The Dark Side of Investment Stories

But, as we now know, the Yale Model was not just the decision to expand asset classes. The real Yale Model was the decision to focus on making the best possible investment choices, wherever that might lead, and irrelevant to how it might be perceived either by alumni or other endowments. That is the real Yale Model—and it is most certainly not dead.

Barter Myth

Narratives are so useful they can inform our fundamental understanding of an entire field of study. But the trap of a powerful narrative is that it continues to inform our beliefs and our behavior, even in the face of enormous evidence that the basis of the narrative is false. This brings us to our final example: the myth of the barter economy.

This narrative exists in one form or another in almost every economics textbook since Adam Smith’s The Wealth of Nations was published in 1776. The idea is so sensible and rational that it resonates with virtually everyone who reads it. It goes something like this: Centuries ago, or in more primitive economies, before the advent of money or credit, when an individual needed to acquire something he couldn’t make or grow himself, he had to trade (or barter) something for it. Obviously this was inefficient and cumbersome, but as societies become more sophisticated coinage was introduced, and then ultimately credit (virtual money) and its many variations brought us to our current advanced economic state.

In his book, Debt: The First 5,000 Years, David Graeber provides numerous versions of the narrative, quoting one economics textbook after another. He writes: “This story, then, is everywhere. It is the founding myth of our system of economic relations…. The problem is there’s no evidence that it ever happened, and an enormous amount of evidence suggesting that it did not.”

Graeber’s well-researched book reveals that anthropologists have been pushing up against the barter narrative for over a hundred years. The anthropological authority on barter, Cambridge University’s Caroline Humphrey, wrote: “No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there has never been such a thing.”

Historians, archaeologists and anthropologists evaluating and translating 5,000-year-old cuneiform documents from Mesopotamia, discovered an economy not of barter or coinage, but of credit. Graeber explains: “In fact, our standard account of monetary history is precisely backwards. We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around. What we now call virtual money came first.”

The narrative of barter will not die easily because it sounds so sensible, so logical—and it follows the observable reality in nature that things generally progress from simple to complex. This is the trap of a false narrative: It plays to our instinctual need for things to make sense. And making sense of things is a powerful way we understand the world around us.

But the fact of the matter is that the real world is complex, and some of that complexity doesn’t always make sense. Mark Twain’s great insight, “Truth is stranger than fiction,” reminds us that reality often operates under rules that can appear nonsensical. Our job as investors is to acknowledge and accept whatever rules the real world goes by and use that information to our advantage. And if we feel more than a little uncomfortable in the process, our unease is a cost well worth enduring if the benefit keeps us grounded firmly in reality.