Karl Bücher on the Origin of Money

Karl Bücher (1847–1930) was a member of the Younger German Historical School, an important 19th century and early 20th century alternative to the Classical and Neoclassical schools of economics.

The German Historical School had an interesting theory on the origin of money, rather similar to that of Karl Marx.

This is from Karl Bücher’s book Industrial Evolution (1901) (N.B. his language and some of his attitudes, as you’d expect, are of the 19th century, so please get over that):

“… it must be asserted positively that trade in the sense in which it is regarded by national economy—that is, in the sense of the systematic purchase of wares with the object of a profitable re-sale as an organized vocation—can nowhere be discovered among primitive peoples. Where we meet native traders in Africa, it is a question either of intermediary activity prompted by European and Arabian merchants, or of occurrences peculiar to the semi-civilization of the Soudan. Otherwise the only exchange known to the natives everywhere is exchange from tribe to tribe. This is due to the unequal distribution of the gifts of nature and to the varying development of industrial technique among the different tribes. As between the members of the same tribe, however, no regular exchange from one household establishment to another takes place. Nor can it arise, since that vocational division of the population is lacking which alone could give rise to an enduring interdependence of households.

One fancies the genesis of exchange to have been very easy because civilized man is accustomed to find all that he needs ready made at the market or store and to be able to obtain it for money. With primitive man, however, before he became acquainted with more highly developed peoples, value and price were by no means current conceptions. The first discoverers of Australia found invariably, both on the continent and on the neighbouring islands that the aborigines had no conception of exchange. The ornaments offered them had no power whatever to arouse their interest; gifts pressed upon them were found later on strewn about in the woods where they had been cast in neglect. Ehrenreich and K. v. der-Steinen had as late as 1887 the same experience among the Indian tribes of Brazil. Yet there was from tribe to tribe a brisk trade in pots, stone hatchets, hammocks, cotton threads, necklaces of mussel-shells, and many other products. How was this possible in the absence of barter and trade?

The solution of this riddle is simple enough, and has now been confirmed by direct observation on the spot, while previously it could only be assumed. The transfer ensues by way of presents, and also, according to circumstances, by way of robbery, spoils of war, tribute, fine, compensation, and winnings in gaming. As to sustenance, almost a community of goods prevails between members of the same tribes. It is looked upon as theft if a herd of cattle is slaughtered and not shared with one’s neighbour, or if one is eating and neglects to invite a passer-by. Anyone can enter a hut at will and demand food; and he is never refused. Whole communities, if a poor harvest befall, visit their neighbours and look to them for temporary support. For articles of use and implements there exists the universal custom of loaning which really assumes the character of a duty; and there is no private ownership of the soil. Thus within the tribe where all households produce similar commodities and, in case of need, assist each other, and where surplus stores can only be utilized for consumption, there is no occasion for direct barter from establishment to establishment. Exceptions occur when purchasing a wife and making presents to the medicine-man, the singer, the dancer, and the minstrel, who are the only persons carrying on a species of separate occupations.

From tribe to tribe there prevail rules of hospitality, which recur with tolerable similarity among all primitive peoples. The stranger on arriving receives a present, which after a certain interval he reciprocates; and at his departure still another present is handed him. On both sides wishes may be expressed with regard to these gifts. In this way it is possible to obtain things required or desired; and success is the more assured inasmuch as neither party is absolved from the obligations of hospitality until the other declares himself satisfied with the presents.

That this custom of reciprocal gifts of hospitality permits rare products of a land or artistic creations of a tribe to circulate from people to people, and to cover just as long distances from their place of origin as to-day does trade, will perhaps become more apparent to us when we consider how legends and myths have in the same way been enabled to spread over half the world. It is almost inconceivable that this could have been so long overlooked when even in Homer the custom of gifts of hospitality is attested by so many examples. Telemachos brings home from Sparta as present from Menelaos a bowl of silver which the latter had himself received in Sidon as a gift of hospitality from King Phaidimos, and his father Odysseus receives from the Phaiakes garments and linen and articles of gold as well as a whole collection of tripods and basins.” (Bücher 1901: 60–63).

“Once originated exchange long retains the marks of its descent in the rules that are attached to it and which are taken directly from the customs connected with gifts. This is manifested, in the first place, in the custom of payment in advance which dominates trade among primitive peoples. The medicine-man does not stir his hand to help the sick until he has received from the sick man’s relatives his fee, which in this case closely resembles the present, and has openly announced his satisfaction. No purchase is complete until buyer and seller have before witnesses declared themselves satisfied with the objects received. Among many peoples a gift precedes or follows a deal; the ‘good measures’ of our village storekeepers, and ‘treating’ are survivals of this custom. To decline without grounds an exchange that has been offered passes among the negroes as an insult, just as the refusal of a gift among ourselves. The idea that services interchanged must be of equal value can hardly be made intelligible to primitive man. The boy who performs a bit of work expects the same pay as the man, and the one who has assisted for one hour just as much as the one who has laboured a whole day; and as the greed on both sides knows no bounds, every trading transaction is preceded by long negotiations. Similar negotiations, however, are also the rule in the discharge of gifts of hospitality if the recipient does not find the donation in keeping with his dignity.

As time passes exchange creates from tribe to tribe its own contrivances for facilitating matters. The most important of these are markets and money.

Markets are uniformly held among negroes, East Indians, and Polynesians in open places, often in the midst of the primeval forests, on the tribal borders. They form neutral districts within which all tribal hostilities must cease; whoever violates the market-peace exposes himself to the severest punishments. Each tribe brings to the market whatever is peculiar to it: one honey, another palm-wine, a third dried meat, still another earthenware or mats or woven stuffs. The object of the interchange is to obtain products that cannot be procured in one’s own tribe at all, or at least cannot be produced so well and so artistically as in neighbouring tribes. This must again lead each tribe to produce in greater quantities than it requires those products which are valued among the tribes not producing them, because in exchange for these it is easiest to obtain that which one does not possess one’s self, but which others manufacture in surplus quantities. In each tribe, however, every household produces the current market commodity of exchange that enjoys this preference. Hence it follows, when it is a question of a product of house industry, such as earthenware or wares made of bark, that whole villages and tribal areas appear to travellers to be great industrial districts, although there are no specialized artisans, and although each household produces everything that it requires with the exception of the few articles made only among other tribes which they have grown accustomed to and which exchange procures for them merely as supplements to household production.

Such is the simple mechanism of the market among primitive peoples. Now with regard to money. How much has been written and imagined about the many species of money among primitive peoples, and yet how simple the explanation of their origin! The money of each tribe is that trading commodity which it does not itself produce, but which it regularly acquires from other tribes by way of exchange. For such article naturally becomes for it the universal medium of exchange for which it surrenders its wares. It is its measure of value according to which it values its property, which could in no other way be made exchangeable. It is its wealth, for it cannot increase it at will. Fellow tribesmen soon come to employ it also in transferring values, for because of its scarcity it is equally welcome to all. Thus is explained what our travellers have frequently observed, that in each tribe, often indeed from village to village, a different money is current, and that a species of mussel-shells or pearls or cotton stuff for which everything can be purchased to-day, is in the locality of the following evening’s camp no longer accepted by anyone. The consequence is that they must first purchase the current commodities of exchange before they can supply their own needs in the market. In this way, also, is to be explained the further fact, which has come under observation, that exchangeable commodities naturally scarce, such as salt, cauri shells, and bars of copper, or products of rare skill, such as brass wire, iron spades, and earthen cups, are taken as money by many tribes not possessing them; and above all is to be mentioned the well-known circumstance of objects of foreign trade, such as European calicoes, guns, powder, knives, becoming general mediums of exchange.

Certain varieties of money thus secure a more extensive area of circulation. They can even make their way into the internal trade of the tribal members through employment as mediums of payment in the purchase of a bride, for compensations, taxes, and the like; certain kinds of contracts are concluded in them. But there is no instance of a primitive people, in the absence of European influence, attaining to a currency or legal medium of payment for obligations of every kind and extent. It is rather the rule that various species of money remain in concurrent circulation; and very often certain obligations can be paid only in certain kinds. Changes in the variety of money are not infrequent; but on the other hand we sometimes find that a species will long survive the trade of the tribes from which it has gone forth, and will continue to serve in the inner transactions of a tribe, playing a singular, almost demoniacal, role, although, as regards their means of sustenance, the members of the tribe have nothing to buy and sell to one another.” (Bücher 1901: 65–69).

“Markets and money are intimately related so far as money in its character as a medium of exchange comes under consideration. But not every individual species of money that is met with among a primitive people has necessarily arisen from market trade. In its full development money is such an involved social phenomenon that it is natural to suppose that various influences associated with its past have been united in it. Thus, for instance, the origin of cattle-money seems to be bound up with the fact that, among the peoples referred to, the domestic animals represented the wealth and the means of gathering wealth. That for the purchase of a bride and for similar ends many tribes do not receive the current money, but for such purposes prescribe certain other objects of worth, appears to point to the admissibility of the assumption that in the complete development of money, along with the main current, various subsidiary streams may have played a part.” (Bücher 1901: 70).

At the end of the last sentence, Bücher even cites Karl Marx:

“^81. Perhaps Karl Marx rightly expresses it when he tersely remarks: ‘The money-form attaches itself either to the most important articles of exchange from outside, and these in fact are primitive and natural forms in which the-exchange-value of home products finds expression; or else it attaches itself to the object of utility that forms, like cattle, the chief portion of indigenous alienable wealth.’—Capital (London, 1891), p. 61.” (Bücher 1901: 70 n. 81).

However, it seems that Bücher came to his conclusions largely from surveying the anthropological literature of his day.

Now modern anthropology has not vindicated everything Bücher argued or reported here, but there are some very interesting insights that are true:

(1) gift exchange is very important in pre-modern societies, both within and between communities, as are debt–credit exchanges. As Bücher says (with some exaggeration) “between the members of the same tribe, however, no regular exchange from one household establishment to another takes place”;

(2) for many pre-modern communities exchange of goods with other tribes is often conducted by gift exchange or reciprocal gifts, without the need for money.

(3) within tribes there is often a developed system of distribution of communal wealth or of those goods collected or obtained by group effort, and private ownership rights are limited;

(4) given (1), (2), (3), the need for direct barter and the problem of the double coincidence of wants as imagined by Adam Smith or Menger are largely avoided;

(5) instead of universal money, ceremonial or prestige goods are used mainly for social customs like bride-price, dowry, wergeld, or payments to special people like medicine-men, etc.

(6) commodity exchange by barter, when it did develop, may well have been more important historically between communities than within them;

(7) there will arise within communities a complex jumble of goods that are used more commonly as a means of payment, even if none of them ever becomes a general medium of exchange (that is, true money);

(8) finally, Bücher had this crucial insight:

“But not every individual species of money that is met with among a primitive people has necessarily arisen from market trade. In its full development money is such an involved social phenomenon that it is natural to suppose that various influences associated with its past have been united in it. Thus, for instance, the origin of cattle-money seems to be bound up with the fact that, among the peoples referred to, the domestic animals represented the wealth and the means of gathering wealth. That for the purchase of a bride and for similar ends many tribes do not receive the current money, but for such purposes prescribe certain other objects of worth, appears to point to the admissibility of the assumption that in the complete development of money, along with the main current, various subsidiary streams may have played a part.” (Bücher 1901: 70).

Modern anthropology strongly supports this.

Bücher’s idea that the “money of each tribe is that trading commodity which it does not itself produce, but which it regularly acquires from other tribes by way of exchange” has less evidence in its favour, but is interesting nonetheless.

Point (8) above is especially important and shows us how the German Historical School was well ahead of its time. It is a scandal their insights have been forgotten, and modern neoclassical economics focuses instead on Adam Smith and Carl Menger when talking about the origins of money.

BIBLIOGRAPHY
Bücher, Karl. 1901. Industrial Evolution (trans. S. Morley Wickett from 3rd German edn.). H. Holt and Company, New York.

Bücher, Karl. 1901. Die Entstehung der Volkswirtschaft: Vorträge und Versuche (3rd edn.). H. Laupp, Tübingen.