Economists have their "creation myths", like Carl Menger's theory of the origins of money. What is the relation between these creation myths and economic history? Was there ever a time at which people used barter, and then monetary exchange evolved in the way Menger said it did? Political philosophers also have their creation myths, like Hobbes' Leviathan. Was there ever a time at which people lived in a Hobbesian State of Nature?
Of course not. If life in the State of Nature was so "nasty, brutish, and short", people would have died out very quickly. No way kids would have survived. To confuse these creation myths with economic (or political) history is to misunderstand them. History is an equilibrium time-path. Creation myths are, or should be understood as, disequilibrium stability experiments.
Don Patinkin, in "Money, Interest, and Prices", made the distinction between an "equilibrium experiment" and a "stability experiment". In an equilibrium experiment we start in equilibrium, then change the exogenous variable (M in Patinkin's case) and see what happens to the equilibrium value of the endogenous variable (P). In a stability experiment we start in equilibrium, then change the endogenous variable (P), holding the exogenous variable (M) constant, then see what forces, if any, would restore P to its original equilibrium value.
Let me give a simple non-economics example of a stability experiment (stolen from Michael Parkin's proto introductory textbook, decades ago). The Canada-US border runs across Lake Ontario. Suppose a physicist wants to explain why the level of the water just north of the border is the same as the level just south of the border. Suppose it weren't. Suppose it were 1 metre higher on the Canadian side (so boats travelling north would have to jump a wall of water). Then the pressure of water (potential energy?) would be higher on the Canadian side, so water would flow from the Canadian to the US side, until the levels were equal.
The physicist is not saying that at some historical time the water level was 1 metre higher on the Canadian side of the border. He is explaining why it can't be, and why it never could have been.
I think we should interpret our creation myths of social institutions — Menger on money, and Hobbes on government — in the same way. They should be understood as stability experiments. History is the unfolding of an equilibrium time-path. A stability experiment asks what keeps us on that time path, by exploring what would happen in the counterfactual case that we were off it. But if the theorist is correct in his diagnosis of the forces that keep us on the equilibrium time-path, then we never will observe us being off it.
The theorist who uses a stability experiment to explain the existence of a social institution is saying that under conditions XYZ the equilibrium is for social institution S to exist. In supposing that conditions XYZ hold, and that S does not exist, and explaining the forces that would re-create S, he is explaining the forces that maintain S in existence as the equilibrium under conditions XYZ.
So if you ever found a historical circumstance where conditions XYZ held, but S did not exist, that would not confirm the theory. It would disprove it. In other words, failing to find historical evidence of a Mengerian barter economy, or a Hobbesian State of Nature, does not count as evidence against Menger and Hobbes. It counts as evidence for them. (Of course, Menger and Hobbes were never very precise about the exact conditions XYZ under which S should exist.)
Menger and Hobbes were not talking about some distant historical time (or, they shouldn't have been). They were (or should have been) talking about the present day (or, their own present days, anyway).
Worthwhile Canadian Initiative 
Was there a time when people used barter, and economic exchange evolved? Radford’s account of life in a world war II prisoner of war camp (published in Economica in around 1945 or 46) is a fascinating description of just such an evolution – how cigarettes emerged as a medium of exchange, what institutional factors made the markets work, and why the system eventually broke down. Economic anthropology is a big field now.
But I think you’re trying to make a more general point that there’s some things about how the macro economy works that we’re fundamentally, intrinsically, unable to observe?
http://www.theonion.com/content/news/u_s_economy_grinds_to_halt_as
Frances: Yes, the cigarette money is a good example. And because the observer was right there on the ground at the time, he may actually have been able to observe the disequilibrium process (the transition from one equilibrium to another) in action. It all depends on how long it takes between conditions XYZ appearing and S appearing. Equilibrium theories, by their very nature, are silent on that question. And I ignored it too, in my post.
But yes, if we are always on an equilibrium time-path (and we must always be on the equilibrium time-path if the model is completely true), then we should never in fact observe those stability experiments in real time. This is not just about macro, or theories of social institutions, but about all theories.
The Onion thing is great! It is precisely the Hahn(?) Problem, that monetary theorists talk about. There’s always a second equilibrium, in which fiat/fiduciary money has no value. But Menger was talking about a commodity money, so can escape that problem. His money had value apart from its being used as a medium of exchange.
History is an equilibrium time path NIck? Are you sure? History of what? Civilizations? I prefer Fernand Braudel on the way to think about time what he called “longue durée”.I don’t think you would get many historians to agree with you. On the other hand if someone thinks general equilibrium economics represents faithfully how the real world operates, they might want to adopt your view of history. I’m skeptical on GE economics.
On the origin of money, I thought it was generally agreed that goldsmiths emitted receipts for gold on deposit, and people started exchanging them. Presto.
the creation myth precisely claims what it shouldn’t nick
but it none the less must be seen as a state of the system PRE xyz conditions
it kis about origins not existence or stablity
qualitative discontinuity not equilibrium paths
kant’s antinomy and all that
hobbes and rouseau had their creation of society myths
that imagine no civic society without a “state ”
but drwa a picture of natural society
one pacific as orang society the other bloody of tooth and claw like baboons
the meta social bs is never to do more then justify or condemn
by laws of necessity
the outcome of history ie your “now”
Aimless comments
1) Short does not equal zero.
2) History and mythology are full of stories of the Leviathan riding in and saving the day, negotiating compromises between bickering factions or simply installing order through more authoritarian means.
3) Which one of war or peace constitutes a “stability” condition? Which one of the pair [civil order, chaos] constitutes a stability condition?
Duncan: Everything that happens is the equilibrium time-path of the true model. (Pity we don’t know what the true model is!)
But, given the way economists now generally think of “equilibrium”, my statement above is more or less a tautology. The “equilibrium” of a model is simply what the model predicts will happen.
The Goldsmith story can explain how an economy with an intrinsically valuable money can become an economy with a fiduciary money. It’s part of the story. But Menger starts closer to the beginning. How does a good that is already intrinsically valuable become used as a medium of exchange? Goldsmiths are the next stage in the evolution.
Nick, how about the direction of causality? Gold becomes money because it is intrinsically valuable; that works does it not. Along with convenience over barter of course, rarity, and attractiveness do the rest. The more interesting story is fiat money. Can you have price adjustment without a currency convertible into gold? Mundell thought not. Perhaps a fiat money and a “free” market are incompatible.
There is no such thing as a true to life model in my world. The study of the economy starts with economic history. We develop ideas about relationships based on empirical study, and conceptual refinement. Neo-classical economics does not check back in with the economy often enough in my view. Its models do not represent what actually goes on, they become a world unto to themselves. Not real in fact. I prefer economic stats to mathematical representations.I like Stephens graphs for instance.