The common conception of money (pun entirely intended) is that it began as bartering. I’ve also been party to that – writing about whimsical villages on the banks of the Persian Gulf, where the fishermen catch fish and the farmers bake bread, and from that sprung the practice of trading in bushels of wheat.

People often cite Aristotle, writing in the 3rd Century BC (quoted from this online translation):

Of everything which we possess there are two uses: both belong to the thing as such, but not in the same manner, for one is the proper, and the other the improper or secondary use of it. For example, a shoe is used for wear, and is used for exchange; both are uses of the shoe. He who gives a shoe in exchange for money or food to him who wants one, does indeed use the shoe as a shoe, but this is not its proper or primary purpose, for a shoe is not made to be an object of barter. The same may be said of all possessions, for the art of exchange extends to all of them, and it arises at first from what is natural, from the circumstance that some have too little, others too much. […]

Hence we may infer that retail trade is not a natural part of the art of getting wealth; had it been so, men would have ceased to exchange when they had enough. In the first community, indeed, which is the family, this art is obviously of no use, but it begins to be useful when the society increases. For the members of the family originally had all things in common; later, when the family divided into parts, the parts shared in many things, and different parts in different things, which they had to give in exchange for what they wanted, a kind of barter which is still practiced among barbarous nations who exchange with one another the necessaries of life and nothing more; giving and receiving wine, for example, in exchange for coin, and the like. This sort of barter is not part of the wealth-getting art and is not contrary to nature, but is needed for the satisfaction of men’s natural wants. The other or more complex form of exchange grew, as might have been inferred, out of the simpler. When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use. For the various necessaries of life are not easily carried about, and hence men agreed to employ in their dealings with each other something which was intrinsically useful and easily applicable to the purposes of life, for example, iron, silver, and the like. Of this the value was at first measured simply by size and weight, but in process of time they put a stamp upon it, to save the trouble of weighing and to mark the value.

So in Aristotle’s view:

  1. Societies begin by bartering, when men trade with one another for the ‘necessaries of life’.
  2. But when trade extended beyond the society’s borders, it became necessary to find something more convenient, which was ‘intrinsically useful and easily applicable to the purposes of life’. And he uses examples of silver and iron.
  3. Then over time, those pieces of silver and iron became standardised (and almost issued, even), ‘to save the trouble of weighing and to mark the value’.
But did credit come first?

There are some historians that question this Aristotelian theory of money. They’d argue that he was speaking from a time when money was already in widespread use. There were already conventions in trade that had been in place for millennia, and this was a prejudice in his thinking.

In 2011, social anthropologist David Gerber published a (long, dry and quite boring) book titled ‘Debt: The First 5,000 Years’. In it, he makes a quite different argument:

  1. Most early economies were ‘gift economies’.
  2. In a gift economy, there was no specific ‘trade’ or ‘barter’ that would take place. Instead, there would be a general understanding that being generally helpful to your neighbour in a time of need makes for general helpfulness in your time of need.
  3. The modern equivalent is running next door to borrow a cup of sugar. You don’t necessarily return a cup of sugar, or anything specific. Rather, there is the general understanding that good neighbours help each other out.
  4. And in those early communities, everyone knew everyone, and everyone was basically family, so there was no need for bartering to emerge.
  5. Essentially, we’re talking about complex systems of credit: generalised IOUs and societal norms.
  6. And bartering and money do not emerge to replace these dominant forms of credit – instead, they arise as solutions to situations where the complex systems of credit do not apply. For example, when a strange foreigner arrives in the village, and wants food. Because the foreigner is not part of the community, and may not be around for long enough to return the favour, a barter-trade happens to compensate for his lack of credit-worthiness.
  7. From there, you get societal expansion and more foreign trade, until you arrive at the Aristotelian world of money.
How should this affect our view of money?

In the modern world, I suspect that this idea that “it all began with bartering” predisposes us to think that money should have value in itself, and that credit is somehow wicked.

But it’s helpful to consider that this might just be an especially risk averse view of our fellow man.

In close communities, credit is just general living. It’s what happens in families, and it’s why your mother-in-law would be offended if you offered to pay her for the roast lamb that she cooked for lunch. Social credit in a gift-type economy is a statement of trust, while bartering and money are a statement of its lack.

And in some ways, this means that we live within layers of economies. Our immediate social vicinity is generally a gift economy, and that then integrates with the greater human economy. And the extent of that integration is a function of an individual’s trust in people and the world in general.

It’s just something that I’ve been thinking about in this new age of Trump and Brexit.

Rolling Alpha posts opinions on finance, economics, and the corporate life in general. Follow me on Twitter @RollingAlpha, and on Facebook at