Reply to Selgin on the Origin of Electrum Coinage, Part 2

This is part 2 of my response to George Selgin’s post here:

George Selgin, “‘Lord Keynes’ contra White on the Beginnings of Coinage,” Alt-M Ideas for an Alternative Monetary Future, August 30, 2017.

Selgin refers to various new data from the past 20 years or so, and much of the new evidence was presented at a conference called “White Gold: Revealing the World’s Earliest Coins,” held from 25–26th June, 2012 (International Congress at Israel Museum, Jerusalem).

Wartenberg (2017), for instance, refers to the edited proceedings of this conference: White Gold: Studies in Early Electrum Coinage (edited by Peter Van Alfen and Ute Wartenberg). But this book will not be published until December 31, 2017, so I can hardly evaluate the evidence there, but have to go on published summaries of the papers.

The new data can be described as follows:

(1) new archaeological work on the Artemisium of Ephesus discussed in Cahill and Kroll (2005) demonstrates that electrum coins already existed in the last quarter of the 7th century BC (625–601 BC), which confirms the older dating of the invention of coins to the period around 630 BC (de Callataӱ 2013: 13).

(2) recent investigation of electrum coins with advanced scientific techniques indicates to some scholars that these early electrum coins were minted from combining gold and silver, and so were not minted from natural electrum alloys (de Callataӱ 2013: 9).

Wartenberg (2017) reports that laser ablation inductively coupled plasma mass spectrometry (LAICP-MS) analysis of early electrum coins shows that their gold-to-silver content was more uniform than previously thought: e.g., a panther or lion head series had a gold-to-silver ratio of 55–45%, with 1–2% copper. A striated coin series (which might be a later series) has a gold-to-silver ratio of about 60–40% ratio.

Wartenberg also concludes that LAICP-MS analysis shows that early electrum coins were not minted in naturally occurring electrum, but deliberately minted by “combining pure gold and silver, which was previously refined” to achieve stable gold-to-silver ratios, even in the late 7th century (Wartenberg 2017: 27).

(3) there is much more evidence for lower denomination coins in the early electrum series, even down to 1/192 of a stater (Wartenberg 2017: 27), though it remains true that many higher denomination coins were also minted.

Datum (1) does not refute older interpretations.

Datum (2) and (3) do provide evidence against the some versions of the orthodox Chartalist hypothesis that individual early electrum coins (supposedly minted from natural electrum) had a much more variable gold-to-silver content (Price 1983: 5), and so were fiduciary to the extent that the gold content varied between individual coins, and was not always the same as the face value.

But do these data provide good evidence that private agents were the innovators in coining electrum coins, under the Mengerian theory of the emergence of money? The answer is: not really.

First, let us re-state some important points. The first coins were minted in the second half of the 7th century BC (650–600 BC) in what is now western Turkey (what was called “Asia Minor” by the Classical Greeks) in ancient Lydia, and in the Greek colonies in Ionia.

Both the ancient writers Xenophanes (as cited in Pollux, Onom. 9.83) and Herodotus (Histories 1.94) report this. This region was dominated by the ancient kingdom of Lydia, with the royal capital at Sardis, which was populated by an Indo-European speaking people, and the extent of the Lydian kingdom can be seen in this map:

The earliest coins consisted of stamped pieces of electrum, an alloy of gold and silver with trace amounts of copper, but with a roughly uniform weight. Here is an example of an early Lydian electrum coin with lion-head:

Ancient Lydia was rich in electrum, which was panned from the rivers, as well as mined. It is established that Lydian alluvial electrum (that is, electrum taken from the rivers) had a natural variable gold content from about 65% to 85% (Konuk 2012: 44; Meeks 2000: 145–148).

However, natural electrum was peculiarly unsuited to be the most saleable commodity that emerged as the general money commodity in line with Menger’s theory of the origin of money. We can review why this is the case.

For one thing, small-sized electrum and electrum dust could not be easily tested for purity (Kroll 2012: 38):

“When offered in a transaction, the quality of the [sc. electrum] metal first had to be tested visually from the color of streaks made on a touchstone (No. 16), and while such testing presented no problems with larger lumps of electrum, it would have been practically impossible to test a bagful of dozens of small nuggets and crumbs of the metal. Even if each small piece were separately tested, it would have been exceedingly difficult to determine with any accuracy the value of an entire bag of pieces, each with a different weight and fineness. Over time, as the complexities and unreliability of electrum bullion became widely recognized, Lydians and their Greek and Carian neighbors who had accumulated large stocks of this metal must have found it increasingly difficult to utilize it in payments that others would accept.”
Kroll, John H. “The Coins of Sardis,” Sardisexpedition.org
http://www.sardisexpedition.org/en/essays/latw-kroll-coins-of-sardis

In light of this, natural electrum can hardly have been Menger’s “most saleable commodity,” since many people will have required small size electrum or electrum dust for ordinary, low-value transactions in trade and in the market-place (or in the agora, as the Greeks called it).

The average percentage of gold in natural electrum was probably about 70–75% (Konuk 2012: 44), whereas, as we have seen, the most recent analysis of the early lion-head electrum coin series (likely from Lydian kings) shows that they tended to have a stable but lower percentage of gold at about 54% with about 2% copper (Cowell and Hyne 2000: 170–171; Keyser and Clark 2001: 114). Another panther or lion-head series (probably early Lydian coins), analysed with laser ablation inductively coupled plasma mass spectrometry (LAICP-MS), had a gold-to-silver ratio of 55–45%, with 1–2% copper (Wartenberg 2017: 26; see also Velde 2012: 19).

So whoever was minting these coins struck them with an alloy in which the gold content – although consistent – was lower than the average found in natural electrum (Konuk 2012: 44).

The stable gold content gave these coins a definite consistent colour, and, along with their standard weight, can be seen as part of the process of standardising them. Perhaps copper was even added to give them a colour like that of electrum with a higher gold content.

Unless they were explicitly given a face value at the monetary value of the gold-to-silver content, early electrum coins would still have been fiduciary to some extent if the issuing authority tried to give them a value at the average gold content of electrum, and if the public expected them to contain the average gold content of natural electrum (about 70–75%). However, in reality the early coins clearly did not have that gold value, since they had a relatively stable but lower gold content of 54%.

Many modern scholars – and probably a majority – continue to argue that the actual exchange value of the early electrum coins was larger than their intrinsic metallic value, perhaps by as much as 20% (Le Rider 2001: 94–95; Cahill and Kroll 2005: 612–613; Kroll 2008: 21; Konuk 2012: 44; Kroll 2012: 39; Furtwängler 2011: 17; for older views on the overvaluation of electrum coins, see Bolin 1958: 11–45, who saw it as a secret fraud by the Lydian kings).

So, in view of this, the Chartalist view is hardly refuted by the discovery of a more stable gold content in the early coins, since the Lydian kings may well have accepted them in payment at the higher face value.

In short, if the Lydian kings deliberately minted early electrum coins with a gold content of 54%, but gave them a conventional face value in line with the average 70% gold value of natural electrum, and then accepted the coins back again in taxes, fines or other payments, then they could still have been fiduciary coins, to some extent, in a closed monetary system in Lydia and its subject Greek city-states (Rider 2001: 94–95, 116).

The Lydian kings would have had substantial expenditures, since they fought major wars and engaged in huge building programs at Sardis, their capital (on the archaeology of Lydia, see Roosevelt 2009; Greenewalt 2011; Roosevelt 2012), so that they surely made payments to soldiers, labourers, and artisans on a large scale.

Price (1983) suggested that the early electrum coins were intended as gifts that only later became monetised, but the discovery of many more smaller denomination electrum coins than previously thought in the early issues strongly suggests that these coins were intended for exchange and monetary transactions.

The Lydian kings are still the best candidates for the inventors of the coins, since (1) the Lydian kings had large stocks of the necessary electrum, (2) could accept the coins back as payment as taxes or obligations (if they were intended as money), and (3) had many large-scale payments to make.

Furtwängler (2011: 18) argues that – over time – the Lydo-Milesian standard electrum coins with their 54% gold content (below the average gold content of natural electrum) did not win widespread acceptance in the Greek city-states outside the Lydian empire (see also Kroll 2012: 39). Croesus – perhaps as much for political as for economic reasons – implemented a currency reform around 560 BC (or perhaps even earlier if his accession was around c. 585 BC, as argued by Wallace 2016), and recalled his electrum coins, and, by cementation techniques, used them to mint a new pure gold and silver coinage to restore confidence (Furtwängler 2011: 18).

Evidence for the higher face value of the older electrum coins has been adduced from peculiar data about Croesus’ new gold stater issues.

During the reign of the last Lydian king Croesus (who ruled from c. 585 or 560–546 BC), the king minted a new pure gold and silver coinage called “Croeseids” (and recent archaeological evidence proves that this coinage reform had been implemented by the time of Croesus, and not later under the Persians as some scholars have argued; see Cahill and Kroll 2005).

But the weight and two specific issues of the new gold staters are suggestive:

(1) probably at first, the new gold staters (sometimes called “Heavy Croeseids”) were issued and struck with 10.8 grams of gold. Given the value of gold to silver was probably about 1:13.3 in this period, the new gold stater of 10.8 grams would have been equivalent to an electrum stater of 14.15 grams, but only if the electrum staters were artificially overvalued at the gold content of natural electrum (which stood at about 70–75% gold). Since the value of the electrum staters had been partly fiduciary and possibly confidence in them was in question by this period, this exchange ratio with the new gold coins would have maintained the government guarantee of accepting them at their artificial face value. This was intended to recall the old electrum coins (Konuk 2012: 50; Cahill and Kroll 2005: 612–613; Kroll 2001b: 201–202).

(2) however, at some point – presumably when a large quantity of electrum coins had been recalled – Croesus minted a new pure gold stater with a reduced size, and struck at 8.1 grams (the so-called “Light Croeseids”). This reflected the value of the actual gold content of the old electrum coins, whose gold content had been fixed at about 54% and 44% silver (Konuk 2012: 50; Cahill and Kroll 2005: 612–613; Walburg 1991). The Lydian kings now abandoned their experiment with overvalued electrum coins, perhaps for political as much as economic reasons, and instead minted a pure gold and silver stater coinage, along with smaller denominations of each gold and silver stater type.

The fact that Croesus’ “Heavy Croeseids” (presumably minted before the light kind) seem to match the postulated artificial value of the early electrum coins is considered by many scholars to be strong evidence that they really had been overvalued by state guarantee, and this seems to be the best explanation of the data.

Finally, the absence of electrum coins from the list of precious metal revenue on a lead tablet dated to the period around 600 BC from the Artemisium temple of Ephesus – before Ephesus was conquered by the Lydian king Croesus and politically subject to Lydian suzerainty – suggests that the early Lydian electrum coins were not accepted at the temple, probably because they were understood to be overvalued (Kroll 2008: 18–21).

So, all in all, the case for a qualified Chartalist interpretation of the earliest electrum coinage of Lydia is still strong.

Furthermore, recent analysis of the electrum coinage of Samos has established that the gold content of Samian coins was much more variable, and ranged from 46 to 86%, and the electrum coinage of Phocaea also had a highly variable gold content (Konuk 2005; Wallace 2013: 2359; Avaldi et al. 1984). In short, both the Samian and Phocaean electrum coinage can still be explained by means of a Chatalist explanation too.

But let us assume – for the sake of argument – that the early Lydian electrum coins were given a face value equal to their real gold-to-silver content (so making the Chartalist explanation false), does this rule out the Lydian kings as the inventors of coinage? Again, the answer is: not at all.

The Lydian kings may well have struck these coins as prestigious payment objects for their soldiers, mercenaries and other employees and guaranteed a stable metal content consistent with market value, just as they – and numerous Greek city-states – later struck pure gold and silver coins.

We know that the most common type of early electrum coins shows the lion-head or lion paw, which is the royal symbol of the Lydian kings (Wartenberg 2017: 15 and 24; Konuk 2012: 45; Spier 1998), which in turn strongly suggests that most of these coins were stamped with the symbol of the Lydian state.

Bresson (2009: 3–4) points out that the Lydia kings conquered or forced the political submission of a large number of Greek city-states on the coast of Asia Minor, and that consequently that Lydian kings may well have established a monetary union with their electrum coins being a standard. The Lydo-Milesian (or often simply called the “Milesian”) standard was based on the stater with a weight of about 14.30–14.40 grams. The Lydian kings would then have set up this standard and demanded it of their subject Greek city-states, so that it was the state that was driving force behind a monetary standard, and that allowed the elimination of transaction costs such as heavy exchange fees between coins of a different standard.

Bresson (2009: 3, citing Cowell et al. 1998: 529–530 and Cowell and Hyne 2000: 169–174) also puts the gold content of early Lydian electrum coins at about 53% with most coins not deviating more than 1% from this.

Under this view of Bresson, the state weighed, standardised, and guaranteed the value and weight of electrum coins to reduce transaction costs for private individuals who no longer had to engage in the expensive process of checking the value of the coins (Bresson 2006; Bresson 2009).

The fact that the Lydo-Milesian standard was adopted in areas under the political domination of the Lydian kings does not suggest that the standard was a spontaneous development from the private sector. So, even if we assume that electrum coins were given a monetary value consistent with their gold content, the evidence that the private sector was the driving force behind this is still feeble.

As we seen, however, most scholars do still think that the early electrum coins were overvalued, and a qualified Chartalist explanation is still convincing.

Let us now turn to the final section: a critical review of the arguments made by those who contend that private sector agents first invented coins.

The Evidence for the Private Sector as Inventor of Electrum Coins is still Feeble
Modern defenders of the private sector as the inventor of electrum coins make the following arguments. They contend that the early coins seem to have had a large number of series with different obverse types and reverse punches, perhaps as many as 250–300 (van Alfen 2014: 2–3). Peter van Alfen takes this as evidence of many private elite issuers, such as goldsmiths, bankers or merchants (van Alfen 2014: 2–3, 3, n. 11).

But we know for a fact that later state-issued coinage by Greek city states like Cyzicus, Mytilene and Phocaea did regularly change their obverse types, and as often as once a year (which van Alfen 2014: 3, n. 11 himself admits; Price 1983: 4). The multiplicity of obverse types is not a strong argument for private sector coining at all, since there is no reason why both the Lydian kings and early Greek city-states could not have minted large numbers of obverse types with different symbols and insignia (de Callataӱ 2013: 11).

Peter van Alfen (2014) argues that the early coinages were minted by wealthy elite individuals who, he thinks, owned mines and had large-scale access to metals, and that the Lydian kings only gradually displaced private issuers and then gained a near monopoly on coin issue by the time of Croesus (who ruled Lydia from c. 585 or 560–546 BC) (see van Alfen 2014: 21).

Unfortunately, many of van Alfen’s claims about private wealth in Lydia are based on data in Roosevelt (2009) from the later Persian and Hellenistic periods (as admitted by van Alfen 2014: 19, n. 64 and 20, n. 68 himself), not the relevant period of the pre-Persian Lydian kingdom.

Moreover, the earliest coins minted from 650 to 600 BC were made of electrum, which was a naturally occurring alloy in ancient Lydia (Kroll 2008: 17–18).

Sardis – the Lydian capital – was dominated by the king’s palace and archaeological evidence seems to show that the processing of gold was dominated by the king, not private merchants (Hanfmann 1983: 73, 76, 83, 85, 246, n. 87). The evidence shows that the Lydian kings either controlled the mines in their kingdom directly (Koray and Lorber 2012: 13; Briant 2002: 400), and/or levied taxes on mining or extraction of metals. Indeed, a certain Lydian called Pythius under the later Persian empire, who owned a number of mines in Lydia, may have been a descendant of the Lydian royal family who had inherited these mines as private family property (Briant 2002: 401). Did private agents really have access to this type of wealth when the kings controlled mining and panning of precious metals?

It follows that, if the Lydian kings extracted and owned much of the silver, gold and electrum (mined or panned from the rivers), it is most probable that the kings also minted the first electrum coinage too, since a very large quantity of this metal was needed for the many coin issues over many years.

Despite Selgin, this is not a non sequitur. It is an inductive argument, on the basis of empirical evidence, and does not claim to yield a certain conclusion, only a probabilistic one.

Finally, let us now review the evidence adduced by the Free Bankers and defenders of the private sector as the inventors of early electrum coinage, and the counterarguments:

(1) Larry White in his original post here argued that:

“Once sovereigns monopolized the mints they took advantage of the propaganda value of stamping their own faces on the coins, of course. But as far as we know coins were already in use among merchants before that happened. Very early coins from ancient Lydia, in what is now Turkey, were not inscribed with human faces but rather animal figures. The Ancient History Encyclopedia states: ‘It appears that many early Lydian coins were minted by merchants as tokens to be used in trade transactions. The Lydian state also minted coins.’”
Larry White, “Why the ‘State Theory of Money’ doesn’t explain the Coinage of Precious Metals,” Alt-M Ideas for an Alternative Monetary Future, August 24, 2017.

But the assumption here is incorrect: early monarchs did not put their images on coins. For a very long time in the ancient world, coins did not carry any images of living human rulers, and rarely carried writing, and there may well have been a superstitious taboo against depicting living people on coins.

In light of this, there is no reason why the kings would have bothered to put their images or names on the coins when people at the time knew perfectly well that they had been minted by the state. Early coins of the state, even produced by kings, mostly depicted gods, seals or other symbols. In Western civilization, one of the first kings to be depicted on coins was Alexander the Great in the 4th century BC, even though it was probably the kings who ruled after him who first put his explicit image on coins (Shipley 2000: 69). But this was centuries after the first electrum coins had been invented.

Notably, Selgin does not seem to dispute this. I assume that on this point Free Bankers will concede White is wrong?

(2) some few early Lydian coins do carry inscriptions, in the Lydian script and language, and refer to .WALWE. (also read as walwet) and .KALI. (Schaps 2004: 96). However, the question of who or what these names refers to is not settled with certainty, though interesting – even plausible – suggestions have been made.

That the coins themselves were of the Lydian kings is strongly suggested by the lion symbol which appears on them – the symbol of the Lydian royal house (Schaps 2004: 96), so that already the notion that private sector agents independently minted them is shaky (although Furtwängler 2011: 16–17 regards them as the names of private electrum coin producers under the Lydian kings). Both coin types are linked by a common punch mark, so that they are likely to be by the same issuer (Wallace 2016: 176–177; Koray and Lorber 2012: 15).

The .WALWE. inscription has been read as Walwetalim, which can be linked to the Lydian king whom the Greeks called “Alyattes” (Karwiese 1991: 8–14; Wallace 2006). Koray and Lorber (2012: 15) state the walwet is now “usually interpreted” as the name of the Lydian king Alyattes. If so, then this is a coin explicitly minted by the king.

In addition, some have read .KALI. as KUKALIM and identified this with the Lydian name “Gyges” (Wallace 2006), and even if this does not refer to the first king of the dynasty, it may well refer to a royal prince during the reign of Alyattes in the late 7th century BC who was also allowed to issue coinage, as argued by Wallace (2006).

Furthermore, Howgego (1995: 3) suggests that the names may be those of mints, not of individuals, and Wallace (1988) argued that walwe could be the Lydian name for “lion” and be a simple noun referring to the lion symbol on the coins.

Finally, even if the inscriptions do not refer to Lydian kings and princes, they could be individuals who minted the coins for the Lydian kings as mint masters (Wallace 1987: 393, n. 51).

But there are good arguments for thinking these coins do name Lydian kings or members of the royal family, as demonstrated by Wallace (2006).

(3) it is true we have about four coins with the Greek inscription Φάνεως ειμί σήμα, which can be translated as “I am the badge of Phanes.” Though they do not carry the Greek inscription, there are supposedly some 250 pieces in the same series in smaller denominations with the same stag symbol (Wartenberg 2017: 17).

If “I am the badge of Phanes” is the correct translation of the inscription, it is unclear who this Phanes was. Peter van Alfen (2014: 23) assumes “Phanes” was an elite private Greek who minted coins, but there is little evidence to support this.

There is a reasonable discussion of the complexities of the issue here.

Konuk (2012: 45–47) makes a good case that the stag emblem on these coins is associated with the goddess Artemis at Ephesus (and Kastner 1986 had already suggested that the name “Phanes” may have been that of a god, not a human being; see Howgego 1995: 4). If the stag symbol is an official emblem of Ephesus, then the coin series in question is likely to have been an official coin issue of the city, since the same symbol reappears in later coin issues of Ephesus (Velde 2012: 10; Velde 2012: 10 also states “There is no consensus on whether Phanes is the name of an individual or refers to Artemis”; cf. Koray and Lorber 2012: 15). The name “Phanes,” far from being that of a human being, may be some cult name or word associated with the cult of Artemis at Ephesus.

By contrast, if “Phanes” is a human being, he is perhaps an official at Ephesus who minted or was responsible for the minting of the coins. Howgego (1995: 4) speculates that, even if Phanes was the name of a human being, he might have been an unknown local tyrant or ruler.

So, as in my original post, I once again conclude that the evidence for the private sector being the inventor, or driving force, behind the creation of the first electrum coinage is feeble.

We have also seen that the new evidence adduced by Selgin does not refute the older interpretation that the earliest electrum coins were overvalued.

Finally, as can be seen from a large sample of modern scholarship here, there is a majority view that the earliest electrum coins were invented by the Lydian kings.

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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.

Carl Menger on the Origin of Money in his 1909 Article “Geld”

Carl Menger’s famous 1892 article “On the Origin of Money” in the Economic Journal was based on an earlier article called “Geld” (“Money”) in the German language publication the Handwörterbuch der Staatswissenschaften (Menger 1892). This article went through a further two revised editions in 1900 and 1909 (Menger 1900 and 1909).

In the third edition of 1909, Menger had expanded the article to about 55 pages from the original 27 pages in the 1892 version.

In his first section of the 1909 article “Geld” called “The Origin of Generally used Intermediaries of Exchange,” Menger notes that certain commodities are more saleable than others and these goods are adopted more and more in market exchanges in the barter spot trade process that produces general commercial money.

Amongst these goods are the following:

“4. Goods in which, because of social customs or prevailing power structures, certain frequently repeated unilateral performances are effected or have to be effected (for example, gifts and dues to be paid by custom or because of obligations in specific goods to chieftains, priests, medicine men, etc., compensation for damages specified in particular goods, fines for having killed someone, certain goods customarily paid in bride purchases, etc.); for precisely for these goods, which are mostly eagerly desired anyway by those members of society who are best able to pay for them, there is the added special, ever-renewed demand for the above-mentioned purposes.” (Menger 2002 [1909]: 30–31).

This is a valuable insight. What Menger is referring to here includes what would now be called “ceremonial money” or “non-commercial money” because it tended to be restricted to social customs and was not a general commercial medium of exchange. Of course, “money” as a descriptive term here is potentially misleading, but it is a useful shorthand for saying something like “quasi-monetary prestige commodities used in social customs, gift-giving etc.”

However, since Menger refers to the “gifts” he mentions here as “unilateral” it is not at all clear that he is thinking of gift exchange in the sense that concept is understood in modern anthropology.

In Section 6 called “Money as a Medium of Unilateral and Substitute Transfers of Wealth,” Menger has an important section discussing ancient societies and the emergence of money:

“Voluntary as well as compulsory unilateral transfers of assets (that is, transfers arising neither from a ‘reciprocal contract’ in general nor from an exchange transaction in particular, although occasionally based on tacitly recognized reciprocity), are among the oldest forms of human relationships as far as we can go back in the history of man’s economizing. Long before the exchange of goods appears in history or becomes of more than negligible importance for the supply of goods, we already find a variety of unilateral transfers: voluntary gifts and gifts made more or less under compulsion, compulsory contributions, damages or fines, compensations for killing someone, unilateral transfers within families, etc.

As long as trading in goods is of no more than negligible importance for the supply of goods to individual households, transfers of this sort are, as a matter of course, offered or embodied in goods having use value for the recipient. In the case of compulsory transfers in the barter economy, there is the additional consideration that they must be specified in goods that the obligated party actually has at his disposal or (for transfers at a set time and periodically recurring transfers) is likely to have at his disposal. The disadvantages inherent in such obligations, which are highly important in the barter stage, basically have to do with the fact that in many cases they force the obligated parties into lines of production that are either unsuited to their household economies or become troublesome and uneconomical for them in the course of time, while actually they often are or come to be of little value to the entitled party and are not at all proportionate to the sacrifices to be made by the obligated party. Besides, with unambiguously specified transfers in kind it is always doubtful whether the obligated party will be able to satisfy the lawful claims of the entitled party under all circumstances, especially when it is a matter of fixed-time or recurring transfers.

In the era of barter, with its overly harsh law of obligations, which is only partially mitigated by patriarchal relationships, the disadvantage just mentioned tends to promote the specification of substitute performances that in many cases, which can be found in great numbers in the oldest documents and statute books, make it easier and in others possible at all for the obligated party to perform and for the entitled party effectively to obtain performance.

But as soon as trade in goods gains in extent and importance among a people, as generally used media of exchange emerge, and as, with the progressive division of labour and the expansion of market trading, an ever growing number of market goods may be bought and sold for money, there also arises from this changed situation a new and much more perfect means of overcoming the difficulty that prevents the assured fulfilment of unequivocally specified economic obligations in the barter economy and that sometimes necessitates the arrangement of substitute economic performances: the specification of unilateral transfers in money. (Menger 2002 [1909]: 49–50).

“… with the broadening and deepening money economy, compulsory transfers (taxes, damages or fines, etc.) are most suitably specified in money wherever it is not a matter of direct compulsory transfers of consumption goods (requisitions, dues paid in kind for the recipient's own use, etc.) but rather transfers of wealth; at the same time extant obligations in kind are progressively converted into obligations in money, so that with the progressive development of the economy, it is money that more and more becomes the preferred medium of unilateral compulsory performances.

What has just been said essentially holds for voluntary unilateral transfers also. Whoever wants to give another person something of value for free (as a gift, legacy, wedding present, etc.) will in certain circumstances do so in goods intended to serve the recipient’s production or consumption purposes directly; in all other cases, however, in which it is a question of economic performance (and not of acts, for example, of personal attention or devotion, where the economic aspect is subordinate to the personal one), he will most appropriately employ that exchangeable good which gives the recipient command over all goods on the market, namely, money.” (Menger 2002 [1909]: 50).

Here Menger does envisage gift exchange and understands that “[v]oluntary as well as compulsory unilateral transfers” of goods in social and legal obligations and tax-like payments preceded the barter economy.

Nevertheless, this does not change Menger’s fundamental mechanism of the spontaneous emergence of money from barter spot trade as the primary way money is created.

It seems to me on reading the passage in full that Menger envisages this historical sequence:

(1) primitive societies (whether tribal or hunter gatherers, etc.) first used gift exchange, wergeld penalties or tax-like obligations in kind.

(2) but then as barter spot trade emerges and becomes significant, Menger’s conventional story takes over: money emerges internally within a society as the most saleable commodity (perhaps even from one of the prestige goods first functioning as ceremonial money), and then

(3) money tends to replace gift exchange, blood money and taxes in kind.

Certainly, this is much better and more historically accurate than the simple analysis in Menger’s article of 1892.

But, fundamentally, Menger misses the important point that general commercial money might arise from non-commercial money or prestige goods, not because of an internal process of barter spot trade in which such a good emerged as the most saleable commodity, but because of its social role in legal compensations such as wergeld or social conventions like bride-price.

That is, the process is quite different from Menger’s barter spot trade theory, and as Grierson argued “where societies have developed the notion of money as a general measure of value, it will, I believe, most often be found that a system of legal compensation for personal injuries, at once inviting mutual comparison and affecting every member of the community, lay behind them.” (Grierson 1977: 29).

Also missing is the role of ancient temple-states in creating a proto-money unit of account, as probably happened in ancient Egypt and Mesopotamia.

Curiously, Menger might also have taken account of this had he only developed a further concession he made in his 1909 article as follows:

“Like other social institutions, the institution of intermediaries of exchange, which serves the common good in the fullest sense of the term, may, as I shall explain later, emerge or be promoted, but also impeded, in its automatic development by the influence of authority (for example, public or religious) and especially by legislation. This manner of emergence of media of exchange, however, is neither the only nor the earliest one. Here, a relation exists similar to that between statute law and common law: media of exchange originally emerged and eventually, through progressive imitation, became generally used not by way of law or agreement but by way of ‘custom’, that is, through similar actions, corresponding to similar subjective impulses and similar intellectual progress, of individuals living together in society (as the unreflective result of specific individual strivings of the members of society) – a circumstance which subsequently, as with other institutions that arose in like manner, does not rule out, of course, their being established or influenced by government.” (Menger 2002 [1909]: 33).

This is rather confused, but it does not seem Menger is here saying that money in the earliest times was established by state intervention. Rather, he envisages an important role for the state after money has emerged first by a spontaneous process from internal barter spot trade.

This is clear from later in the article in the section called “The Perfecting of the Monetary and Coinage System by the State” (Menger 2002 [1909]: 45–48). In discussing the advantages of a uniform, state-minted coinage, Menger even remarks that “in recent times, private coinages have met the general requirements of trade only imperfectly” (Menger 2002 [1909]: 46). And while he opposed legal tender law from an economic point of view, nevertheless Menger argued that “in certain cases the needs of trade seem to permit and occasionally downright to require not only some sort of government intervention but specifically the declaring of particular kinds of money as legal tender” (Menger 2002 [1909]: 82).

However, as Semenova (2014) argues, Menger did not modify his core historical arguments and still seems still to have envisaged the barter spot trade theory of money’s origin as the major and most important means by which it arose. But we now know that this view, however, is unlikely to be a universal theory, nor perhaps even the major method by which money arose historically. It was but one of a number of processes.

Importantly, Menger also continued to reject chartalism (Semenova 2014: 115–124).

Had Menger only developed his theory and had access to more and better anthropological literature, he may have been forced to substantially modify his theory, and admit that money can probably emerge in a variety of ways as follows in addition to (1):

(1) a general commercial money can arise from barter spot trade, and in trade between communities, as in the cacao money of Mesoamerica and the salt money of Ethiopia (Graeber 2011: 75).

(2) a general commercial money can arise from ceremonial money used in bride-price, dowry, wergeld and other penalty systems but then first generalised to an abstract standard of value to calculate exchange rates of the ceremonial money with other commonly-exchanged commodities (see Grierson 1977; Quiggin 1949: 321–322; Einzig 1948: 984), just as Quiggin argued:

“The use of a conventional medium of exchange, originally ‘full-bodied’ but developing into ‘token’ money, is first noted in the almost universal customs of ‘bride-price’ and wergeld. When sister-exchange is not practicable, some other value must be substituted; where life for life is not demanded, some equivalent must be found. The history of ‘bride-price’ and wergeld (which has yet to be written) shows how formal the customary gifts become, fitted to definite scales of value. It is not without significance that in any collection of primitive currency the majority of the items are described as ‘used in bride-price’.

When once a system of conventional gifts or payments with a definite scale of values has been established (and this is necessary for ‘bride-price’ and for wergeld) the first steps are taken in the evolution of money. It develops thereafter in response to human needs into the accepted medium of exchange.” (Quiggin 1949: 322).

In very many societies, however, such “ceremonial money” like cattle will remain as an abstract standard of value and will not develop into a general medium of exchange, a state of affairs which contradicts Menger’s orthodox theory as well, since it implies that problems of barter do not force the emergence of a universal commercial money in numerous societies.

(3) a proto-money and abstract unit of account can be imposed from above by ancient government-temple states using weight units of metal from their economic planning systems, as in ancient Egypt and Mesopotamia.

(4) a general commercial money can arise from the state creation of coinage as in ancient Lydia and ancient Greece, where electrum and silver had been high prestige goods but not used commonly as barter goods in exchanges before their monetisation by the state.

BIBLIOGRAPHY
Einzig, Paul. 1948. “New Light on the Origin of Money,” Nature 162.4130 (25 December): 983–985.

Graeber, D. 2011. Debt: The First 5,000 Years. Melville House, Brooklyn, N.Y.

Grierson, P. 1977. The Origins of Money. Athlone Press and University of London, London.

Menger, C. 1892. “Geld,” in J. Conrad, Ludwig Elster, Wilhelm Lexis (eds.), Handwörterbuch der Staatswissenschaften (vol. 3). G. Fischer, Jena. 730–757.

Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255.

Menger, C. 1900. “Geld,” in J. Conrad, L. Elster, W. Lexis and E. Loening (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 2nd edn.). G. Fischer, Jena. 60–106.

Menger, C. 1909. “Geld,” in J. Conrad, L. Elster, W. Lexis and E. Loening (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 3rd edn.), Fischer, Jena. 555–610.

Menger, C. 1923. Grundsätze der Volkswirtschaftslehre (2nd rev. edn.), Hölder-Pichler-Tempsky, Vienna.

Menger, C. 2002 [1909]. “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems, Edward Elgar, Cheltenham, UK. 25–108.

Quiggin, A. H. 1949. A Survey of Primitive Money: The Beginnings of Currency. Methuen, London.

Semenova, Alla. 2014. “Carl Menger’s Theory of Money’s Origins: Responding to Revisionism,” The European Journal of the History of Economic Thought 21.1: 107–141.

Quiggin on Cattle Standards and Cattle as Proto-Money

From the anthropologist A. H. Quiggin’s A Survey of Primitive Money: The Beginnings of Currency (London, 1949) on cattle or oxen as a standard of value in ancient and less developed societies:

“Throughout the greater part of the immense region which includes Europe to the West and stretches to Further India in the East, cattle were the chief form of wealth, and, as is seen in Africa, where cattle form the standard of value, varieties of primitive money are undeveloped. .... Cattle, however satisfactory as wealth, as a standard of value, or even as a medium of exchange in the larger affairs of life, cannot properly be called money; and need must often have been felt for some more easily transportable and divisible form.” (Quiggin 1949: 187–188).

“The inclusion of Europe in the cattle-currency-complex has been noted above (p. 187). Ridgeway showed that in the regions of Asia, Europe and Africa, where the system of weight standards which has given birth to all the systems of modern Europe had its origin, the cow was universally the chief object of barter (1892, p. 387).

Cattle were the standard of wealth and unit of value; they had a sacred character and were offered to the gods as well as presented to potentates; they were exchanged for slaves and extorted as tribute. The ‘bride-price’ of a woman and the wergeld of a man were calculated in cattle.

Evidence of the cattle standard can be found in the Rig Veda of India and the Zend Avesta of Persia (as seen above), in the Brehon Laws of Ireland and the Ancient Laws of Wales. We have seen it actively at work in Eastern Asia and in Eastern Africa, and though it has vanished from more progressive Europe, traces are still obvious. There is the familiar literary evidence in the equation of cattle and money, pecus and pecunia. Ulfilas translates pecunia by the Gothic faihu, cattle, whence our word ‘fee’, which meant cattle, wealth or money in King Alfred’s day. Gothic skatts, meaning cattle, tribute or coin, becomes the O.E. coin sceat, or the ‘scat’, still known as a tax in the North.

Ridgeway notes (1892, p. 4) how accounts were kept in cows a generation or so ago in the Caucasus, as they were also in Scotland; in Hungary the prospective bridegroom's conventional opening is ‘Pray tell me if you have a cow to sell?’ (Kovalensky, 1891, p. 27) and ‘bride-price’ is still paid in cattle in Albania (Hasluck, 1933).

Where a cattle standard exists, this is adequate, and discourages the growth of primitive currencies, as has been already seen. It is noteworthy that the largest and most varied collections of primitive money come from cattle-less areas.

‘A traveller once asked a patriarch [in Mongolia] owner of several thousand horses why he did not sell some every year. He replied, “Why sell what I delight in? I do not need money. If I had any I would shut it up in a box where no one would see it. But when my horses run over the plain everyone sees them and knows that they are mine and is reminded that I am rich” (Bureau, 1888, p. 71).

Cattle cannot, however, provide all the requisites for money. They set the standard of value, they are less often units of exchange, and never sufficiently portable or divisible.” (Quiggin 1949: 277).

In many societies, cattle or oxen, then, appear to have been an important form of wealth, but also fundamentally important first as ceremonial or non-commercial money in social customs like marriage and blood money, and they also often had a religious character.

In African societies, for example, cattle and other goods were used for bride-price and fines (Quiggin 1949: 96, 99–100, 102) and were used in an abstract standard of value, but were not, generally speaking, an actual general medium of exchange:

“North, East and South Africa have been for so long the home of cattle-keeping peoples that cattle, whether in the form of camels, sheep, goats or cows, but chiefly cows, are the standard of value. The larger animals are rarely and reluctantly sold, but everything is calculated on a cattle basis. They constitute real wealth, and are parted with only in important transactions such as ‘bride-price’, or under compulsion, as for fines and compensations.” (Quiggin 1949: 92–93).

Such was more or less the situation in ancient Greece in the Dark (or Geometric) Age from c. 1200–800 BC and the early Archaic period (800–480 BC).

The Greeks appear to have had a rudimentary cattle or ox unit of account in these centuries, but the actual means of payment were in kind and tended to be many other types of goods, not just cattle (Peacock 2011: 49–54; Peacock 2013: 81).

In other words, the situation in early Greece was very similar to that in certain tribal African societies: cattle were used to some limited extent as an abstract standard of value, but not an actual general medium of exchange.

This if we define money as a commodity that is generally used as

(1) a common medium of exchange, and

(2) a unit of account, and

(3) store of purchasing power.

then one cannot really speak of cattle as full-bodied money in ancient Greece, nor in other societies. How, then, can the orthodox Mengerian theory of the origin of money explain it?

Even if the origin of such cattle standards of value lay in cattle as the most important barter good, there are still problems with the orthodox barter spot trade theory of the origin of money.

If, for example, cattle had arisen in the Mengerian fashion, then oxen would surely have been used as full-bodied money as the most saleable commodity in real and widespread barter spot trades, but must then, for some reason, have later ceased to have this role in many societies.

Secondly, cattle are of rather high value in an agrarian society and cannot be used for small transactions that are often the basis of trade. Cattle are not physically divisible into smaller units (and even conceptually this presents difficulties).

In many societies, cattle remain an abstract standard of value to some degree, but not a general medium of exchange, and their actual exchange is confined to social events of importance like bride-price, dowry, compensations such as wergeld, ceremonial gifts, or fines. They were often also important as sacrificial animals, as in Greece (Peacock 2013: 89–92).

The high value of cattle as an important source of wealth and also as a prestige good seems more fitted for exchanges in certain social customs, where indeed that exchange was largely maintained, rather than in general commercial life.

And, above all, why did cattle not emerge as a general commercial medium of exchange in such societies? Indeed, why did the cattle standard seem to discourage “the growth of primitive currencies”? (Quiggin 1949: 277).

All of this presents difficulties for the Mengerian theory of the origin of money as applied to cattle.

BIBLIOGRAPHY
Peacock, Mark S. 2011. “The Political Economy of Homeric Society and the Origins of Money,” Contributions to Political Economy 30: 47–65

Peacock, Mark S. 2013. Introducing Money. Routledge, London.

Quiggin, A. H. 1949. A Survey of Primitive Money: The Beginnings of Currency. Methuen, London.

George Selgin versus David Graeber on the Origin of Money

The blogosphere has recently seen a new debate on the origin of money between George Selgin and David Graeber:

Ilana E. Strauss, “The Myth of the Barter Economy,” The Atlantic, February 26, 2016
http://www.theatlantic.com/business/archive/2016/02/barter-society-myth/471051/
Though not by Selgin or Graeber, I gather that this article set off the debate.

George Selgin, “The Myth of the Myth of Barter,” Alt-M Ideas for an Alternative Monetary Future, March 15, 2016.
http://www.alt-m.org/2016/03/15/myth-myth-barter/
This is Selgin’s original critique of Graeber.

George Selgin, “Graeber, Once More,” Alt-M Ideas for an Alternative Monetary Future, March 24, 2016
http://www.alt-m.org/2016/03/24/graeber-once-more/
After some debate on Twitter, Selgin posted this reply.

For those of you who don’t know, George Selgin is a monetary economist (whose research includes banking theory, monetary history, and free banking, among other things), and David Graeber is an anthropologist and author of the fascinating book Debt: The First 5,000 Years (2011).

To some extent, we are simply revisiting the debate that David Graeber had with Robert Murphy had in 2012.

I have intellectual respect for both George Selgin and David Graeber. For example, Selgin’s paper “Those Dishonest Goldsmiths” is an excellent refutation of the Rothbardian cult on their history of the origin of fractional reserve banking in England.

But, on this issue, I get the impression that people here are talking past one another. I offer this in the spirit of constructive and friendly criticism of both George Selgin and David Graeber, and hope it is taken in that way.

Let me begin with a positive assessment of Selgin’s analysis.

Selgin argues the following:

(1) that just because there is no modern anthropological evidence for pure barter economies, it does not necessarily follow that these things did not exist in the distant past before money was invented.

(2) Selgin complains:

“What I do deny, and vigorously, is anthropologist David Graeber’s claim that the existence of gift economies undermines ... ‘the entire discourse of economics.’”

(3) there is an irrational hatred of capitalism from some left-wing people, who want to blame slavery and imperialism on the use of money, and even paint “Adam Smith … as an enabler of slavery and imperialism.”

(4) that human societies can have quantified debts in terms of commodities owed without money.

(5) that, if we define value as subjective value, then money is not an objective measure of value, as the Austrians argue. It is also true that, generally speaking, during exchanges one person subjectively values the good he receives more highly than the good he parts with. Exchange is not an exchange of equivalents in that sense when we consider subjective value.

I can grant George Selgin all these points. In fact, I do. He is essentially correct on these points.

Selgin is a highly intelligent man, and he has scored hits against left-wing people here.

On (2), of course the refutation of simplistic models of money emerging from pure barter in neoclassical textbooks doesn’t refute all of neoclassical economics. Such a claim is absurd.

On (3), yes, it is the worst sort of left-wing irrationality to blame slavery and imperialism on money or capitalism.

On (5), I also appreciate Selgin’s complaints about the Aristotelian view of exchange:

“The idea that money is a ‘measure of value,’ like the related idea that exchanges are necessarily exchanges of equivalents, is among the hoariest of economic fallacies. It plays a prominent part in Aristotle’s economics — and, not coincidentally, in Aristotle’s condemnation of all sorts of ‘capitalist’ activity. Smith himself, in subscribing to a modified labor theory of value, was unable to break free of it. It is more than a little ironic that Graeber, in flinging all sorts of undeserved criticism at Smith, cleaves to him when it comes to his one indisputable mistake.

The notion that money is a ‘measure of value’ is but a particular instance — albeit one that has managed to linger on in some economics textbooks — of the mistaken belief that economic exchanges are exchanges of equivalents.”
George Selgin, “The Myth of the Myth of Barter,” Alt-M Ideas for an Alternative Monetary Future, March 15, 2016.

One could also add: Marx took over that same idea of exchange as necessarily exchanges of equivalents from the Classical economists and Aristotle, and it is a major reason for the train wreck of illogic and flawed argument in Chapter 1 of volume 1 of Capital.

We get to the crux of Selgin’s counterargument here:

“My concern, though, isn’t with Graeber’s sweeping condemnation of modern economics, or of the economic arrangements for which modern economists are supposedly to blame. It’s with his particular claim that there’s no merit in Smith’s account of the origin of money, or in the later accounts of other economists, including Carl Menger. Despite what these economists have argued, money couldn’t have grown out of barter, Graeber insists, because the ‘fabled land of barter’ that these accounts posit never existed.”
George Selgin, “The Myth of the Myth of Barter,” Alt-M Ideas for an Alternative Monetary Future, March 15, 2016.

Unfortunately, it seems to me that this misunderstands Graeber’s theory.

Graeber, as far as I am aware (I could be wrong), does not say that there is absolutely no merit of any kind to the views of Adam Smith or Carl Menger.

Graeber does not deny that money in some historical circumstances can emerge from barter, especially in long distance trade.

Right on p. 75 of Debt: The First 5,000 Years (2011), Graeber says:

“Throughout most of history, even where we do find elaborate markets, we also find a complex jumble of different sorts of currency. Some of these may have originally emerged from barter between foreigners: the cacao money of Mesoamerica and the salt money of Ethiopia are frequently cited examples. Other arose from credit systems, or from arguments over what sort of goods should be acceptable to pay taxes or other debts. Such questions were often matters of endless contestation.” (Graeber 2011: 75)

This statement requires that, yes, there is some merit to the theories of Smith and Menger, but suitably qualified.

The point is, however, that the Smith, Menger and neoclassical “barter origin” theory of money is not universally true and cannot be in its classical form a correct theory of the origin of money. It’s flawed.

What is needed is an eclectic theory that takes careful account of history and anthropology.

Moreover, even Selgin himself concludes that “notwithstanding the fact that credit is older than barter, Smith’s theory is, after all, not all that far removed from the truth.”

So if Selgin has asserted that

(1) the empirical evidence strongly suggests that gift exchange and debt–credit exchanges without money long preceded the invention of money in human history, and

(2) the classical and orthodox barter spot trade theory of the origin of money needs revision.

then it follows directly that Selgin has conceded something significant to his opponents.

Selgin states:

“So, how true is Graeber’s account, and just how fatal is it to the "fable" that economists like to tell? For answers, we need look no further than the evidence Graeber himself supplies. For on close inspection, that evidence itself suffices to show that, notwithstanding the fact that credit is older than barter, Smith's theory is, after all, not all that far removed from the truth.

A paradox? Nothing of the sort. The simple explanation is that, while subtle forms of credit or outright gift giving may suffice for affecting exchanges within tightly-knit communities, exchange within such communities hardly begins to take advantage of opportunities for specialization and division of labor that arise once one allows for trade, not just within such communities, but between them, that is, for trade between or among strangers. One need only recognize this simple truth to resuscitate Smith's theory from Graeber’s seemingly fatal blow. Simple forms of credit may come first; but such credit only goes so far, because it depends on a repeated interaction, and the trust that such interaction both allows and sustains.”
George Selgin, “The Myth of the Myth of Barter,” Alt-M Ideas for an Alternative Monetary Future, March 15, 2016.

At this point, Selgin cites with approval Graeber’s own views that barter trade, historically speaking, was probably far more important between ethnic groups and different communities, particularly in long distance trade.

Selgin continues:

“The question is, what did Smith really ‘imagine’? His story of the butcher and the baker notwithstanding, his reference to pastoral societies makes it perfectly evident that he understood the difference between conduct among ‘villagers’ and conduct among strangers. His theory of the origins of money ought to be understood accordingly. It is a theory of how, when opportunities for trade arise among strangers, bringing with them further scope for the division of labor, trade will be ‘choked and embarrassed’ if it must occur by means of barter, but will cease to be so once barter gives way to the employment of money. In portraying such cases as exceptions to the rule that ‘credit’ proceeds barter, Graeber simply fails to understand that such ‘exceptions’ are all that matters in assessing Smith’s theory.” ….

In short, a generous reading of Smith, far from making him out to be a right bungler when it comes to matters ethnographic, yields a relatively sophisticated view, according to which kinship and ‘credit’ first predominate, but then give way, as strangers meet, first to barter, but eventually to monetary exchange, which in turn allows for the growth of commerce, which ends up reducing the role of kinship and kin-based credit relationships.”
George Selgin, “The Myth of the Myth of Barter,” Alt-M Ideas for an Alternative Monetary Future, March 15, 2016.

But, in my view, this “generous reading of Smith” is really just reading into Smith things that aren’t there. Selgin has actually re-interpreted Smith from ideas in the Theory of Moral Sentiments, and – at the very least – one would have to admit that the explicit theory as presented in The Wealth of Nations needs revision.

Selgin then goes on to argue that Menger, in particular, was well aware of the importance of gift exchange and debt–credit exchanges in premodern human societies before money. Here there are good points. I agree Graeber is unfair to Menger. For example, Menger’s 1892 article “On the Origin of Money” (at least in its English translation) is mercifully free from mathematics, and clearly not filled with “mathematical equations.”

It is true that Menger on this issue and certainly on his other important economic and political views was far from the dogmatic Misesians and Rothbardian anarcho-capitalists who claim his legacy. Menger was a subtle thinker and made real contributions to economics, and was no extremist libertarian.

Here Selgin notes that “Menger understood perfectly well that ‘credit,’ in Graeber’s loose sense of the term, is older than either monetary exchange or barter,” and cites a passage in Menger’s article “Geld” in the Handwörterbuch der Staatswissenschaften (vol. 3), 1892. pp. 730–757. But Selgin cites the 2002 translation of L. B. Yeager and M. Streissler of that article which is actually based on the 3rd edition of 1909, not the original article of 1892.

I have a minor quibble here. I know it is a pedantic point, but did Menger’s views on this evolve over time and move away from his 1890s theory? (see Appendix 1 below).

At any rate, let us put this aside, and move to a much more important point.

If we read Menger’s classical article of 1892 in its English translation by C. A. Foley published in the Economic Journal, we find an interesting qualification that Menger makes to his theory:

“It is not impossible for media of exchange, serving as they do the commonweal in the most emphatic sense of the word, to be instituted also by way of legislation, like other social institutions. But this is neither the only, nor the primary mode in which money has taken its origin.” (Menger 1892: 250).

That leaves open the possibility that money can be instituted by a government, though Menger, as far as I can see, clearly did not think that this was the primary and earliest manner by which money had emerged.

But, at the same time, it is also very difficult to see how this isn’t a substantive concession to chartalism by Menger.

That passage by Menger also shows us the divide between Menger’s nuanced view of the origins of money and the stridency of Rothbard:

“[sc. Mises’s] Regression Theorem also shows that money, in any society, can only become established by a market process emerging from barter. Money cannot be established by a social contract, by government imposition, or by artificial schemes proposed by economists.” (Rothbard 2009: 61).

However, Menger remained an advocate of the barter spot trade theory of money’s origins in ancient times, although he was willing to concede what later Austrians have emphatically denied.

But let us return to Selgin’s defence of Menger.

Selgin is essentially arguing the following:

(1) that Menger understood that gift exchange and debt–credit exchanges existed in premodern human societies before money.

(2) that the pure barter economy model from which money emerges is therefore an oversimplification.

(3) that the standard Austrian and neoclassical view on the origins of money can be easily rescued by arguing that it was trade and barter exchange between different communities that was the fundamental origin of money: money emerged in inter-communal barter spot trade as the most saleable good (or goods) became the medium of exchange (as in Menger 1892: 249, though Menger seems to conceive of this happening within communities), and over time money then spread more and more to exchanges within tribes or communities, and internal economies became monetised.

However, I find profound problems with this defence.

For one thing, this is not the mainstream neoclassical view, which does indeed proclaim the naïve theory of the emergence of money from barter spot trade as a universal theory and takes insufficient account of the importance of debt–credit relationships.

Secondly, it is a rather curious state of affairs to see that Selgin is actually proposing a theory that seems very much like the one proposed by Karl Marx in Chapter 2 of volume 1 of Capital:

“Objects in themselves are external to man, and consequently alienable by him. In order that this alienation may be reciprocal, it is only necessary for men, by a tacit understanding, to treat each other as private owners of those alienable objects, and by implication as independent individuals. But such a state of reciprocal independence has no existence in a primitive society based on property in common, whether such a society takes the form of a patriarchal family, an ancient Indian community, or a Peruvian Inca State.

The exchange of commodities, therefore, first begins on the boundaries of such communities, at their points of contact with other similar communities, or with members of the latter. So soon, however, as products once become commodities in the external relations of a community, they also, by reaction, become so in its internal intercourse. The proportions in which they are exchangeable are at first quite a matter of chance. What makes them exchangeable is the mutual desire of their owners to alienate them. Meantime the need for foreign objects of utility gradually establishes itself. The constant repetition of exchange makes it a normal social act. In the course of time, therefore, some portion at least of the products of labour must be produced with a special view to exchange. ....

The necessity for a value-form grows with the increasing number and variety of the commodities exchanged. The problem and the means of solution arise simultaneously. Commodity-owners never equate their own commodities to those of others, and exchange them on a large scale, without different kinds of commodities belonging to different owners being exchangeable for, and equated as values to, one and the same special article. Such last-mentioned article, by becoming the equivalent of various other commodities, acquires at once, though within narrow limits, the character of a general social equivalent. This character comes and goes with the momentary social acts that called it into life. In turns and transiently it attaches itself first to this and then to that commodity. But with the development of exchange it fixes itself firmly and exclusively to particular sorts of commodities, and becomes crystallised by assuming the money-form. The particular kind of commodity to which it sticks is at first a matter of accident. Nevertheless there are two circumstances whose influence is decisive. 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. Nomad races are the first to develop the money-form, because all their worldly goods consist of movable objects and are therefore directly alienable; and because their mode of life, by continually bringing them into contact with foreign communities, solicits the exchange of products.” (Marx 1906: 99–101).

“An adequate form of manifestation of value, a fit embodiment of abstract, undifferentiated, and therefore equal human labour, that material alone can be whose every sample exhibits the same uniform qualities. On the other hand, since the difference between the magnitudes of value is purely quantitative, the money commodity must be susceptible of merely quantitative differences, must therefore be divisible at will, and equally capable of being re-united. Gold and silver possess these properties by nature.” (Marx 1906: 102).

Of course, it is not exactly the same. But, if we just ditch Marx’s mystical labour theory of value nonsense, we actually have a theory here not far different from the one Selgin proposes.

According to Marx, money emerges by necessity from barter exchange of commodities between different communities (Marx 1990: 181–182). Money must be a uniform, portable, fungible and divisible commodity. It is implied that money then spread into communities and it monetised exchanges within tribes or communities.

Something like this was probably also the view proposed by the German Historical School economists of the 19th and early 20th centuries such as Max Weber (1978: 673–674) and Karl Bücher (1901), who argued that money emerged from barter between different societies, not within societies (Karl Polanyi may also have held a position close to this).

But, once again, even if we adopt this revised theory of money’s origins, modern anthropology and history suggest that it has serious problems and is in need of revision.

Our starting point is not – repeat not – that there is nothing of value in Smith’s or Menger’s theories, but (1) that it is not a universally applicable theory, and (2) that there are other important ways by which money can emerge.

Even Graeber does not deny that money in some historical circumstances can emerge from barter between strangers, especially in long distance trade (Graeber 2011: 75).

Now Selgin already admits that primitive money-less societies are frequently dominated by debt/credit transactions, or “gift exchange,” not by barter spot trades.

I assume he also seems to accept that even in cases where goods exchange for goods in spot trades, social relations can complicate matters considerably, and historically barter seems to have been prevalent between one community and another, or, that is to say, between people who were strangers and where relationships were implicitly or explicitly hostile (as in Graeber 2011: 29–30).

While a non-enumerated system of debts/credits or gift exchange might not give rise to money, there is clearly a role for debt in the history of money (Graeber 2011: 40). In the real world, gift exchange and debt/credit arrangements existed long before money, and societies could develop an effective system of exchange in which debt/credit or gift exchange transactions were the predominant system (Graeber 2011: 40).

But, under the theory that Selgin proposes, doesn’t this mean that societies that had no interest in large-scale trade with foreigners had little reason to develop money? Wouldn’t it also imply that the double coincidence of wants problem would be largely overcome in such an early tribal or isolated society?

More likely, such communities would sometimes develop what anthropologists call “non-commercial money” or “ceremonial money,” which is non-commercial in the sense that it is not used for everyday purchases of goods and services, or only rarely for such ordinary goods. It is thus non-commercial in the sense that it is not a universal medium of exchange. The purpose of such non-commercial money is social (see also here).

Graeber calls non-commercial money “primitive monies” and gives examples such as the shell money in the Americas or Papua New Guinea, cattle money in Africa, bead money, feather money, and so on. These are rarely used to buy everyday items in the societies that use them. Instead, they are employed in social relations like marriages and to settle disputes (Graeber 2011: 60).

At this point, we should consider the views of older anthropologists. In 1949, A. H. Quiggin published A Survey of Primitive Money: The Beginnings of Currency (London).

The summary of the author’s views on the origin of money is worth quoting:

“Writers on the origin of the use of money often start with a consideration of barter and its inconveniences. From ‘silent trade’ (a primitive though abnormal form of barter) they trace the evolution of trading and money side by side, relying mainly on literary evidence for probing into the past.

This study relies mainly on the tangible evidence of the actual types of primitive money or money-substitutes used by ‘unrisen’ people and others all over the world, and is concerned with the purposes, when discoverable, for which they were used. The evidence suggests that barter in its usual sense of exchange of commodities was not the main factor in the evolution of money. The objects commonly exchanged in barter do not develop naturally into money and the more important objects used as money seldom appear in ordinary everyday barter. Moreover, the inconveniences of barter do not disturb simple societies. The variety of material and the complexities of uncivilized attitudes towards money preclude generalizations, but the evidence appears to support the following line of argument.

In the beginning Man lived in self-supporting and self-contained groups. Except in an area where provisions are unlimited, a society depending on hunting and food-gathering for its subsistence is necessarily unsociable and ‘has no truck’ with its neighbours. Early exchanges were in the way of present-giving, and were expressions of friendship with no ulterior economic purpose, although the latter – an expectation of an adequate or even improved return – cannot be excluded from human dealings. Present-giving or gift-exchange, seen in simple forms in the Andamans, Torres Straits or New Zealand, may develop into elaborate ceremonial as in Fiji or the North-West of America, but remain distinct from trading with money.

Barter develops between areas of contrasted produce, such as coastal and inland, forested and open country. We see the barter of fish or shells for vegetables, game for bananas, &c., in Melanesia or the Congo, and the establishment of regular markets. Trading voyages such as those of Torres Straits and New Guinea take us a stage further by the introduction of conventional presents. But so far there is no need for any medium of exchange such as is commonly described as money.

This is the state of affairs over about half the world at the present day. Barter suffices for most of the natives of Australia, New Zealand and the islands of the Pacific, and for the less-advanced peoples of Africa, Asia and the Americas, where native economy is not upset by the trader and the missionary.

The use of a conventional medium of exchange, originally ‘full-bodied’ but developing into ‘token’ money, is first noted in the almost universal customs of ‘bride-price’ and wergeld. When sister-exchange is not practicable, some other value must be substituted; where life for life is not demanded, some equivalent must be found. The history of ‘bride-price’ and wergeld (which has yet to be written) shows how formal the customary gifts become, fitted to definite scales of value. It is not without significance that in any collection of primitive currency the majority of the items are described as ‘used in bride-price’.

When once a system of conventional gifts or payments with a definite scale of values has been established (and this is necessary for ‘bride-price’ and for wergeld) the first steps are taken in the evolution of money. It develops thereafter in response to human needs into the accepted medium of exchange. Nutzgeld [viz. “useful money” or useful objects in exchange – LK] still remains Nutzgeld. Cattle may constitute wealth and form a standard of value. They cannot, strictly speaking, be called money. Money, to be generally acceptable, needs more convenient material and finds the four essential qualities (portable, divisible, durable, recognizable) in shells, beads or metals. Two further qualities have been shown to be necessary, one geographical and one more difficult to define.

The objects that come to be used as money are mainly non-local, or if local are the product of a special area or a special class; and they have prestige or essential virtue, religious or magical. Cowries and beads, most universal of all forms of primitive money, have magical as well as monetary value and still hold their own over a large part of the world, though everywhere disappearing now with the advent of the trader and trade tobacco. Metals best illustrate the transition from ‘full-bodied’ to ‘token-’ money. The spears and hoes of Africa, the knives and spades of China, and the spits of Argos are familiar examples. The tools may become amorphous and valued according to their weight in metal, or survive as attenuated imitations of their former selves. Metal, whether gold, silver, copper, iron or tin, is everywhere useful and everywhere valued, and estimated by size, shape or weight. Ingots are preliminary stepping-stones to coins. Ingots, as lumps or bars, develop in response to local needs or whims in special forms, such as manillas, Katanga crosses and Kissi pennies, Malay hats and Siamese bullets, or our own currency bars and ‘ring-money’.

To us, looking backward, the next step appears obvious and inevitable, but it was only in rare spots (possibly only in one rare spot) in the Old World that the final stage was reached, and definite weights of metal, rounded, flattened and stamped, can be called coins. Here the study of primitive money comes to an end.” (Quiggin 1949: 321–322).

It is depressing really how good empirical research like this is often forgotten and ignored in neoclassical economics, and there are two fundamental points to be taken from Quiggin’s analysis:

(1) many primitive people were able to exist without the modern developed form of money, and even where it arose in trade between foreigners it seems to have been largely limited to that sphere.

(2) the origin of money within a society can also be linked to social customs like bride-price and wergild (“man-money” or compensation for murder).

These conclusions seem to have been widely held by early 20th century anthropologists. Paul Einzig, for example, using the anthropological work of his day, argued a long time ago that “money first developed to serve matrimonial, political or religious payments was only later adopted gradually for commercial purposes” (Einzig 1948: 984).

So let us now focus on (2). I rely on Philip Grierson’s The Origins of Money (1977) (see here on that book).

As we have seen, in primitive societies, there often arises non-commercial money or ceremonial money. It is mainly used in social interactions, often formal social events such as marriage, wergild and bloodwealth payments, political relations (e.g., potlatch, moka), and fines and compensations (compensation for adultery, or for things lost), and may only be rarely used, if at all, for everyday purchases or commercial transactions (Grierson 1977: 15–16).

Sometimes this non-commercial money develops into money as a more general medium of exchange in some societies (though often enough it remains in its traditional role in others where no universal medium of exchange arises). So where does the origin of non-commercial money as a general medium of exchange and unit of account come from?

Grierson (1977: 19) proposes that the social custom of wergeld and wergeld-like customs are the answer. Wergeld (literally, “man-money”) is the paying of compensation for murder or other injuries and even theft of personal property. The object of wergild is to stop blood feuds and violence in revenge, and to provide an adequate measure of the things lost, as well as compensation. The objects that arose as standards of value as non-commercial money in tribal wergild payments did not necessarily arise by barter spot trade of the most saleable commodity (Grierson 1977: 21; 28–29).

Often in tribal societies objects of high social status or conferring “prestige” or even thought to have magical power will function as non-commercial money. Thus such non-commercial money doesn’t necessarily arise by barter spot trade as the most saleable commodity.

Most interesting is the linguistic evidence from many societies which shows how the word for money arose etymologically from concepts related to wergild and debt. The English word “pay” comes via French payer from the Latin word pacare, meaning “to pacify,” “make peace with.” In certain societies, non-commercial money arose as a standard for measuring value related to wergild-like customs and possibly even things like bride-wealth, but did not necessarily develop into general purpose money/commercial money.

Compensation payments are made in various goods, such as cattle, bondmaids, and precious metal, but it is likely a common unit of account was developed to simplify calculation of payments, which later spread to the wider community in economic transactions.

Where commercial money arose from non-commercial money, Grierson makes the following argument:

“… where societies have developed the notion of money as a general measure of value, it will, I believe, most often be found that a system of legal compensation for personal injuries, at once inviting mutual comparison and affecting every member of the community, lay behind them.” (Grierson 1977: 29).

So it is possible that in some societies commercial money arose from its previous role in systems of legal compensation.

But this clearly isn’t the end of the story either. What about ancient advanced civilisations?

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 as a means of reckoning 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 that was 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 communal wealth is an interesting research question that deserves further study.

It is quite possible that silver and gold were used as non-commercial money or ceremonial money in ancient societies too before they became abstract units of account.

So even in developed ancient civilisations with cities we have huge collectivist temples and governments (sometimes presided over by god-kings) with large-scale economic and central planning.

So where are they in neoclassical theory and Selgin’s theory?

Given its very scarcity, it is unlikely that silver would have arisen as a unit of account and medium of exchange in, say, Mesopotamia from internal barter trade as the most saleable good precisely because there wasn’t enough of it.

More likely, it was imposed as a unit of account from above, by the collectivist temples and governments. The ancient government–temple complex may well have adopted it because it was important in foreign and international trade, but even here that requires yet more massive revision to Selgin’s theory, taking account of ancient institutions.

But it may well have been adopted merely because it was high-prestige object with a religious significance and from its role as a weight unit. That is, it arose partly because as a weight unit it was easily convertible into an abstract unit of account.

We could also examine the origin of money in ancient Greece, which I have done in detail in this post.

In short, before coins the state of affairs was this:

(1) cattle or oxen functioned as a largely abstract unit of account (but not a common medium of exchange) and

(2) iron spits might have been a very limited or weak medium of exchange.

In Homer’s epics which reflect the social reality of Dark Age and early Archaic period Greece, cattle or oxen are a type of unit of account, but the actual means of payment tend to be many other types of goods, not just cattle (Peacock 2011: 49–54).

Now one might argue that cattle did become the most common medium of exchange but then receded in importance to become a mere unit of account, but there are serious problems with this view. First, the emergence of a “cattle/ox” unit of account in Greece appears to be related to religion and cult offerings, not emergence of cattle as the most saleable good.

While cattle no doubt had value in market trades, they were an important sacrificial animal and offering to the gods. The Greeks appear to have developed a cattle or ox unit of account derived from the value these animals had in ritual and sacrifice (Seaford 2004: 61; the view was originally proposed by Laum 1924). Religious rituals and then temples had a preeminent place in ancient Greek society, and the city government’s major responsibility was to honour, appease and placate the gods by offering sacrifices. In this sense, the ancient Greek temple and city are not separate entities, but really one and the same. So the emergence of an ox unit of account can be seen as another state-based, institutional process affecting economic life.

Metal coinage in Lydia and Greece was an invention of the state, and the first Lydian coinage was struck in electrum and used to pay soldiers and mercenaries. This was most probably a high prestige object and perhaps even non-commercial money. At most, it was simply one of many goods used in conventional barter trades: there is no convincing evidence that it was the reigning medium of exchange (money) that had already emerged as the most saleable good in spot barter trades before it was adopted by the Lydian state.

Instead, electrum was a high prestige commodity selected by the state, standardised and used as a form of payment as wages. Its subsequent rise in market trades on a significant scale as a common medium of exchange was then induced by the exchange of these coins for goods by soldiers, and the need to acquire the coins themselves to pay taxes.

Again, for full analysis of the emergence of money in Greece, see my post here.

So, finally, we have a vast, vast body of empirical evidence that the orthodox Mengerian and neoclassical explanations of the origins of money are deeply flawed and not adequate to describe the full complexity of human history. I am afraid even Selgin’s revised Mengerian theory, curiously similar to that of Karl Marx, suffers from the same limitations.

Appendix 1: Menger’s Writings on the Nature and Origin of Money
The writings of the Austrian economist Carl Menger on money extend well behind his classic article of 1892, and include the following:

Menger, C. 2007. Principles of Economics (trans. Grundsätze der Volkswirtschaftslehre [1st edn. 1871] by J. Dingwall and B. F. Hoselitz), Ludwig von Mises Institute, Auburn, Alabama. pp. 257–285.

Menger, C. 1892. “Geld,” in Handwörterbuch der Staatswissenschaften (vol. 3). 730–757.

Menger, C. 1892. “On the Origin of Money” (trans. C. A. Foley), Economic Journal 2: 238–255.

Menger, C. 1909. “Geld,” in J. Conrad et al. (eds.), Handwörterbuch der Staatswissenschaften (vol. 4; 3rd edn.), Fischer, Jena. 555–610.

Menger, C. 1923. Grundsätze der Volkswirtschaftslehre (2nd rev. edn.), Hölder-Pichler-Tempsky, Vienna.

Menger, C. 2002 [1909]. “Money” (trans. L. B. Yeager and M. Streissler), in M. Latzer and S. W. Schmitz (eds.), Carl Menger and the Evolution of Payments Systems, Edward Elgar, Cheltenham, UK. 25–108. [N.B. this is a translation of Menger 1909.].

We must remember that Menger’s treatment of money developed in the course of his life.

Now L. B. Yeager and M. Streissler’s translation of Menger’s article on money from the Handwörterbuch der Staatswissenschaften is based on the 3rd edition of 1909, not the original article of 1892.

Was the passage that Selgin cites from Menger (2002 [1909]) actually in Menger’s 1892 article “Geld”? This is a pedantic point, but an interesting one, since Menger may have developed and modified this 1890s views as he got older.

Further Reading
“The Nature, Origin and History of Money 101.”

“A Note on Menger on the Nature and Origin of Money,” July 28, 2012.

“Menger on the Origin of Money,” January 5, 2012.

“Menger’s Nuanced View on the Origin of Money,” November 6, 2012.

“Observations on Non-Commercial Money,” February 18, 2012.

“Philip Grierson on the Origin of Money,” March 21, 2012.

“The Origin of Money and Coinage in Western Civilisation: The Case of Ancient Greece,” April 5, 2013.

BIBLIOGRAPHY
Bücher, K. 1901. Industrial Evolution (trans. S. Morley Wickett), H. Holt and Co., New York.

Einzig, Paul. 1948. “New Light on the Origin of Money,” Nature 162.4130 (25 December): 983–985.

Graeber, D. 2011. Debt: The First 5,000 Years. Melville House, Brooklyn, N.Y.

Grierson, P. 1977. The Origins of Money. Athlone Press and University of London, 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.

Laum, B. 1924. Heiliges Geld: eine historische Untersuchung über den sakralen Ursprung des Geldes. Mohr, Tübingen.

Marx, Karl. 1906. Capital. A Critique of Political Economy (vol. 1; rev. trans. by Ernest Untermann from 4th German edn.). The Modern Library, New York.

Marx, Karl. 1990. Capital. A Critique of Political Economy. Volume One (trans. Ben Fowkes). Penguin Books, London.

Menger, C. 1892. “On the Origin of Money,” Economic Journal 2: 238–255.

Peacock, M. S. 2011. “The Political Economy of Homeric Society and the Origins of Money,” Contributions to Political Economy 30: 47–65.

Quiggin, A. H. 1949. A Survey of Primitive Money: The Beginnings of Currency. Methuen, London.

Rothbard, M. N. 2009. The Essential von Mises. Ludwig von Mises Institute, Auburn, Alabama.

Seaford, R. 2004. Money and the Early Greek Mind: Homer, Philosophy, Tragedy. Cambridge University Press, Cambridge.

Selgin, G. “Those Dishonest Goldsmiths,” revised January 20, 2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1589709

Weber, M. 1978. Economy and Society: An Outline of Interpretive Sociology (eds. G. Roth and C. Wittich; trans. E. Fischoff et al.), University of California Press, Berkeley and London.