Adam Smith on the origin of money[edit]

Adam Smith, the father of modern economics, sought to demonstrate that markets (and economies)
pre-existed the state, and hence should be free of government regulation. He argued (against
conventional wisdom) that money was not the creation of governments. Markets emerged, in his
view, out of the division of labour, by which individuals began to specialize in specific crafts and
hence had to depend on others for subsistence goods. These goods were first exchanged by barter.
Specialization depended on trade, but was hindered by the "double coincidence of wants" which
barter requires, i.e., for the exchange to occur, each participant must want what the other has. To
complete this hypothetical history, craftsmen would stockpile one particular good, be it salt or metal,
that they thought no one would refuse. This is the origin of money according to Smith. Money, as a
universally desired medium of exchange, allows each half of the transaction to be separated. [2]
Barter is characterized in Adam Smith's "The Wealth of Nations" by a disparaging vocabulary:
"higgling, haggling, swapping, dickering." It has also been characterized as negative reciprocity, or
"selfish profiteering."[4]
Anthropologists have argued, in contrast, "that when something resembling barter does occur in
stateless societies it is almost always between strangers." [5] Barter occurred between strangers, not
fellow villagers, and hence cannot be used to naturalistically explain the origin of money without the
state. Since most people engaged in trade knew each other, exchange was fostered through the
extension of credit.[6][7] Marcel Mauss, author of 'The Gift', argued that the first economic contracts
were to not act in one's economic self-interest, and that before money, exchange was fostered
through the processes of reciprocity and redistribution, not barter.[8] Everyday exchange relations in
such societies are characterized by generalized reciprocity, or a non-calculative familial
"communism" where each takes according to their needs, and gives as they have. [9]

http://www.hbs.edu/businesshistory/documents/origin-and-development-ofmarkets.pdf