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The Myth About Money, Credit & Gold

The standard version of how money came to be goes like this: First, there was barter. (A handful of nails for a pint of ale!) Then, along came various forms of money. An evolutionary derby eventually crowned gold and silver as the supreme money. And finally, credit (or debt) was born. This is the apex of man’s ascent from knuckle-dragging barterer to tie-wearing mortgage holder.

It’s a nice little story… except it’s completely wrong.

“Our standard account of monetary history is precisely backward,” writes David Graeber in Debt: The First 5,000 Years. “We did not begin with barter, discover money and then eventually develop credit systems. It happened precisely the other way around.”

Graeber’s book Debt came out in 2011. I didn’t pay much attention to it then. After all, who needs to read another book about debt? But Graeber is an original thinker and provides a perspective you’ve probably not seen, since Graeber is not an economist. So he draws from unfamiliar wells on the topic of money and credit.

Graeber is an anthropologist. He’s studied the record of human civilizations. It’s nothing like the economists imagine it. Graeber quotes from numerous economic textbooks to show how economists perpetuate the mythic progression of barter, money and then credit. (My own favorite, The Mystery of Banking, by Murray Rothbard, also opens with the same story.) But anthropologists have long known that the historical evidence does not support this view. It’s just that economists seem to have ignored it.

Graeber calls the barter-money-credit story “the founding myth” of economics. Instead, what really happened first was credit. In small villages and communities, trade happened on credit. Graeber presents a lot of evidence on this, which I’ll skip in the interest of space. I’ll just say it is convincing. And when you think about it, it’s hard to imagine it happening any other way. “It’s not as if anyone actually walked into the local pub,” Graeber writers, “plunked down a roofing nail and asked for a pint of beer.”

Source Laissez Faire Club

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