Tuesday, September 13, 2011

Money, Money, Money: Murphy vs. Graeber

I have previously mentioned here that David Graeber has written a book on the history of debt: Debt, The First 5000 Years. Among many other subjects, he discusses the origins of money. In particular he disses the just so story on the subject concocted by Adam Smith, and the slightly more elaborate version of the same just so story by Carl Menger. It seems, however, that the Menger version (in English here), is one of the sacred texts of the Austrian economic religion, and Robert P. Murphy (an adjunct priest at their high temple) was offended enough to come to Menger's defense. Not by the book, by the way, since he hadn't read it, but by what he extracted from an interview with the author. Unsurprisingly, he significantly misunderstands Graeber's point and consequently constructs a rather wrongheaded critique.

First a summary. Menger's long winded guess at the nature of money reduces to this: participants in a barter economy found it really inconvenient so the most saleable items gradually evolved into a universally barterable commodity that became money. This plausible seeming hypothesis suffers from the fact that there is zero historical evidence to back it, though there are a few examples where people already familiar with money economy have invented a money (cigarettes in prison camps, etc.) Graeber argues instead that money began as a unit of account to keep track of debts. Here there is significant evidence, going back to Sumer.

It certainly doesn't seem to me that these are completely incompatible, but there is an ideological bone to pick. The Austrians want money to have evolved independently of government - that's a religious tenet with them. The problem with this idea is that pre-governmental societies don't use barter except in exception circumstances. On the other hand they nearly universally seem to have "gift economies" which require keeping track of mutual obligations. The relevant chapter of Graeber can be read for free online at Amazon if you are too cheap to buy the whole book or too lazy to read the whole thing.

There is some back and forth among Murphy and Graeber, but it seems clear to me that Murphy fails to understand Graeber and therefore flails at windmills.

An example:

It's one thing to suggest that civilization started as a centrally planned economy, where temple authorities came up with the prices of all goods and services (quoted in terms of a money that they invented from scratch) before anyone had ever engaged in barter.

Yet it is incomparably more implausible to suggest that these merchants — using the money prices invented by central planners, and yet who had never witnessed a single act of barter — then went to "faraway lands" and managed to trade woolen goods for metal, timber, and lapis lazuli. Does Graeber really expect us to believe that these merchants engaged in long-distance loans? Or does he concede that at least here there were spot trades occurring, and at prices dictated by supply and demand, not by the temple authorities back home?

Dear Bob - you really don't have a clue as to what Graeber is arguing. Read the book and see that the words you have put in his mouth are nothing like what he is saying.