smith and Menger assumed that barter exchange and property rights once established would be so compelling as to replace the gift economy. The assumption here is still that people everywhere were bedevilled by the problem of the double coincidence of wants and that if only some infinitely saleable commodity could be discovered their economic woes would be resolved.

This is simply not the case. Beyond the institution of the gift which Graeber and many others have elaborated at length since Malin owski’s celebrated description of Kula exchange in the Trobriand Islands during WW1, anthropologists have discovered the general solution to this “problem”. Societies the world over have been observed to deal with this by embracing the fact that they deal with different types of “goods” that can’t be easily exchanged. They generally separate these different items into different spheres of exchange and in fact use such separation of spheres to structure their societies. For example some rural Mongolian gold miners will not use the money they earn from mining in the purchase of cattle or as dowries, these being seen as different types of materials and taking material from one sphere and putting it into another is thought to be a pollution of one sphere by another. A similar pattern was found with Polish peasant farmers when money was being introduced and land started to be exchanged for money. Such was the importance of land to the farmers that the money generated from such a sale was seen as only exchangeable for other land and must strictly be separated from the sphere of general consumption. The point here is that the problem that money is thought to solve is generally solved in a staggering variety of ways and that the nonsaleability of certain goods is
more often used as a feature not a bug.

The second accusation is even more farcical in its Mean Girlsesque insinuation: “Graeber lacked a proper grasp of some of the most elementary principles of economics, and of the modern theory of value in particular”.

Selgin accuses Graeber of not comprehending the majesty of the supply = demand equilibrium with the implication that he has yet to surrender himself to the righteousness of the holy cross of intersecting supply and demand curves in his earlier post. In that post Selgin pontificates: “I explained Martin’s mistake by observing that when a diner sells me bacon and eggs for $4.99, ‘that doesn’t mean that bacon and eggs are worth $4.99, “universally” or otherwise. It means that to the diner they are worth less, and to me more.’

Grasp this little strand of truth. Pull on it. Keep pulling. And watch Martin’s critique unravel. Graeber’s critique, with its fatuous dichotomy of generous credit transactions on one hand and antagonistic monetary transactions on the other, rests on the same fallacy, and is no less gimcrack.”

This egregiously overstates the intellectual heft of this rather trivial notion and underscores precisely what it is Selgin doesn’t get about nonindustrial societies. Selgin, Smith and Menger make the classic mistake of anyone trying to trace the origins of a particular social structure or institution that is they presuppose the existence of that institution in the explanation of the origins of the institution. Why are people individualistic utility optimisers? Why, because of property rights and money of course! Why do people have property rights and money? Simple, because they are individualistic utility optimisers! One suspects that such economists attribute the existence of other social sciences to an ignorance of economic scripture.

The main anthropological objection here is that the society they are postulating is a nonstate society without a central government or institutional enforcement of the rule of law. Yet the people this society is thought to contain seemingly have the same attitudes to property and profit as Western economists since the Enlightenment. As Graeber points out:

“for there even to be a discipline called ‘economics,’ a discipline that concerns itself first and foremost with how individuals seek the most advantageous arrangement for the exchange of shoes for potatoes or cloth for spears, it must assume that the exchange of such goods need have nothing to do with war, passion, adventure, mystery, sex, or death. Economics assumes a division between different spheres of human behaviour tat… simply does not exist”

“for there even to be a discipline called ‘economics,’ a discipline that concerns itself first and foremost with how individuals seek the most advantageous arrangement for the exchange of shoes for potatoes or cloth for spears, it must assume that the exchange of such goods need have nothing to do with war, passion, adventure, mystery, sex, or death. Economics assumes a division between different spheres of human behaviour tat… simply does not exist”

Smith and Menger couldn’t imagine a gift economy persisting more successfully than a barter economy because they had no point of reference from which to imagine the longevity of such a society. They had no knowledge of Chinese Guanxi or the Kula Ring of the Trobriands. Just as economists like to point to World War II POWs using cigarettes as a store of value, Smith and Menger are really sending a group of people from their own society to some notional past and imagining what they would do.

This was not entirely unreasonable in the eighteenth and nineteenth centuries, when anthropologists had not yet scoured the world observing what actually happens in societies without money.

But modern day economists like Selgin have no such excuse.

One might even say that this is the point where economists have to make up their mind whether they are actually scientists, as they like to claim, or theologians. Scientists make hypotheses based on reasoned speculation, and then, as Popper famously observed, attempt to falsify them. If they fail to falsify a theory, that theory stands. If they succeed, they have to reformulate, to discover the flaw in their original hypothesis. Theologians in contrast start from some revealed Truth, as given by an established authority (God, Aristotle, Menger, Marx…), which therefore must be true, and then try to figure out how real world observations can be made consistent with it. It is Graeber, in this case, who is proceeding like a scientist. Having observed that the original prediction, that 100% of all moneyless economies would be based on spot trade swaps between neighbours, has been proven spectacularly false (in fact, 0% of such economies are), he reformulates, logically, to see why this should be, and how to thus produce a theory of the origins of money consistent with the empirical evidence (that in the overwhelming majority of cases, money emerges first from legal affairs and not from commercial transactions.) He concludes that legal crises would, indeed, create problems in the precise commutability of goods that ordinary informal credit arrangements or gift economies would not. Selgin, in contrast, takes the theological course, setting out to prove that Smith and Menger must, ultimately, still be right about the origins of money whatever the empirical evidence.

But by doing so Selgin only digs deeper into the hole of misunderstanding in which he has already secreted himself. He goes on to state that the barter origins of money are to be found in exchange among strangers. Graeber makes a point of saying that strangers barter but that it also seems very unlikely that a money regularly used among people in a community would emerge from strangers bartering. Again, Selgin’s solecism is to forget that the nature of social relations in modern industrial society is not representative of the nature of social relations around the world and across time. A world where people can travel frequently and constantly have to deal with strangers is historically highly idiosyncratic. People moved very little historically and the vast majority of all economic relations in human history have existed between people that lived near each other and knew each other personally. As such, economic transactions for most of human history also encoded other features of human life such as status, allegiance, amity, shame, prestige, or, for that matter, a sense of fun or personal spite. An impersonal utility accounting form of money is not of use in such contexts.

When long distance trade did take place, Graeber notes in his reply to Murphy, it tended to occur under conditions that made a double coincidence of wants problem extremely unlikely (basically, one doesn’t cross deserts and mountains “risking death in a thousand different ways” because one thinks someone in a faraway land might have something you want, and be interested in your products; you do so because you are relatively sure of it. For the same reason, ancient traders tended to rely on fixed rates of exchange rather than fluctuating, negotiated prices because the whole point was to minimize uncertainty). In Debt, Graeber notes that there are probably a few unusual cases where a trade currency might have emerged from such arrangements, but unless one is a theologian a few isolated cases are of no particular significance. After all, there are a few cases where forms of money emerged from gaming tokens, too, this hardly means we can then declare there is proof for some “gambling theory of the origins of money.”

This whole kerfuffle is all really about such economists trying to resurrect a battle that was lost a century ago, namely whether or not you can understand human thought and action without actually having to leave your armchair. Ever since Bronislaw Malinowski replaced James Frazer as the paradigmatic anthropologist, the emphasis of the discipline has been on the gathering of empirical data through participant observation. This is the heart of the discipline and anthropological theory is subservient to ethnographic evidence. Economics as it is practiced in the main is based on the idea that it knows what the underlying axioms of human nature are. If these are wrong, and anthropologists generally observe them to be wrong, then the implications which flow from these ideas are reduced to mere curiosities in the history of economic thought. This is a contest of the Platonist against the Empiricist and in the arena of real world evidence there can be only one victor. If Selgin wishes to lead the resurgence of armchair ethnology he is more than welcome, the anthropologists will however be out observing what real human beings actually do.