The Doom of the Austrians – Part 1
September 20, 2011
Blogging has been light, as I’ve started a new job and have no time to put my head into the Internet, but having been pointed to a fascinating debate by Left Outside on the relationship between economics and ‘evidence’, I just can’t resist.
Let me summarise what’s been going on. An anthropologist named David Graeber has had the temerity to point out that one of economics’ just-so stories, namely that currency arose from bartering economies in which people got frustrated with not always being able to swap their pigs for their favourite type of lifestock, never actually happened. Primitive systems of exchange don’t seem to be based on bartering at all. Rather, exchange takes place in the form of a kind of social ritual, in which the exchange itself is largely incidental to the fun. For example:
‘In the 1940s, an anthropologist, Ronald Berndt, described one dzamalag ritual, where one group in possession of imported cloth swapped their wares with another, noted for the manufacture of serrated spears. Here too it begins as strangers, after initial negotiations, are invited to the hosts’ camp, and the men begin singing and dancing, in this case accompanied by a didjeridu. Women from the hosts’ side then come, pick out one of the men, give him a piece of cloth, and then start punching him and pulling off his clothes, finally dragging him off to the surrounding bush to have sex, while he feigns reluctance, whereon the man gives her a small gift of beads or tobacco. Gradually, all the women select partners, their husbands urging them on, whereupon the women from the other side start the process in reverse, re-obtaining many of the beads and tobacco obtained by their own husbands. The entire ceremony culminates as the visitors’ men-folk perform a coordinated dance, pretending to threaten their hosts with the spears, but finally, instead, handing the spears over to the hosts’ womenfolk, declaring: “We do not need to spear you, since we already have!”’
The crucial point here is that the actual value of the goods being exchanged is incidental to the exchange itself, within rather fuzzy limits. This primitive exchange serves a quite separate social function to the sort of value-agreement exercise that bartering is typically understood to involve.
However, that’s not to say that bartering cannot arise in more developed societies, so Graeber looks at how the first currencies actually arose in Mesopotamia. Silver, as a common trade good, was stockpiled in the non-state communities known as temples. It was traded with external partners in a system of fixed equivalences for other goods, without any bartering being involved. Temples, as early bureaucracies, needed a method of keeping accounts of the rewards to be granted to members of their communities for their work in various fields – fishing, hunting, pottery and so on. Given the status of silver as a trade good, it was indexed to the value of a given number of bushels of grain, and used as currency in this context.
Graeber makes the very strong claim that currencies have never arisen from bartering societies of the type described by the likes of Adam Smith; indeed, on the examples he provides, it is hard to see how they could.
Naturally, this claim has caused a significant amount of debate amongst economists – not least those of the Austrian School, an approach to economics which, if one were being unkind, could describe as exclusively involving these kinds of just-so stories.
They have retaliated, and their argument boils down claiming that Graeber’s evidence really supports their theories. The argument runs as follows. All that’s required for Austrian assumptions to hold true is that there is a period of bartering in which one good which is more easily tradeable (‘marketable’) than others emerges as the dominant medium of exchange. This bartering happens during the period when the fixed equivalences for long-distance trade are being set – a very brief period of initial haggling, seemingly, is enough for the Austrian theory to hold true.
However, Graeber’s examples of primitive tribes seem to demonstrate that it’s not necessarily the case that this attempt to determine the relative market values of goods occurs at all. Indeed, the only evidence they cite in favour of this occurring is ‘economic logic’, which is rather circular: if economic logic requires a particular foundational event, then citing it as a reason why that foundation took place is quite pointless. Certainly, Graeber provides evidence and reasoning to suggest reasons why it would not – not least that the hazards inherent in long-distance travel in ancient times would’ve made merchants much less likely to even consider negotiating. It’s not clear that those long distance-traders were utility maximisers in manner in which certain types of economic theory would require. Without that certainty, it’s impossible to make the claim that bartering must have taken place, and so impossible to rely on premises based upon it.
There is a broader lesson here: you can’t get intellectual premises for free. With this in mind, I’m going to do some reading around the Austrian School’s concept of praxeology, which this debate has drawn my attention to.