The Barter Economy is a Lie
Your high school teacher lied to you. It may have been in economics class, personal finance, or any related subject. Inevitably, you learned about something called the barter economy. The idea of an economic system, where people trade goods and services for each other directly. They told you that this is what people did before money.
But I want you to think back to that day. Do you remember any real examples? A specific time and place in history when people actually did this? Yeah, me either. It’s always an abstract theoretical example where someone trades a cow for five bushels of wheat. They had to give you theoretical examples because real ones don’t exist.
The barter economy is a lie, and in this article, we’re going to debunk it for the bullshit that it is.
Let’s start with definitions.
The barter economy — an economic system where goods & services are exchanged directly without the use of money.
Note: we’re not debunking the idea of barter exchanges happening from time to time. There is lots of evidence of bartering. What we’re debunking is the idea that it was the dominant or even a popular form of exchange.
Origin of the Barter Economy
In 1776, Adam Smith published the wealth of nations. This book outlined what Smith believed made countries wealthy. And he had some great ideas, many of which have been universally adopted to this day. The existence of money, for example. If you want your country to get rich, you’re gonna need some kind of money.
But Smith runs into trouble when he starts speculating on what happened before money. He argued that there was a barter economy where people traded goods and services for each other directly. He never cited any evidence, data or facts. Not even anecdotes. He wrote about a few theoretical examples, but that was it. And to this day, that’s all we have. Janky thought experiments from the 1700s.
Look, Smith was a great thinker far ahead of his time, but his time was the 1700s. This would be like if we took Sigmund Freud’s crazy theories as fact. “Yeah, I’m afraid all your problems stem from sexual tension for one of your parents, and the only thing that’s going to fix it is cocaine.” This is exactly what we’re doing with Adam Smith and the barter economy.
David Graeber thoroughly debunked the barter myth in his famous book, Debt: The First 5,000 Years. Instead of using thought experiments, he used evidence, data and facts. This might be one of the greatest books written in our lifetimes, so I strongly encourage you to read it. And to understand just how great this book is, debunking the barter myth is only chapter one.
Anyway, the barter economy reminds me of flat earth. It’s a seemingly reasonable idea that most people believe until you start looking at actual evidence. Once upon a time, the entirety of Christian Europe believed in a flat earth. It was the default position. And then, experts like Galileo, and Copernicus proved otherwise. It wasn’t until you had actual professionals look at this claim scientifically and debunk it for the nonsense that it is.
This is exactly what’s happening with the barter economy. Every single expert that looks into this claim, comes to the same conclusion. There is no evidence for it. Not a single real example. But everyone just keeps believing it because they don’t know any better.
There have been countless academics, who have looked into this from history to archaeology, ethnography, anthropology, even biologists. Not a single person from a single field has produced a single real example. Not one.
Cambridge anthropologist Caroline Humphrey put it best when she wrote that, “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.”
Not only is there zero evidence, but it would be extremely inefficient for one to exist. For people to actually barter, you need what’s called a “double coincidence of wants.” Both people just happen to want something the other person has, and they’re equal in value.
But who is to say what is equal to what? Imagine what a nightmare it would be to argue if your cow was worth 10 bushels of wheat instead of 5. And doing that back-and-forth bickering for every single transaction in the entire economy.
The barter economy doesn’t even make sense as a thought experiment.
Okay, so the barter economy didn’t happen. Well, that raises a serious question. If we didn’t have a barter economy before money, what the heck kind of economy did we have for hundreds of thousands of years?
What Happened Instead
Marcel Mauss was one of the most brilliant anthropologists of his day. And in 1925, he published an essay called The Gift.
In it, he explored this very question: what kind of economy did ancient humans have? How exactly did we allocate resources for thousands, or even millions of years?
His answer? Something called a gift economy.
Instead of buying, selling, or bartering, people just gave each other things. As sociologist David J. Cheal describes it, “A gift economy is a system of exchange where valuables are not sold, but rather given without an explicit agreement for immediate or future rewards.”
Obviously, this was a really bold claim to make. It changed anthropology forever. And after nearly a century, everyone agrees that Mauss was right. It’s been confirmed or expanded upon by dozens of experts like American economist Rachel Kranton, anthropologist Eleanor Harrison-Buck, and British anthropologist Maurice Bloch, just to name a few.
Unlike the barter economy, there are mountains of evidence for the gift economy. Every anthropologist that has ever studied the few remaining tribal peoples, such as the Australian aborigines or the tribal people in South America, all noticed the same thing. None of these people have money. But you know what they’re not doing? Bartering. It’s an alien concept. None of them have ever heard of it.
Every single one of them has some version of a gift economy. Oh hey, someone in my tribe is hungry and I have extra food. Why don’t I give them the food? If you think about it from a tribal perspective, the gift economy makes perfect sense.
The survival of the tribe means the survival of you. So everyone is going to contribute what they are able, and everyone is going to get what they need.
Now that we understand people were using a gift economy before money, we can start making sense of different examples from history. Because whenever someone that is used to a market economy goes exploring and finds someone with a gift economy, it’s always baffling.
They always take a step back and say, “wait a minute, you guys are just giving each other things?” This happened a lot during the European age of exploration. Track down any first-hand account from colonial pioneers, or Spanish conquistadors, talking about tribal people. Inevitably, a gift economy is exactly what they’re describing.
For example, when Christopher Columbus first landed in Hispaniola, he was shocked by how the native Arawak people treated him. As soon as they saw the ship, they started swimming out to sea, bringing food to Columbus and his crew. This was something he had never seen before. Columbus describes the Arawaks like this.
“The Indians are so naive and free with their possession that no one who has not witnessed them would believe it. When you ask for something they have, they never say no. To the contrary, they offer to share with anyone.” That sounds an awful lot like a gift economy, doesn’t it? So does every other first-hand account.
But it’s not just anthropology, archaeology, and history that prove the gift economy. It’s also biology. From an Evolutionary perspective, the closest thing to humans are chimpanzees. Believe it or not, they face the same struggle of allocating resources that we do.
And how do they solve that problem? A gift economy. So, not only did primitive humans do it, but even other animals do it. If you don’t believe me, turn this video off right now, and go to the zoo because that’s exactly what you will see.
That’s the beauty of using evidence to support your claims. You don’t need to take my word for it. You can go confirm it for yourself! Yay!
So, if we’re going to believe the dozens of experts, and mountains of evidence, then we can say beyond a shadow of a doubt that the barter economy is fake news. And what actually happened before money was the gift economy.
And now, we need to explore why this is important today. What does it mean for the modern economy? Heck, what does it mean for our understanding of human nature?
Why This Matters
People need stories to make sense of the world. And one of the most important stories is the origin story. Where did we come from? What did we do before? And why does it matter now?
Despite being objectively false, the barter myth continues to be widely believed. It’s the origin story for our current economic system. And you have to ask yourself, why is that? David Graeber gives a pretty good answer. He explains that the barter myth, “makes it possible to imagine a world that is nothing more than a series of cold-blooded calculations.” (Debt: The First 5,000 Years).
There is a very real worldview that wants to reduce all human life down to nothing more than business transactions. And this fictional world of the barter economy is the origin story.
“No, no, of course we’ve always been cold-blooded, cutthroat profiteers, looking to make a quick buck at someone else’s expense. It’s human nature!”
Despite not having a single shred of evidence, people believe it.
When I first read about the myth of the barter economy in David Graeber’s Debt, the First 5,000 years, I was a little skeptical. It seemed like a really bold claim to make. And even though he cited lots of academic evidence, I had a hard time buying it.
My first instinct was to find someone who “debunked” his claim. I spent hours trying to find a rebuttal, but there wasn’t anything. At least, anything good. There were plenty of opinion pieces, and personal attacks against Graeber. But there wasn’t anything that had teeth.
One of these opinion pieces I stumbled upon made me realize that Graeber is right. The Cato Institute is an American think tank that regularly publishes articles on economics, politics, and so on. One of these pieces tried to discredit Graeber’s claim about the barter economy.
I thought, finally, some answers! But it wasn’t answers I found in this article, it was nonsense.
The author tries addressing the fact that there’s no evidence for a barter economy by saying this:
“the mere lack of historical or anthropological evidence of past barter economies is itself no more evidence against Smith’s account than it is evidence in favor of it.”
Translation: “Listen, just because there’s no evidence of this supposedly universal economic system ever happening, doesn’t mean it didn’t happen. Ever think about that?”
Finally, someone I can convince about my theory of the reptilian overlords who control all the governments on Earth! Just because I don’t have any evidence, doesn’t mean it didn’t happen!
Look, there’s this thing called the burden of proof. If you make a claim, especially one that’s really bold, it’s your job to provide evidence for it. Adam Smith claimed that there was a barter economy, but didn’t provide any evidence. And nearly three centuries later, no one else has either. And despite all of that, this guy thinks you should still believe it.
Early on in this article, the author gives up on talking about arguments or evidence and moves into a personal attack on David Graeber.
Had Graeber’s purpose been, not to document economists’ ignorance of anthropology, but to show that at least one anthropologist doesn’t know the first thing about economics, I dare say that he could have done no better than to write Debt: The First 5000 Years.
Translation: “Surely it’s because this moron just doesn’t understand economics. The barter economy is economics 101. Didn’t he take intro to economics?”
Eventually, they just start claiming that Graeber didn’t understand any of the writers he cited. And to make that point, they quote these huge walls of text. The following is a screenshot of a nearly 300 word quote from Smith’s Theory of Moral Sentiments:
At what point do you stop quoting an author, and begin republishing their book as a blog post with a weird intro?
The next time I have a disagreement about the Bible, I’m going to claim my opponent didn’t understand it and to support my claim, I’m going to copy and paste all 783,000 words of the Bible in my response.
This article perfectly illustrates the ideological opposition to science and evidence. This guy’s world-view can’t process a gift economy. To him, and people like him, there’s no possible world where humans aren’t money-hungry, cut-throat profiteers looking to make a quick buck at another person’s expense. Science and evidence be damned.
He doesn’t want you to believe in a gift economy, despite the mountains of evidence supporting it. Instead, he wants you to believe in Adam Smith’s janky thought experiment that has failed to produce a single real example in ~300 hundred years.
You see, an attack on the barter economy is an attack on this guy’s origin story. If everyone started believing that Graeber is right, and the barter economy is confirmed to be the fiction that it is, then this guy would have to rethink his entire worldview. It would mean that there is, in fact, more to life than business transactions and making money.
And God forbid anyone started thinking that. What would our world look like then?
