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When the history of money is described, very often the claim is made that people invented money because barter was impractical: a quick Google Search lists many places where this claim is made, e.g. (1), (2), (3), etc.

It sounds plausible, but not everything that sounds plausible is actually true. Is there any credible evidence for this claim?

As an example for an alternative explanation, David Graeber poses that money was invented to keep track of debt.

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    @matt_black - Depends how you want to define debt, I could very easily sell/trade you three cows in exchange for two horses and until you provide me those two horses you are debt to me. – rjzii Nov 3 '12 at 17:48
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    Also, the impracticality of barter is only obvious once money is invented. Money makes trade dramatically easier especially for people who are not neighbours. And trade usually makes all parties better off. – matt_black Nov 4 '12 at 1:32
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    Both "invented" and "deemed" make it sound like there was some central authority that made a decision. Evidence on the ground is that money developed as an organic process later codified by Authority. – dmckee --- ex-moderator kitten Nov 4 '12 at 14:13
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    I don't think the two stories are incompatible. No one is arguing that money did not start as promisory notes, ie. formalized dept. The mainstream is that this became a medium of exchange because it was more convenient than barter. This does not contradict Graeber, at least not the parts that wikipedia recounts. Graeber departs from mainstream by arguing that deferred payment, where one sides obligations are met at a later stage, where more common in early economies than barter. – Taemyr Jun 19 '14 at 9:29
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    Graeber claims that anthropological consensus is against there having ever been a "barter" stage before money existed, which is what would be required for money's raison d'etre to be to avoid barter. I suggest reading the first few chapters of Graeber's book and following up the references from there. I'm very sceptical of the idea that money was invented because barter is impractical and would want to see better evidence anyway. – Francis Davey Sep 15 '14 at 17:10
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I think your linked sites, and numerous others, do provide significant evidence that what promissory notes, and then money gave us was a much easier way to carry the equivalent of a couple of cows, some gold and an acre of land.

Economist Ludwig von Mises, in his 1912 book The Theory of Money and Credit, had this to say on the Origin of Money (ellipses and bold indicating my edits):

I.1.4 Suppose that A and B exchange with each other a number of units of the commodities m and n. A acquires the commodity n because of the use-value that it has for him. He intends to consume it. The same is true of B, who acquires the commodity m for his immediate use. This is a case of direct exchange.

I.1.5 If there are more than two individuals and more than two kinds of commodity in the market, indirect exchange also is possible...

I.1.6 Let us take, for example, the simple case in which the commodity p is desired only by the holders of the commodity q, while the comodity q is not desired by the holders of the commodity p but by those, say, of a third commodity r, which in its turn is desired only by the possessors of p. No direct exchange between these persons can possibly take place. If exchanges occur at all, they must be indirect; as, for instance, if the possessors of the commodity p exchange it for the commodity q and then exchange this for the commodity r which is the one they desire for their own consumption. The case is not essentially different when supply and demand do not coincide quantitatively; for example, when one indivisible good has to be exchanged for various goods in the possession of several persons.

I.1.7 Indirect exchange becomes more necessary as division of labor increases ...

I.1.8 Thus along with the demand in a market for goods for direct consumption there is a demand for goods that the purchaser does not wish to consume but to dispose of by further exchange...

I.1.9 Now all goods are not equally marketable...

I.1.10 It was in this way that those goods that were originally the most marketable became common media of exchange...

I.1.11 Thus the requirements of the market have gradually led to the selection of certain commodities as common media of exchange...

I.1.12 This stage of development in the use of media of exchange...For hundreds, even thousands, of years the choice of mankind has wavered undecided between gold and silver. The chief cause of this remarkable phenomenon is to be found in the natural qualities of the two metals. Being physically and chemically very similar, they are almost equally serviceable for the satisfaction of human wants...

(Translated by H. E. Batson 1934, additions 1953, this edition published by Liberty Fund in 1980 and retrieved from The Library of Economics and Liberty.)

Have a read of the rest of that paper for much more in depth description!

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    The example is actually just bartering, but with gold/silver instead of directly. While coins were made their value was in the metal itself and it wasn't uncommon to break a coin into smaller pieces. – liftarn Jun 12 '14 at 11:20
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    But no reference to any actual historical period in which this is said to happen. I.e. it reads like armchair economics rather than actual history. – Francis Davey Sep 15 '14 at 17:11
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    The natural qualities of gold and silver that made them useful as currency was that they were 1) pretty; 2) relatively rare and 3) pretty much useless for any other purpose. – Shadur Jul 5 at 15:00
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    @Shadur For gold it doesn't tarnish and has a unique color. It is easy to identify gold without much experience in identifying gold. Once metalurgy was more common, however, it became less easy in identifying pure gold. See why Archimedes yelled "Eureka!" to understand why. And though most have been proven not beneficial, ancient people's believed in health benefits attached to both gold and silver. – fredsbend Jul 6 at 22:50
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    @FrancisDavey We can actually observe this in prison – user541396 Jul 9 at 0:41
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A famous practical example was found in WWII prisoner of war camps where cigarettes became a de-facto currency. This happened without any central organisation or planning; prisoners started with barter, and over time found that cigarettes had become the medium of exchange because they were more-or-less fungible, small and common enough to buy small things with, and desirable in their own right by at least some of the prisoners.

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  • This does not answer the question "Was money invented because barter was deemed impractical?" – Avery Jul 6 at 15:08
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    @Avery As dmckee says in the comments on the OP, the word "deemed" is problematic. It makes it sound like some central authority decided "This barter system needs upgrading". What the example shows is how an initial barter system evolved into a money system without any central organisation. Whether this is because barter was "deemed" to be impractical or whether it was merely found that currency worked much better is a semantic question I have deliberately avoided. – Paul Johnson Jul 6 at 15:50
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    That semantic question is probably important in an answer. Was this prison-cigarette currency or just a common barter item among other barter transactions? The semantics are hard to avoid. Some definitions of currency require a central plan, for example. – fredsbend Jul 6 at 22:59
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The answer beginning, "Suppose that A and B exchange with each other" is unreferenced and factually inaccurate. The story being told in that answer has been known to be false for 100 years.

Here is a constructive critic of Graeber affirming this:

As Graeber explains, however, pure barter as such never existed. The myth of barter is a handy story for explaining the origins of money in terms that warrant market theories of price and commodity exchange. But, historically and ethnographically, it does not hold water. None of this is news to anthropologists. It is, after all, the basis of Mauss’s analysis of The Gift.

Bill Maurer, “Debating Anthropology's Assumptions, Relevance and Future: David Graeber's Wunderkammer, Debt: The First 5,000 Years,” Anthropological Forum 23(1)

The book cited is The Gift by Marcel Mauss, a classic of anthropology published in 1925. Mauss' analysis of pre-monetary gifting is now widely used by historians in order to prevent the simplifications that the modern concepts of barter and currency can create. For example, I just read an excellent book, The City-State of Boston 1, which discusses to great effect how the early American gift material called wampum was neither money nor barter, and how its uses changed with the arrival of economically interested European settlers.

The critique of Graeber made in the article being quoted does not come from debunking the myth of barter, which is unquestioned among social scientists, but from the question of how the myth of barter arose.

State-credit theories and barter-commodity theories did, alternately and often cyclically, as Graeber demonstrates in the second half of the book, rise to prominence, capturing the imagination of noble and patriarch, king and parliament, authors and activists alike. In so doing, they conjured a world after their own image. The theories properly speaking do not describe, they perform. But that performing makes difficult the quest for origins with which Graeber begins his analysis: the origins of the ethical imperative to repay a debt.

ibid., emphasis added

This goes beyond the scope of this question, but basically, Graeber is correct to reject the myth of barter which appears on the "Library of Economics and Liberty" and other such untrustworthy websites. The major concern with his book is his account in how the concept of personal debt and the myths of barter and state credit arose, which complicate the issue.


Footnote:

  1. The City-State of Boston: The Rise and Fall of an Atlantic Power, 1630–1865 by Mark Peterson – April 23, 2019 - Amazon Link
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  • As mentioned in a comment above, I find this discussion hard to follow without a definition of "money" and "barter". What is "pre-monetary gifting", and how does it differ from "pure barter"? What is "the modern concept of currency", and what is its alternative? Maybe an outline of the "unquestioned" alternative history of money would make this more accessible to non-experts like me? – IMSoP Jul 6 at 20:56
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    In chat, I questioned whether Graeber's attack on a barter system is a straw man. The essence of that concern being: who says there were planned and understood barter systems that not only preceded currency, but altogether were ignorant of it until it was so devised? The claim is that money was invented because barter is impractical. Indeed, barter is impractical, so is it that Graeber only is highlighting that currency arose at the same time as civilization? – fredsbend Jul 6 at 23:29
  • @user541396 this article seems to admit that there's no evidence that "money [was] invented because barter was deemed impractical". it doesn't present new evidence, it just claims that its "armchair reasoning," based on zero observation, is simply "logic" and that there's no other logical explanation possible – Avery Jul 9 at 3:31
  • An answer based purely on logic is actually unacceptable on this website; see skeptics.meta.stackexchange.com/questions/1019/… – Avery Jul 9 at 3:33

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