David Graeber, an influential anthropologist renowned for his critiques of economic theory, delves into the origins of money, challenging traditional economist narratives by Carl Menger and Ludwig von Mises. He emphasizes that money's evolution stems from collective human behavior, rather than a singular invention. The discussion highlights practical examples, like the use of cigarettes as currency in a WWII POW camp, and critiques the barter theory, advocating for a deeper understanding of money’s role in facilitating complex trade.
Carl Menger argued that money emerged spontaneously from the practical needs of individuals within a barter economy, not by centralized authority.
Ludwig von Mises advanced monetary theory by emphasizing the purchasing power of money as a function of its future utility and historical valuation.
David Graeber challenged conventional economic narratives by suggesting that credit systems based on social relationships underpinned the evolution of money.
Deep dives
Menger's Explanation of Money's Origin
Carl Menger provided a compelling description of how money emerged spontaneously among individuals in a barter system, suggesting that it was not a conscious invention by any authority or individual. He argued that the idea of money arose from the practical needs of people who sought to facilitate their trading activities more efficiently. Instead of a wise king deciding on a standardized medium of exchange, Menger posited that through the process of individuals trading their goods based on their respective marketability and salability, a commonly accepted commodity naturally evolved into money. This process demonstrated how individuals, through countless interactions in their self-interest, could give rise to a universally accepted medium without any centralized planning or direction.
The Problem of Establishing Value in a Barter Economy
Menger highlighted significant problems associated with the idea that money was created by a wise individual or committee. He emphasized the logistical challenges of establishing a new medium of exchange in a society unfamiliar with the concept of money, particularly the absence of a historical record for such events. If individuals in a barter system were to agree on a form of money arbitrarily, they would first need to decide how to establish value relationships, determining how many apples should exchange for one shell, which would appear nonsensical. Menger's analysis demonstrated that without a standardized means of trade, the transition from bartering to using a medium of exchange would be fraught with complexity and inefficiency.
Mises' Contribution to Monetary Theory
Ludwig von Mises advanced monetary theory by addressing the value of money in terms of marginal utility, suggesting that the purchasing power of money derives from its future utility rather than its immediate consumption. Mises defined money as a medium of exchange universally accepted by society, which directly links to how it acquires its value from the goods and services it can procure. Unlike previous economic models that struggled to explain money's intrinsic value, Mises framed his arguments within a unified value theory that accounts for both direct and indirect exchange transactions. His regression theorem further posited that for any commodity serving as money, there must have been a prior history of direct valuation before it developed a role in facilitating trade.
Graber's Critique and Its Implications
David Graber's challenges to the traditional economic narratives on the origins of money put forward that there is little evidence supporting the existence of a barter economy as a precursor to monetary systems, instead suggesting that systems of credit based on social relationships prevailed. He critiqued what he described as the simplistic narratives of economists who fail to consider the complexities of human social interaction that would lead to the establishment of money. However, Graber's reliance on credit as a basis for economic exchange encounters the challenge of quantifying value objectively so that individuals can agree on what favors or goods are worth relative to one another. This raises the question of whether some form of money, at least as a unit of account, was already implied in such arrangements.
Historical Case Studies Support Menger's Framework
The podcast also discusses modern insights from historical case studies, such as the instance in a WWII POW camp where cigarettes became an accepted medium of exchange. The emergence of cigarettes as money exemplified Menger's theory, demonstrating that commodities with inherent attributes (durability, divisibility, and acceptability) could spontaneously evolve into currency among individuals seeking efficiency in their transactions. This example illustrates the practical aspects of how individuals negotiated and valued goods through a shared understanding without any central authority designating one item as money. Consequently, this supports the argument that money's inception is more likely a product of social interaction rather than a state-driven initiative.
Bob goes solo to explain the contributions of Carl Menger and Ludwig von Mises to monetary theory. He then deals with the critique of David Graeber, who argues that the economists' story of the origin of money is bogus.
