Money as a Unit of Account and its Origins

Economists have arguably neglected the unit of account (or measure of value) function of money, and instead focused too much on money’s medium of exchange role.

A. Chapman has made the following important point about money as a measure of relative values:

“… scholars such as Marx (1973: 142), Schneider (1974: 255) and Melitz (1970: 1027) concerned with the prehistory of money have noted that the standard usage occurs quite independently from money as a universal equivalent, also termed all-purpose money. Referring to Menger, Einzig (1949: 367) even suggests that standards for evaluating stored wealth may historically have preceded barter. This seems unlikely if only because most known hunters, gatherers and fishers did not accumulate much ‘wealth’ but many did barter. The standard is not necessarily represented by a material object. For example, it may consist of imaginary units or of a mathematical device for calculating relative worth of goods against a given symbol or entity.” (Chapman 1980: 53).

A related question is how the development of a measure of value for evaluating the worth of various kinds of stored wealth might have had a role in origins of money.

When we examine those early civilizations where stored wealth came to be an important element in the community, it makes a great deal of sense.

The origin of money in ancient Mesopotamia appears to be in the development of an abstract money of account in the temple and palace institutions. These temples and palaces were institutions with large internal centrally planned economies, with complex weights and measurements for internal accounting of the products produced, received and distributed, and rent and interest owed. Many prices were set and administered in the money of account which developed from weight units. The two units of account were (1) the shekel of silver (which was equal to the monthly grain ration) and (2) barley (Hudson 2004). Silver money of account spread to the private economy mostly notably as a means of paying debts to temples and palaces (Hudson 2004: 115). But many ordinary people could pay in commodities, and the administered pricing system in terms of silver/grain developed in the temples was to assist in calculation of payments in kind.

In ancient Egypt, money appears as the most important unit of account called the deben (or uten), which was a unit of weight, originally equated to 92 (or 91) grams (Henry 2004: 92; there was also the unit called the khar for measuring wheat or barley, and 1 khar was equivalent to 2 deben of bronze). The measure of value for various goods was thus fixed weight units and historically no doubt these units arose from copper, silver, grain and gold. The unit of account system appears to have been developed by complex palace, government and temple institutions for internal accounting. While goods came to be denominated in terms of deben, in early times during the period of the Old Kingdom there were no physical deben changing hands in the private economy. That is to say, the deben did not function as a physical means of payment, and did not emerge by barter spot transactions as the most saleable medium of exchange. Even though goods and services were measured in a deben unit of account, payment was made in goods.

An important element in both these historical processes was the institution (or institutions) where surplus products were stored from taxation, tribute and gifts. These institutions dealt with complex flows, in and out, of goods: they were palace and temple complexes. Accounting systems, weight measures and writing are connected with just such institutions, and, importantly, some abstract unit of account arose by which to measure relative values of stored goods and inflows or outflows of goods. Since loans were also no doubt made from surplus products stored, repayment of loans in kind was facilitated by a unit of account.

In primitive human societies by the end of the Stone Age (c. 2.9 million years to 4500 BC), before the literate urban civilizations, agricultural communities developed where surpluses were stored, most probably held as a communal resource. The question of how the origins of a unit of account or measure of value could be related to the emergence of stored wealth is an interesting research question that deserves further study.

BIBLIOGRAPHY

Chapman, A. 1980. “Barter as a Universal Mode of Exchange,” L’Homme 20.3: 33–83.

Einzig, Paul. 1949. Primitive Money: In Its Ethnological, Historical, and Economic Aspects, Eyre & Spottiswoode, London.

Henry, J. F. 2004. “The Social Origins of Money: The Case of Egypt,” in L. R. Wray (ed.), Credit and State Theories of Money: The Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham, UK. 79–98.

Hudson, M. 2004. “The Archaeology of Money: Debt Versus Barter Theories of Money’s Origins,” in L. R. Wray (ed.), Credit and State Theories of Money: the Contributions of A. Mitchell Innes, Edward Elgar, Cheltenham. 99–127.