The Anthropology of Money, Part 1

This planet has — or rather, had — a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn’t the small green pieces of paper that were unhappy.

— Douglas Adams. The Hitch-Hiker’s Guide to the Galaxy

Not negotiable.

I thought it might be interesting to contrive a mythical history of money, from its outright non-existence to the fully electronic, smart, on-chain, multi-channel omnishambles we know and love today. I have a hunch that most of us don’t really understand deeply what money is or how it works — I certainly don’t — so, for those of us who document contracts in which money moves about, here is JC’s little creation myth to help explain what this mysterious thing is, how it works, where it came from, and where it might be going next.

This will be a two part series. The first bit is a bit more historical and scene-setting: we’ll get down to brass tacks a bit more in part 2.

A just-so story

Now, you of all people know that JC is a first-rate windbag: but he is no kind of economist, much less an anthropologist, so this will not be an anatomically correct social history of commerce or civilisation, but rather a fanciful exercise in imagining how money arose, how it got here, and why it has the unusual qualities it does.

So it doesn’t matter that this story isn’t perfectly accurate — that would be too boring, for one thing — as long as it gives a plausible evolutionary account in which every step is legally and economically viable on its own terms.

A fundamental tenet of evolution by natural selection is that each stage in an organism’s evolution must be viable in its own right: it must function and be fully fit for the environment in which it finds itself. And so must the evolution of money: each development must be viable in its own right.

We will start with an outlying scenario disconnected from the rest: exchange of goods between “hostiles” without money, where there is no community of trust or interest at all. This is barter, and it gets economists and anthropologists quite worked up. Usually, at each other.¹

From there we will look at how credit and money arose out of developing commercial practice within trusted communities. Here, there was no need for barter. The conditions for money arose, instead. As we will see, an abstract intellectual concept as nuanced as money only makes sense within a community sharing many interests, values and relationships.

A key theme I will repeatedly come back to is that profoundly, inescapably, and inevitably money is a token of indebtedness.

Barter: the no-cash, zero trust environment

The first difficulty in barter is to find two persons whose disposable possessions mutually suit each other’s wants. There may be many people wanting, and many possessing those things wanted; but to allow of an act of barter, there must be a double coincidence, which will rarely happen. A hunter having returned from a successful chase has plenty of game, and may want arms and ammunition to renew the chase. But those who have arms may happen to be well supplied with game, so that no direct exchange is possible.

— Stanley Jevons, Money and the Mechanism of Exchange

How would you trade with a “hostile”? A person you’d trust no further than you could throw? There could be no money or credit in any bargain: there would be no consensus on the value of any currency nor any trust in anyone’s promise to pay it.

Nor, for the same reason, could any services be involved: services take time and imply trust, interdependence and a sort of vulnerability. Hostiles cannot afford to show weakness, so they cannot trade services.

It must therefore be an outright exchange of goods, fully and finally settled on the spot: the original “spot transaction”.

Once settled, neither side has any further expectations or obligations beyond assuring the other’s unmolested retreat from the trading post to safety with her new goods.

This is “barter between aliens”, more or less.

It is unwieldy and fraught. Its conditions for success — a “double-coincidence of wants”, as Stanley Jevons put it, between people who have no meaningful relationship — is rare even “in the wild”. This is why “ongoing barter arrangements” seem intrinsically unstable — they would rarely arise, and where they did, would quickly mutate into something better: a more convenient way of doing business, as described below.

We should not be surprised, therefore, that there is little in the anthropological record to suggest sustained “barter economies”. Barter is a popular myth.

Simple community of interest

Transactions within a community of shared interests, where there is a common expectation of ongoing cooperation, and a memory of past cooperation, are a different proposition.

If we can do without the need for a “double coincidence of wants”, so much the better: I want sheepskins and have arrowheads; you have sheepskins but don’t want my arrowheads; we can still do business as long as you trust my promise to make good, somehow, later. That this might be a vague promise is oddly helpful.

These pre-money exchange systems didn’t grow out of barter but were more like reciprocal mutual gift arrangements. They relied on “social memory” within the community. Participants “put in” and could “take out” according to their acknowledged contribution. The “social debts” were not exact: they could not be quantified — how do you compare arrowheads with sheepskins? What value is a loaned tool? How do you measure time spent helping mend a neighbour’s fence? — and therefore these debts were never exactly discharged.

All the same, the nature of this mutual interdependence is indebtedness. Not the financialised, fully accounted for, monetarily fixed and time-bound indebtedness we are used to today, but “social indebtedness”, whose point was to remain always partially undischarged. Its vagueness was an advantage: it helped to bind the community together because there was always something on the table. Participants could never say, “My debt to you is fully discharged; I owe you nothing”.²

A role emerged for “pillars of the community” — priests, elders and chiefs — to oversee, enforce and arbitrate on these community values. So began the state as we know it today.

Now, if financial indebtedness is, in James Carse’s terms, a “finite game” — time-bound, rule-bound and scheduled definitively to end — then social indebtedness is an “infinite game”: it has no rules, no timeframe and it stretches out indefinitely into the future. The name of this game is to keep the arrangement going. To ensure that participants remain incentivised to trust each other, act in good faith continue trading. That “something on the table” is a community stake. The community operated on credit.

Features: fundamental reputational component, largely bilateral, accretive, delivery on account, payment in kind, non-interest bearing, not financialised.