The End of Barter — Before Money Existed

The coins in our wallets, the balance displayed on our smartphones. We treat money as something so utterly ordinary that we rarely pause to wonder when, or how, it came into being. Yet across the long span of human history, the eras in which money did not exist were far, far longer. People who learned to handle fire, to exchange words, and to live together in groups managed to trade goods, help one another, and lend and borrow — all without money. This series begins in that world ‘before money was born.’ Why did humankind come to need money? Beyond that question lies the true nature of money — the quiet, underlying theme of ‘credit.‘

A World Without Money — Gift-Giving and Barter

How did people live in societies where money did not exist? The story long told goes something like this. Once upon a time, people brought together the things they had made and exchanged them directly with one another — a fisherman with fish meets a farmer with grain, and they trade fish for grain. This is ‘barter.’

It is true that scenes of trading one good directly for another existed all over the world. But running a livelihood on barter alone is harder than it might seem. Even if a fisherman with fish wants grain, the farmer who has that grain does not necessarily happen to want fish. Finding a partner whose ‘wants’ line up exactly with yours is no easy matter. This is called the ‘double coincidence of wants,’ and it is known as the fundamental inconvenience of barter.

What is more, goods posed the problem of storage. Fish spoil quickly, and harvests have their seasons. Trading today’s surplus for tomorrow’s — or next year’s — needs is difficult with perishable things. There was also the problem of how to measure value. How much grain is a single fish worth? Without a common yardstick, every exchange demands a long round of bargaining.

That said, recent research in anthropology and archaeology suggests that life in moneyless societies was not necessarily all barter. Rather, in many communities it was gift-giving without expecting immediate return, mutual aid, and lending and borrowing that formed the basic bonds between people. You share when another is in need, and one day, when you are in need, it comes back to you — such loose ‘memories of debt’ are seen as having sustained the community. In a small group where everyone knows one another, people can remember who did what for whom without having to count it up. That life carried on without money may well be because of this ‘ledger of memory.’

But as the circle of people grew and dealings with strangers increased, memory alone could no longer keep pace. Share something with someone you will only pass once, and there is no guarantee it will ever be returned. The farther trade reached beyond the community, the more a means of settling value on the spot — that is, the prototype of money — came to be needed.

Shells, Livestock, and Cloth — The Arrival of Primitive Currencies

To ease the inconvenience of barter, people eventually began to use a ‘special good’ that everyone was willing to accept as the go-between in exchange. This is what is called primitive currency, or commodity money. Items such as rice, cloth, salt, and livestock — indispensable to daily life and reasonably storable — took on that role.

Among them, shells were loved across the world. In ancient China, from more than three thousand years ago, around the time of the Shang dynasty, beautiful and rare cowries — small shells also known as ‘kosugai’ — are said to have been used as shell money. Cowries could be gathered only in limited seas, were durable and easy to carry, and were uniform in shape. Rare, hard to break, and easy to count — this small shell possessed many of the qualities suited to money. Its trace still lives on within Chinese characters today. That so many characters relating to money and commerce — wealth, buy, save, precious, sell — conceal the ‘shell’ radical within them is said to be the proof.

Livestock, too, was an important standard of value in antiquity. Cattle and sheep were themselves wealth, counted as taxes, compensation, and gifts at weddings. In many regions cloth and grain were used in payment, and what served as ‘a substitute for money’ differed according to the local way of life and its products. Money did not start out with a single form; it sprouted in many ways from the needs of each region.

Where Did Money Come From — Two Theories

Here, let us touch on a great question that remains unsettled even now. Where did money come from in the first place?

Long taught in textbooks is the view called the ‘barter theory,’ or the commodity theory of money. People first practiced barter, but because it was so inconvenient, they chose a good that everyone would accept — eventually metal — as the go-between, and that became money. It is the view that money arose naturally from within the market, as a tool to make exchange convenient. Intuitive and easy to grasp, this explanation has been used in many introductions to economics.

Against this, the ‘debt theory’ has drawn great attention in recent years. In his book ‘Debt,’ the anthropologist David Graeber pointed out that firm evidence of widespread primitive barter is scarce. He argued instead that relationships between people began first as ‘lending and borrowing’ or ‘obligation,’ and that money appeared as a unit for recording, counting, and settling that debt. In this view, money emerged before the market — from within the credit of the community, and at times from systems such as a state’s collection of taxes or payment to its soldiers.

The world of barter did indeed have its limits. The inconvenience of wants that did not match, the inability to store goods, the absence of a yardstick to measure value. People chose shells, livestock, and cloth as go-betweens and gradually overcame those inconveniences. Yet these commodity monies also bore their own weaknesses, such as difficulty of carriage and unevenness of quality. Something smaller, something more certain, something whose value was the same in anyone’s eyes — toward that ideal, humankind would soon begin to give weight and a stamp to lumps of metal, inscribing value itself.