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Sunday, January 8, 2012

The Origins of Money

Adam Smith wrote an influential account of the origin of money, as follows:
“When the division of labour has been once thoroughly established, it is but a very small part of a man’s wants, which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.

But when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations. One man, we shall suppose, has more of a certain commodity than he himself has occasion for, while another has less. The former consequently would be glad to dispose of, and the latter to purchase, a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each of them be willing to purchase a part of it. But they have nothing to offer in exchange, except the different productions of their respective trades, and the butcher is already provided with all the bread and beer which he has immediate occasion for. No exchange can, in this case, be made between them. He cannot be their merchant, nor they his customers; and they are all of them thus mutually less serviceable to one another. In order to avoid the inconveniency of such situations, very 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.

Many different commodities, it is probable, were successively both thought of and employed for this purpose. In the rude ages of society, cattle are said to have been the common instrument of commerce; and though they must have been a most inconvenient one, yet in old times we find things were frequently valued according to the number of cattle which had been given in exchange for them. The armour of [Diomedes] ..., says Homer, cost only nine oxen; but that of Glaucus, cost an hundred oxen. Salt is said to be the common instrument of commerce and exchanges in Abyssinia; a species of shells in some parts of the coast of India; dried cod at Newfoundland; tobacco in Virginia; sugar in some of our West India colonies; hides or dressed leather in some other countries; and there is at this day a village in Scotland where it is not uncommon, I am told, for a workman to carry nails instead of money to the baker’s shop or the ale-house.

In all countries, however, men seem at last to have been determined by irresistible reasons to give the preference, for this employment, to metals above every other commodity. Metals can not only be kept with as little loss as any other commodity, scarce any thing being less perishable than they are; but they can likewise, without any loss, be divided into any number of parts, as by fusion those parts can easily be re-united again; a quality which no other equally durable commodities possess, and which more than any other quality renders them fit to be the instruments of commerce and circulation. The man who wanted to buy salt, for example, and had nothing but cattle to give in exchange for it, must have been obliged to buy salt to the value of a whole ox, or a whole sheep, at a time. He could seldom buy less than this, because what he was to give for it could seldom be divided without loss; and if he had a mind to buy more, he must, for the same reasons, have been obliged to buy double or triple the quantity, the value, to wit, of two or three oxen, or of two or three sheep. If, on the contrary, instead of sheep or oxen, he had metals to give in exchange for it, he could easily proportion the quantity of the metal to the precise quantity of the commodity which he had immediate occasion for.” (Smith 1811: 16–17).
This thesis – that money emerged as a commodity from barter spot transactions – was taken up and developed by many Classical and Neoclassical economists.

Carl Menger (1892) developed a similar theory in the late 19th century (Menger 1892 and 2002 [1909]; cf. Goodhart 2004), which I have criticised here. Money emerges as a medium of exchange from the most saleable commodity in direct barter trades: usually (though not always) it must have the properties of being portable, homogeneous, easily divisible, and not subject to depreciation.

In the most extreme forms, it holds that money can only ever emerge from barter spot transactions as the most saleable commodity becomes the common medium of exchange. It has been known for a long time that there are severe problems with this latter view of the origin of money.

From the 16th century onwards, Europeans came into contact with numerous communities in various parts of the world. The empirical evidence from serious, scholarly study of money-less communities, especially since the 18th century onwards, demonstrates that the economies of communities which are (1) money-less or (2) have a marginal role for money take many forms, and the pure barter economy imagined by economists is a myth (Humphrey 1984: 48). More alarming still is that surveys show that societies where barter was a predominant form of transaction in certain sectors of the economy are astonishingly small: just three “primitive” economies where barter was predominant have been found (Crump 1981: 34, who mentions pre-Colonial Mexico, the Congo basin, and the northern coast of New Guinea and its adjacent islands, but in all of these barter was essentially an activity in long distance trade transactions). Barter does exist frequently of course, but often as a marginal activity or “in a corner of the economy,” and is often despised by people as being somewhat disreputable (Humphrey 1984: 49). It is often confined to foreigners or long distance trade. The notion that human beings have some natural propensity to “truck” or “barter” is itself questionable (Humphrey 1984: 50).

The gapping hole in the imagined origin of money by Adam Smith, Carl Menger, Ludwig von Mises and many modern neoclassical economists is that barter spot transactions can be mostly unnecessary in a money-less human society.

The sequence of historical development imagined by most economists is as follows:
barter > money > credit.
In reality, other sequences are more plausible:
Debt/credit relations (gift economies) > minimal/peripheral barter > moneyless society with debt/credit transactions and minimal barter.

Debt/credit relations (gift economies) > minimal/peripheral barter > wergild social practices > emergence of a unit of account through reckoning of relative values for compensation by legal codes > money.

Debt/credit relations (gift economies) > minimal/peripheral barter > emergence of a unit of account through reckoning of relative values in planning by influential socio-economic agents in society (e.g., priests, temples, kings) > money.
If an economy is dominated by debt/credit relations, where the debts are vague and non-enumerated, then there is no significant double coincidence of wants dilemma: and no need to invent money. There were presumably numerous human societies that never invented what we would call money, because they never needed to.

Economists have ignored the unit of account function of money. Grierson (1978: 11) emphasised how in many societies an abstract or concrete unit of account can be a measure of value, while payment is made in goods. If money is conceived as an abstract thing which is used to measure the value of one thing against another, an abstract unit of account can emerge before some commodity becomes a physical medium of exchange: it can be created by conscious design by deriving an abstract unit of account from weights or from high-prestige commodities. Alternatively, societies can develop wergild-like social practices in which a kind of “price system” is developed by legal experts to reckon the values of compensation and damage payments, but where the payments system must have a common unit of account to calculate what kinds of payment in kind are equivalent for damages paid.

We do in fact observe historical instances where money has emerged in just the ways described: in Mesopotamia (one of the earliest literate civilisations), Egypt and medieval tribal societies. In ancient Egypt, money appears as the most important unit of account called the deben (or uten), which was a unit of weight, originally equated to 92 (or 91) grams (Henry 2004: 92; there was also the unit called the khar for measuring wheat or barley, and 1 khar was equivalent to 2 deben of bronze). This unit of account appears to have been developed by complex palace, government and temple institutions for internal accounting. While goods came to be denominated in terms of deben, there were no physical deben changing hands, there were administered price lists for some goods, and coins were unknown in Egypt until the Ptolemaic era (323–31 BC; Henry 2004: 92). That is to say, the deben did not function as a physical means of payment, and did not emerge by barter spot transactions as the most saleable medium of exchange. Even though goods and services were measured in a deben unit of account, payment was made in goods.

An important element in this process was the institution (or institutions) where surplus products were stored from taxation, tribute and gifts. These institutions dealt with complex flows, in and out, of goods: they were palace and temple complexes. Accounting systems, weight measures and writing are connected with just such institutions, and, importantly, some abstract unit of account arose by which to measure relative values of goods. Since loans were also no doubt made from surplus products stored, repayment of loans in kind was facilitated by a unit of account. The preceding account applies to both ancient Egypt and Mesopotamia.

In ancient Greece, the Homeric epics the Iliad and the Odyssey were written c. 750–700 BC, and reflect social practices in the late Dark/Geometric Age (c. 1200–800 BC) and early Archaic period (800–480 BC). In Homer’s epics, cattle or oxen are the unit of account, but the means of payment are variable goods, not just cattle (Peacock 2011: 49–54).

The emergence of money in Greece appears to be related to religion and cult offerings. The ox was an important sacrificial animal and offering to the gods. The Greeks appear to have developed a cattle or ox unit of account derived from the value these animals had in sacrifice (Seaford 2004: 61). Priests needed to be paid in cattle for religious services, but it was also necessary to calculate the ox-value of other commodities offered for payment to temples or for sacrifice in lieu of oxen (Semenova 2011: 385): hence people came to develop “prices” of other goods in terms of oxen, and an ox unit of account emerged (Schaps 2004: 9–10; Heidel 1926; I cite the English review of Heidel in Economica 14 [1925]: 218–222; Heidel’s thesis is modified by Peacock 2011: 54–63; Peacock 2003–2004). But oxen were not generally used as a medium of exchange. Instead, other goods like metals or items associated with sacrifice of oxen like tripods, cauldrons, double-axes, and spits (Schaps 2004: 10) were used as a means of payment and medium of exchange, whose value was measured in a cattle unit of account. Some fines appear to have been payable in tripods and cauldrons, for example. Coins were introduced by states from 600–500 BC (Peacock 2011: 54–63). With the emergence of iron spits (oboloi), the beginnings of precious metal money can be seen, although gold and silver had been previously used as a means of payment as measured in the cattle unit of account. The first electrum coins appear at Ephesus in late 7th century (700–600 BC), and spread to mainland Greece from 575–550 BC (von Reden 2002: 152, n. 30).

In the Indo-European and, above all, medieval Germanic societies, we have the institution of wergild: a system of fines and compensations payments for killing a human being and also for a wide range of other injuries, infractions or insults, and for theft of objects and commodities (Grierson 1978: 11; Grierson 1977). Compensation payments are made in various goods, such as cattle, bondmaids, and precious metal, but it is likely a common unit of account was developed to simplify calculation of payments, which later spread to the wider community in economic transactions.

By using induction, we can postulate that it is likely that these various phenomena and social processes may well have occurred in pre-historic societies too, and that money, if and when it was invented in some forms in pre-literate, primitive societies, emerged just as often by the ways described above, as by barter.



BIBLIOGRAPHY

Angell, N. 1929. The Story of Money, Frederick A. Stokes Company, New York.

Ashley, W. M. 1925. “Heiliges Geld: Eine Historiche Untersuchung über den Sakralen Ursprung des Geldes by Bernhard Laum” (Review), The Economic Journal 35.138: 288–289.

Crump, T. 1981. The Phenomenon of Money, Routledge & Kegan Paul, London.

Desmonde, W. H. 1962. Magic, Myth, and Money: The Origin of Money in Religious Ritual, Free Press of Glencoe, Inc. New York.

Goodhart, C. A. E. 1998. “The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas,” European Journal of Political Economy 14.3: 407–432.

Goodhart, C. A. E. 2004. “Carl Menger and the Evolution of Payments Systems: From Barter to Electronic Money (Review),” History of Political Economy 36.1: 210-212.

Grierson, P. 1977. The Origins of Money, Athlone Press and University of London, London.

Grierson, P. 1978. “The Origins of Money,” Research in Economic Anthropology 1: 1–35.

Graeber, D. 2011. Debt: The First 5,000 Years, Melville House, Brooklyn, N.Y.

Heidel, W. A. 1926. “Heiliges Geld, eine historische Untersuchung über den sakralen Ursprung des Geldes by Bernhard Laum” (Review), Classical Philology 21.2: 191–192.

Henry, J. F. 2004. “The Social Origins of Money: The Case of Egypt,” in L. R. Wray (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham, UK. 79–98.

Humphrey, C. 1984. “Barter and Economic Disintegration,” Man 20.1: 48–72.

Ingham, G. 2006. “Further Reflections on the Ontology of Money,” Economy and Society 36.2: 264–265.

Janssen, Jac. J. 1975a. “Prolegomena to the Study of Egypt’s Economic History during the New Kingdom,” Studien zur Altägyptischen Kultur 3: 127-185.

Janssen, Jac. J. 1975b. Commodity Prices from the Ramessid Period: An Economic Study of the Village of Necropolis Workmen at Thebes, Brill, Leiden.

Laum, B. 1924. Heiliges Geld: eine historische Untersuchung über den sakralen Ursprung des Geldes, Mohr, Tübingen.

Menger, C. 1892. “On the Origin of Money,” Economic Journal 2: 238–255.

Menger, C. 1909. “Geld,” in J. Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 3rd edn.), Fischer, Jena. 555–610.

Menger, C. 2002 [1909]. “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems, Edward Elgar, Cheltenham, UK. 25–108. [N.B. this is a translation of Menger 1909.]

Peacock, M. S. 2003–2004. “State, Money, Catallaxy: Underlaboring for a Chartalist Theory of Money,” Journal of Post Keynesian Economics 26.2: 205–225.

Peacock, M. S. 2006. “The Origins of Money in Ancient Greece: The Political Economy of Coinage and Exchange,” Cambridge Journal of Economics 30: 637–650.

Peacock, M. S. 2011. “The Political Economy of Homeric Society and the Origins of Money,”Contributions to Political Economy 30: 47–65.

Schaps, D. M. 2004. The Invention of Coinage and the Monetization of Ancient Greece, University of Michigan Press, Ann Arbor

Seaford, R. 2004. Money and the Early Greek Mind: Homer, Philosophy, Tragedy, Cambridge University Press, Cambridge.

Semenova, A. 2011. “Would You Barter With God? Why Holy Debts and not Profane Markets Created Money,” American Journal of Economics and Sociology 70.2: 376-400.

Smith, A. 1811. An Inquiry into the Nature and Causes of the Wealth of Nations (11 edn; vol. 1), Oliver D. Cooke, Hartford.

Smithin, J. 2000. “‘Babylonian Madness’: On the Historical and Sociological Origins of Money,” in J. Smithin, J. (ed.), 2000. What is Money?, Routledge, London and New York.

von Reden, S. 1997. “Money, Law and Exchange: Coinage in the Greek Polis,” Journal of Hellenic Studies 117: 154–176.

von Reden, S. 2002. “Money in the ancient economy: A survey of recent research,” Klio 84.1: 141–174.

Wray, L. R. 2002. “State Money,” International Journal of Political Economy 32.3: 23-40

30 comments:

  1. Dear LK,

    I've recently been able to solve problems associated with the Great Firewall of China, and am happy to re-visit some of my old haunts, esp. your site (on which I have been unable to post comments in the past) and CE's. I see I have a lot of reading to catch up with. I've always found your posts very stimulating, although sometimes our opinions have differed.

    The present post is very interesting to me, since I have been doing a lot of reading and thinking on the very subject. You might recall that a few years back I had a running discussion with CE on the nature of money. CE's opinion was similar to the "mainstream" thinking in that money was considered a kind of "thing" (gold, silver or some other "valuable" commodity), whereas my opinion (following the obscure XIX c economist H. Macleod) was that money is essentially a social category in the nature of a claim, and therefore immaterial, so that the common-sense notions which apply to physical objects do not hold in this case. I long wondered why the majority of economists insist on treating money as a "thing", and then perform all sorts of contortions trying to explain credit etc. I think that the root cause of this is the attempt to integrate money into the basic "free market" model assumed by almost all orthodox economic theories. Now, since the "free market" model is a model of pure barter exchange, where things and services are exchanged into things and services, and since money is obviously not a service, then it must be a thing. This was additionally reinforced by the historical fact that when these theories were originally formulated, gold and silver did in fact function as money, obscuring its real nature.

    This ingrained notion of money as a "thing" is in my opinion one of the reasons why post-Keynesians and MMT proponents have difficulty in getting their message across to the wider audience. Your post is a good step towards clarifying this basic misunderstanding.

    All the best
    M

    ReplyDelete
  2. What a ridiculously false characterization of Smith's writings.

    In these passages, Smith didn't claim that money arose out of barter SPOT transactions. He correctly pointed out that money arises out of barter transactions. That is to say, money arises out of bartering on spot AND bartering on credit.

    You dishonestly added the word "spot" as if barter transactions necessarily have to be immediately finalized and settled.

    Stop being dishonest and start understanding the nature of money arising out of the division of labor, i.e. out of barter exchanges, which of course can be settled either sooner in time (spot) or later on in time (credit).

    Credit transactions INCLUDE barter trades, and barter trades INCLUDE credit transactions.

    It is false to say that the claim that must be argued against in order to refute Menger and Smith is "barter > money > credit".

    This is because Menger and Smith held that the order goes barter (credit or spot) > money (credit or spot).

    If there are historical cases of credit preceding money, then all that is showing is

    barter (credit) > money (credit or spot)

    That is CONSISTENT with Menger and Smith.

    Credit is not an alternative to barter or money. Credit is a concept that determines WHEN barter and money transactions of goods are finalized and settled.

    EVEN IF there is a historical case of one person trading a sheep to another in exchange for a future promise that is undefined, or unstated, that doesn't mean that the exchange is "barter for credit", thus making credit a thing to be traded in itself. No, the promise, the credit, is always referring to another good or service that is itself either a barter good or money, which finalizes the transaction.

    ReplyDelete
  3. PeterS/Major_Freedom/Christof/David,

    Don't think I don't recognise your writing style and trolling nonsense. In fact, you've just said the same thing on the Krugman in Wonderland blog.

    But, anyway, not that I really care. Let's review your lastest comment:

    "In these passages, Smith didn't claim that money arose out of barter SPOT transactions. He correctly pointed out that money arises out of barter transactions. That is to say, money arises out of bartering on spot AND bartering on credit."

    There is not one reference to credit/debt transactions in Smith's passage: you're lying. Smith is thinking of direct barter, just like Menger (1892. “On the Origin of Money,” Economic Journal 2: 238–255.).

    Furthermore, in case it isn't clear, I have in mind (as I have said above) the most extreme statements of the barter-origin, as in Rothbard:

    “[sc. Mises’s] Regression Theorem also shows that money, in any society, can only become established by a market process emerging from barter. Money cannot be established by a social contract, by government imposition, or by artificial schemes proposed by economists.” (Rothbard, M. N., 2009, The Essential von Mises, Ludwig von Mises Institute. p. 61).

    "If there are historical cases of credit preceding money, then all that is showing is

    barter (credit) > money (credit or spot)

    That is CONSISTENT with Menger and Smith."


    With your typical incompetence and stupidity, you have missed the WHOLE point (just as Robert Murphy did when he tried to criticise Graeber): anthropologists and other heterodox economists aren't arguing that money arose from IOUs or non-enumerated credit/debt transactions:

    What anthropologists have in fact observed where money is not used is not a system of explicit lending and borrowing, but a very broad system of non-enumerated credits and debts. In most such societies, if a neighbor wants some possession of yours, it usually suffices simply to praise it (‘what a magnificent pig!’); the response is to immediately hand it over, accompanied by much insistence that this is a gift and the donor certainly would never want anything in return. In fact, the recipient now owes him a favor. Now, he might well just sit on the favor, since it’s nice to have others beholden to you, or he might demand something of an explicitly non-material kind (‘you know, my son is in love with your daughter...’) He might ask for another pig, or something he considers roughly equivalent in kind. But it’s almost impossible to see how any of this would lead to a system whereby it’s possible to measure proportional values.
    ....
    Murphy then goes on to produce a straw man saying that a system where people borrow things from one another and then turn to political authorities to regulate the system would not produce money. True enough, but it seems a bit irrelevant considering (a) I never say people would be “borrowing” from each other in the way he describes, (b) I never attribute any role to political authorities in this process, and (c) rather than saying the informal system of favors I do describe would lead to the invention of money, I explicitly say that it would not.


    http://www.nakedcapitalism.com/2011/09/david-graeber-on-the-invention-of-money-%E2%80%93-notes-on-sex-adventure-monomaniacal-sociopathy-and-the-true-function-of-economics.html

    An economy mainly run on the non-enumerated credit/debt transactions will probably NOT developed money.

    The empircal evidence on how money can emerge shows:

    (1) invention by temple/palace planners in collectivist economic institutions (Mesopotamia/Egypt);

    (2) wergild social practices;

    (3) emergence by religion/sacrifice of some commodity for its religious value used as a unit of account, then prices denominated in it.

    Your ramblings have no force, no refutation of anything above has been achieved.

    ReplyDelete
  4. MattInShanghai,

    Nice to see you back.
    I agree with your comments.

    Money has multiple functions (unit of account, means of payment, medium of exchange, and store of value), and economists have been obsessed with the medium of exchange role, and ignored the unit of account role.

    I think the historical data shows how the abstract unit of account role can precede the medium of exchange role: what is very telling is that in ancient Mesopotamia the shekel of silver is set by temple/palace planners to equal to the monthly grain ration (i.e., wages in barley) doled out to their workers

    It is obvious they have designed a unit of account from the major weight units: many prices were probably even set and administered in the money of account which developed from weight units.

    ReplyDelete
  5. Also,

    CE's opinion was similar to the "mainstream" thinking in that money was considered a kind of "thing"

    Cynicus Economicus holds eccentric and incoherent views on economics - witness his absurd theory of value: an incoherent, untenable mix of subjectivism and a labour theory of value.

    Moreover, his endless failed predictions should alert people to uselessness of his analysis: what happened to that hyperinflation? Is the UK the new Zimbabwe today? Did the US dollar collapse to virtually nothing last year?

    There's not much to learn from his blog - unless it's how to remain ignorant.

    ReplyDelete
  6. LK,

    Thanks for your quick reply. I've read through your other post on Menger and the origin of money, and especially the links you provided to the interview with David Graeber and his exchanges with the Austrians, which I found quite fascinating. Although my interests are not primarily historical or anthropological, Graebner does provide a very interesting perspective, and his historical examples are a good counterpoint to the explanations provided by standard economics. I think one of the things that comes from taking such a wide, historical point of view, is that it makes one aware that since money is a social construct, its role, functions and importance evolve throughout time and space, and are in no way constant. This is in stark contrast with the "scientific" aspirations of many economic schools (esp. the apriori Austrians) which like to deal with "universal categories", which are independent of time, place or social organization. Hence the violent hostility from that quarter.

    As I've said, I noticed that CE has resurrected his blog some time ago, but from what I've been able to see he mostly deals with current affairs, to which I have little to contribute. I enjoyed the first phase of his blog, because it was a civil forum for exchanging views, and I liked many of the contributors who posted comments there. At that time I was still at an early stage of my economic investigations, as was Cynicus. Over time our views seem to have drifted in opposite directions. His seem to have turned more into some eclectic form of neoclassical orthodoxy, mine have been moving away, so the opportunities for constructive engagement have been greatly reduced.

    Matt

    ReplyDelete
  7. Gavin Kennedy has a lengthy 6 part review of Graeber, in which he takes issue with his characterisations of Smith:

    http://adamsmithslostlegacy.blogspot.com/2011/12/review-of-david-graebers-5000-years-of.html

    ReplyDelete
  8. Unlearningecon,

    Thanks for the link. I just read this:

    "Review Of David Graeber's 5,000 Years of Debt (part 1)," "December 05, 2011
    http://adamsmithslostlegacy.blogspot.com/2011/12/review-of-david-graebers-5000-years-of.html

    I find it a bit unfair. Quotations of Gavin Kennedy:
    -----
    "Studies of human non-kin relationships show the prevalence of reciprocation exchanges. Reading Chapter 1, I expected to find this phenomenon integrated or at least mentioned in David’s analysis. It wasn’t."

    The relevant chapter of Graeber's book is chapter 2.

    In chapter 2, it is perfectly clear that Graeber does focus very carefully on "non-kin relationships show[ing] the prevalence of reciprocation exchanges" - it is the whole basis of his analysis, when he talsk about gift exchange economies and non-enumerated debt/credit relations.

    Two points:

    (1) the charge leveled against economists is that they have been fixated on money (allegedly) emerging from barter spot transactions, when societies odminated by barter spot transactions appear to be rare when we look at real world money-less societies: just three “primitive” economies where barter was predominant have been found (Crump 1981: 54).

    (2) It appears many money-less societies are dominated by non-enumerated debt/credit relations. In these societies barter is probably minimal: there is no reason to invent money at all. Why? Because with non-enumerated debt/credits or rough IOU exchanges, there is no significant double coincidence of wants problem.

    ReplyDelete
  9. Lord Keynes: I would be careful not to lump Adam Smith with neoclassical economists or Carl Menger and Ludwig von Mises, as he was not a supporter of Subjective Expected Utility or the Benthamite calculus. Smith disagreed with Bentham on speculation. But as for the money issue, I think Smith's analysis was pretty good for it's time.

    ReplyDelete
  10. Lord Keynes:

    "PeterS/Major_Freedom/Christof/David,"

    "Don't think I don't recognise your writing style and trolling nonsense. In fact, you've just said the same thing on the Krugman in Wonderland blog."

    Huh? MajorFreedomChristofDavid? What the heck? You seem to have me confused for someone else. Anderson's blog is where that I FOUND the above criticism of your nonsense, so I posted it here. Major's right.

    "In these passages, Smith didn't claim that money arose out of barter SPOT transactions. He correctly pointed out that money arises out of barter transactions. That is to say, money arises out of bartering on spot AND bartering on credit."

    "There is not one reference to credit/debt transactions in Smith's passage: you're lying. Smith is thinking of direct barter, just like Menger (1892. “On the Origin of Money,” Economic Journal 2: 238–255.)."

    There is not one reference to spot transactions in Smith's passage. YOU'RE lying by claiming he can only mean spot.

    "Furthermore, in case it isn't clear, I have in mind (as I have said above) the most extreme statements of the barter-origin, as in Rothbard:"

    "[sc. Mises’s] Regression Theorem also shows that money, in any society, can only become established by a market process emerging from barter. Money cannot be established by a social contract, by government imposition, or by artificial schemes proposed by economists."

    Notice there is no requirement that barter exchanges be ONLY spot in Rothbard either.

    "If there are historical cases of credit preceding money, then all that is showing is

    barter (credit) > money (credit or spot)

    That is CONSISTENT with Menger and Smith."

    anthropologists and other heterodox economists aren't arguing that money arose from IOUs or non-enumerated credit/debt transactions:

    I didn't claim that they did you dishonest snake. I said that they incorrectly claimed that credit is an alternative to either barter or money. In reality, credit is a form of barter exchanges and a form of money exchanges. People can trade barter on spot or on credit. People can trade money on spot or on credit. People CANNOT trade either barter or money for "credit" as if it is a thing that finalizes exchanges.

    Pay attention numbskull.

    ReplyDelete
  11. Lord Keynes:

    What anthropologists have in fact observed where money is not used is not a system of explicit lending and borrowing, but a very broad system of non-enumerated credits and debts. In most such societies, if a neighbor wants some possession of yours, it usually suffices simply to praise it (‘what a magnificent pig!’); the response is to immediately hand it over, accompanied by much insistence that this is a gift and the donor certainly would never want anything in return. In fact, the recipient now owes him a favor. Now, he might well just sit on the favor, since it’s nice to have others beholden to you, or he might demand something of an explicitly non-material kind (‘you know, my son is in love with your daughter...’) He might ask for another pig, or something he considers roughly equivalent in kind. But it’s almost impossible to see how any of this would lead to a system whereby it’s possible to measure proportional value.

    "Non-enumerated credits and debts" based on the expectation that they will be settled by exchanging either barter commodities or the money commodity.

    Credits mean a promise to pay something. It is that something that Menger and Smith are referring to when they say that barter precedes money.

    "Murphy then goes on to produce a straw man saying that a system where people borrow things from one another and then turn to political authorities to regulate the system would not produce money. True enough, but it seems a bit irrelevant considering (a) I never say people would be “borrowing” from each other in the way he describes, (b) I never attribute any role to political authorities in this process, and (c) rather than saying the informal system of favors I do describe would lead to the invention of money, I explicitly say that it would not."

    Red herring. This is all besides your idiotic assertion that the regression theorem of money can ever be refuted by empirical data, if an anthropologist finds that credit for explicitly unnamed goods or services, somehow can precede or transform into money, without the existence of bartering of the monetary commodity first.

    Money isn't sent down from heaven. At the time, it had to be mined. When money is mined, it had to be valued in itself as a commodity to be used for purposes other than money.

    That is how to understand the regression theorem. It's a logical necessity.

    "An economy mainly run on the non-enumerated credit/debt transactions will probably NOT developed money."

    Right, it will STAY as barter, which is exactly consistent with the regression theorem. The regression theorem doesn't argue that barter MUST give way to money. Only that IF money arises, it must have been through barter. Whether the barter is carried out on spot or on credit is totally and completely irrelevant to the regression theorem.

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  12. Lord Keynes:

    "The empircal evidence on how money can emerge shows:"

    "(1) invention by temple/palace planners in collectivist economic institutions (Mesopotamia/Egypt);"

    "(2) wergild social practices;"

    "(3) emergence by religion/sacrifice of some commodity for its religious value used as a unit of account, then prices denominated in it."

    No, (1) is impossible. The data don't prove it. The data can only be incomplete. Collectivist economic institutions cannot create and impose a commodity to be money ex nihilo that wasn't already valued and exchanged for its own sake in some use other than money. This is a logical truth. If an anthropologist sees data that somehow show money is created by fiat outside of barter, then the data is necessarily incomplete/inaccurate.

    (3) is just the regression theorem. FIRST the comodity was valued in itself, i.e. as a barter good, through religion/sacrifice. THEN it was used as a medium of exchange, after which "money prices" in that commodity formed.

    "Your ramblings have no force, no refutation of anything above has been achieved."

    On the contrary, YOUR ramblings have not only not refuted the regression theorem, but your ramblings have also disproven your own position against the regression theorem.

    Nothing has been "achieved" by Graeber other than a historical tally of various events. His a priori economic theory is flawed, and that is why he misconstrues the historical data.

    You're getting hung up on the whole credit versus spot thing, but the regression theorem is only about barter preceding money only. Credit and spot only tell us WHEN barter exchanges and WHEN money exchanges are finalized. Credit itself is not an alternative to barter or money.

    Go back the drawing board.

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  13. "No, (1) is impossible. The data don't prove it. The data can only be incomplete. Collectivist economic institutions cannot create and impose a commodity to be money ex nihilo that wasn't already valued and exchanged for its own sake in some use other than money. This is a logical truth. "

    A statement demontrating the intellectual bankrupcy of the Austrian arm-chair praxeologist: the data disprove what I'm saying, so therefore "the data is necessarily incomplete/inaccurate."!

    Fit only for the deluded, the stupid, the ignoramus, and the stark raving mad.

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  14. "It is that something that Menger and Smith are referring to when they say that barter precedes money."

    They are not referring to credit/debt transactions, and this is your persistent, laughable lie.

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  15. "Money isn't sent down from heaven. At the time, it had to be mined. When money is mined, it had to be valued in itself as a commodity to be used for purposes other than money. "

    Garbage: the money thing could be cattle, cowrie shells, etc, not merely mined things.

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  16. "There is not one reference to spot transactions in Smith's passage. "

    You are a contemptible liar:

    "The former consequently would be glad to dispose of, and the latter to purchase, a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them. [i.e, direct barter - LK] The butcher has more meat in his shop than he himself can consume, and the brewer and the baker would each of them be willing to purchase a part of it. But they have nothing to offer in exchange," etc.

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  17. Your idiotic attempt to deny that direct barter - that is, barter spot transactions - is not what is imagined by Smith, Menger, Mises etc. is totally destroyed by the fact that their main argument for the emergence of the most saleable commodity as a medium of exchange DEPENDS on the double co-incidence of wants problem: in a credit/debt transaction - exchange of present goods for future goods/services or even social relations - the double co-incidence of wants problem is AVOIDED.

    If they really include credit/debt transactions, and think credit/debt transactions as a type of barter can also lead to money, the whole basis of their argument is undermined.

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  18. "The former consequently would be glad to dispose of, and the latter to purchase, a part of this superfluity. But if this latter should chance to have nothing that the former stands in need of, no exchange can be made between them."

    How does this passage EXCLUDE credit exchanges? He just says exchanges. The butcher, brewer, and baker can make exchanges on credit. Smith isn't saying that ONLY spot barter exchanges are possible.

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  19. "How does this passage EXCLUDE credit exchanges? He just says exchanges. The butcher, brewer, and baker can make exchanges on credit. Smith isn't saying that ONLY spot barter exchanges are possible. "

    He is assuming direct barter - barter spot transactions - here obviously, for the simple reason that a credit/debt transaction (or an exchange of present goods for future goods/services) would overcome the double coincidence of wants problem: the butcher can give his meat to the baker now, and the baker will promise to repay the mutuum loan (= loan for consumption) in the future with some commodity the butcher designated (e.g., meat now for nails in 2 months time). The baker now has a time period to find whatever commodity the butcher designated that the baker himself does not have now.

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  20. I don't really disagree with your claims, although I think you have to read the full Wealth of Nations in order to appreciate Adam Smith's theory of money. For instance, you are quoting from book 1 chapter 4, but Smith also has a very interesting (and much more extensive) chapter describing the complex workings of the system of bills of exchange, so he was by no means focused on gold and silver as money (See book 2 chapter 2). In this way he was different from Menger, who never discusses credit. Like Henry Dunning Macleod (who I see someone has already quoted), Smith was comfortable with credit as money.

    The existence of Henry Dunning Macleod, as well as George Berkeley and James Steuart, disconfirms the thesis that classical and neo-classical economists were uniformly metallists. All advocated to various degrees a credit theory of money. Jevons credits Macleod for laying the framework for marginal utility calculus, so he was surely neoclassical.

    The "origins of money" debate is interesting but I don't know how important it is. I think it's perfectly logical to adopt a Mengerian metallist approach and a Macleodean credit approach, modifying each just enough so that they can be amalgamated. Let the anthropologists take care of the chronological order of things.

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  21. The sheer level of your cultish, pig-headed lying is confirmed by even a quick read of what Robert Murphy said about Graeber:

    In a crucial passage, Graeber says:

    > "[T]he flaw in the barter theory of the
    > origin of money is that barter presumes
    > SPOT TRANSACTIONS. There is no reason
    > whatsoever to presume that neighbors would
    > limit themselves to spot transactions in
    > dealing with one another. However, if one
    > does not presume spot transactions, then
    > the notorious problem of the “double
    > coincidence of wants” does not occur. You
    > end up with a system of broad,
    > non-enumerated credits, and this is
    > precisely what those who actually did
    > research on communities that do not use
    > money did find."

    This is an excellent point, and Graeber is right: In the standard exposition of a barter economy, economists typically think in terms of spot transactions. But in principle, there’s no reason to restrict ourselves in this way. If we can imagine a farmer trading a pig for an axe, we can also imagine a farmer trading a pig for a promise to deliver an axe in two weeks.

    Graeber is also right that the possibility of credit transactions expands the scope of a moneyless economy, and mitigates the problem of finding a double coincidence of wants.


    http://blog.mises.org/18371/murphy-replies-to-david-graeber-on-menger-and-money/

    The 2 crucial points:

    (1) Murphy, just as I have said above, is clear that "in the standard exposition of a barter economy, economists typically think in terms of spot transactions."

    (2) Murphy also says that debt/credit transaction do not "eliminate the problem" of double coincidence of wants - sure, they don't completely and utterly eliminate it, but they certainly significantly diminish it ("mitigates the problem", he says).

    Too bad you are exposed for what you are: a liar and a fraud.

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  22. By the way, the last comment applies to Major_Freedom/PeterS, not to other commentators above, so there's no confusion.

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  23. Money isn't sent down from heaven. At the time, it had to be mined. When money is mined, it had to be valued in itself as a commodity to be used for purposes other than money.

    That is how to understand the regression theorem. It's a logical necessity.


    How do tally sticks fit into the regression theorem? Whereas they were used by many major cultures around the world, I would assume it should say something about them.

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  24. "Huh? MajorFreedomChristofDavid? What the heck? You seem to have me confused for someone else.

    LOL. Murray would be proud of you. I mean the five of you of course.

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  25. Argosy Jones,

    This ludicrous troll is the worst I've ever seen.

    Gene Callahan may be on to something:

    http://factsandotherstubbornthings.blogspot.com/2012/01/couple-debt-updates.html?showComment=1325816136764#c7672460519914875997

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  26. Cool info on this blog.

    LK have you seen the recent battle between David Graeber and George Selgin?

    Is that something you would be interested in posting about at all?
    Or maybe that doesn't interest you as much at this point - kinda interesting though.

    ReplyDelete
    Replies
    1. Do you have a link to this David Graeber and George Selgin debate?

      Delete
    2. Sure thing.

      So it appears it all started here.
      When the Atlantic did this article (which I was intrigued that the truth had gotten out) :P

      http://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/

      Then Selgin this month posted this.

      http://www.alt-m.org/2016/03/15/myth-myth-barter/

      And then this happened on Twitter:

      https://twitter.com/GeorgeSelgin/status/710152681961234432

      Then Selgin did this:

      http://www.alt-m.org/2016/03/24/graeber-once-more/

      A few others jumped in to increase some flames:

      https://twitter.com/barryDstocker/status/711561194855927809

      And I'm not sure if Graeber is going to come back at him or not.

      I guess it wasn't so much a debate, just more a quick battle where Selgin attacks Graeber's argument and Graeber's character a little too it seems, and Graeber attacks back... I think Selgin wants more to enter into a debate but not quite sure what Graeber wants to do next.

      Delete
    3. My analysis here:

      http://socialdemocracy21stcentury.blogspot.com/2016/03/george-selgin-versus-david-graeber-on.html

      Selgin's revised Mengerian view of money's origins is Karl Marx's but stripped of the LTV.

      Delete
    4. AWESOME man!!!
      Can't wait to read your thoughts on this!!! :D :) :D

      Delete