Did Debt Exist Before Money? It Doesn’t Matter

Did credit precede money? Maybe. Does it matter? Nope.
One hundred years ago A. Mitchell Innes rejected the standard story on the origins of money, whereby money spontaneously emerged as barter became progressively costly with the increasing division of labor and greater abundance of goods on the market. Money was the solution to the costliness of barter: a common medium of exchange was used, rather than searching for another person with the thing you wanted who also wanted the thing you wanted to trade. Today Innes’ argument is most popularly championed in David Graeber’s book Debt: The First 5,000 Years. The debate between Mengerians and Innesians has resulted in several published books and exploded onto the blogosphere where Bob Murphy (here, here, here), George Selgin (here, here), David Henderson (here), and Brad DeLong (here) attack David Graeber’s book, with responses from the proponents of Innes.
Innes argued that credit existed before a common medium of exchange and thus the Mengerian timeline of the emergence of money was out of order. The timeline for the emergence of money usually goes like this: barter, money, and then credit. But Innes and Graeber argue that barter was so rare as to be irrelevant and credit existed prior to any common medium of exchange. They also claim that credit-instruments (IOUs) were used like money, where IOUs were used to purchase goods. In their view the Mengerian story is an ahistorical account with no relevance to the facts of history and is of little-to-no use.

This post was published at Ludwig von Mises Institute on July 25, 2016.