The Problem with the Barter Theory

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Our understanding of the creation of money is something that has been debated for many years.

One theory that seems to have stood the test of time is that of ‘barter’. Let’s go through an imaginary example of what a barter system may look like.

Tom the Toolmaker needs to feed his family of five, but he has run out of bread for their favourite sandwiches. He decides to visit Bruce the Baker to stock up for his meal.

Tom the Toolmaker asks Bruce the Baker for three loaves of bread. In return, Tom will give him some of his high-quality tools. Bruce is in need of some tools, so he agrees to this and the trade goes through without a hitch.

The next day Tom the Toolmaker is in need of some meat. He decides to visit Billy the Butcher.

Billy the Butcher doesn’t need any tools, but he does need clothes. To complete this trade, Tom the Toolmaker must find someone that will trade some clothes for his tools, so he can go back to Billy and get his meat.

Simple, right?

Well, no… not really. As you can imagine, this sort of system is not straightforward at all and would become very messy, very quickly.

The Problem with Barter

The problem is caused by something known as ‘the double coincidence of wants’. In other words, a transaction based on barter can only take place if both parties have something the other party wants or needs enough to be willing to exchange. This has all kinds of limitations.

Imagine trying to do this for everything you needed for your family for an entire week. The food you will all eat, the clothes you will wear, the utensils you use to cook… even the place you live in!

Another issue with this method is that people would have different values for different products. Someone with tools might think theirs are worth more than some bread and would then want something more in return. It would be difficult to have one agreed measure.

The Barter Theory — Historically Inaccurate?

Somehow, according to countless economics textbooks and many other articles and publications, this is what took place before money was created. Despite the obvious flaws in this system, the theory has (as mentioned at the start of this article) stood the test of time.

And yet, the theory is wrong.

Anthropologists say that, to date, no proof has been found to show this world of barter ever existed and, more specifically, this was not part of the origin of money.

Professor Dame Caroline Humphrey from Cambridge University studied the history of barter and said,

“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.”

In fact, anthropologists have found that bartering often takes place in societies where money already exists, but there is just a lack of it.

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Adam Smith, the ‘Father of Economics’, also claimed barter was the origin of money. This is perhaps one of the key reasons that the theory has had such longevity.

The Nambikwara of Brazil

In some cases, bartering would not so much take place within villages, but rather amongst strangers or enemies. An example of this is when barter takes place between conflicting tribes or towns, meeting to exchange goods with each other.

One example is the Nambikwara of Brazil. They are indigenous people of Brazil, who live in the Amazon and Cerrado rainforests. There are around 1,200 Nambikwara and they are split into different bands, who usually would not have contact with one another.

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Source: Tatiana Cardeal

A band might notice that there is another band set up nearby and will approach them about the option of setting up a meeting to discuss trading items. If the other band agrees, they will arrange for the men to visit them for this meeting.

Before the meeting, all the band’s women and children are hidden in the forest. During the trade meeting, each chief makes a speech. The speech will involve explaining how great and amazing the conflicting band is, while simultaneously knocking their own band and talking about how awful they are. The bands will then sing and dance before the trading begins.

Men from one band will approach men from the other band to see if they have anything they like. If the other man has something they want, they will compliment it and talk about how great it is and how much they admire it.

If they have something of their own that they may want to trade, they will knock it and say how bad it is.

It might go a little something like this:

“Hey John, I love your necklace. It’s such a nice design and makes you look so powerful. I have a sword but it’s rubbish; it’s so old and crap.”

“Oh Phillip my necklace is ugly and heavy, it really disgusts me. You have a fine sword it's super sharp and shiny.”

This would be communicated in an aggressive, confrontational style.

Once both parties had finished arguing about how bad their own possessions are, and made an agreement to trade, the men would be ready to execute the exchange.

This would not be done by simply handing the items over, instead, it would be done in an aggressive way. Rather than handing over the items, they would snatch them from each other.

Phillip will actually rip the necklace off John’s neck and John will grab the sword out of Phillip’s hand.

Following this, they will all have a big feast together and the women will return from the forest to join in with the party before parting ways once again.

As you can see, the history of barter and its involvement in the creation of money is not quite the way many people have been led to believe. However, economics textbooks continue to push this incorrect narrative.

If you’re interested in learning more about the facts, we would recommend reading “Debt: The First 5,000 Years” by anthropologist, David Graeber.

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