Never Going Back to Barter

“If the banks collapse we would have to go back to barter.” Heard that one before? If you do a Google news search for “back to barter” you will see the extent to which economists and business writers today assume that money systems emerged out the difficulties with swapping goods, and that barter is the only alternative to modern bank-issued money.

At first glance, it seems like a logical story, where at some point people decided they wanted a medium of exchange rather than doing direct swaps of, say, your chicken for my apples. In my Money Myth TEDx I described a parable of a knight coming to a village with tokens to solve problems with barter. I said it wasn’t a history lesson, just a thought experiment. My aim was to show how charging interest on money can make us value money more than real wealth, like food, community and so on. I didn’t realize that the idea of money emerging as a way to deal with barter is taught widely in economics classes. Thing is, it’s complete bollocks. Now I realize what a pernicious fairytale it is, if believed to be true, as it distracts us from the real history of money, which is far more interesting, far more social, and way more political. So, let me to put the record straight with some heavy duty references :-)

Some put the origin of the story of money emerging to improve barter to Adam Smith in the 18th Century. Then in the 19th century, William Stanley Jevons wrote a popular book that reinforced this view. He gave an account of a famous naturalist who, when on his expeditions in the Malay Archipelago, found that in islands where there was no currency but much food, mealtimes were sometimes preceded by long periods of hard bargaining, and if the commodities offered by the explorers were not wanted then their whole party went without dinner (in Evans, 2002). Monetary historian and economist Glyn Davies said of Jevons “It was largely his great influence which helped to condition conventional economic thought for a century regarding the inconvenience of barter.” (2002, p14). Such anecdotes then entered popular culture. For instance, in 1940, Geoffrey Crowther, formerly editor of The Economist, insisted that money “needed the conscious reasoning power of Man to make the step from simple barter to money-accounting” (Crowther 1940, p15).

Yet what substantial evidence is there? To find some, we have to look outside economics and to history, anthropology and archeology. “The picture drawn by economists about the inconvenience of barter in primitive communities is grossly exaggerated. It would seem that the assumption that money necessarily arose from the realisation of the inconveniences of barter, popular as it is among economists, needs careful re-examination” concluded Professor Einzig in the 1960s (1966, p353). Then, in the 1980s, after a career studying the topic, Cambridge anthropology professor Caroline Humphrey concluded “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.” Glyn Davies (2002) concludes “the overwhelming tangible evidence of actual types of primitive moneys from all over the world and from the archaeological, literary and linguistic evidence of the ancient world, is that barter was not the main factor in the origins and earliest developments of money.”

Anthropologist David Graeber provides further explanations on how and when barter takes place. “Ordinarily, barter takes place between … people who might as well be strangers-that is, who feel no sense of mutual responsibility or trust, or the desire to develop ongoing relations… The English words ‘truck and barter,’ like their equivalents in French, Spanish, German, Dutch, and Portuguese, literally meant ‘to trick, bamboozle, or rip off…. We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, never completely replacing credit systems.” We are never going back to barter, as barter was never the big thing back there somewhere.

The mistaken “barter theory of money” is unhelpful as it suggests that money works like a commodity with value in itself, rather than being an accounting system. As we explore in lesson 2 of the forthcoming free open online course on Money and Society, launched by the Institute for Leadership and Sustainability (IFLAS) where I now work,  the earliest forms of money we know of from archeological records are systems of promises from trusted institutions for work done for them. The origin of money is credit and debt, not in escaping barter and not as precious metals. Once we recognize this, then we understand that money was not originally a thing of value, but a social agreement about how to coordinate economic activity. The question that arises is what conditions the issuance and redemption of debt is useful for society at large.

A big problem is that the misinformation continues. My search of “back to barter” in the news brought up quotes in the Economist, Financial Times and Wall Street Journal. If mainstream Economists can’t even get the basics about the history of money right, why do we trust them with informing us about the present or future of money? It’s high time sociologists, anthropologists, psychologists, currency innovators and activists bring the issue of monetary system design into the public domain.  We are never going back to barter but we may go forward to new forms of collaborative credit system that displace the disfunctional role of banks and their deluded friends in economics departments.  We hope to help with our free course.

Professor Jem Bendell

Founder of Lifeworth and IFLAS, and Professor of Sustainability Leadership.

More info on IFLAS

(Thanks to Matthew Slater, co-author of the Money and Society course for help in researching this topic.)


Crowther, G. (1940). An Outline of Money (London).

Davies, G. (2002) A History of Money. A History of Money. Cardiff: University of Wales Press.

Einzig, P. (1966) Primitive Money, Oxford.

Graeber, D (2011) Debt: The first 5000 years, Melville House Publishing.

Humphrey, C (1985) Barter and Economic Disintegration, Man New Series Vol. 20, No. 1 (Mar., 1985), pp. 48-72 [p. 48]

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