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.


9 Responses to “The Doom of the Austrians – Part 1”

  1. What I think worries Austrians, but that I couldn’t care less about, is that “capitalism” (however defined) didn’t occur organically and hasn’t been “distorted” by this, that or the other.

    Bad things, like bureaucracies and state violence (so Graeber and Tilly/Braudel) led to the creation of capitalism.

    This would lead Capitalism to suffers from some sort of original sin. A system based on voluntary exchange only came into being because bureaucracies needed to organise and states needed to accumulate capital for warmaking.

    This is a problem for an Austrian who has a quasi-religious faith in markets and man as a somewhat atomised participant.

  2. Edis said

    I am trying to track down concrete references for the claim the Homo sapiens supplanted Neanderthals in Europe because H. Sapiens groups engaged in trade with other H.S. groups while Neanderthal groups were autarchic. The evidence being in the archaelogy – artefacts in H.S sites from many hundred miles of those sites site and none discovered in any Neanderthal sites. The point being that exchange of goods shows the possibility of exchange of information and thus learning about new possibilities for survival. Intereted if you come across anything pro or con this thesis.

  3. I doubt if there is even one quaking Austrian worrying about Graeber’s silly claim. Here, by the way, is what Ludwig von Mises wrote on the subject in HUMAN ACTION, when Graeber was still in diapers. Tell me, if you please, what evidence Graeber adduced that would dispute, let alone refute, the Austrain Economic theory of money as elucidated by Mises.

    “The historical question concerning the origin of indirect exchange and money is after all of no concern to praxeology. The only relevant thing is that indirect exchange and money exist because the conditions for their existence were and are present. If this is so, praxeology does not need to resort to the hypothesis that authoritarian decree or a covenant invented these modes of exchanging. The etatists may if they like continue to ascribe the “invention” of money to the state, however unlikely this may be. What matters is that a man acquires a good not in order to consume it or to use it in production, but in order to give it away in a further act of exchange. Such conduct on the part of people makes a good a medium of exchange and, if such conduct becomes common with regard to a certain good, makes it money. All theorems of the catallactic theory of media of exchange and of money refer to the services which a good renders in its capacity as a medium of exchange. Even if it were true that the impulse for the introduction of indirect exchange and money was provided by the authorities or by an agreement between the members of society, the statement remains unshaken that only the conduct of exchanging people can create indirect exchange and money.

    “History may tell us where and when for the first time media of exchange came into use and how, subsequently, the range of goods employed for this purpose was more and more restricted. As the differentiation between the broader notion of a medium of exchange and the narrower notion of money is not sharp, but gradual, no agreement can be reached about the historical transition from simple media of exchange to money. Answering such a question is a matter of historical understanding. But, as has been mentioned, the distinc- tion between direct exchange and indirect exchange is sharp and everything that catallactics establishes with regard to media of exchange refers categorially to all goods which are demanded and acquired as such media.

    “As far as the statement that indirect exchange and money were established by decree or by covenant is meant to be an account of historical events, it is the task of historians to expose its falsity. As far as it is advanced merely as a historical statement, it can in no way affect the catallactic theory of money and its explanation of the evolution of indirect exchange. But if it is designed as a statement about human action and social events, it is useless because it states nothing about action. It is not a statement about human action to declare that one day rulers of citizens assembled in convention were sud- denly struck by the inspiration that it would be a good idea to exchange indirectly and through the intermediary of a commonly used medium of exchange. It is merely pushing back the problem involved.

    “It is necessary to comprehend that one does not contribute anything to the scientific conception of human actions and social phenomena if one declares that the state or a charismatic leader or an inspiration which descended upon all the people have created them. Neither do such statements refute the teachings of a theory showing how such phenomena can be acknowledged as “the unintentional outcome, the resultant not deliberately designed and aimed at by specifically individual endeavors of the members of society.”

    • Adam Bell said

      Thank you, Ned, for providing a list of the things I hope to gather under the heading of ‘You can’t have these for free’ in a future post. For everyone else, I would point out that Ned is coming from a URL called ‘Jesus-and-taxes’, in which he claims to prove that Jesus would’ve opposed Obama’s healthcare proposals.

  4. Adam, thanks for the plug to my website. Just to be sure others can find it, here is the correct url:

    The Parable of the Good Samaritan is the basis for my contention that you mention. Here is that parable from the New International Version of the Bible, the Gospel of Luke Ch. 10, verses 25-37.

    The Parable of the Good Samaritan

    25 On one occasion an expert in the law stood up to test Jesus. “Teacher,” he asked, “what must I do to inherit eternal life?”
    26 “What is written in the Law?” he replied. “How do you read it?”

    27 He answered, “‘Love the Lord your God with all your heart and with all your soul and with all your strength and with all your mind’[a]; and, ‘Love your neighbor as yourself.’[b]”

    28 “You have answered correctly,” Jesus replied. “Do this and you will live.”

    29 But he wanted to justify himself, so he asked Jesus, “And who is my neighbor?”

    30 In reply Jesus said: “A man was going down from Jerusalem to Jericho, when he was attacked by robbers. They stripped him of his clothes, beat him and went away, leaving him half dead. 31 A priest happened to be going down the same road, and when he saw the man, he passed by on the other side. 32 So too, a Levite, when he came to the place and saw him, passed by on the other side. 33 But a Samaritan, as he traveled, came where the man was; and when he saw him, he took pity on him. 34 He went to him and bandaged his wounds, pouring on oil and wine. Then he put the man on his own donkey, brought him to an inn and took care of him. 35 The next day he took out two denarii[c] and gave them to the innkeeper. ‘Look after him,’ he said, ‘and when I return, I will reimburse you for any extra expense you may have.’

    36 “Which of these three do you think was a neighbor to the man who fell into the hands of robbers?”

    37 The expert in the law replied, “The one who had mercy on him.”

    Jesus told him, “Go and do likewise.”

    Adam, I’m sure you noticed that Jesus explicitly said that the Good Samaritan used his own personal resources to succor his neighbor. His Samaritan did not apply to the State to provide health care for the unfortunate traveler using OPM (sounds like opium, is equally addicting, stands for other people’s money). And I do hope you too will, “Go, and do likewise.”

    I wrote my commentary in response to some unlettered fellow who had claimed it was compassionate to support Obama’s socialist health-care scheme. And with that claim the dullard asked, perhaps hoping his audience never read the Bible, “What would Jesus do?” implying he would vote for Obama’s scheme. Poor dope. Perhaps you know him. I think his name is Plugman or Thugman or something like that.

  5. […] to acknowledge that we laughed out shrill in my overly-long, procrastinating web hunt on a subject when we found one of a participants in a contention outed as a chairman behind a ‘Jesus-woulda-hated-taxes’ website (to that we won’t […]

  6. […] had meant to follow up my earlier post in this series with an analysis of the praxeological approach taken by the Austrian school, but […]

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