How money causes poverty (plus war and ecological destruction), and what could replace it

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Posted May 7 2017 by Dave Darby of

Exchange has always been part of the human story, whether between individuals, tribes or nations. Some people have what others don’t, due to geography or skill, and exchange is a means of getting what you don’t have, and giving what you have a surplus of.

Money didn’t evolve from barter

But how did money evolve as a means of exchange? The conventional wisdom is that human economies were based on barter. Someone had plenty of eggs, but no honey (say). If they wanted honey, they had to find someone with honey, but who also wanted eggs – otherwise they had to swap their eggs for something that the person with honey wanted, before they could swap this for honey.

All very complicated, so inevitably at some point, some bright spark suggested that something be used as a means of exchange – preferably durable, like metal, shells or precious stones – or even useful in itself, like cattle or corn.

Economics textbooks tend to repeat this story, but the problem is, it’s not true. There is absolutely zero evidence of any historical economy based on barter.

So how did this myth come to be accepted? It may be because it was put forward by Aristotle, and for thousands of years, Aristotle was seen as the fount of all wisdom, and no-one was keen to challenge him. Aristotle also stated that the earth was the centre of the universe, a mistaken belief that held sway for 1800 years. Similarly, his view that barter economies gave way to money economies remains largely unchallenged, even though Aristotle had no direct knowledge of a barter economy. His ideas on barter and the nature of the solar system were pure conjecture.


Aristotle: not right about everything

The barter/money theory was repeated by Adam Smith, the father of modern economics, further entrenching the myth. Certainly barter would have happened on the margins (and still does), but there is no evidence that barter was anything other than marginal.

How did pre-money economies work?

So how did economies work before money? One theory is that of the ‘gift economy’, as found in families or in groups of friends. In a family, no-one is calculating the value of their work – it’s just their contribution to the family. This can work in tight-knit groups like extended families or small tribes, but can it work in larger groups that don’t have common goals (such as feeding, housing or defending themselves)?

After the agricultural revolution and the growth of towns, long before the invention of money, what was used as a medium of exchange, if not barter or gifting? A clue can be found in the first cuneiform script of the ancient Sumerians, over 5000 years ago. The ‘writing’ on clay tablets, was in fact a system of accounts, recording who was in credit or debt to whom. No money needed to change hands, as people’s contributions and obligations were recorded for all to see in the temple, where the clay tablets were kept.


The oldest known writing, on Sumerian clay tablets, was in fact an accounting system.

Way, way before writing, ‘tally sticks’ were used for the same purpose, and it’s now believed that tally systems (marks on sticks or bones representing credit or debt) go back over 20,000 years. These would have been used as an accounting system for dealings with people outside the immediate extended family / tribal group, in which the gift economy would have dominated.

The first real money / coins came into existence around 2,700 years ago. Humans have been around for 100-200,000 years, so it’s a mistake to think that money is essential to the human economy. David Graeber, in Debt: the First 5000 years, claimed that money developed as credit, rather than to replace barter. This only became widely necessary after the agricultural revolution, when people’s daily lives brought them into contact with people they didn’t know. Money could never have developed in a tribal society, where credit and debit are kept inside people’s heads. You either know that someone ‘owes you one’, or mental tallies are not even kept, as in families. Peer pressure is generally enough to make sure that everyone pulls their weight. Having lived in an intentional community for 13 years, I know this to be true.

After the agricultural revolution, and as tribal society began to be replaced with towns / ‘civil’ society, some sort of tally was required. Whether these tallies were clay tablets or tally sticks, what they represented was a ledger. People’s accounts started at zero, and if they provided a useful service or product for someone else, they received credit, and the account of the recipient of the product or service went into debit.


Tally sticks.

The problem with money

I believe that for human society, this mutual credit system is preferable to a money-based economy. The problem with money is that it concentrates. It’s a given for most people that money attracts money, and I believe that it’s a given because it’s true. If you try to get rich through your own work, you’ll find that it’s virtually impossible, unless you have some extremely rare skill, such as singing, acting, writing or painting. Otherwise, the road to riches is paved with other people’s work. You can either employ lots of other people, and extract profit from their work; you can own large areas of land and charge rent on it; you can own shares, which ultimately deliver their returns due to the work of thousands, perhaps millions of people in the companies in which you’ve invested; or (and this is the most important way that money attracts money), you can lend it at interest.

This is why real wealth today resides in the banking system, and with it, control over the economy and ultimately, the political system. It’s no coincidence that Trump has filled his cabinet with Goldman Sachs people rather than educators, healthcare professionals or academics. And it is no coincidence either, that banks have a government-mandated monopoly on the issuing of legal tender, via the lending of money that they don’t have, with compound interest attached, with security provided by the borrower (usually in the form of houses). Once you understand this (and a refreshing number of people now do), you realise that it’s the biggest scam the world has ever seen. If you don’t, it will be the subject of future articles.

In fact, the development of money and the development of empires occurred at the same time, and I don’t think it was coincidental. Of course you could build an empire through conquest, but it’s much more difficult to hold on to land than it is to hold on to money. Plus if you want an all-conquering army, you need to feed them. Yes, you can conquer land directly, and force local farmers to hand over food – but how much easier to buy it? Then the fact that you actually have an empire at all can be disguised. This is happening today with the US (or more accurately, corporate) empire.

The concentration of money is accelerating, and the problem is not that some people have more than others (there’s only so much one person can consume), it’s that concentration of wealth brings with it power, and therefore the destruction (or more accurately, the prevention) of democracy, as surplus wealth flows into the political process, into the lobby industry and into providing jobs for politicians, amongst a portfolio of other techniques for undermininng our political system. Then war becomes a very profitable business for corporate weapons manufacturers, rather than a means of physical conquest – a very dangerous scenario, and one that guarantees a state of permanent war, and the impossibility of peace.

Money as the root of environmental damage

The lending of money with compound interest attached (previously forbidden in Christianity and Islam – a ban that has been rescinded in the former and is currently being bypassed in the latter) also means that the economy has to constantly grow. When loans are repaid, the debt is cancelled, but not the interest. In a stable economy, interest cannot be repaid, which is why every government in the world is pursuing perpetual, constant, impossible growth. It is this quest for growth that is at the root of the destruction of the earth’s ecology that is so detrimental to the prospects for human survival. Nature is still our life-support system – we’re not as clever as we like to think we are.

In the early 19th century, William Greene suggested the introduction of a mutual credit accounting system (think tally / clay tablets, but in a system of written ledgers, where credit is extended to people who are known and trusted in their communities). He saw that money was becoming concentrated in few hands, which meant that even though there were plenty of skilled people and resources, most people were living in poverty. Poverty was correctly identified as the concentration of wealth in few hands, and this is only possible in a money economy. His credit system involved limits on the amount of credit or debit individuals could hold. Individuals can only gain credit from their own work, not anyone else’s – surely a hallmark of a civilised society?


William Batchelder Greene: his ideas on mutual credit systems were way ahead of his time.

I believe that a mutual credit system is the solution to the problems of poverty, ecological destruction, war and even economic migration (mutual credit exchange is possible anywhere on the planet, so no-one has to travel to find work), and in the age of the internet, with blockchain technology as security, it is entirely possible to implement it globally – not by a technological imbecile like me, but by the technically-gifted people already working in cryptocurrencies, platform co-ops and free / open source software.

Here’s one of them (actually, he’s a self-confessed Luddite, but he has the vision to outline an implementable mutual ‘money’ system and to explain why it’s necessary) and here are another two (really worth making the time to read).

Anyone can have bright ideas of course, but it’s implementation that’s key. However, if I didn’t think that this system is implementable, through the development of the non-corporate sector (which is already happening), I wouldn’t bother blogging about it. But I believe that it’s achievable, even though very few people will actually understand it (insert appropriate Margaret Mead quote here). I’ll be blogging much more about this, as I believe it’s the only economic system that could replace capitalism – essential if we are to stop global ecological damage, and therefore survive.