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Economics, Anthropology and the Origin of Money as a Bargaining Counter

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By Patrick Spread

Some readers will be familiar with the long-standing differences between economists and economic anthropologists over the origin of money. This book, Economics, Anthropology and the Origin of Money as a Bargaining Counter, argues that both are mistaken, and that the origin of money lies in the adoption of bargaining counters for a process of money-bargaining.1

Economists maintain that money derives from barter. Adam Smith describes the inconveniences of barter giving way to the adoption of a particular commodity whose ubiquitous use makes it a convenient common item of exchange. Money as a medium of exchange makes practicable the exchanges portrayed mathematically in the neoclassical economic model. It is commonly explained as a ‘veil’ that overlays the resource allocation process described in the economic model.

Economic anthropologists have long challenged this account of the origin of money on the grounds that there is no empirical evidence for it. No evidence has come to light of societies in which barter was the predominant form of exchange, and hence necessarily there is no evidence of the emergence of money from a process of barter. Money must have a different origin.

In The Great Transformation Karl Polanyi argued that money could not have emerged as a medium of exchange because the economic ‘markets’ in which it supposedly originated did not exist in the ancient world.2 Geoffrey Ingham argues that an abstract money must logically have been established prior to its use in private exchange.3 On these grounds also, money must have a different origin.

The alternative origin proposed by economic anthropologists is the establishment of money by state proclamation as a ‘money of account’ for administrative convenience in the palaces and temples of ancient Mesopotamia. It acquired value in those societies through its acceptance in tax payments to the state. Ordinary people sought to acquire money because they needed it to pay taxes. They traded to obtain the money they needed, accepting the values, or prices, established by temple and palace accountants in the course of their administration of accounts. Michael Hudson describes the functions of ancient palaces and temples, identifying the origin of money in the management of their accounts, given value by acceptance in payments to the state.4 Randall Wray similarly affirms that:

All the evidence points to the common origins of money, debts and writing, in the tax levies of the palaces…Money, then, originated not as a cost minimizing medium of exchange, but as the unit of account in which debts to the palace (tax liabilities) were measured.5

The different accounts of the origin of money are clearly related to broader ideological frames of reference. Economists prefer an individualistic origin in private trade; economic anthropologists prefer a social origin, dictated by the state. Conflict of this kind is inherent in the idea of support-bargaining, which understands individuals as in a constant mix of cooperation and competition, amounting sometimes to conflict, with the group. The individual must retain the support of the group as a psychological necessity, but also wants certain concessions from the group. The group must retain the support of individuals, otherwise it falls apart and loses socio-political potency. But the group exacts compliance from its individual members in exchange for the essential support it gives them. The ubiquitous ‘right-left’ division of society and politics can be seen as implanted in these basic contentions of support-bargaining.

Economics, Anthropology and the Origin of Money as a Bargaining Counter identifies the origin of money in the emergence of bargaining counters to overcome the inconveniences of barter. The bargaining counters are used in a system of money-bargaining, with a dynamic very different to that of the neoclassical resource allocation process. Barter is itself a matter of bargaining. People try to get the best terms of exchange, whether in terms of fish for potatoes or labour for food. Common items of barter trade can function as bargaining counters, valued as much for the facility with which they can be traded as for their practical qualities. The bargaining counters can be seen as emerging seamlessly from barter-bargaining to start money-bargaining systems.

The idea that barter societies did not exist, or were extremely rare, in ancient times derives from ambiguities over gift-giving and commercial exchange. Bronislaw Malinowski identified in the Kula Custom of the Trobriand Islands a form of exchange that he took to be demonstrative of an alternative socially based mode of customary provision. But he also documents how gift-giving may be at one time altruistic and sociable but at another time more a matter of exchange related to material interest. Polanyi developed his theory of ‘reciprocity and redistribution’ from Malinowski’s research. In Malinowski’s classification pure gift-giving, in the simple sense, is rare. Richard Seaford sees similar ambiguities portrayed by Homer: adherents of the warrior code express their loyalty and commitment through gift-giving, but it is apparent that the commercial value of the gifts is significant to giver and receiver.6 Seaford takes Homer’s description of a warrior culture as broadly reflecting an actual social culture that ostensibly scorned material interests, but was nevertheless much concerned with material interests.

People still experience the ambiguities of gift-giving and commerce. They can be understood as ambiguities over whether a person is involved in support-bargaining, concerned with the securing of social support, or money-bargaining, concerned with material advantage. People can be embarrassed when they receive what they take to be a friendly gift, then find that payment is expected. Or the reverse can happen: it is embarrassing when people offer to pay for something that was intended as a friendly gift. It is a rejection of friendship. Reciprocation with roughly equal commercial value is expected in gift-giving between adults. Money is an alternative and supplementary bargaining counter to support, and impinges on the importance of support.

To get round the ambiguities, George Dalton recommended a very tight definition of barter, distinguishing very sharply the material interest of barter from the social exchange of ‘reciprocity.’7 The material exchange of ‘barter’ is held to be confined to immediate exchanges. Other forms of barter, such as delayed barter, are then to be classified as ‘reciprocity.’ He writes: ‘Barter, in the strict sense of moneyless market exchange, has never been a quantitatively important or dominant model of transaction in any past or present economic system about which we have hard information.8 Societies that conduct their material affairs entirely in accordance with the strict definition of barter are inevitably hard to find. But what is ambiguous in life cannot and should not be made unambiguous by theoretical definitions. Caroline Humphrey argues, on the basis of a field study of a modern barter system, that barter can be flexible and innovative, and involve time delays.9 Trading by barter, broadly conceived, and including deferred barter, is so cumbersome, and the use of makeshift bargaining counters so easily contrived, that systems of barter are likely to resolve quickly into money-bargaining using bargaining counters recognised in particular communities.

The idea of money-bargaining also makes irrelevant Polanyi’s objection to the emergence of money from barter. Polanyi understands exchange in terms of the ‘self-regulating market’ portrayed in neoclassical theory. For Polanyi, such markets took over Europe in the nineteenth century and are responsible for much of the social evil that emerged in that period and subsequently. He argues that the conditions of supply and demand and the formation of prices envisioned in the economic model could not have happened in the ancient world, so money could not have emerged from markets. But Polanyi mistakes economic theory for economic practice. Money-bargaining has a quite different dynamic to that of neoclassical self-regulating markets. In money-bargaining prices are based primarily on unit costs of provision, while what is bought is determined by the situations of potential buyers. People and organisations select by reference to their situations. The reference gives money-bargaining an evolutionary character, in contrast to the tendency to equilibrium seen in the neoclassical economic model. (A specific ‘Introduction to Support-Bargaining and Money-Bargaining’ is provided at the start of the book.10) In the dynamic of money-bargaining time disparities between expenditures and revenues, inseparable from economic exchange, but no part of the neoclassical model, are accommodated through budgeting. Credit is used to overcome time disparities between expenditures and revenues. The longer term relationships necessarily involved with the provision of credit require management through support-bargaining to minimise conflict. This money-bargaining dynamic of exchange can be operative in the sparsest populations. It can operate in any era, including ancient Mesopotamia. Money would be very likely to emerge from barter-bargaining as a makeshift bargaining counter.

With a bargaining counter established in private exchange, palaces and temples would find it necessary to use as money of account for their financial management the same bargaining counter as was used in private exchange. A ‘money of account’ could not be settled by proclamation; effective budgeting would require that the money of account was the bargaining counter of trade. The ‘money of account’ was a money of budgeting. Economic anthropologists have followed Polanyi in taking their ideas of economics from neoclassical economic theory, and because neoclassical theory has no notion of budgeting, they have failed to recognise the budgeting of palaces and temples for what it was.

The value of the bargaining counter then rests not on its acceptance by state tax authorities, but on acceptance by ordinary people in the course of their money-bargaining. The bargaining counter is best understood as a credit issued by society to cover time disparities between people selling something, whether commodity or service, and wanting to buy something else. This ‘social credit’ is redeemed by society in the form of the many members of the society who will accept the bargaining counter in exchange for goods or services. Such people perform the role of ‘dependable debtors.’ They give the bargaining counter purchasing power. So long as there are ‘dependable debtors’ ready to provide goods and services in redemption of the social credit, the bargaining counter will maintain its purchasing power and will continue to function as money in the society.

The ‘dependable debtors’ redeeming the social credit have none of the reluctance of ordinary debtors. On the contrary, they will all be keen to sell goods and services. They will aim to accumulate money, and establish for themselves the social credit it represents. There is thus powerful motivation to act, albeit unwittingly, as a dependable debtor in relation to the social credit of a national money. The dependable debtors will try to reduce their unit costs of provision, and hence reduce their prices, thus increasing the purchasing power of the bargaining counter. The bargaining counters of strong economies will appreciate relative to those of weaker economies. If money is valued by acceptance in taxation, it implies the imposition of a tax debt, in circumstance when people expect, by virtue of their earning of money, to be social creditors. Some form of coercion, light in modern times but heavy in ancient times, is necessary to such imposition. The motivations of money-bargaining and the use of bargaining counters are all to individual advantage.

Where a common commodity becomes accepted as the bargaining counter used in a community, there is no problem of putting the money into circulation. Early ‘makeshift’ bargaining counters can be switched from an exchange function to usage just by a change of mind. A money like ‘honey,’ ‘sesame,’ or ‘reeds’ can be money or not money according to circumstances. Fritz Heichelheim describes the use of many homely commodities as money – effectively makeshift bargaining counters – in the ancient world.11 But makeshift moneys evolve into token moneys – items that have no use but have established acceptance for purposes of exchange in particular communities. These require the involvement of some communal authority – some sort of government – to oversee its production and ensure that sufficient quantity is supplied to meet the requirements of trade, without providing such excess as gives rise to inflation of prices.  A popular bargaining counter arising from money-bargaining needs the backing of a communal authority if it is to be widely used. The communal authority has to control the money supply; it also has to protect the communal money against counterfeiting. With such measures, it is easier for people to fulfill the function of dependable debtors, and maintain the purchasing power of the bargaining counter. Token money has to be traded into circulation or provided through credit. Societies have historically often found themselves short of money due to difficulties in getting their money into circulation.

In modern economies national bargaining counters are put into circulation mainly through the provision of credit. Private banks provide credit to customers that enables them to overcome time disparities by making necessary expenditures before they receive revenues. The banks provide such credit denominated in the national currency, so that the banks are at the same time as they make the commercial loan putting into circulation a national money. But while the private bank is concerned only with the repayment of its loan, the circulation of the national money is a responsibility of a ‘communal authority,’ normally in the form of a central bank. Central banks take advantage of the credit-providing services of commercial banks to put the national bargaining counter into circulation. The redemption of the bank credit depends on the repayments of the borrowers. But the redemption of the social credit represented by the national bargaining counter depends on the existence of ‘dependable debtors’ in the society. Central banks are empowered to control the level of credit issued by private banks in order to control the supply of money and ensure money retains its purchasing power.

Money emerges as an alternative bargaining counter to support. Because money is distinct, durable and divisible, it can be used in transactions where precision is required. Support is a much less precise and durable bargaining counter than money, and is consequently unsuited to many transactions. Money is then a supplementary bargaining counter to support, as well as an alternative. The efficacy of money makes it a rival bargaining counter to support. It creates tensions in societies. In earlier societies, money was disparaged and denigrated as anti-social and immoral by those ascendent through support. The ascendent feared a challenge to their ascendancy from those able to raise support against them through the use of money. People soldier for money as well as in support of causes. Money wealth can be used against established rulers; money is necessary to sustain political advantage.

This fear of what can happen if ordinary people are free to become wealthy is the probable reason why the very convenient form of money, coin-money, was not adopted earlier. While money was cumbersome and inconvenient, it could be controlled by rulers, and was consequently tolerable, but the convenience of coin-money made it a much greater threat. The technology for making coins was available well before it was used to make coins for wide circulation. It was only when the Greek poleis established support-bargaining systems with popular participation that the adoption of coin-money into wide circulation became politically feasible. The rulers had less to fear from coinage when the people themselves had a significant role in determining who would rule them. Seaford sees the tensions in Greek society, apparent from the Homeric stories, as giving rise to the poleis, and the egalitarian character of Greek feasting rituals, contrasting with more authoritarian characteristics of ritual procedures in the Near East, as an expression of the cultural dispositions that made coins acceptable for wide circulation in the community.12 The Greeks associated their money with their feasts by calling their smallest silver coins oboloi, meaning ‘spits.’13

For most people, economics is essentially about ‘money.’ Economics begins with money. Money must be prominent in any explanation of how economies function. Mainstream economic theory has for long insisted that economics is about resource allocation, and presents a mathematical model to show how resources are allocated. In the understanding of this mainstream economics, money is incidental; a mere facilitator or lubricant of the resource allocation process. Resource allocation for Pareto optimality is an intellectual exercise, not an explanation of how people engage in monetary exchange. Even intuitively, or from their own experience, the idea of money-bargaining will seem to many a better representation of how economies work than the resource allocation theory. Both the resource allocation theory and the ‘money-of-account’ theory confuse and confound more than they explain. If this book correctly identifies the origin of money, and shows it to be incompatible with mainstream economic theory, then it has a strong claim to the attention of all economists.


February 2023

  1. Spread, Patrick, 2023, Economics, Anthropology and the Origin of Money as a Bargaining Counter, London and New York: Routledge.
  2. Polanyi, Karl, Polanyi, Karl, 2001/1944, The Great Transformation: The Political and Economic Origins of Our Time, Boston: Beacon Press, pp. 74-5. First published 1944.
  3. Ingham, Geoffrey, 2004, The Nature of Money, Cambridge: Polity Press, p. 6.
  4. Hudson, Michael, 2004, ‘The archaeology of money: Debt versus barter theories of money’s origins’, in Wray, R., (ed), 2004, Credit and State Theories of Money: The Contribution of A. Mitchell Innes, Cheltenham: Edward Elgar, pp. 99-101, 107.
  5. Wray, L. Randall, 2000, ‘Modern Money’, in Smithin, John, (Ed.), 2000, What is Money? London: Routledge, p. 43.
  6. Seaford, Richard, 2004, Money and the Early Greek Mind, Cambridge: Cambridge University Press, pp. 37-8.
  7. Dalton, George, 1982, ‘Barter’, Journal of Economic Issues, Vol. 16, No. 1, pp. 181-90.
  8. Dalton, 1982, p. 185.
  9. Humphrey, Caroline, 1985, ‘Barter and Economic disintegration’, Man, New Series, Vol. 20, No. 1, pp. 48-72.
  10. A more detailed introduction is available: Spread, Patrick, 2019, A Starter on Support-Bargaining and Money-Bargaining in Twenty-Eight digestible Bites, London: Palgrave Macmillan
  11. Heichelheim, Fritz, 1958, 1964, 1970, An Ancient Economic History, from the Palaeolithic Age to the Migrations of the Germanic, Slavic and Arabic Nations, Trans. Joyce Stevens, Leiden: A. W. Sijthoff; Vol. 1, 1958; Vol. 2, 1964; Vol. 3, 1970; 1958, p. 106. First published 1938.
  12. Seaford, 2004, pp. 37-40.
  13. Seaford, 2004, p. 256.

From: pp.4-7 of WEA Commentaries 13(1), July 2023

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