Was Money Created to Overcome Barter?

Yves here. Many readers have either read or are generally familiar with David Graeber’s book Debt: The First 5000 Years. Graeber shows how debt preceded money and confirms the work of Modern Monetary Theory proponents that the standard account presented in economic texts of how money originated is all wet.

This article by Reyold Nesiba gives a short summary of this evidence, which is helpful to those new to this issue or interested in explaining it to brainwashed skeptical friends and colleagues. But it also gives credit to the first researcher who tried to correct the widely-accepted fairy tale. You might be surprised to see how long the economics profession has been denying the evidence that money is not a precondition for the development of commerce.

By Reynold F. Nesiba, Professor of Economics, Augustana College, Sioux Falls, South Dakota. Cross posted from New Economic Perspectives

This past May, marked the one hundredth anniversary of A. Mitchell Innes’s (1913) publication of a paper titled, “What is Money?” in The Banking Law Journal.  In it, this British diplomat, then living in the US, reviewed the history and usage of money and its forms in credit and coinage.  On both historical and logical grounds, he asserts that the “modern science of political economy” rests on a series of assumptions regarding money and credit that are “false.”  One of the most important of these assumptions is the belief that “under primitive conditions men lived and live by barter.”  Who should we blame for this false assumption?  According to Innes, it is Adam Smith (1776), the father of economics, who in turn rests his arguments on the words of Homer, Aristotle, and those writing about their travels to the New World.

Perhaps one reason Innes’s work has been so widely ignored is because his critique cuts too deeply.  For economists to incorporate his insights would require a wholesale rethinking of where money and credit comes from, how it works, and how it influences the economic processes of production and distribution.  That said, his work on money received attention and was cited immediately after his first publication in 1913 and a second in 1914.  Even John Maynard Keynes had favorable things to say about it.  But then his work was ignored for almost 75 years until the 1990s when some Post-Keynesian monetary theorists brought it back to light (Wray and Bell 2004, p.12). Recent academic work in economics (Bell 2000, Wray 1998, Ingham 2004, see Nesiba 2013 for a review) and anthropology (Graeber 2010), demonstrate that the process of rethinking is underway.  Regardless of this recent research, economists and principles of economics texts continue to tell the Smithian or traditional story of money and credit and ignore the insights of Innes.

Over most of my 18 years of teaching at Augustana College in Sioux Falls, South Dakota, I too have perpetuated this error by repeating the traditional story of money.  It goes something like this.  In a barter economy, as in the (chronologically vague) days of old, goods were traded (in a geographically ambiguous location) for other goods without the use of money.  Without money trade is only possible if there is a double coincidence of wants.  If one person raises and sells potatoes and the other makes shoes, they will only engage in exchange if the one selling shoes wants potatoes and the one selling potatoes wants a new pair of shoes.  Even if they each have a surplus of the good they wish to sell, no trade will occur since the potential buyer lacks anything needed by the seller.  They are at an impasse.

Adam Smith (1776, 25-36) explains how money arose to resolve this economic conundrum with these words.

In order to avoid the inconveniency of such situations, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner, as to have at all times by him, besides the peculiar produce of his own industry, a certain quantity of some one commodity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.

So for Smith over time (and in every place and time) eventually a specific commodity—perhaps gold or silver—arises to serve as a money-thing that can be used to purchase other goods and services.  Economists refer to this monetary function as a medium of exchange.

Over time, economists have come to define money as anything that fulfills the four functions of money.  In addition to serving as a medium of exchange, money can also serve as a way to postpone purchases by serving as a store of value.  As long as a currency is not experiencing rapid inflation, holding wealth in money form allows us to delay purchases for a sunny or rainy day.  Money can also be used to pay debts as a means of payment to fulfill our contractual obligations to other individuals, firms, lenders, or governmental entities.  And perhaps most importantly, money serves as a way of keeping score as a unit of account.  It is in this last function that money is not a “thing,” like a coin, but instead serves instead as a point system or standard of measurement by which sales, debts, and payments can be accounted.  Just as an inch or a centimeter can be used to measure length, a dollar or euro as a unit of account can be used to measure value without actually being a money-thing.

Now for Smith, the most important function of money is to serve as a medium of exchange.  Because once this is established his apocryphal story expands.  As a medium of exchange money facilitates trade, encourages greater specialization and productivity, reduces transactions costs, and allows for the further flowering of capitalism.  It also serves as the beginning of the banking system.  As metals become the preferred medium of exchange, banks are created to store and manage these wealth holdings.  The coining of metal by state governments facilitates this process by standardizing weights and degrees of alloyed purity.  The bankers than issue receipts describing the amount of gold stored or deposited on its premises.  Over time, bankers realize that these gold receipts are circulating as money.  They also realize that only a fraction of their holdings are called for on any given day.  Thus they can make loans at interest and issue gold receipts far in excess of their actual holdings.  This emergence of credit further greases the wheels of capitalist exchange, savings, and investment.  However, in the overall economy, money only affects prices and not the process of actual physical production.

This standard story has been repeated in uncountable numbers of articles and textbooks.  And it is this story that Innes challenged 100 years ago.  Innes asserts that the barter story that emerged from Smith contradicts both the logic and the historical record.  In terms of logic, Smith’s story is simply not convincing.  For example, if you grew up in a small town in the western US in the 1970s, you might remember that you could go to the grocery store, pick up groceries, and simply sign a slip a paper acknowledging your receipt of the groceries.  The same could be done in Smith’s hypothetical example.  If the shoe seller or potato seller were trustworthy, the shoe seller could simply create a record of the shoes purchased on credit by the potato seller/shoe buyer and their value in some agreed upon unit of account.  This is not barter and it is not a purchase using a medium of exchange.  Instead it is (p. 391) “the exchange of a commodity for a credit.”  And it is far easier that the use of a medium of exchange.

Is there no anthropological evidence of a society based on barter trade? In his recent book David Graeber (2010) asserts that there is not.  Graeber claims that Stanley Jevons’s book in 1871 “took his examples straight from Smith, with Indians swapping venison for elk and beaver hides, and made no use of actual descriptions of Indian life…” (p. 29) Similarly “around that same time, missionaries, adventures, and colonial administrators were fanning out across the world, many bringing copies of Smith’s book with them, expecting to find the land of barter.  No one ever did.”  To make his point as clear as possible, Graeber (p. 29) quotes from Caroline Humphrey’s Cambridge University dissertation as the definitive anthropological work on barter.  Her statement is as clear as it is emphatic. “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 there has never been such a thing.”  Innes knew this 100 years ago, yet the myth persists.

So if there has never been a land of barter, where did we get money and credit?  Innes (p. 397) argues that systems of credit pre-date coins by over a thousand years.  “The earliest known coins of the western world are those of ancient Greece, the oldest of which, belonging to the settlements on the coast of Asia Minor, date from the sixth or seventh centuries B.C.”  In contrast, the law of debt goes back to at least the Code of Hammurabi in Babylonia 2000 years B.C.  Innes saw that the foundation of society and thereby of credit was that promises or obligations were and are viewed as sacred.  In all societies (p. 391) the breaking of the pledged word, or the refusal to carry out an obligation is held equally disgraceful.”  He goes on to explain how wooden tally sticks and clay shubati tablets were used to track credits/purchases and debits/sales long before the existence of coins.  And that one could repay a debt by returning a credit of the same amount to the lender.  In fact, village fairs were convened so that those holding the debts of others could match credits and debits together and thereby clear their accounts.  Over time others showed up to buy and sell other goods and services or to cater to those in this most basic business of banking.

There are a variety of reasons why this matters for monetary theory and macroeconomic policy.  But let me leave you with just one.  From the Smithian story, it was gold and silver that backed the issuance of a paper currency.  However, if Innes is right, the banking system never worked in that way.  In Innes’s world, money is and always has been a token representing a socially constructed debit-credit relationship. A stamped coin, $20 bill, or tax refund check is an asset—a credit— to those who hold it and a liability—a debit—for the government who issues it.  When the federal government spends, perhaps by directly depositing a Social Security recipient’s check into her account, a special kind of credit is created.  This credit—a new “debt” of the federal government—satisfies all four functions that are used to define money.  It serves as a medium of exchange, store of value, means of payment, and a unit of account.  But what gives this money value?  The money is valuable because it is the only token acceptable for the payment of taxes.  And when those taxes are paid, the money that had been spent into existence is extinguished. Thus, it is through federal government spending that money enters the economy and through taxation that it is destroyed.  This is where Innes’s 100- year-old insights lead.  If these ideas are hold up under academic scrutiny, are further disseminated, and become the basis of how we understand money and credit, an entirely new paradigm will need to emerge in the study of monetary economics.

This article was originally published as a feature article in the Western Social Science Association (WSSA) Fall 2013 newsletter.  It is reprinted here with their permission.

Works Cited

Bell, S. (2000): Do taxes and bonds finance government spending?, in: Journal of Economic Issues, 34(3), 603-620.

Graeber, D. (2010): Debt: The First 5000 Years, Brooklyn, NY: Melville House Publishing.

Ingham, G. (2004): The Nature of Money, Cambridge: Polity Press.

Innes, A.M. (1913, May): What is money?, in: Banking Law Journal, 377-408.

Nesiba, R.F.  (2013, May): “Do Institutionalists and Post-Keynesians Share a Common Approach to Modern Monetary Theory (MMT)?  European Journal of Economics and Economic Policies: Intervention, Vol. 10 No. 1, 2013, pp. 44–60.

Smith, A.  (1776):  An Inquiry into the Wealth of Nations. The Cannan Edition, New York: Modern Library, 1937.

Wray, L.R. (1998): Understanding Modern Money: The Key to Full Employment and Price Stability, Northampton, MA: Edward Elgar.

Wray, L.R. and S. Bell (2004): In Credit and State Theories of Money: the contributions of A. Mitchell Innes, Cheltenham, Edward Elgar, L.R. Wray editor.

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  1. charles 2

    “You might be surprised to see how long the economics profession has been denying the evidence that money is not a precondition for the development of commerce.”
    Are you sure that you wanted to say was not “You might be surprised to see how long the economics profession has been denying the evidence that money IS a precondition for the development of commerce” and that pure barter never existed ?

    1. diptherio

      No, the original is correct. Credit may be necessary for commerce, but money is not.

      “The earliest known coins of the western world are those of ancient Greece, the oldest of which, belonging to the settlements on the coast of Asia Minor, date from the sixth or seventh centuries B.C.” In contrast, the law of debt goes back to at least the Code of Hammurabi in Babylonia 2000 years B.C.

      1. Saddam Smith

        Money is credit. Historically speaking, money is created in credit-debt contracts as claims on private property (unless it is printed by the state, though there are those who would argue it is then not really money). This applies even today in the sense that future work and taxation thereof is the ‘private property’ of the state which backs fiat money. Thus I would support Charles 2 here. You don’t have what we might call genuine economic activity until you have money. At least, this is the position of Gunnar Heinsohn and Otto Steiger, the German historians/sociologists who wrote “Eigentum, Zins und Geld” (“Ownership, Interest and Money) back in 1997 (if memory serves). Their last work, “Eigentumsökonomik” has just been translated into English (“Ownership Economics”) and sets out their theory in simpler terms than are to be found in “Eigentum, Zins und Geld”, which is monstrously complicated. Like the US/UK academics cited in this article, Heinsohn and Steiger have been saying that the classical and neoclassical account of the origins of money is wholly false, but they have been at it since the 80s. It’s great to see this vital aspect of human history – in the grip of the wrong folk since sociologists lost the Methodenstreit of the 19thC to economics, which claimed money as its own area and then stripped it of all power relations – now receiving more and more attention.

        I’m not saying necessarily I agree with Heinsohn and Steiger entirely, but I think a very useful perspective is generated when you adopt a tight definition of money, i.e., credit/debt-based claims on private property. This view, supported by most historical research if their work is to be believed, insists that commerce and economic activity in the modern sense are initiated by the advent of money. Kind of a chicken-and-egg thing, but again, this all depends on how we define money, which is a surprisingly slippery creature. However, I do think you get into difficulties if you call coins money and credit something else.

        Just to make this a little clearer (because it’s so garbled on my part): Heinsohn and Steiger assert that are three distinct social modes, and only one of them is characterised by what they call “genuine” economic activity. The first mode is tribal, the second feudal or command (they think of state socialism/communism as feudal), the third is ownership-based. They distinguish ownership from mere possession in that one can hypothecate private property that is legally owned (this goes beyond mere access and usage rights), and in so doing encumber it for the duration of the credit-debt contract which generates claims on that property which then function as money (in their analysis this encumberance or loss of what they term the “ownership premium” gives rise to interest, an economic phenomena also poorly explained by orthodox ecomomics). Prior to ownership-based societies, they argue, there is no genuine economic activity, and thus no commerce. It’s as if there has to be the legal concept of property or commodity before there can be ‘modern’ economics in contradistiction to the pseudo-economic activities of production and survival that characterise the prior tribal and feudal social forms.

        Sorry, a very long response, badly written, and I really have to get back to work!

        1. Ben Wolf

          “Money is credit” is not the same thing as “credit is money”. Money as defined in the textbooks is a medium of exchange, while credit is simply the agreement to repay a debt at a later date. So money can be used as credit, but many other things can be as well. Money in this sense ceases to be a medium of exchange and becomes a unit for accounting purposes; in other words it ceases to be money, just as our currencies in the modern age are no longer really money.

        2. from Mexico

          Saddam Smith says:

          ….this all depends on how we define money, which is a surprisingly slippery creature. However, I do think you get into difficulties if you call coins money and credit something else.


          I can’t help but think that money is a first cousin to the types of religions which Peter Turchin describes here which developed during the Axial Age and facilitated the development and organization of large-scale societies:


          Money, like religion, has to do with man’s unique ability to think symbolically. And for those who believe religion is not a spandrel, but was selected for, that money is similar to religion in that its “rituals, the belief in hierarchy, the ritual chanting, the mantras, the dancing, all of that confers a certain order on society, a stability,” as V.S. Ramachandran explains here beginning at about minute 54:00


          Our notions of money, however, just like our notions of religion, can become diseased and dysfunctional, as Dan Kervick alludes to here:

          Wray and Kelton both clearly bring out the point that it is illusory to think that we can provide for our citizens’ future retirements simply by stashing away money, whether in private plans or public plans. What is crucial is that we intelligently invest real resources in creating the real assets that will support the whole population in the future: the young, workers and retirees alike. Focusing on monetary saving, and draining even more dollars from the economy to build up accounting balances in the Social Security trust fund, can actually damage our capacity to support future retirees by running afoul of the paradox of thrift. Excess monetary saving in the present means that we fall short of the public and private investment spending we need to carry out now to sustain and build prosperity for future generations. Wray also makes the point that public investment is particularly important when we are dealing with the long time scales involved in making social decisions about provisioning the future.

          Unfortunately, contemporary Washington seems blind to all this. It often seems to me that beltway politicians are especially prone to the mistake behavioral economists call “money illusion”: the tendency to confuse real, non-monetary values and assets with the nominal tools used to measure and manipulate those values and assets. As a result, the politicians engage in obsessive and contentious bean-counting with the Social Security trust fund as a substitute for attending to their primary duty to develop the economy and lay a strong foundation for future prosperity.


          I would just add that for most of our politicians, and certainly for all of the banksters, the “money illusion” is a feature and not a flaw.

        3. Eleanor

          I am confused by the statement by Saddam Smith above that commerce in the modern sense was not possible until the advent of money. What is commerce in the modern sense? How is it different from the trade throughout Mesopotamia and surrounding areas? Or the trade that went from Mesoamerica over much of North America? Michigan float copper went all over North America, as did abalone shell from the West Coast. Both were compact and highly valuable, but not money. I just checked Wikipedia. Money does go back a long way. The Chinese were making bronze knives as a unit of exchange circa 1000 BC. Before that, they used bronze cowrie shells and before that cowrie shells. The shekel, it turns out, was a measure of weight for barley, and the equivalent value of the barley. But I still don’t know what modern commerce is.

          1. Saddam Smith

            I meant modern in the sense of social forms fulfilling the definition of ownership-based, not in the sense of ‘for the last 200 years’. There are all sorts of grey areas as different social forms interact, break down, transition and so on, so the utility of being so tight with such definitions is limited but not zero. For example, there can be barter economies in prisons using cigarettes as ‘money’, but this is not “money proper” as Keynes would call it. It is a type of trading strongly influenced by prior experience with money proper. To stay with Heinsohn’s and Steiger’s assertion, any society, no matter how old, is ‘modern’ if it is an ownership-based society, which I think e.g. China circa 1000BC was.

      2. MRW

        The Sumerians were marking debits, debts, and credits on clay tablets in 3500 BC, according to the clay tablet records. 5500 years ago. By contrast, vain kings have only been plunking their faces on coins and tokens for 2400 years.

  2. Emma

    “….an entirely new paradigm will need to emerge in the study of monetary economics.”

    Just the way John Lennon saw it?

    “Imagine no possessions

    I wonder if you can

    No need for greed or hunger

    A brotherhood of man

    Imagine all the people sharing all the world”

  3. Ibahduba

    Grocery stores outside of Philadelphia still used what was referred to as “household credit” up until the 70’s. It was just a tally on a piece of paper (the unit of measure being dollars). Families (households) settled up over time. The credit was on trust. Occasionally, the debt was paid “in kind.” We still use a unit of measure called “in kind” for donated services in the commercial world.

    I work in the Middle East. The civil/commercial legal system is based on French civil code (Napoleonic), which was a 1,000+ year resurrection of the Roman Corpus Juris Civilis. BUT, the entire premise of contract and family, not procedural, law in the Middle East dates to the 9th century and earlier and is rooted in ancient Bedouin culture. It is based on a foundation of debts and obligations and personal responsibility for meeting them.* Completely contrary to Western rules of evidence, the highest form of evidence is oral testimony. Obligations and debts are familial, first, tribal second. Sort of like grocery stores outside of Philadelphia in the 70’s.

    *Eastern European and Turkish (Ottoman) law evolved the Corpus Juris Civilis through to modern times, unbroken by the Middle Ages, unlike western Europe. Scholars trace the merger/overlap of Caliphate and Ottoman contract (civil) and family codes.

  4. psychohistorian

    I was ok with the posting until the representation of the credit/debt relationship where the author said the liability side was a debit for the government that issued it.

    Why the obfuscation about the private nature of current “Western” banking?

    We do not have sovereign banking where the debits are reflective of the “wealth” of countries and their governments but of private individuals owning the debits based on accumulated “wealth/property”.

    This reinforces my position that economics is the myth covering for the class system with global inherited plutocrats at the top….and the need to cut that Gordian knot of control by structural changes to inheritance.

    1. Yves Smith Post author

      Anyone can issue credit. Getting fed in a restaurant or taking a cab is a credit transaction. You are rendered the service on credit and pay afterwards (as in settle your debt). They don’t make you make a deposit or show you can pay before rendering the service. Credit issuance isn’t limited to the banking system.

      1. psychohistorian

        I guess the point I was trying to make is that governments beholding to private banking systems are (as clearly laid out in the subsequent Ilargi posting about the tragedy of Greece) doing a disservice to the populace of their country.

        Would not sovereign banking be better than the global private banking systems we have now? I think the answer is yes and I want people to understand the difference so they can push for sovereign banking in their country and globally.

        I still believe that governments should be by and for the majority of the populace of the country instead of by and for the global plutocrats that own the current banking systems.

        1. from Mexico

          For those who missed it, I thought the following panel discussion was germane and extremely enlightening as it explains the political jockeying during the formative period of the new American republic and how the private banks ended up with the power to create money:


          I agree with you that the republic made the wrong decision and went the wrong direction.

          I would add that without the role the long arm of the government plays in enforcing credit obligations to the private banks (enforcing foreclosure, or seizure of collateral, in case of non-payment), then the private banks would lack the force of law and the state’s monopoly of violence to enforce the collection of money they are owed. Without this, the value of the private banks’ credit claims — that is their money — would be greatly diminished. All private bank loans would be, in effect, collateral-free, and would lack the force of law and the use of state violence.

          That’s why Saddam Smith’s comment above is very germane to these conversations:

          It’s great to see this vital aspect of human history – in the grip of the wrong folk since sociologists lost the Methodenstreit of the 19thC to economics, which claimed money as its own area and then stripped it of all power relations – now receiving more and more attention.

          This gives some insight into why the ethos engendered by notions like laissez-faire and “the invisible hand” in classical and neoclassical economics is just one huge ball of hypocrisy and dissimulation. It’s important to realize that Adam Smith was one of the most masterful bumsuckers and paid liars that the lords of capital ever had.

          When I think of Adam Smith, I cannot help but be reminded of this from Reinhold Niebuhr:

          Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.

          REINHOLD NIEBUHR, Moral Man and Immoral Society

      2. F. Beard

        The problem with the banks is that via various government privileges they are able to issue credit in OTHER(!) people’s goods and services, not just their own. Some would rightly call that theft and oppression of the poor since the poor, being less so-called creditworthy, cannot reciprocate.

    2. MRW

      I was ok with the posting until the representation of the credit/debt relationship where the author said the liability side was a debit for the government that issued it.

      How else are they to express or record it? It’s called accounting. The author said

      A stamped coin, $20 bill, or tax refund check is an asset—a credit— to those who hold it and a liability—a debit—for the government who issues it.

      It’s called double-entry accounting.

      1. MRW

        More, @psychohistorian,

        BTW, Double-entry accounting, as we know it with assets and liabilities + equity, was invented about 400 or 500 years ago as a means of preventing theft and of double-checking the accounts. It’s not theory. The two columns must net to zero.

        You’re objecting to terms of accounting artifacts. You’re objecting to the measurement system, and confusing it with theories about what’s being measured.

        That’s why you don’t seem to understand the difference between sovereign banking, which is US federal accounting in our parlance, and the private sector banking system (global or not), which is a public/private subset within the sovereign federal monetary system (whether it’s mismanaged, out of control, or not).

        1. psychohistorian

          I was not referring to double entry accounting.

          You go on to assert that I don’t understand the difference between sovereign and private banking. Then you state that sovereign banking is really US “federal accounting parlance” and later you refer to the “federal monetary system”….neither of which is banking, right?

          And then you say that “the private sector banking system (global or not)”, “is a public/private subset within the sovereign federal monetary system”… Please explain this subset concept because if I am to intuit what you are referring to, the non private part is when US presidents create money and then are assassinated, right.

          So it sounds like you are agreeing to my assertion that the US does not have a sovereign banking system. As I stated, I think we should.

          I look forward to the clarification of your remarks….or asserting more things I don’t understand.

      2. RogueDave

        psychohistorian says:
        September 25, 2013 at 2:37 am

        I was ok with the posting until the representation of the credit/debt relationship where the author said the liability side was a debit for the government that issued it.

        MRW says:
        September 25, 2013 at 2:49 pm

        “It’s called double-entry accounting.”

        RogueDave says:

        As a reminder, on a double entry accounting Balance Sheet, Debits (Assets) go on the Left, Credits (Liabilities) go on the Right.

        MRW wrote:

        “A stamped coin, $20 bill, or tax refund check is an asset—a credit— to those who hold it and a liability—a debit—for the government who issues it.”

        To the Holder of the coin, bill, or check, they are assets, and are recorded on left side of the balance sheet, or debits.

        To the Issuer of the coin, bill or check, they are liabilities and are recorded on the right side of the balance sheet, or credits.

  5. Bobbo

    In the long run I think the fallacy that “The money is valuable because it is the only token acceptable for the payment of taxes” will turn out to be a greater error than the fallacy this author debunks.

    1. diptherio

      I think the error of MMT theorists on this point is that they assume that social norms are perpetuated for the same reasons they were initially instituted. I would argue that while a currency might first become universally accepted because it is required to pay government tax, it may well continue to be accepted simply out of habit and convenience, even in the absence of a taxing authority. Roman coins, for instance, continued to be used in Europe long after the collapse of the Roman empire.

      1. MRW

        Roman coins, for instance, continued to be used in Europe long after the collapse of the Roman empire.

        Not widely, and only between two parties who agreed to the exchange. I think, but I’m not about to check right now, that it’s explained in Innes’ paper. And you neglect to say which countries in ‘Europe’.

      2. MRW

        Deputies: Florida man tried to pay water bill with crack cocaine

        Sheriff’s deputies in Volusia County said customers often drop off envelopes on the counter of the Deltona Water office to pay their bills.

        But it’s apparently uncommon for customers to leave envelopes without statements that contain clear plastic bags with 3 grams of illegal drugs inside.

        The man left the water office on a bicycle, deputies said, but they captured his image on surveillance video as he fled.


    2. MRW

      I think in the long run, you’ll find out you were wrong in terms of actual practice. Try paying your federal tax bill in gold ingots, for instance. Since the price of gold rises and falls every day, there’s no set value to it. The Fed would require you to exchange the gold for the unit of account and return with the paper dollars or a cheque.

  6. s spade

    Of course credit did come before money, and the explanation provided by economics is once again wrong. And the story about the goldsmiths as bankers glosses over the enormously profitable role played by the bankers, notably Rothschild, in lending to balkanized Nineteenth Century governments to support their territorial ambitions, which was parlayed into control of central banks operating in government bonds for the benefit of a narrow financial elite.

    But money is valuable because it is accepted in exchange for labor and things of value, tangible and intangible. The idea that this depends somehow upon its acceptance on account of taxes amounts to proof by assertion.

    That money will continue to be valuable remains to be seen. It wasn’t terribly valuable in 1923 Germany, was it?

    It seems to me that one reason money is valuable is that a person cannot get what he needs without it, except at the point of a gun.

    Ultimately, money, and civilization too, depend upon popular faith that the future will be more or less like the present. When this faith lapses you get a stampede out of money which is very difficult to reverse.

    Where in all this does gold fit in? Gold in the past provided discipline for the banking system. Creditors loved it. Gold today is a vehicle for speculation, nothing more. Its value depends upon fear and greed, and varies accordingly.

    1. Saddam Smith

      I believe that money is, in its essence, a securer or fixer of socio-economic power relations which happens to commoditize everything (including itself), and thus creates market exchange. I also believe that it is not immortal. Nothing is. It is also a creature of the state, which will suffer along with money as supporting conditions change underneath both these key social phenomena.

      Someone at this blog once said something like: “A long time ago money started talking, and we haven’t been able to shut it up since.” An excellent summary. We are seeing its demise now though, as the conditions that enable its robust existence are changing too quickly (in historical terms) for it to cope with. It’s kind of self-destructing, exploding and imploded simultaneously. Where this ends up is anyone’s guess, but it’s sure as hell going to be a very bumpy ride.

      1. from Mexico

        Saddam Smith says:

        I believe that money is, in its essence, a securer or fixer of socio-economic power relations….

        Well again, I believe this is one of the principal, while maybe not only, functions served by religion.

        Some really great expositions of how this function is served by religion can be found in Ancient West Mexico: Art and Archeology of the Unknown Past.

        1. Saddam Smith

          I see religion inexorably leading to the nation state with money as the primary social tool enabling its growth and dominance as a social form. Or, put in the systems theory terms I prefer, money and religion/state co-create each other or co-evolve together. They/it are/is a social dynamic of hierarchical or top-down control for the purposes of value extraction/creation primarily in the interests of the elite and, sadly now, perpetual growth and expansion as epitomised by interest (interest being the maths of exponential growth).

          If this analysis is accurate, then this social form requires perpetual growth to function, which is indeed what we see. It is thus, seen from a very broad perspective, an enormous, multi-generational ponzi scheme, clearly discernable in the fact that if it is not growing, it is collapsing. This is one reason why the end of cheap oil (cheap oil which, as a growth junkie, this social form quickly became addicted too) spells disaster, and why all solutions reached for must first and foremost be able to continue the perpetual growth which is the food this beast cannot do without, even though perpetual growth is a total impossibility.

          So when we rightly talk of a transition to steady state growth, we are talking about a transition away from almost everything which this system does and ‘congenitally’ believes.

          1. from Mexico

            I just stumbled across this, and see that David Graeber has thought and theorized about these things too:

            Anthropologist David Graeber has pointed out that “the core period of Jasper’s Axial age […] corresponds almost exactly to the period in which coinage was invented. What’s more, the three parts of the world where coins were first invented were also the very parts of the world where those sages lived; in fact, they became the epicenters of Axial Age religious and philosophical creativity.”[17] Drawing on the work of classicist Richard Seaford and literary theorist Marc Shell on the relation between coinage and early Greek thought, Graeber argues that an understanding of the rise of markets is necessary to grasp the context in which the religious and philosophical insights of the Axial age arose. The ultimate effect of the introduction of coinage was, he argues, an “ideal division of spheres of human activity that endures to this day: on the one hand the market, on the other, religion.”[17]


            1. Dan Kervick

              What I find perplexing is how little detailed attention Graeber gives to the evolution of law. If you read any tract on the common law, or Roman law, or anybody’s law, you find that a large bulk of it concerns obligation, contracts, debts, damages, restitution etc.

              1. susan the other

                Well, naturally, none of us like to be blatantly ripped off. That is why we are all so pissed off about the perpetuation of massive securitization fraud and its 10 or 15 year free pass which has culminated in a political policy, unspoken of course, that establishes the fraudsters a full pardon. What the hell?

              2. from Mexico

                Well I’ve not read Graeber, so don’t know what his position is.

                A lot of social scientists, however, tend to spice their view of the ancient past according to their own political and ideological preferences.

                This is what’s great about Ancient West Mexico: Art and Archaeology of the Unknown Past, because it speaks to this propensity. As it explains:

                Pre-Columbian studies have so far produced three different interpretive models or paradigms of the cultures that existed in ancient West Mexico before the rise of the Tarascan state in the Postclassic period. These models, which might be handily tagged “Daily Life in Marginal Villages,” “Shamanism,” and “Complex Society,” were developed successively….

                The Daily Life model describes ancient West Mexico as a kind of developmental cul-de-sac or dead end, where the village ways of life of early agriculturists remained unchanged until the rise of the Tarascan state in the Postclassic period after A.D. 1200…. By the 1960s West Mexico seemed to be securely defined as a kind of frontier Eden, a place that had avoided the authoritarian states and empires of Mesoamerica proper. The romanticized rural way of life imagined for West Mexico may have appealed to urban intellectuals, especially leftists such as Diego Rivera (who amassed a great collection of ceramic figures from the “village cultures” of Mexico, and whose collection was the basis for the first exhibition of the art of ancient West Mexico in 1946).

                This sort of hierarchy-free, religion-free, law-free and domination-free society would also appeal, besides to left-wing intellectuals, to right-wing libertarian intellectuals.

                Most recent research, however, indicates that these societies were far more religious and hierarchical than what was previously imagined.

                I tend to agree with Robert Hughes when he said that “elites are never going to go away, since the need to create them is written in our biological fabric.” I also, however, tend to agree with Andrew M. Lobaczewski when he wrote that the

                average majority accepts and respects the social role of people whose talents and education are superior, as long as they occupy appropriate positions within the social structure. The same people, however, will react with criticism, disrespect, and even contempt, whenever someone as average as themselves compensates for his deficiencies by flaunting an upwardly-adjusted position. The judgments pronounced by this sphere of average but sensible people can often be highly accurate, which can and should be all the more remarkable if we take into account that said people could not possibly have had sufficient knowledge of many of the actual problems, be they scientific, technical, or economic.

                I suppose this is another way of saying the same thing:

                We also propose that in the course of our evolutionary history, natural selection has shaped our psychology to possess the following traits: 1) perceptual sensitivity to potential gains from cooperation; 2) motivation to take advantage of those gains; 3) perceptual sensitivity to opportunities for free-riding; 4) motivation to avoid being free-rode upon…


              3. David Graeber

                My argument is that money (as a means of account) arose specifically through systems of law, and the regularization of fines and penalties. This was in fact my alternative to the barter theory.

                1. psychohistorian


                  You signed my copy of your book when you were in Portland, OR and I thank you for writing it.

                  That said, I want to ask why you didn’t discuss inheritance in your book.

                  I see unfettered inheritance as the Gordian Knot of ongoing control of “money” that inhibits the creative destruction, evolution and advancement of a less hierarchical society, IMO.

    2. MRW

      Where in all this does gold fit in? Gold in the past provided discipline for the banking system. Creditors loved it.

      You have that backwards. The Federal Reserve system was created to discipline the use of gold as the statutory basis (1900) for the US currency. That didn’t work either. Going off gold domestically created the middle class and prosperity.

      It was going off gold internationally in 1971 that made us monetarily sovereign. But no one knew what that meant at the time because journalists weren’t explaining it. They were concerned with the reelection of Nixon, Watergate, and the rise in the price of oil starting on October 17, 1973 because of the Yom Kippur war.

  7. Francisco Boni Neto

    Trust is a determining factor for the prosperity of economies, and for securing well-functioning financial markets. Trust is a collective asset that allows efficient coordination and tremendously accelerates business. The most illuminating example is fiat money, that can only exist if people trust that a piece of paper will not be worthless tomorrow – and of course if everybody gives value to a dollar bill, the dollar bill is valuable. Clearly, money is more efficient than barter because it solves the otherwise
    daunting problem of matching individual preferences. On the other hand, because trust is an immaterial sentiment,
    it can evaporate overnight. Changing one’s mind can be instantaneous, the speed of change is not limited by physical constraints. This is one of the reason why crisis, crashes and bank runs and irrational behavior can occur.

  8. H. Alexander Ivey

    Money – cash or credit – is a promise (as stated by a NC reader sometime ago) made between two people. Of course, one or both of these “people” may be a government or a business, rather than an individual. Now who enforces the “promise”? In modern societies, and as the historical record shows, it’s the government of the society the promise is made in. So, for those seeking true cause and effect; 1st, get a government or a third party capable of issuing and keeping track of a 3rd party value item (usually called “money” – of either cash and coin, or credit form), then 2nd, you can have producers and consumers who use the “money” as THE means to value the exchange of their products and labours. So, 3rd, now, you can have “commerce” or a “modern” society.

    And the difference between feudalism and capitalism and communism is explained by the differences in who has the political and economic power and their flow between peoples within a society, not just in the flow of money alone.

    1. Dan Kervick

      Some monetary instruments are negotiable credit instruments, but that doesn’t mean they represent a promise between the two parties to the exchange.

    2. Montanamaven

      Yes, didn’t Graeber point out here that credit is a promise. And that we discovered in the bailout of 2008 and 2009 that the promises to the rich and their friends are kept whereas the promises to the workers are not kept. The banksters also didn’t have to pay their debts, but the homeowners did. That’s because “whoever controls the money system controls the nation.” (Zarlenga).

      The power to create money should not be in the private hands of the Fed but in the people’s hands for their “general welfare”. I’m way out of my element here, but I thought the problem is “usury” or charging interest by private bank; money as interest bearing debt instead of a social contract. And also not using money for the good of the people. If the money was created in the Treasury, it would then be spent into circulation for the “general welfare” not for private profit.
      And what if a group of people borrowed some money from the central bank to build a bridge, then paid a small fee back to the bank for use of the money. That small fee would then help with the next loan for a health clinic or teacher’s salary. Wouldn’t that be better than taxes? We didn’t have income taxes before 1913 or so, did we? Can someone help me out?

      1. s spade

        Hasn’t the Congress done enough damage on behalf of the general welfare? Before you trust government to create money you might want to get the people owned by money out of government. And a good deal of money is created by government already. It is spent mostly on war and spying and snooping, not to mention Medicare and Medicaid.

        And even though the Federal Reserve Banks are owned privately, the Fed is really a part of our government, since all its earnings are returned to Treasury, and its assets are now government bonds and worthless CDOs. The problem with the Fed is that it creates money for a private cartel that bleeds everyone else

  9. craazyman

    I would guess barter was used for trade between tribes, where trust was absent and collection would be hard.

    But credit was used within tribes/communities, where trust was higher (and collection could be more easily enforced). Here the idea of shaming would come into play, since if you’re part of a small group and don’t pay your debt, everybody knows and you erode the fabric of social trust that everybody depends on for survival.

    in this regard, the advent of money would require a pre-existing system of social ethics, since successful use of money requires that those who use it collectively agree to abide by the debt obligation it represents. without that agreement, money is useless.

    it’s not enough to say that agreement is compelled by government force into existence, since there’s not enough force to compel everyone, just like there’s not enough reserves to back all fiat claims.

    it’s probably true to observe that barter did arise first in certain circumstances — only in the context of trade between distinct and separate communities. And then money arose only when those communities merged into a single community and trust that debts would be paid arose due to mutual interdependence, whereas before there was not trust and therefore no possibility of debt. Barter may have occurred first, but money would not have arisen from it, but from the absence of the mistrust that resulted in barter in the first place.

    In this regard, it’s probably not surprising that larger societies inevitably reposited their monetary institutions within their religious institutions, since those are the arbiters of ethical systems when societies get large enough that interpersonal ethics need some sort of codification.

    1. Saddam Smith

      Graeber (p. 29) quotes from Caroline Humphrey’s Cambridge University dissertation as the definitive anthropological work on barter. Her statement is as clear as it is emphatic. “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 there has never been such a thing.” Innes knew this 100 years ago, yet the myth persists.

      Because of how long we have been living in a money system, we tend to project our ideas of exchange onto cultures that do/did not know barter, but do/did have some sort of experience of ritualised exchanges.

      As for the presence of (non-explicit) debt, that’s been around since forever (like ‘borrowing’ a cup of sugar from a neighbor, you scratch my back, I’ll scratch yours …). It’s use in credit-debt contracts, on the other hand, explicitly denoted in some unit of account, exists (some say) only in advanced societies, i.e. not in tribal and feudal societies. As Graeber traces (following people like Hudson and Wray), debt measurements in the justice system (wergild), in which there were pretty precise measurements for how much was owed for e.g. putting out some guy’s eye in a drunken brawl, are probably the cultural antecedants of purely financial debts and credits that are the foundation of money, in the sense that they set up a mechanism for comparing apples and oranges; one cow for an eye, a sheep for an ear, etc. Typically we don’t want to compare very different things, but money (gawd bless it) appears to do that for us now. Repaying debts brought into being by crime and punishment seem to lie behind that cultural oddity.

    2. Moneta

      Barter happens all the time in our everyday lives.

      Most of what we do day in, day out revolves around some form of trade and is not remunerated in $ form.

      The question should not be whether there is barter or not but why do some trades get a $ amount and other don’t? Especially when it comes to services.

      1. craazyboy

        craazyman understands this stuff because of his extensive studies in existentialist philosophy.

        For instance, when craazyman sees bugs, he understands that if he were to swat a bug, this would be the same as extinguishing a piece of his consciousness.

        Until we understand things the way craazyman does, the rest us will wander from store to store with no idea what we are really doing.

        Or read way to much stuff written by college professors, while we are forever trying to figure it out. Excepting the writings of Dr. Tremens at the University of Magonia, of course.

        1. susan the other

          A perfect score for both you and Craazyman. Here’s what we need a new accounting column for, one which is a quantum factor depending on how the world turns: the piss column. If we are pissed off that we didn’t get repaid we need to stretch that out ad infinitum to see where it finally lands. It could pay off big time.

        2. craazyman

          most people make the mistake of trying to learn by reading books and exhausting themselves.

          Anybody can do this: drink 1/2 bottle of Spanish wine (preferably a red wine) and take 0.5 mg of xanax.

          Then stare at the wall and start channeling.

          After about 15 minutes it will all be there, in your mind, like a memory.

          Riding the bus and staring out the window works too, as long as you get into a hypnotic state. This is hard to do between 10 am and 5 pm because the sun’s too strong, even on a cloudy day. Morning or evening is the ticket, especially overcast days.

          There’s no need to work at this stuff. You just have to acquire the signal. Be lazy. And it will come to you,

          1. JTFaraday

            I think that’s how Adams Smith came up with his stuff in the first place. Those who had the opportunity to observe him in his day said that he was the kind of philosopher who would tumble into a well walking down the street, so preoccupied was he with gazing up at the clouds.

  10. Moneta

    Money is needed when a transaction is not fulfilled on both sides. Once it is finished, the note should get ripped up.

    How does one explain the gold coins… well I guess that’s when stored wealth comes into play. There’s a difference between services and hard goods.

    And here in Canada, we had barter and all kinds of parallel trading/money systems.

    With the Natives, the Europeans would exchange fur for guns… guns got longer because piles were measured by the length of the gun… unless it’s only a folk story. LOL!

    We had coins circulating and those with no coins used tabs and promissory notes…

    It’s hard to believe that an absence of national currencies and millions of promissory notes and tabs would have given us the specialization we have now.

  11. Dan Kervick

    I tend to think that the issue of how money originated, while very interesting in itself as an intellectual problem for history, is a bit overrated as an issue for economic thinking. Just as in biology, where distinct but very similar phenotypes can have radically different genotypical derivations, there are different possible historical routes that could have led to something like our present economic institutions.

    1. Martin Finnucane

      I think I disagree, for the simple reason that the barter myth appears to have been of urgent importance to Adam Smith, and later to the marginalists, and even now in economics textbooks. Why? Couldn’t Smith and his foul progeny have simply skipped the pseudo-history and gone straight to their beloved invisible hand etc.?

      The answer may lie somewhere in the way that (neo)classical economics frames money as “merely a veil” for real economic transactions. That is, money is supposedly neutral – “merely” a kind of stand-in for barter. Otherwise, perhaps equilibrium thinking in economics makes no sense, and Keynes – the black beast to neoclassical types – becomes a necessity. That money is not merely a veil was the chief insight of Keynes’ system, I think.

      If I’m right, then the barter myth becomes a kind of keystone in the wall of neoclassical econ. Pull it out and the whole thing crashes down. Wouldn’t that be lovely!

      But I say think and may and perhaps and I think because I’m not a student of economics, so I step lightly.

      1. Dan Kervick

        Can’t we just drop the myth-making altogether? It seems like many people are attracted to these stories and anti-stories because they are trying to hawk some foundation myth to support their favorite theory of how we ought to reform our institutions now, usually relying on the tacit assumption that what we did in the primordial past is more “natural”, and hence a guide for current life. But I’m not sure how relevant those stories actually are.

      2. Saddam Smith

        For what it’s worth, Martin, I agree with your appraisal. Pretty much all orthodox economics proceeds directly from this myth of the origins of money, which includes the entirely hypothesized homo economicus.

        As for not making myths anymore, Dan, I don’t thinks that’s possible. We understand reality via myths which hold while they hold, then break down at some point, as economics is breaking down now. Another myth will replace it, but we’ll treat it as fact until its ‘mythiness’ is revealed by subsequent discoveries. Rinse and repeat.

      3. US Grant

        First, Smith did not use the magical “invisible hand” to describe the wonders of market forces. That charge can laid at the feet economist Paul Samuelson. He misused and misouoted Smith’s phrase in his promotion of economics as a hard science.
        Next, Smith was addressing the social forces of his day little imagining that the ‘Chicago School’and its worshipers would build a belief system from this simple phrase. Thus there is no need to denigrate the man.

        1. readerOfTeaLeaves

          A wonderful history prof once explained that Adam Smith lived at time of the first Encyclopedias. The notion of an Encyclopedia was novel, and Smith** was infatuated with one. His notion of ‘division of labor’ was derived in part by reading about …? (something like industrial textile production) in an Encyclopedia.

          If accurate, this reinforces the notion that Smith didn’t actually grasp WTF he was talking about, and made up fairytales. This is not to denigrate him; he lived in the late 1700s, and the notion of indigenous tribes in North America held an allure for many Europeans.

          The point remains: Saddam Smith’s earlier point about Smith’s inaccurate notions as a keystone of nonsense economics is astute. I emphatically disagree with Mr. Kervick’s dismissal that none of this matters. It matters very, very much. It sets in motion the other metaphors used to explain economic relationships.

          ** This same prof described Adam Smith as to have been sometimes so absent-minded that he left home without his pants, and had to be reminded by the local constable to go get fully dressed. I don’t know whether this is accurate, but I find it charming – the ultimate Absent Minded Professor, so to speak.

      4. Yalt

        Yes, I think that’s precisely argued. If it did not matter to classical economists it would not have been held on to so tightly.

        I was a bit perplexed at first that an anthropologist was taken to task for being interested in an anthropological issue. To say that something “does not matter” is nonsense unless you have some end in mind that it should matter to. And then it occurred to me that it’s precisely the question of ends that’s at issue here and that your comment held the key:

        The question of money and barter does not matter because its consideration could lead to the examination of issues that are of little use to those who want power, who are interested in seizing the existing system and turning it toward progressive ends rather than questioning and possibly altering that system in a fundamental way.

      5. JTFaraday

        No, because Smith lived in a day when the “invisible hand” era was coming rapidly to a close and everyone was in need of historically based explanations and justifications for the social and political order, while handicapped by a (relative) lack of historical knowledge. As a result, the period is rife with modern myths of origin that still structure the way we view the world.

        It is fair to ask why Smith chose the one he chose or, alternatively, being unable to establish intention, what are the social and political effects of the one he chose– just as it is fair to ask it of Hobbes, Rousseau, etc.

  12. TomDority

    Well it goes to show you how much my lacking a higher education has allowed me to understand what money (is).
    I have always thought money was a contract — being a contract, there is always the part that is unwritten but, completely enforceable… the unwritten portion. That portion includes the tribal or community or political or governmental or legal concepts/ norms/ laws/customs that any of the group types commonly agree upon.
    What is so egregious to me is how the unwritten part of the contract has been broken by so many without nary a peep from the commons.
    To put it in perspective – without co-operation among a group – at whatever level of sophistication – ie: without civilization – money would not develope – human interaction and commonality of course, comes first. Money is a contract representation of the unwritten and written traditions and concepts of law in contract. It is the same thing as a handshake – an agreement – a statement or action like – hey, I love ya – I’ll help ya out because I want to, I don’t want no money…… I have trust in the other that they too have similar instincts – so down the road they might just say the same to me…. don’t matter to me if they do or not….because I love em.

    1. Montanamaven

      Yes, that was my understanding of how it works. And Graeber points out that we are all little commies every day. When two people are building a shed and one asks the other for a hammer to use, the other one doesn’t say, “Ok, but I get to take your daughter out tonight for the use of the hammer.” There is no direct exchange among friends. Somewhere down the line though you may need something from him and he’ll probably just give it to you. Of course we do have to address the whole idea of the commons in order for this all to work. And therein lies the differences between left and right libertarians i.e. “private” property.

  13. Steve Consilvio

    An interesting article, but deeply flawed. Adam Smith’s analysis is correct, but incomplete. The rise of credit could occur with or without money. If we are trading eggs for milk, I can take the eggs today even if you don’t want my milk. Money is operating the same way.

    The bigger point to be made is that
    1. there is an exchange of value expected, rather than outright sharing. *What the Tao would call ‘to produce but not possess.’
    2. some value has been established

    Economics is the study of trade, not the study of money. Money and credit both influence how we trade because they indirectly influence value.

    The nut of the issue is value.

    For example, In a barter economy, what is the fair trade of eggs for a chicken? Is it 6 eggs per chicken, 12 eggs per chicken or 60 eggs per chicken?

    Because the previous question cannot be answered definitively, even though we make come to an agreement temporarily, then the economic system must be vague at the outset. Additions to the process (money, credit, interest, profit) multiply the variability, yielding, eventually, deadly volatility.

  14. fresno dan

    To me what is interesting is that the US had “private” money, issued by banks for a good part of its history. (Jackson getting rid of the US bank). Than we had the Federal Reserve instituted, i.e., the bankers bank, and that, other than the great depression, seemed to work pretty well. (and was that the Federal Reserves fault, or the stock market allowing to much margin buying???)

    Now, it seems to me, we have a completely unregulated “shadow finance” system, akin to what we had prior to 1929, where due to leverage, all sorts of “obligations” “contracts” CDO’s, – call them what you will, couldn’t be honored, and supposedly, the world would collapse, without “government” money being issued to back or buy these “assets” (at other than the “real” or “market” price – funny how capitalists don’t believe in the market when what they own is worthless, and how contracts are inviolate until they owe more than they have…)
    The irony of Goldman Sachs being bailed out by becoming a ?chartered bank? or however it was brought under the government guarantee, insurance, backstop (again, call it what you will) is a delicious irony, except for the fact that the people most responsible for this catastrophe are immune from ANY consequences. And INSANELY, still run the system, with no indication whatsoever they will behave differently….
    So for me, whether money started by barter or issuing credit records recorded by sticks, beads, shells, Chinese knives is irrelevant.
    What I see is a totally corrupt system, where people at the top use legerdemain to reap profit, but renege on losses.
    We take the losses, and that is just nuts.

    1. readerOfTeaLeaves

      I think most of us who read and comment at NC have the sense that we are living through a period of profound delegimitizing of institutions — financial, as well as government. The current brinksmanship in DC over budgets and Obamacare is a symptom that is accelerating this process of de-legitimacy.

      A lot of institutions that we assumed were ‘on the job’, weren’t.
      And we now see less support for government; I think this is a direct cause-effect.

      But what we belief about the origins of money shapes what we think it is. And that matters.

  15. kevinearick

    Husbandry: judicious use of resources, breeding on health, economy.

    So, the good government doctors assume they can do my job better than me, and I should blindly accept their edicts because they know things that I do not, by virtue of their numbers, their definition of democracy; the social engineers have failed miserably, resulting in a thoroughly corrupt society, so hire more social engineers.

    Modern economics is pretty simple. To the extent government is doing what you want it to do, show it small business income. To the extent it is not, leave it to print corporate welfare jobs, until it can’t, and replace it as it implodes, with small business it can’t see, until it can.

    The middle class is its own worst enemy, and legacy capital has no future without a middle class built for that purpose. All governments print their own tax base in a positive feedback loop, to buy time. Whether you give them credibility, how you discount their money, is always up to you. Anything can be used as money, anytime. Goodwill is the best money time can buy, which is why the empire continues to implode.

    Rock Stars, Code Assassins, Sixth Sigmas – what kind of people respond to such job descriptions, what is their empire accounting multiplier effect, and what happens when they hit the wall of reality?

    The physical Train of Democracy is a derivative of a derivative. Where do you want to be when it goes over the cliff, which it always does? It’s always chicken soup from chicken sh- with these guys. Nothing personal, but FU to Henry Kissinger and all his banker Ken Doll make-work jobs.

    Labor has much better things to do, beyond the empire horizon. Funny, how entire industries, and economies, suddenly go away, and the participants always say they never saw it coming.

    Compliance, Faith & Goodwill

    The middle class never fails to amuse, as one drowning complains to another, to be drowned later, about the peer pressure, gossip, spying and tyranny that is their self-inflicted reward and punishment feedback system, guaranteeing capital return to capital, money to money. The participants never bother to learn anything about feeding, clothing or sheltering themselves from nature, but they can grow vices to feed a mortgage, a designer and a grocer, and blindly export their raw inputs to larger and larger robot populations, increasing pressure in the vice of their own construct. And Bank prints its own return on the control illusion, characterizing debt as an asset to grease the machine. Why not grow pot instead of tomatoes, and hire more police officers?

    The only difference among them is the event horizon of their chosen compliance. Some comply where they stand, some move to gain a compliance advantage, and some rebel with no skills, ending in compliance ‘retraining,’ to form a compliance distribution that ensures greater social loss and smaller capital gain, incrementally increasing rent on growing populations defined for the purpose of reducing the cost of labor, backwardization – self-serving, media-induced, financially engineered black holes, where up is down and down is up.

    Marvin the Martian can’t profit from the so-captured Internet, so he monetizes it with decreasing success by increasing sales to third-party spy networks. Too damn funny, the critters live in shrinking boxes, look at a Gestapo officer in the mirror, and are watched by the Gestapo from the time they leave their boxes to the time they get back, to visit other shrinking boxes, in a ‘smart’ car on ‘smart’ infrastructure built for the purpose.

    Idle hands employed to type on a keyboard, hoping for another outcome, isn’t going to get them anywhere. Type a thousand WPM, or code lines per day, they will always end up where they are, behind the empire line, in a line of lines. Government, in all its forms, is receding at a faster pace, for anyone with eyes to see, with larger monetary prizes for fewer winners. If you do not believe in your self, you may as well buy lottery tickets. It doesn’t matter which table you play in the casino.

    No one can grant another faith or the internal fortitude to seek skill, to make the necessary leap. If others want to bitch and moan about the false assumptions serving as bars in their prison, while getting in line to chase a mortgage, Gucci loafers, tofu and a BMW, that’s their privilege. Merkel isn’t forming any coalition necessary to preserve the status quo in Europe, and the empire printing the money isn’t falling into world war again, by accident or act of God. An empire can only value itself.

    I am not suggesting that anyone follow me; quite the contrary. I designed the algorithm the empire is employing to hunt me, and I am giving it no public profile to ensure continued targeting, while I swim through its sewer and throw young people out, setting the standard for an increasing gap. The vast majority of laborers with the faith and fortitude to make the jump are born that way, observers netting out observers’ prism to compile the necessary key, from the prime distribution. You can’t choose your parents and you can’t choose your children, to form the tree. You can choose your spouse.

    Opposites naturally attract, so you are going to grow between and beyond them, to set up the fulcrum pendulum catapult, increasing spring tension with each pass until the fulcrum collapses and triggers the catapult, a new hash well beyond the empire, and then link back depending upon your development, a new computational base. The middle class cannot internally change its response to stimulus, but you can provide an unknown stimulus. The future becomes the present in quantum leaps, beyond the perception of the present system.

  16. allcoppedout

    Stone Age Economics (Marshall Sahlins 1974) and various works on the Maussian concept of the gift have informed organisational theories for a long time. Economics has just ignored most of such work, as do almost all management and organisational behaviour textbooks. It’s too difficult to teach the little darlings anything real being general business school canteen gossip.

    I think we may be missing the connection between (say) the Lele blood debts and Psychohistorian’s burden of general inheritance. Much money is quite simply a continuation of such as selling the future children of one’s daughter into indenture. IS being the operative term. These Undead ideologies roam us still.

    Modern money needs to design out the capture of politics and economic rents. To do this we need to see how vile inheritance is (e.g. as vile as Lele blood debts) and a money system that favours crooks and rich, leaving most people poor, many in the turmoil of war and the planet burning and over-populating. We are still the primitive people whose social rituals we think we have surpassed.

  17. Emma

    Clearly the sophisticated monetary system of today, has been sufficiently bitten by the atrocious fangs of greed under the smirking pretense of democracy, to inflict an anaphylaxic reaction upon the majority of us, infallibly leading to a respiratory deadlock between the mouths of Scylla and Charybdis.

    Were Aristotle alive today, he would irrefutably harefoot it off to Dante’s Hell in search of salvation and leave the rest of us in the crock-pot to stew a slow death.

    As long as the world allows itself to fixatedly remain conditioned under chains to the perverse rack of our current monetary system, then the powerful will simply persist in lacerating debt upon the weak flesh of the poor.

    A global barter system is a utopian farce, though unfortunately and appealingly imbibed by some NC-ers on this thread today, who clearly have their heads beached up a bong. Money is indeed “the air we breathe” in the words of Orwell, but we need to develop a new genuinely democratic system which purifies the air and benefits everyone.

    I would suggest we avoid ruminating on the whys and wherefores of the barter system and start reading something like “Future Money – Breakdown or Breakthrough?” by James Robertson who has written extensively on new economics and the value of monetary reform. Though I do not agree with all his suggestions, he does interestingly advocate for the necessary removal of money creation from commercial banks. That might be a constructive step in the right direction.

  18. BITFU

    Guess who said the following:

    1. The idea that barter is an ancient prototype of capitalist commercial exchange is not yet laid to rest.

    2. This means that the attempt to establish a universal model of barter…is not really very useful.

    3. One reason for the elusiveness of the sort of activities which could be described as barter…is their capacity to incorporate different meanings held by the two sides. [The two sides essentially being Smith or Marx]

    Caroline Humphrey, that’s who. The very same Caroline Humphrey that Graeber relies on for his claim that since there was no example of a barter economy, then Smith was wrong. And if Smith was wrong, we need a new paradigm!

    Yes Humphrey stated that “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 there has never been such a thing.”

    But there was so much more to her work. That Graeber conveniently omits.

    [Seems Graeber left the previous quotes out of his “seminal” work.]

    Barter is a very, very broad concept, in much the same way that money is quite broad. It’s hard to draw many useful conclusions from the fact there was no exclusive barter economy. Yet, Graeber does so anyways.

    And here we are reading this Nesiba silliness:

    “If these ideas are hold up under academic scrutiny, are further disseminated, and become the basis of how we understand money and credit, an entirely new paradigm will need to emerge in the study of monetary economics.”

  19. pat b

    there is no difference between using gold or using aluminum or steel or wheat.

    The wheat cent was meant to be pinned to wheat.

    the advantage of wheat over gold is you can eat wheat and rats will levelize stores.

  20. Fiver


    1) During most of human existence we lived in a “pre-money” economy, but not, according to Graebner, MMT’ers and the argument presented here, in a “barter” economy. We are told instead that trade was conducted through “credits and debits”, i.e., via a form of accounting. But “accounting” of what, precisely? Please tell me how goods are exchanged pre-money via “credits and debits”: I have a cow, and you have some honey. Now, how do I get some honey, and you some milk without a trade and without money? You can postulate that “I credit you “x” amount of milk, and you credit me with “y” amount of honey” but all I see is excess verbiage to convey the idea of a “swap”. If my “credit” of milk, though, is not a current transfer to you of milk, but rather a note pledging transfer in future, and that note can be exchanged for a “credit” of honey, I’m already using “money”. As I am a dunce, please demonstrate how, as a cow owner, I’m not making a trade for honey, and that the “value” of my milk is not being measured in “honey” terms and vice-versa. Surely the invention of credit/debit “accounting” was necessitated at least as much by the promise of future recompense as part of a current transaction, rather than solely as the transactional medium itself. In addition, for a “credit/debit” accounting mechanism to be taken as foundation of early “markets” then “money” in the form of notes, pegs, beans or whatever already existed, with broad, changing, evolving consensus within the social group(s)as to what any particular thing was worth. As noted in others’ comments, we know “trade” or “barter” was the rule all over the Americas, Africa and much of the rest of the world through to modern times, and it would really be quite presumptuous to suppose it did not exist prior to the creation of “money” in some form to facilitate commerce.

    2) What, if anything, could be achieved by adopting this view as opposed to the current, broad, societal understanding of money? By that I mean, is there anything inherent in this view of money that makes it more difficult for the corrupt, the powerful or the wicked to operate? As we already have completely corrupted the relationship between finance, business and the Government, wouldn’t power and all the ill it entails not merely migrate to those institutions and players closest to the New Central Bank?

    3)Would this monetary system be welcomed elsewhere? Much of the globe has already had it with the enormous distortions created in their economies by the Fed’s injections of trillions into speculators pockets. Many of these nations have already entered into various resource-swaps, gold-recalls, and other means in order not to have to take a pasting on their huge US dollar assets they must hold to purchase oil and other $-priced commodities. Can you imagine what the rest of the world would see in the adoption of this by the US – a Fed (or whatever new body) gone financially berserk as on pure crystal meth, I suspect, without far, far more important changes to its political, legal, regulatory, military, security and other workings of Government.

    4) Any monetary system that eschews the very idea of “savings” in these tumultuous times is going to have his/her work cut out – especially people who pay attention to what’s happening to pensions and SS.

  21. Bapoy

    I disagree that money has value because it’s the only form of paying taxes. This is more like a technique to FORCE (thugs) people to use the currency, but in the end people will use what they want to use.

    The US government took in some $1.3 trillion in taxes in 2012 while GDP was about $17 trillion. That’s a whopping 7.64% (NOT).

    Seriously, this is not that difficult at all. The reason you take the damn currency is because you can purchase GOODS and SERVICES. Forget about the pieces of paper, what has value is the goods and the services.

    What makes papers valuable is it’s supply relative to demand. I thought Keynesians and socialists also believed in supply and demand? The less supply relative to goods and services the more value, the more supply relative to goods and services the less value. Saying that’s taxes that makes it value-able leaves the sheeple more confused. I guess some people make a living by conning others, this article is an excellent example.

  22. bluntobj

    The only quibble with this analysis is that the original historical example presented was person to person. Debits/credits were only meaningful in relation to the individuals themselves. Debits and credits were in fact representations of time; the time the individual invested in providing that good or service.

    The step to a government giving a retired grandmother a direct deposit is absolutely NOT the same thing. The deposit is not sourced from taxation (part may be, but definitely not all), and there is never a 1 to 1 relationship. Far more deposits are merely created than are “destroyed” by taxation. Any attempt to do this historically has always met with the same destructive result.

    In the original example, the one thing that made the personal debit/credit ledger work is locality and community. Trust, in short. This is why coinage was created; it is physical trust in a physical representation of time. As distance in trade grew, and trust waxed and waned, the usefulness of coinage as a substitute for obligation and trust became dominant to the point where it was near universal, except in those areas and points of time where the scarcity of coinage or an eroded trust made barter or a personalized system of debits / credits more economically useful.

    So when the trust is adulterated by disconnecting the value of an individual’s time from the unit of measure, the usefulness of that unit will degrade. Debasement of coinage, printing, electronic credits, or ideas such as seignorage all disconnect and degrade the trust in the unit.

    This applies to my opt-out theme; establishment of community and connections to sidestep the existing rentier financial structure. I myself struggle with this in terms of working with in-laws and other family members to ensure that work inputs are near equal to received outputs. Our current culture has no idea how to manage such obligations on a long term scale.

    I think I will pursue some research on how this system used to work, because it’s going to be very applicable in the near future…

  23. skippy

    Heck I’ll have a whack….

    Currency = IML – Incorporeal Monkey Leverage as applied against a – “still unknowable” – biological, tectonic, spinning electromagnetic dynamo, one of possible billions, stretched across a vastness yet to be determined.

    As some seem determined to validate truth with numerical superiority… I would point to the bloody obvious.

    skippy… I have seen the utterance of *Oink Oink* in comments of late, an inaccuracy imo. Ooh’ – Ooh’ is more apropos…

    Ooh and Aah (The MONKEY Song)


  24. indio007

    It seems to me the most common observance in these comments is the unfairness of the private Federal Reserves ability to create money.

    However , ANYONE can create money. Money is whatever the parties to a deal agree it is. Anyone can create credit.
    There is Fed testimony in the public record in which they are questioned on what gives them the right to create money. The answer? We have the right to give credit. It’s as simple as that.

    What I think people really mean but don’t know how to say is that Federal Reserve Notes are IRREDEEMABLE.

    US Code 12 section 411 says that Federal reserve Notes are reedemable on demand at any Federal Reserve Bank or the US Treasury.

    We all know if you try to redeem it the best you will do is get debased script of dubious metallic content.

    It’s much more likely that you will get paper for paper.

    We all know intrinsically the the Fed is extending credit that is unbacked. Ya in theory it’s backed but just try and get some of that collateral.
    It just ain’t going to happen.

  25. bh2

    “A stamped coin, $20 bill, or tax refund check is an asset—a credit— to those who hold it and a liability—a debit—for the government who issues it.”

    This is simply nonsense. A gold coin is a liability to no one.

    What gives a precious metal coin added value beyond its intrinsic worth as a material is that it is assumed to be of a given size, weight, and purity attested by a trusted mint: it has been reliably standardized for exchange. That it may be blessed by the state provides zero market value.

    Once fabricated and released to private ownership by a mint, the standardized coin is in no way dependent on any particular government for its intrinsic value. That value is established by the market even after the issuing government blows away and disappears. However, any debt-based paper issued by that same vanished government will become instantly worthless.

    Gold and silver coin always outlives fallen governments. Paper does not.

    Consider this (presumably impossible) hypothetical: if you (like Richard Russell) hold your liquid assets evenly divided in US paper dollars and US gold coins in hand, and the USG suddenly blows up and disappears, will your surviving liquid wealth be defined by US gold coins or by US paper bills?

    No-brainer, right?

  26. bob

    Seeing any form of credit as a precursor of a fiat currency is not silly, but I do not see how it makes us having to rethink what money is. For instance, I don’t see how that change fazes market monetarism one bit: They find the fact that it’s a method of account the most important part of money anyway. The only people that really get annoyed by the concept are paleoaustrians that just love hard money, and they are nuts anyway.

  27. Neon Vincent

    “The money is valuable because it is the only token acceptable for the payment of taxes. And when those taxes are paid, the money that had been spent into existence is extinguished. Thus, it is through federal government spending that money enters the economy and through taxation that it is destroyed.”

    That’s an idea that will really piss off the gold bugs, because it both confirms their suspicions about the interaction between government and money and destroys their ideas about the nature of money. I like it.

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