Discussing the Myth of Barter
"First, the history:
1) Adam Smith first proposed in ‘The Wealth of Nations’ that as soon as a division of labor appeared in human society, some specializing in hunting, for instance, others making arrowheads, people would begin swapping goods with one another (6 arrowheads for a beaver pelt, for instance.) This habit, though, would logically lead to a problem economists have since dubbed the ‘double coincidence of wants’ problem—for exchange to be possible, both sides have to have something the other is willing to accept in trade. This was assumed to eventually lead to the people stockpiling items deemed likely to be generally desirable, which would thus become ever more desirable for that reason, and eventually, become money. Barter thus gave birth to money, and money, eventually, to credit.
2) 19th century economists such as Stanley Jevons and Carl Menger  kept the basic framework of Smith’s argument, but developed hypothetical models of just how money might emerge from such a situation. All assumed that in all communities without money, economic life could only have taken the form of barter. Menger even spoke of members of such communities “taking their goods to market”—presuming marketplaces where a wide variety of products were available but they were simply swapped directly, in whatever way people felt advantageous.
3) Anthropologists gradually fanned out into the world and began directly observing how economies where money was not used (or anyway, not used for everyday transactions) actually worked. What they discovered was an at first bewildering variety of arrangements, ranging from competitive gift-giving to communal stockpiling to places where economic relations centered on neighbors trying to guess each other’s dreams. What they never found was any place, anywhere, where economic relations between members of community took the form economists predicted: “I’ll give you twenty chickens for that cow.” Hence in the definitive anthropological work on the subject, Cambridge anthropology professor Caroline Humphrey concludes, “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing”
a. Just in way of emphasis: economists thus predicted that all (100%) non-monetary economies would be barter economies. Empirical observation has revealed that the actual number of observable cases—out of thousands studied—is 0%.
b. Similarly, the number of documented marketplaces where people regularly appear to swap goods directly without any reference to a money of account is also zero. If any sociological prediction has ever been empirically refuted, this is it.
4) Economists have for the most part accepted the anthropological findings, if directly confronted with them, but not changed any of the assumptions that generated the false predictions. Meanwhile, all textbooks continue to report the same old sequence: first there was barter, then money, then credit—except instead of actually saying that tribal societies regularly practiced barter, they set it up as an imaginative exercise (“imagine what you would have to do if you didn’t have money!” or vaguely imply that anything actual tribal societies did do must have been barter of some kind.
So what I said was in no way controversial. When confronted on why economists continue to tell the same story, the usual response is: “Well, it’s not like you provide us with another story!” In a way they have a point.
The problem is, there’s no reason there should be a single story for the origin of money. Here let me lay out my own actual argument:
1) If money is simply a mathematical system whereby one can compare proportional values, to say 1 of these is worth 17 of those, which may or may not also take the form of a circulating medium of exchange, then something along these lines must have emerged in innumerable different circumstances in human history for different reasons. Presumably money as we know it today came about through a long process of convergence.
2) However, there is every reason to believe that barter, and its attendant ‘double coincidence of wants’ problem, was not one of the circumstances through which money first emerged.
a. The great flaw of the economic model is that it assumed spot transactions. I have arrowheads, you have beaver pelts, if you don’t need arrowheads right now, no deal. But even if we presume that neighbors in a small community are exchanging items in some way, why on earth would they limit themselves to spot transactions? If your neighbor doesn’t need your arrowheads right now, he probably will at some point in the future, and even if he won’t, you’re his neighbor—you will undoubtedly have something he wants, or be able to do some sort of favor for him, eventually. But without assuming the spot trade, there’s no double coincidence of wants problem, and therefore, no need to invent money.
b. 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. After all, even if, as sometimes happens, the party owing one favor heads you off by presenting you with some unwanted present, and one considers it inadequate—a few chickens, for example—one might mock him as a cheapskate, but one is unlikely to feel the need to come up with a mathematical formula to measure just how cheap you consider him to be. As a result, as Chris Gregory observed, what you ordinarily find in such ‘gift economies’ is a broad ranking of different types of goods—canoes are roughly the same as heirloom necklaces, both are superior to pigs and whale teeth, which are superior to chickens, etc—but no system whereby you can measure how many pigs equal one canoe.
3) All this is not to say that barter never occurs. It is widely attested in many times and places. But it typically occurs between strangers, people who have no moral relations with one another. There is a reason why in just about all European languages, the words ‘truck and barter’ originally meant ‘to bilk, swindle, or rip off.’
Still there is no reason to believe such barter would ever lead to the emergence of money. This is because barter takes three known forms:
a. Barter can take the form of occasional interactions between people never likely to meet each other again. This might involve ‘double coincidence of wants’ problems but it will not lead to the emergence of a system of money because rare and occasional events won’t lead to the emergence of a system of any kind.
b. If there are ongoing trade relations between strangers in moneyless economies, it’s because each side knows the other side has some specific product(s) they want to acquire—so there is no ‘double coincidence of wants’ problem. Rather than leading to people having to create some circulating medium of exchange (money) to facilitate transactions, such trade normally leads to the creation of a system of traditional equivalents relatively insulated from vagaries of supply and demand.
c. Sometimes, barter becomes a widespread mode of interaction when you have people used to using money in everyday transactions who are suddenly forced to carry on without it. This can happen, for instance, because the money supply dries up (Russia in the ‘90s), or because the people in question have no access to it (prisoners or denizens of POW camps.) This cannot lead to the invention of money because money has already been invented." (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)