Where did the exchange come from?

If the exchange isn't any good, then why did people start using it? Why is it so ubiquitous and why has it lasted so long? And how have we had such a prosperous and successful run while using it?

In the next three articles I intend to explore these ideas a little, starting with where the exchange came from. And there are really three main possibilities raised in literature: it's the most inherent or intuitive way of doing things for humans, it logically emerged from more traditional economies, or it was instituted to solve a particular issue of justice.

Although there is a lot of anthropological engagement with the origins of money, debt and various particular forms of market and economy, there is not necessarily a focus on the origin of the exchange itself and how it became the centrepiece of various economic models. But we can use these other studies to make some guesses.

Barter

One of the primary arguments about the origins of money is the discourse about barter and the medium of exchange. The story goes something like this: people wanted to trade things with each other, but they ran into a problem. A farmer who grew apples might want a new axe, but the axe-maker didn't want or need apples. The farmer and the axe-maker can only complete the trade if they both have things that the other wants, called the "double coincidence of wants", but that's not very likely when the things being traded are so specific. The solution is to introduce a medium of exchange - a thing whose sole purpose is to be useful in exchanges. This is the invention of money. Now the farmer can give the axe-maker money in exchange for the axe, and the axe-maker will happily accept it knowing that it would be useful in other exchanges later (they can convert it into something they want to use). Gold has been a classic example: it is easy enough to identify, it is fungible (that is, each bit of gold is sufficiently alike), it can be chopped up into smaller pieces as necessary, and its not so useful elsewhere that people would rather use it for something other than exchanges. (And this is a bit of a common misunderstanding about gold: it was valuable, in part, because it was rather useless - and this is still somewhat the case today.)

This is a story about the origibs of money, of course, and not of the origins of the exchange, but it can be informative. In this story, the exchange is inherent, or intuitive, or fundamental - when the story starts the exchange is assumed to be the natural way that humans want to transfer resources about, even though the start of the story is that this doesn't work very well. The drive to use exchanges is apparently so strong it is instilled in people before a realistic toolkit exists to make use of it.

The people who have traditionally told this story have been classical economists, Austrian school economists, and the like - economists who have favoured markets. So it is possible that these people told the story because, consciously or unconsciously, they favoured markets and took their own life experiences (that the exchange is fair and proper and common) and applied them to historical circumstances where they actually may not have been present.

Despite this story being widely circulated by traditional economists some time ago, there is not much anthropological evidence of any real barter economies, which suggests that the story isn't quite true. In terms of the exchange, this is suggestive that the exchange isn't some inherent human nature, but came about for some more contingent reason.

Traditional gift economies

One common form of economy that came before and existed alongside monetary economies were traditional gift economies. I'm going to spend a lot of time later talking about gift economies, specifically non-reciprocal gifting economies, but I want to differentiate these from a traditional gift economy, so I had better be very clear here about the distinction between the two. There aren't really any examples of proper non-reciprocal gifting economies in history, but there are plenty of forms of traditional gift economies.

A non-reciprocal gifting economy is one where economic transfers are done through non-reciprocal gifting - things like charity, volunteering, welfare, and so on. In these cases, there is no expectation or obligation placed on the recipient of the gift to provide anything back to the giver. In contrast, an exchange is an economic transfer that occurs specifically on the basis that the recipient has an obligation placed on them to give something particular back to the provider.

A traditional gift falls somewhere in between. The giver does not expect anything back from the recipient now, but they generally expect something back from the recipient later. What is expected back is not necessarily specified, but there is usually some basic calculation of value that occurs, so that the giver will feel that the obligation on the recipient has not been discharged unless the return also approaches that value. The party that gives the gift - and expects the return - might not be an individual, but a family, community, association, or the like.

Now, that is a little vague. In some ways, it is like an exchange economy, but the exchanges are imprecise, deferred, and not fully enforced. In some ways, it is like the non-reciprocal gifting economy that I'll be describing later. And there are a lot of varieties of social and cultural norms that inform these economies as well.

One way to think of a traditional gift economy is one where the exchange is somewhat present but not fully prioritised or fully formed. It is not something that exists formally within law or is enforced or motivated by law. But nor is it completely absent. However, it could be useful to consider this type of deferred and non-specific exchange as a type of expectation of contribution, or more generalised exchange, though one that is not always fully articulated.

A generalised exchange is where people both give to and receive from the community (or the economy), without necessarily keeping track of exactly who transferred what to whom. It exists in both gifting economies and exchange economies, and in each case it is a sort of "top-level" emergent feature of an economy rather than a "ground-level" fundamental of an economy.

The existence and widespread presence of traditional gift economies throughout history suggest that there has been a constant motivation for generalised exchange, but not that there has been a constant or inherent motivation for specific, individual exchange - the type of exchange as an economic transfer that I have been exploring (and critiquing) so far. The individual exchange as a specific economic strategy and legal construct came later.

Blood debt and justice

Drawing again from theory about the origins of money in particular, another proposal is that money started as a unit of account - that is, a way of measuring the value of things so that any two things could be compared. Dollars form a useful unit of account in many modern markets, but traditionally pounds of grain and other common foodstuffs served this role. Note that for a unit of account to work, it is best to start out with something that is inherently useful, such as grain, rather than something that is not, such as gold. This is not just to anchor the measure itself (if you introduce dollars to a money-less society, how does anyone start going about determining how much anything is worth?), but also because the items are not necessarily traded it does not matter if they are consumable (unlike a medium of exchange, where if you consume it, the medium of exchange is gone).

But the question is still why such a unit of account was considered socially necessary? A traditional gift economy does not need one, because there are no formalised exchanges to keep track of. And it is, in all likelihood, the formalisation of some economic or legal process that made the unit of account necessary, such as when exchanges became not just social expectations but legal contracts, or when productivity needed some formal method of comparison for procedural fairness. But perhaps the first was the utility of the unit of account in resolving blood debts.

A blood debt is incurred when someone destroys the property of another - where the property could be an animal or a family member. The victim - the family that has lost a sheep or a worker - has now incurred a significant loss. One of the traditional ways to resolve this was retribution - to inflict an equivalent amount of damage to the perpetrator. But a common outcome of this process was a cycle of violence where killing and destruction was traded back and forth indefinitely. One solution to this is a legal consequence where the perpetrator has to pay compensation to the victim, but this solution is generally associated with some sense of proportionality. That is, if the victim lost a sheep, the debt incurred should be roughly that of a sheep. But if the perpetrator does not have any sheep, how can they pay the correct amount?

The answer is to have some unit of account that can be used to measure the value of the sheep, as well as the value of the possessions of the perpetrator. That way if the perpetrator is someone who, for example, mines iron, they could pay a sheep's worth of iron by first converting both things into the unit of account (say, pounds of grain). The result is a formalised economic trade in the form of an enforceable payment - similar, in many aspects, to the modern concept of the exchange.

It's possible, then, that the modern formal exchange grew out of a concept of justice, that of paying exact reparations, conceived of as the creation and discharging of a debt where the amount of debt is correlated with some other good or action. This process - a legal and judicial process, rather than an economic one - assigns values to property, formalises property rights, and creates obligations for payments in response to the actions of one party. It is just a nudge to apply it further to, say, taxes, and entrench the idea of fair exchanges of value that is then carried over to interactions between members of the community and the formalisation of the exchange.

This could explain the origins of the exchange, but, if so, it also indicates something very signficant: the exchange embeds within it a particular notion of justice as retribution or reparations. There are common intermixtures of these judicial and economic terms - that a criminal needs to "pay their debt" to society, for example, or that for a wealthy person a fine for illegal behaviour is no more than an economic fee. The reverse also starts to become accepted: that people justly earn their money, and that recipients of gifting (or charity, welfare, and so on) are often undeserving, lazy, and parasitic, accruing some social debt that needs to be paid off.

If this is the case and the exchange has embedded in it a particular concept of justice, then this would imply there is a constant tension between the exchange and other forms of justice, such as restorative justice or distributive justice. And this, I think, is very plain to see. Convicted criminals who receive care from the state are, in some cultures, seen as being rewarded for their behaviour, and the recipients of distributive justice are seen as social cheats and morally destitute. And these sentiments are more pronounced in more liberal markets, while restorative justice is more pronounced in less liberal markets, such as those where there are increased society safety nets from the state.