The myth of barter

6 Apr, 2019 at 15:37 | Posted in Economics | 21 Comments

barter-banterEven in the most advanced industrial economies, if we strip exchange down to its barest essentials and peel off the obscuring layer of money, we find that trade between individuals and nations largely boils down to barter.

Paul Samuelson

You will find similar nonsense stories told in almost all mainstream textbooks today. And the truth, as so often when it comes to economics fairytales, is quite another:

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.

Caroline Humphrey

21 Comments

  1. And there is a guy, Brian Chang, taking it one step further calling it Crusoe Economics based on Libertarian economics by debunking popular economic fallacies. There is even a Wikipedia entry. He cites Henry Hazlitt who wrote Economics In One Lesson in 1946.

    Essentially it uses fallacy to allegedly debunk fallacies.

  2. Thanks Lars. So true. As I am rebuilding my library in Kindle it is quite clear this is a Monopoly not an auction!

  3. That quotation from Samuelson is precious: “the obscuring layer of money”!!

  4. Dear Lars,
    According to the Oxford dictionary, a myth is a person or thing having only an imaginary or unverifiable existence.
    What is the myth here?

    • You are aware of the ex ante origins w/o any need to reference anthropology or other disciplines, outside orthodox conclusions. In literature from a historical perspective this is call crafting a narrative.

    • Introduction: our goals, audience and principal themes ‘I am so displeased at the way undergraduate economics is taught. Undergraduate economics is a joke … they teach this stuff that you know is not true …’ Herb Gintis, Emeritus Professor of Economics, University of Massachusetts (from Colander et al. 2004: 92) ‘It is true that we cannot, in the time available, teach everything that we would like. But why do we pick out for treatment just that selection of topics that is least likely to raise any questions of fundamental importance?’ Joan Robinson of Cambridge University (1965: 3) In brief The typical introductory economics textbook teaches that economics is a value free science; that economists have an agreed-upon methodology; and they know which models are best to apply to any given problem. They give the impression that markets generally are sufficiently competitive that (for the most part) they lead to efficient outcomes; that minimum wages and unions are harmful to workers themselves; and that government regulation is either ineffective or harmful. This Anti-Textbook points out that all this is a myth. Value judgements pervade economics and economic textbooks. These value judgements reflect a social and political philosophy and can be called an ideology or world-view. It is one that textbook writers are implicitly attempting to persuade the reader to accept. The Anti-Textbook makes this ideology, and the value-judgements behind it, explicit. The point is not so much to claim that this ideology is wrong, but simply to point out that it exists, and that there are always alternative views that one ought to consider. (The Economics Anti-Textbook: A Critical Thinker’s Guide to Microeconomics” by Rod Hill, Professor Tony Myatt , http://a.co/e8GzuEc)

      The lack of an explanation for price movements in the demand and supply model is known as Arrow’s Paradox, after the issue raised by Kenneth Arrow (1959): all individuals and firms are assumed to be ‘price-takers’ and to have no influence over the market price, yet somehow the market price adjusts and reaches the equilibrium value. One ‘solution’ to this conundrum is to invent an auctioneer, who is ‘the visible, if imaginary, embodiment of the invisible hand. (The Economics Anti-Textbook: A Critical Thinker’s Guide to Microeconomics” by Rod Hill, Professor Tony Myatt , http://a.co/0fiMIRA)

      He has no economic involvement in the market: no mention is made of his objectives or constraints’ (Dixon 1990: 361–2). This fictitious character fills the glaring gap in the demand and supply model to adjust prices in response to excess supply and demand. If having to invent an auctioneer is bad enough, what’s worse is that the auctioneer can’t allow any trades to occur until he finds the equilibrium solution. This is because the auctioneer needs eventually to end up at the intersection of the demand and supply curves. If we allow trades before equilibrium is reached, people will have spent some of their budget. As a result, they would not be able to buy what they otherwise would have bought at what would have been the new equilibrium price. (The Economics Anti-Textbook: A Critical Thinker’s Guide to Microeconomics” by Rod Hill, Professor Tony Myatt , http://a.co/iUPLv8f)

      Dictionaries are poor resources for understanding anything beyond, well, dictionary definitions. Life’s nuanced meanings, truth and insight, transcend mere dictionary definitions. I can find hundreds of examples if the use of the term “myth” in my economics library, speaking to the likes of the myth of the “efficient market hypothesis” etc. I do think Lars uses the term in good company.

      • Dear Rob,
        Dictionaries are great in what they are supposed to do: explain the generally accepted meaning of words.
        Barter is not a myth since it occurs in our economy on a daily basis.
        The historical existence of a 100% barter economy might or might not be a myth, but that is not what Samuelson was referring to in the quote.
        I am not sure what is the myth here.
        That barter exchanges preceded the use of money? The earliest forms of money were commodities or objects which functioned as money.

        • No Jorge, it doesn’t, and that is the joke 🙂 It is a nice illusion but the metaphor has wore then and threadbare. Give a moment and I give you a concrete example. Or you could read Akerlof’s Phishing for Phools and find a nice exposition that is the needle in your barter balloon.

          • As you seem to be an intrepid mythbuster, then explain to me please how money came into existence.

            • I am on road. There is good link in the comment section, Steve Keen discusses how (he calls it the walras’s ruse) in his Book:

              I thought of you when I read this quote from “Debunking Economics (Digital Edition – Revised, Expanded and Integrated): The Naked Emperor Dethroned?” by Professor Steve Keen –

              “This is clearly not the way markets work in the real world.3 Nonetheless, this mythical construct became the way in which economics attempted to model the behavior of real-world markets.”

              Start reading this book for free: http://a.co/bDELrhk

              There are many other sources. And I have real-world business cases that prove it indeed it is just not true. The so-called ‘market’ is frequently rigged just as Dean’s opening comment says. And I can prove it. So experience in and with real-world business trumps idealizations divorced from reality. And I make damn sure my children know it.

        • Dear Jorge,

          What then do you think Samuelson was referring to?

          I came to the conclusion that much of the theories and metaphors used within mainstream economics were bunkum from personal experience first (think Akerlof’s Phishing for Phools) and then followed this by an indepth study of economics to provide some framework and vocabulary, so-to-speak, to my experience. Following the GFC many of the myths of mainstream economics are simply no longer tenable. In my experience, markets are man-made and largely rigged (think Dean Baker’s Our Friend the Market). When we peal back the misleading metaphors and start to really understand how markets are rigged by manipulation and deception we can better see a path forward to how we might organize, regulate, and manage markets for fairer, less deceptive, and less manipulated outcomes.

          This auction/barter debate has played out on RWER before, and I posted long examples of actual cases (but cannot find my posts as they were a while back). Are you familiar with David Weil’s The Fissured Workplace? After disarticulating a transnational global supply chain of “contingent” highly educated/highly skilled workers I found his work was a brilliant exposition of what I documented forensically.

          • I think Samuelson is just repeating what Ricardo stated here: “If any cause should raise the price of a few manufactured commodities, it would prevent or check their exportation; but if the same cause operated generally on all, the effect would be merely nominal, and would neither interfere with their relative value, nor in any degree diminish the stimulus to a trade of barter, which all commerce, both foreign and domestic, really is” (Vol. 1, 288).

  5. Archeologists seems to have found some evidence concerning the origin of money, while ortodox economists still prefer speculation http://arno.daastol.com/books/wray/Wray,%20Credit%20and%20State%20
    Theory%20of%20Money%20(2004)a.pdf#page=93

  6. The Historical Evolution of Money and Debt -L. Randall Wray, Research Director of the Center for Full Employment and Price Stability and Professor of Economics,
    University of Missouri-Kansas City &
    Michael Hudson, President, Institute for the Study of Long-Term Economic Trends and Distinguished Research Professor, University of Missouri-Kansas City https://www.youtube.com/watch?v=0zEbo8PIPSc

  7. The Myth of the Barter Economy by Ilana E. Strauss :
    “Adam Smith said that quid-pro-quo exchange preceded economies based on currency, but there’s no evidence that he was right.” https://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/

    • Samuelson is probably more responsible for the idiocy of modern economics and macroeconomics in particular than just about anyone. And is thinking is nicely summed up in that quote. The problem is an economy cannot be stripped down to be seen as a market or an aggregation of markets. It is a social system. It requires an understanding of humanity.

  8. The real market oppossed to imaginary “auctions”: https://youtu.be/jCC8fPQOaxU

    • The same predatory model is being orchestrated by Wall Street on Main Street. As homeowners are downsized by corporations they find themselves forced into the “contingent” or (“sharing”) economy suddenly without healthcare, 50 to 60 percent of the income gone, and wage scalped by “third party vendors” who compete based on price so the big corporations who shed employees focus on their core business; predatory capitalism! What an auction! Everything is for sale, including human lives!

      • It isn’t just trailor parks anymore either. It’s middle class American neighborhoods as I found out while engaging in some digital forensic research to take legal action against our discriminatory HOA in our home in a suberb of Seattle. That’s right, Trump’s racist trickel-down came to our home when the HOA president tageted my wife because she is minority with a foreign name. Well, I wrote some AI/ML apps that went out gathered forensic data on the HOA and neighborhood, spoke with hundreds of other homeowners and revealed how discriminatory policies were being selectively targeted at minorities. In the process I discovered a dirty little secret that fellow out of the big data. Wall Street is coming into middle class neighborhoods and buying up distressed homes, turning them into rentals, than jacking up the rent so only the few can afford to live there anymore. One Wall Street investment firm, Invitation Homes, spins off so many corporate names (DBAs) they should be called Medusa Homes! And that is one winning auction!

        • You have to remember who bought a large part of the distressed RE post GFC to become a price setter and to make it even more distressing they incorporate rational agent models in their massive server farm algos.

          • I’m all ears?


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