The history of barter


This is really cool. Turns out there’s no evidence at all for the standard economics story about how money developed as a side effect of it being hard to exchange dis-similar goods. When people had to exchange dis-similar goods, they did it by social norms about what was “fair” as payback, or favor-trading.

Related from one of the comments.

So if credit preceded hard currency, why was hard currency developed?

The emerging consensus among historians over the last ten years is that markets based on the use of actual bullion or currency in daily transactions are almost everywhere a side-effect of war. If you think about this, it makes sense. Why did they choose gold and silver as the universal currency of exchange? Well, gold and silver were the sort of things that soldiers were most likely to have a lot of on hand, since that is the easiest and most valuable thing to carry off if you’re looting and pillaging somewhere. But on the other hand, a soldier is the last person you’re going to want to extend credit to, since they are heavily armed and just passing through. So, soldiers wants of stuff (marketplaces always formed around an army), and they’ve got lots of these bits of precious metal; it makes sense that that’s where cash markets would emerge.

What seems to have happened is that states started systematizing the division of the loot into uniform pieces, eventually making them into coins. Then – and this is the big trick – they demanded those coins back, in taxes. One of the great mysteries, if you take the Adam Smith theory of the origin of money (that it arose from the inconveniences of barter), is, why did ancient kings want taxes at all? If gold and silver were naturally money, why not just grab the gold and silver mines directly and keep all of it? Indeed that is in fact what they did, so what’s the point of taking the gold that you already own, stamping your picture on it, handing it out and then saying, ‘OK, everybody, give it back’? The only logical explanation is that they were trying to create a market, and that also explains who they were giving it to. One of the big problems in the ancient world was how to feed one’s army. You have 50,000 people sitting around, and they’re going to eat pretty much anything standing in the area within about three weeks. How do you feed them? The easiest solution is to give the soldiers these metal coins and say, ‘OK, everyone in the kingdom is required to give me one of these coins’. Suddenly the whole population has to figure out a way to give the soldiers what they want in exchange for the coins. So you’re effectively employing your entire kingdom to feed your soldiers. Commercial markets are essentially, then, a by-product of military operations by states.


I’m having a hard time following the soldier theory. Why would soldiers carry off gold from places if the gold wasn’t ALREADY worth something?


It was worth something, it just wasn’t a conventional medium of exchange. The “feed your army” theory is quite interesting.


As a hardcore history fanatic, this hypothesis is, hmmm, interesting. Have to read more.



The theory seems to be based on a flawed understanding of gift economics at its basis. It assumes that gift economics were based on some notion of acquired credit. While that’s one theory of how things worked out, it’s hardly the only interpretation.


So basically - no one knows where money came from and what the intermediate step was between gift giving and currency. All this modern stuff is still just speculation - just like the failed barter theory was.

Could have easily have had its roots in religion rather than politics - perhaps in some ceremonial item that could be substituted for livestock in sacrifice, for example, giving that item a standard value.

I’ve also seen suggestions that it had its origin in humanities particular craze for collecting otherwise worthless things (gold, tulips, homes in hurricane prone areas, baseball cards, beanie babies, etc). By the perception of everyone wanting a particular thing, that thing was imbued with a value - giving the collectible the status of de facto money (“I give you pretty shell for 3 chickens” “OK, I hear it worth 4 chicken in tribe across the valley”). If thats the case, our modern asset bubbles/collectible crazes are just an echo of our economic origins.


Kinda doubt this theory holds water, although it’s true that running through the Anabasis are complaints by soldiers when friendly states refused to set up a market for them, or put up one of poor quality.

A lot of civilizations adopted coins after running into them despite maintaining citizen soldier seasonal armies or only infrequent warring. And Lydia wasn’t exactly known as a military powerhouse of the ancient era. In fact, Herodotus notes that they pioneered permanent retail shops. If you think about it, a permanent shop is probably the opposite of a reason to leave a barter system.


Well, Lydia thought enough of itself to take on Persia (and lose).

Anyway, I’ll just stick with Locke…for now…duh duh duuuuuh.


So who run barter town?


JMR wins.


I think we’ve got a strong case here for aliens landing, building the pyramids, and putting us on the gold system.


The aliens were Austrians?


I’d bet there’s some truth to the large army hypothesis, in that money is certainly a useful thing to pay soldiers with, but the sole and actual beginning of money? Very speculative. Kings can just as easily demand taxes in food or salt, which would have the same effect of maintaining their army while not requiring any particular innovation.

The assumption that soldiers are “buying” their food with loot rather than being provided it by the army seems particularly speculative – and entirely too unreliable and short term in thinking for something that from a military standpoint must be done well.

Seems a mistake to me to assume the adoption of money was necessarily due to any one thing, or to implicitly believe that it started off the same way everywhere.


But food is perishable, while loot is not. At the end of a soldiers service, he couldn’t be paid in food for his services. He might be paid in land, but that’s more for the higher ups. Salt I could sort of see, at least it isn’t going to go bad, but its a bit more problematic to carry around, a leaky pouch, and there goes your salt.

(Though I have to agree it was probably many sources that caused the advent of currency)


Well, right. I wasn’t suggesting that they were paid in food and salt, but rather that their upkeep consisted largely of food and salt, which was provided by the ruler and could be readily accumulated by taxes or theft (“living off the land”). Running an army and expecting soldiers to provide the food is an obvious recipe for disaster.

Before money “soldiers” would have been paid in status, land, animals, and goods, with a side of loot – and living either in the field for relatively short periods or in their community. The quotation’s dilemma about “extending soldiers credit” and “soldiers needing to go shopping” I think simply didn’t exist – it’s an anachronism stemming from times when large standing armies were paid in cash.

Now, I would agree that having currency made funding a standing army and using it for empire building more feasible, but that’s a different point than was made.

Actually, the more I think about it the more I think the idea is ridiculous. Using bars of precious metals to exchange goods between nations, or durable goods of some sort as an intermediary between those trading goods available in different seasons, was done considerably before the introduction of money. Those both seem much more likely to be the inspiration for money than some anachronistic need to pay a standing army in cash.

And the whole bit about “One of the great mysteries … is, why did ancient kings want taxes at all?”… What a load of crap!


This is what I would have guessed too, but David Graeber (the first link in the text of the on the blog post) points out that ancient traders definitively did not use bars of precious metals, or intermediary goods. It was straightforward “these people want X and produce Y, these people want Y and produce X.”

One might of course ask, could not such a system generate something like money of account—that is, the use of one or two relatively desirable commodities to measure the value of other ones, once more items were added to the mix (say, our merchant is making several stops)? The answer is yes. No doubt in certain circumstances, something like this did happen. Of course, it would have meant that money, in such cases, was first created as a means to avoid market mechanisms, and that it was not used mainly as a medium of transactions, but rather, primarily as a means of account. One could even make up an imaginary scenario whereby once you start using one divisible/portable/etc commodity as a means of establishing fixed equivalents between other ones, you could start using it for minor occasional transactions, to measure negotiated prices for spot trade swaps on the side, in a more market-driven way. All that is possible and likely as it did happen now and again—after all, we’re dealing with thousands of years here. Likely all sorts of things happened over this long period. However, there is no reason to assume that such a system would produce a concrete medium of exchange regularly used in making these transactions—in fact, given the dangers of ancient trade, insisting that some medium like silver actually be used in all transactions, rather than a credit system, would be completely irrational, since the need to carry around such a money-stuff would make one a far, far, more attractive target to potential thieves. A desert nomad band might not attack a caravan carrying lapis lazuli, especially if the only potential buyers were temples which would probably know all the active merchants and know that you had stolen the stuff (and even if you could trade for them, what are you going to do with a big pile of woolens anyway, you live in a desert?) but they’d definitely go after someone carrying around a universal equivalent. (This is presumably the reason why the great long-distance traders of the Classical World, the Phoenicians, were among the last to adopt coinage—if money was invented as a circulating medium for long-distance trade, they should have been the first.)

It’s amazing how much our modern expectations are off. Fun bonus: the sexytime “dzamalag” ceremony he talks about.


I think the problem with this theory is the presence of standardized units of measure issued by central governments before coinage; Babylonia was using standardized stone weights for a thousand years (or two?) before the Roman Empire. I remember Chinese and Imperial Indian units of measure that are also quite old.

I think this hurts the idea that there wasn’t a centralized evaluation of the exchange of goods and services. In fact, in Babylonian cuneiform tablets we have evidence that the central temple kept quite strict records of the various collections and types of goods that were “in circulation”; and obviously, writing itself was a part of the administrative apparatus originally. This is important because he seems to be making the case that coinage “emerged” to solve an imperial problem that had never been encountered before, which, honestly, i don’t think is a case he can make without a considerable amount of evidence, and in fact, the Late Roman Empire actually abandoned coinage and went back to tax-in-kind because the coinage had been devalued and discredited to the point of worthlessness and was hampering the central government.

It is interesting to see how and where a money economy developed, but i’m not sure this relationship with military funding can be considered sound. A big problem is where it emerged, which is not in one of the great imperial powers of the Near East, but in the relatively backwater (at the time) Greek colony city states of Anatolia or one of the Aegean islands, which wouldn’t seem immediately to face the same kind of large scale funding issues of a larger power. I would hazard to guess that at first Greek coinage was not actually meant for circulation in the same sense as we see it today, but rather as a form of publicity and propaganda. The Eastern pre-classic city-states tended to be less democratic, and it’s very possible that by a happy coincidence of metallurgical advances, Greek artistic developments, and the authority of a central autarch who wants to pass his stamped face around to his subjects on metal coins, eventually, valuable (gold!) metal coins, that the whole thing got started.

I’d also like to see some sort of transformation in military terms that would inspire or force this development where it had not been an issue before. The pre-classic world had fun for thousands of years killing each other; why suddenly did they need coinage now?


Well, the military theory is the second link’s idea; the temple-derived one in the first link does make more sense.


More gold booty on hand and a lightbulb went off in someone’s head? “Hey, what about those bullion discs that egocentric autarch makes?” There’s nothing intrinsically implausible for me about this “military practicality” argument: booty, unlike many other economy transfers, does pose a significant logistical problem that bullion coinage might have solved.

What I’d really like to know is who this “emerging consensus of historians” comprises. The advent of coinage was surprisingly late, so we could be talking about some actual history as opposed to anthropological guesswork.