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.

Marx on the Origin of Money in the Critique of Political Economy (1859)

From Karl Marx’s Critique of Political Economy (1859):

“Direct barter, the spontaneous form of exchange, signifies the beginning of the transformation of use-values into commodities rather than the transformation of commodities into money. Exchange-value does not acquire an independent form, but is still directly tied to use-value. This is manifested in two ways. Use-value, not exchange-value, is the purpose of the whole system of production, and use-values accordingly cease to be use-values and become means of exchange, or commodities, only when a larger amount of them has been produced than is required for consumption. On the other hand, they become commodities only within the limits set by their immediate use-value, even when this function is polarised so that the commodities to be exchanged by their owners must be use-values for both of them, but each commodity must be a use-value for its non-owner. In fact, the exchange of commodities evolves originally not within primitive communities, but on their margins, on their borders, the few points where they come into contact with other communities. This is where barter begins and moves thence into the interior of the community, exerting a disintegrating influence upon it. The particular use-values which, as a result of barter between different communities, become commodities, e.g., slaves, cattle, metals, usually serve also as the first money within these communities. We have seen that the degree to which the exchange-value of a commodity functions as exchange-value is the higher, the longer the series of its equivalents or the larger the sphere in which the commodity is exchanged. The gradual extension of barter, the growing number of exchange transactions, and the increasing variety of commodities bartered lead, therefore, to the further development of the commodity as exchange-value, stimulates the formation of money and consequently has a disintegrating effect on direct barter. Economists usually reason that the emergence of money is due to external difficulties which the expansion of barter encounters, but they forget that these difficulties arise from the evolution of exchange-value and hence from that of social labour as universal labour. For example commodities as use-values are not divisible at will, a property which as exchange-values they should possess. Or it may happen that the commodity belonging to A may be use-value required by B; whereas B’s commodity may not have any use-value for A. Or the commodity-owners may need each other’s commodities but these cannot be divided and their relative exchange-values are different. In other words, on the plea of examining simple barter, these economists display certain aspects of the contradiction inherent in the commodity as being the direct unity of use-value and exchange-value. On the other hand, they then persistently regard barter as a form well adapted to commodity exchange, suffering merely from certain technical inconveniences, to overcome which money has been cunningly devised. Proceeding from this quite superficial point of view, an ingenious British economist has rightly maintained that money is merely a material instrument, like a ship or a steam engine, and not an expression of a social relation of production, and hence is not an economic category. It is therefore simply a malpractice to deal with this subject in political economy, which in fact has nothing in common with technology.

The world of commodities presupposes a developed division of labour, or rather the division of labour manifests itself directly in the diversity of use-values which confront one another as particular commodities and which embody just as many diverse kinds of labour. The division of labour as the aggregate of all the different types of productive activity constitutes the totality of the physical aspects of social labour as labour producing use-values. But it exists as such – as regards commodities and the exchange process – only in its results, in the variety of the commodities themselves.

The exchange of commodities is the process in which the social metabolism, in other words the exchange of particular products of private individuals, simultaneously gives rise to definite social relations of production, into which individuals enter in the course of this metabolism. As they develop, the interrelations of commodities crystallise into distinct aspects of the universal equivalent, and thus the exchange process becomes at the same time the process of formation of money. This process as a whole, which comprises several processes, constitutes circulation.”
Marx, Karl. 1993 [1859]. A Contribution to the Critique of Political Economy (trans. S.W. Ryazanskaya). Progress Publishers, Moscow.
https://www.marxists.org/archive/marx/works/1859/critique-pol-economy/index.htm

This is not quite as developed as Marx’s views on the origin of money in volume 1 of Capital but we can see that this is an early form of the analysis there.

Marx’s had even earlier musings on the origin of money in the Grundrisse der Kritik der Politischen Ökonomie (Outlines of the Critique of Political Economy), a manuscript which he wrote from 1857–1858. These 800 manuscript pages by Marx on political economy which were not even published until 1939 (Wheen 2001: 227), and they formed the basis of A Contribution to the Critique of Political Economy (1859) (Sperber 2014: 421).

In the Grundrisse, we read as follows:

“The product becomes a commodity. The commodity becomes exchange value. The exchange value of the commodity acquires an existence of its own alongside the commodity; i.e. the commodity in the form in which (1) it is exchangeable with all other commodities, (2) it has hence become a commodity in general, and its natural specificity is extinguished, and (3) the measure of its exchangeability (i.e. the given relation within which it is equivalent to other commodities) has been determined – this commodity is the commodity as money, and, to be precise, not as money in general, but as a certain definite sum of money, for, in order to represent exchange value in all its variety, money has to be countable, quantitatively divisible.

Money – the common form into which all commodities as exchange values are transformed, i.e. the universal commodity – must itself exist as a particular commodity alongside the others, since what is required is not only that they can be measured against it in the head, but that they can be changed and exchanged for it in the actual exchange process. The contradiction which thereby enters, to be developed elsewhere. Money does not arise by convention, any more than the state does. It arises out of exchange, and arises naturally out of exchange; it is a product of the same. At the beginning, that commodity will serve as money – i.e. it will be exchanged not for the purpose of satisfying a need, not for consumption, but in order to be re-exchanged for other commodities – which is most frequently exchanged and circulated as an object of consumption, and which is therefore most certain to be exchangeable again for other commodities, i.e. which represents within the given social organization wealth ϰατ᾽ ἐξοχήν [par excellence], which is the object of the most general demand and supply, and which possesses a particular use value. Thus salt, hides, cattle, slaves. In practice such a commodity corresponds more closely to itself as exchange value than do other commodities (a pity that the difference between denrée and merchandise cannot be neatly reproduced in German). It is the particular usefulness of the commodity whether as a particular object of consumption (hides), or as a direct instrument of production (slaves), which stamps it as money in these cases. In the course of further development precisely the opposite will occur, i.e. that commodity which has the least utility as an object of consumption or instrument of production will best serve the needs of exchange as such. In the former case, the commodity becomes money because of its particular use value; in the latter case it acquires its particular use value from its serviceability as money. The precious metals last, they do not alter, they can be divided and then combined together again, they can be transported relatively easily owing to the compression of great exchange value in little space – for all these reasons they are especially suitable in the latter stage. At the same time, they form the natural transition from the first form of money. At somewhat higher levels of production and exchange, the instrument of production takes precedence over products; and the metals (prior to that, stones) are the first and most indispensable instruments of production. Both are still combined in the case of copper, which played so large a role as money in antiquity; here is the particular use value as an instrument of production together with other attributes which do not flow out of the use value of the commodity but correspond to its function as exchange value (including medium of exchange). The precious metals then split off from the remainder by virtue of being inoxidizable, of standard quality etc., and they correspond better, then, to the higher stage, in that their direct utility for consumption and production recedes while, because of their rarity, they better represent value purely based on exchange. From the outset they represent superfluity, the form in which wealth originates. Also, metals preferably exchanged for metals rather than for other commodities.

The first form of money corresponds to a low stage of exchange and of barter, in which money still appears more in its quality of measure rather than as a real instrument of exchange. At this stage, the measure can still be purely imaginary (although the bar in use among Negroes includes iron) (sea shells etc., however, correspond more to the series of which gold and silver form the culmination).”
Marx, Karl. 1973 [1857–1861]. Grundrisse. Foundations of the Critique of Political Economy (trans. Martin Nicolaus). Penguin Books.
https://www.marxists.org/archive/marx/works/1857/grundrisse/ch03.htm

Marx’s views here are explicit: “Money does not arise by convention, any more than the state does. It arises out of exchange, and arises naturally out of exchange.”

Earlier in the notes, Marx even thinks that money tended to have a unit of account function before its general medium of exchange function arose:

“Money appears as measure (in Homer, e.g. oxen) earlier than as medium of exchange, because in barter each commodity is still its own medium of exchange. But it cannot be its own measure or its own standard of comparison.”
Marx, Karl. 1973 [1857–1861]. Grundrisse. Foundations of the Critique of Political Economy (trans. Martin Nicolaus). Penguin Books.
https://www.marxists.org/archive/marx/works/1857/grundrisse/ch03.htm

Marx’s theory on the origin of money is subject to virtually the same critique as the revised Mengerian theory that I have criticised here.

BIBLIOGRAPHY
Marx, Karl. 1973 [1857–1861]. Grundrisse. Foundations of the Critique of Political Economy (trans. Martin Nicolaus). Penguin Books.
https://www.marxists.org/archive/marx/works/1857/grundrisse/ch03.htm

Marx, Karl. 1993 [1859]. A Contribution to the Critique of Political Economy (trans. S.W. Ryazanskaya). Progress Publishers, Moscow.
https://www.marxists.org/archive/marx/works/1859/critique-pol-economy/index.htm

Sperber, Jonathan. 2014. Karl Marx: A Nineteenth-Century Life. Liveright Publishing Corporation, New York.

Wheen, Francis. 2000. Karl Marx. Fourth Estate, London.

The Origin of Money and Coinage in Western Civilisation: The Case of Ancient Greece

A recent brouhaha has erupted over this article about the nature of coinage and its minting by the state, which also cites a classic article by Goodhart (1998; reprinted in Goodhart 2003). Libertarians like Robert Murphy are outraged.

While I do not agree with everything said in the original article, it does make the excellent point that coins seem to have been invented by ancient states to “pay soldiers … and then made … the only acceptable currency for paying taxes.” This, along with much other evidence, indicates that there is something wrong with the Mengerian account of money.

The whole debate raises three questions:

(1) what was Menger’s theory of money’s origins?
(2) how did coinage emerge in Western Civilisation in ancient Greece?
(3) did any kind of money exist in ancient Greece before coinage and what was its nature and extent?

I answer these questions below.

I. Menger’s Theory on the Origin of Money
We know people exchange goods for goods in spot transactions (barter). What happens when person A wants a good from person B, but the latter does not want the goods the former has to trade? This is the famous problem of the double coincidence of wants.

Menger notes that commodities have “different degrees of saleableness,” and that the thing we call money has a virtually unlimited saleableness (Menger 1892: 242–243). Yet the differences in degrees of saleableness apply to many other commodities. Many goods once bought cannot be sold again except at a loss (Menger 1892: 244).

But what to do with your excess goods once you have obtained what you immediately want in a barter exchange? What if you are unable to obtain what you want through a direct barter spot transaction? It makes sense for you to obtain goods with a high degree of saleableness, and then exchange these in the wider community at present or in the future. By this process, the most saleable good (or goods) becomes the physical medium of exchange (Menger 1892: 249).

Menger concludes that precious metals have arisen as a medium of exchange among many peoples because “their saleableness is far and away superior to that of all other commodities” (Menger 1892: 252).

Now it will not do to argue (as some internet Austrians do) that all a commodity requires before becoming money is to have a market value in some sense (such as occasional use as a normal barter good). That is not Menger’s argument.

In essence, Menger’s process requires the following steps:

(1) a world of significant barter spot trades;

(2) a commodity used significantly in barter spot trades attains a high degree of saleableness: that is, the proto-money commodity must be held and traded to a significant extent in the market;

(3) the proto-money commodity then emerges in the market as a real and actively exchanged medium of exchange to become money, the dominant good of “virtually unlimited saleableness.”

For Menger, money is, above all, a medium of exchange emerging from active and widespread market exchanges. The “unit of account” function of money arises secondarily from its medium of exchange role.

Apart from the fact that there are severe theoretical and empirical problems with Menger’s theory, which I describe here, does our empirical evidence from ancient Western civilisation confirm this in the case of ancient Greece?

II. Money before Coinage in ancient Greece
Coinage in ancient Greece appeared from 650 to 550 BC. But the question that any Austrian or libertarian defender of Menger’s theory of money would ask is this: was there some type of money before coins in Greece, and did it emerge by Menger’s barter spot trade process?

Before the age of Greek coinage, historians have identified certain goods which seem to have some of the functions of conventional money (but not all). But there was no identifiable metal money, or indeed identifiable money in the strict Mengerian sense.

In short, 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 (or might not!) have been a very limited or weak medium of exchange.

Our important evidence for early Greek monetary history comes from the Homeric epics the Iliad and the Odyssey, which were written c. 750–700 BC, and reflect real social practices in the late Dark (or Geometric) Age from c. 1200–800 BC, and early Archaic period (800–480 BC).

In Homer’s epics, 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 (see below).

Secondly, cattle are of rather high value in an agrarian society but 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). Cattle are not always uniform or homogenous either, but come in different ages, breeds, degrees of health, and use. Nor are cattle durable, being mortal animals subject to age and disease, and hardly suited to be a long-term store of value. And finally cattle can be difficult to transport and hardly a very portable good (e.g., do you take one to market or travelling, if you want to buy things?). Will foreign merchants accept cattle for imported goods? What if your cattle run off?

Menger argues that metals are “far and away superior to that of all other commodities” (Menger 1892: 252) for use as money. Although the Greeks did have access to scarce metals such as gold, silver and copper, these do not appear as money in any accepted sense of that term in pre-Classical Greek history, even though the Greeks in private trade had centuries to select some metal as the reigning medium of exchange. But, instead, metal and bullion appear as just another barter good. Yet, according to Menger, metal is what we should expect to have emerged as money being the most saleable good.

So why an ox standard? 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 (Semenova 2011; Seaford 2004: 61; Einzig 1966: 372; Laum 1924). This thesis was put forward by the German scholar Bernhard Laum in Heiliges Geld: eine historische Untersuchung über den sakralen Ursprung des Geldes (1924), and has since won a great deal of acceptance from modern scholars (Semenova 2011: 381). Religious rituals and then temples had a preeminent place in the 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.

As we have seen, cattle seem unfitted under Mengerian theory to be a money commodity. But the ox acquired an importance over and above its mere agricultural use or commercial exchange value, because not only was it a crucial sacrificial animal, but also a means of payment for the services of priests (Semenova 2011: 385).

Priests needed to be paid in cattle for religious services, but it was soon also necessary to calculate the ox-value of other commodities offered for payment to temples or for sacrifice in lieu of oxen (Semenova 2011: 385): hence people came to develop “prices” of other goods in terms of oxen, and an ox unit of account emerged (see Schaps 2004: 9–10; Laum 1924; Heidel 1926; Peacock 2011: 54–63; Peacock 2003–2004).

What has provided crucial evidence of the link is the correspondence between (1) numbers of oxen used in sacrifices and (2) the monetary value of goods in terms of oxen as described in Homeric texts:

“what is so peculiar about Homeric valuation of things in terms of cattle (‘worth a hundred cattle,’ ‘worth ninety cattle’) is the correspondence between the numbers of cattle quoted as the value of various objects to the numbers of cattle sacrificed in Homeric sacrificial rituals (Seaford 2004: 61). More specifically, the numbers of oxen sacrificed are usually hundred, twenty, twelve, nine, four and one. But these units are also the customary units of value in the Iliad and Odyssey (Einzig [1949] 1966: 382; Seaford 2004: 61). This means that there is a distinct connection between the customized numbers of sacrificial victims and the specific quantities of oxen (the specific numbers of the ox-units) in terms of which the worth of various goods was estimated.” (Semenova 2011: 385).

But oxen were not generally used as a physical medium of exchange: they did not emerge as a unit of account from being the most saleable commodity in real and widespread barter spot trades. This is not consistent with Menger’s theory.

Instead, other goods like items associated with sacrifice of oxen such as tripods, cauldrons, double-axes, and spits were used as a means of payment as well as other metal objects (Schaps 2004: 10), all of which were measured in a cattle unit of account. (As an aside, some early fines in Greek city states appear to have been payable in tripods and cauldrons too.) One must also recognise that pre-Classical Greece was a society where gift exchange was an important activity alongside commercial exchange. Some objects were high prestige goods functioning as “gifts” that were neither traded nor “consumed”; instead, gifts were stored and then offered again to a new party as a gift.

What existed in pre-Classical Greece was an economy with an almost abstract unit of account where actual payment could, and usually was, made in many different kinds of goods through conventional barter exchange (and with gift exchange and debt/credit exchange in goods).

The second development of a type of possible proto-money alongside the cattle unit of value was the iron spit (or oboloi). Iron spits were employed to roast bull’s flesh in religious/state sacrificial meals and then used to distribute the meat to the public citizenry. Iron spits appear as dedications in Greek temples and tombs, but they might have had a very limited role as a proto-medium of exchange from the late 8th (or early 7th) to the 6th centuries BC (Seaford 2004: 103–104). But the trouble here is that they never seem to have acquired any universal or even significant medium of exchange value, and still seem to have been used alongside other commonly bartered objects like tripods and cauldrons (Schaps 2004: 85–88; Schaps concludes that spits were just used in barter trade). Spits were not useful for anything more than local barter, and probably useless for international or long-distance trade. Even on the most generous interpretation of the evidence, they can only have been a type of weak proto-money, which never emerged as a real “money thing.” And their religious or sacrificial use suggests a partial non-commercial source of their value anyway in temples, gift exchange, and bride price (Schaps 2004: 87); in other words, they could be a type of non-commercial money familiar from other cultures.

The Mengerian apologists might seize on these points and counter that none of these things discussed above are in fact money in their proper definition of that term; therefore Menger is not refuted. But that has the following consequence: the emergence of coinage is in fact the story of the origin of true money in ancient Greece.

Curiously, heterodox economists might agree that, strictly speaking, there was no widely-used physical good with all the threefold functions of money – as a medium of exchange, store of value, and unit of account – coalescing into a full-bodied money-thing in pre-Classical Greece. But, if one wants to argue this, again the consequences are quite clear:

“In sum, the Homeric world has no money-thing, that is, an object which answers to the description of money. Certain things perform certain functions, e.g., cattle (standard of value) and prestige objects (store of value) but neither performs the role of means of exchange or payment. Only in the Classical Period does a money-thing, coinage, come into existence.” (Peacock 2006: 642).

So what was the origin of coins?

III. The Origin of Coins
The first coins were minted in the second half of the 7th century BC (650–600) in what is now western Turkey (what was called “Asia Minor” by the Classical Greeks) in ancient Ionia and Lydia. Both the ancient writers Xenophanes (as cited in Pollux, Onom. 9.83) and Herodotus (Histories 1.94) report this.

These earliest coins consisted of stamped pieces of electrum with a roughly uniform weight in large numbers. Their value was large: about ten sheep. That is, they were of large denomination: perhaps worth more than 10 sheep and not useful for small transactions (Cook 1958: 260).

The scholar R.M. Cook long ago concluded that:

“From all this it may reasonably be inferred that coinage was invented to make a large number of uniform payments of considerable value in a portable and durable form, and that the person or authority making the payment was the king of Lydia. One solution suggests itself, that the purpose of coinage was the payment of mercenaries.” (Cook 1958: 261).

A reconstruction from the evidence is as follows: royal paymasters of mercenaries began to prepare electrum in lumps or shapes of uniform weight, instead of weighing out electrum pellets or dust as payment. Then the lumps were given uniform shape and marked with some sign and finally an official seal. Thus coins came into existence as the means for paying wages, but as a type of large pay packet for medium to long-term service (Cook 1958: 261).

At this point, the libertarian or Mengerian critic might question whether the earliest coins from Lydia were really minted by the state.

Glasner (1989: 30) contends that since these earliest coins had no names of Lydian kings “we can safely conclude that they were privately minted.” Yet that is a highly dubious argument. For a long time, coins did not carry writing at all, and there is no reason why the kings would have bothered to write their names on the coins when people at the time knew perfectly well that they had been minted by the state. Nor did early coins carry images of the living king: they 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, but centuries after coins had been invented.

Moreover, the evidence suggests that the Lydian kings either controlled the mines in their kingdom (Briant 2002: 400) 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]), and it follows that, if they extracted and owned much of the silver, gold and electrum (panned from the rivers), it is most probable that the kings also minted the first electrum coins too.

Coinage spread to mainland Greece around 575 to 550 BC (or the second quarter of the 6th century). The numismatist C. M. Kraay looked at a wider sample of evidence from the whole Greek world and concluded that,

“since most coinages were not exported, and since those that were exported were not among the earliest coinages, the original intention in striking coins was not to facilitate foreign trade, or to provide merchants with a means of purchasing goods or materials not available locally. …. We must conclude that coinage [sc. ancient Greece] was not devised to meet the needs of foreign trade, and that, in so far as it came to do so, this was a secondary development.” (Kraay 1964: 89).

In addition, it does not seem that coins were introduced to facilitate internal trade either, for most states lacked enough small denomination coinage or had no coinage at all, and coinage had originated in Asia Minor and Lydia in large denominations too large for daily and normal retail trade (Kraay 1964: 89).

Everywhere one finds coinage in the early Greek world it has the stamp of the public authority: the issuing government or city state (Kraay 1964: 89).

The purpose of issuing coins appears to be bound up with both government taxation and expenditure: on the one hand, demand for harbour dues, fines and penalties in law codes (as law became increasing public, not private), and taxes, and on the other hand spending of the state on pay to mercenaries or soldiers, salaries to state employees, festivals (both secular and religious) and expenditure on public works (for wages and materials used) (Kraay 1964: 89).

Previously, payments to and from the state may have been made in kind, but as economies become more complex this itself became inconvenient. What was needed was a standard unit of value.

Although bullion was a high prestige commodity, there is no convincing evidence that it functioned as a common medium of exchange before coinage, first because it was rare and secondly because it was not easily divisible into uniform and small enough amounts. What certain kinds of bullion or metal did provide was weight units. The monetary unit of classical Athens, for example, was the drachma. It seems to have emerged as a reformed weight unit – that is, a pre-monetary metal weight unit – used as a common standard for assessing tax payments in kind to the state (Horsmann 2000; von Reden 2002: 153).

The Lydian state first adopted large denomination coins to make payments to soldiers and demanded coins back in tax obligations, and in this manner that coin unit emerged as money. But notice how the process violates the standard Mengerian account of the origin of money: electrum was not already functioning as a common medium of exchange by having emerged as the most saleable commodity in the marketplace.

Before Lydian coinage, a metal like electrum was a high prestige object and 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.

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, but still (compared to modern money) limited 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. Prices for goods were created as a result of both the state payment of, and demand for, coins. That is, economies with previous barter, gift exchange and extensive debt/credit exchanges in kind were monetised by the state creation of coined money and the state demand for the coins, owing to taxes and other obligations (Peacock 2006: 644).

Furthermore, the earliest coins already seem to have been fiduciary to some extent, in the sense that the conventional (or nominal) value could be somewhat higher than their intrinsic value (Peacock 2006: 643, citing Price 1983: 5 and Wallace 1987: 393). People tended to count coins, not weigh them out (Peacock 2006: 643). What provided the major inducement for acceptance of official, stamped coins was the demand for them to pay taxes, fines and obligations to the state.

Another telling factor is that in many Greek states coins appear to have largely stayed within their national or city state boundaries (Kraay 1964: 90), because this was where the major demand for coins was: again both from the state itself and from citizens and non-citizens having to pay obligations to the state. Curiously, the one of two exceptions was the Athenian silver coinage, which became a type of international reserve currency by the 5th century BC, but because of (1) the overwhelming military and imperial power of classical Athens with its overseas empire and exaction of taxes and tribute from its allies and subject states and (2) the sheer good fortune that Athens was blessed with very productive silver mines.

In general, even by the 6th and 5th centuries BC numismatists have noticed that few areas of the Greek world seem to have had sufficient, lower denomination stocks of coins to meet the ordinary requirements of daily trade and commerce (Kraay 1964: 88). The only exceptions are Athens, Aegina and Ionia, whose economies appear to have been monetised to a greater degree than elsewhere (Kraay 1964: 88; Kim 2002). More recent modification of Kraay’s thesis by Kagan (2006) and Kim (2001 and 2002) does not overturn his fundamental point (Kurke 1999: 8).

IV. Conclusion
In pre-Classical Greece, no definitive “money thing” is found. At most, we have, firstly, a good (cattle) which only partially fulfills the functions of money by being a unit of account, and secondly a good (iron spits) that might (even on the most generous view) have performed a proto-money function as a medium of exchange to a limited extent (but the evidence is weak and it may have been no more than another prestige good used in barter).

But if one denies that either of these were real money, then the origin of money in Western civilisation is the invention of coinage. And coinage was an invention of the state.

Advanced monetised economies developed as the demand for money expanded though the need to have coins to pay taxes and obligations. The state itself provided the money in payments to the community. While one can point to other cases where Menger’s theory might have some empirical support (a fact recognised even by the critical David Graeber [2011: 75]), this is not one of them. In this very important case, Menger’s theory has been tried and found wanting.

FURTHER READING
My list of posts on the origins of money are below:

“Debate on the Origin of Money,” August 25, 2012.

“The Origin of Money in the Digest of Justinian,” August 21, 2012.

“Alfred Mitchell Innes on the Credit Theory of Money,” March 24, 2012.

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

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

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

“Money as a Unit of Account and its Origins,” February 11, 2012.

“Quiggin on the Origin of Money,” February 10, 2012.

“David Graeber on Debt and Money, Part 2,” February 9, 2012.

“David Graeber versus Robert Murphy: A Review,” January 24, 2012.

“David Graeber on the Origins of Money,” January 23, 2012.

“Bibliography on the Origins of Money,” January 19, 2012.

“Alla Semenova on the Origins of Money,” January 15, 2012.

“Mises on the Origin of Money,” January 12, 2012.

“The Origins of Money,” January 8, 2012.

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

“Money as Debt,” December 26, 2011.

“David Graeber’s Response to Robert Murphy,” September 9, 2011.

“The Origin of Coinage in Ancient Greece,” April 29, 2011.

BIBLIOGRAPHY

Briant, Pierre. 2002. From Cyrus to Alexander: A History of the Persian Empire (trans. Peter T. Daniels). Eisenbraun, Winona Lake, In.

Cook, R.M. 1958. “Speculation on the Origins of Coinage,” Historia 7: 257–262.

Einzig, P. 1966 [1949]. Primitive Money in its Ethnological, Historical and Economic Aspects. Eyre and Spottiswoode, London.

Glasner, David. 1989. Free Banking and Monetary Reform. Cambridge University Press, Cambridge.

Goodhart, C. A. E. 1998. “The Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas,” European Journal of Political Economy 14.3: 407–432.

Goodhart, C. A. E. 2003. “Two Concepts of Money: Implications for the Analysis of Optimal Currency Areas,” in S. A. Bell and E. J. Nell (eds.), The State, the Market, and the Euro: Chartalism versus Metallism in the Theory of Money. Edward Elgar, Cheltenham. 1–25.

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

Heidel, W. A. 1926. “Heiliges Geld, eine historische Untersuchung über den sakralen Ursprung des Geldes by Bernhard Laum” (Review), Classical Philology 21.2: 191–192.

Horsmann, G. 2000. “Athens Weg zur eigenen Währung: Der Zusammenhang der metrologischen Reform Solons mit der timokratischen,” Historia 49: 259–277.

Kagan, J. H. 2006. “Small Change and the Beginning of Coinage at Abdera,” in Peter van Alfen (ed.), Agoranomia: Studies in Money and Exchange Presented to John H. Kroll. The American Numismatic Society. New York. 49–60.

Kim, H. S. 2001. “Archaic Coinage as Evidence for the Use of Money,” in Andrew Meadows and Kirsty Shipton (eds.). Money and its Uses in the Ancient Greek World. Oxford University Press, Oxford. 7–21.

Kim, H. S. 2002. “Small Change and the Moneyed Economy,” in P. Cartledge, E. E. Cohen and L. Foxhall (eds.), Money, Labour and Land. Approaches to the Economies of Ancient Greece. Routledge, London and New York. 52–66.

Kurke, Leslie V. 1999. Coins, Bodies, Games, and Gold: The Politics of Meaning in Archaic Greece. Princeton University Press, Princeton, NJ.

Kraay, C. M. 1964. “Hoards, Small Change and the Origin of Coinage,” Journal of Hellenic Studies 84: 76–91.

Kraay, Colin M. 1976. Archaic and Classical Greek Coins. University of California Press, Berkeley, Calif.

Kroll, J. 1998. “Silver in Solon’s Laws,” in R. Ashton and S. Hurter (eds.), Studies in Greek Numismatics in Memory of Martin Jessop Price. Spink, London. 225–232.

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

Martin, T. 1996. “Why Did the Greek Polis originally need Coins,” Historia 45: 257–283.

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

Peacock, M. S. 2003–2004. “State, Money, Catallaxy: Underlaboring for a Chartalist Theory of Money,” Journal of Post Keynesian Economics 26.2: 205–225.

Peacock, M. S. 2006. “The Origins of Money in Ancient Greece: The Political Economy of Coinage and Exchange,” Cambridge Journal of Economics 30: 637–650.

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

Peacock, M S. 2013. “Accounting for Money: The Legal Presuppositions of Money and Accounting in Ancient Greece,” Business History 55.2: 280–301.

Price, M. J. 1983. “Thoughts on the Beginnings of Coinage,” in C. N. L. Brooke et al. (eds.), Studies in Numismatic Method Presented to Philip Grierson. Cambridge University Press, Cambridge and New York. 1–10.

Redish, A. 1992. “Coinage, Development of,” in P. Newman, M. Milgate and J. Eatwell (eds.), The New Palgrave Dictionary of Money and Finance (vol. 1). Macmillan, Basingstoke. 376–378.

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

Schaps, D. M. 2004. The Invention of Coinage and the Monetization of Ancient Greece. University of Michigan Press, Ann Arbor.

Schaps, D. M. 2008. “What Was Money in Ancient Greece?,” in W. V. Harris (ed.), The Monetary Systems of the Greeks and Romans. Oxford University Press, Oxford. 38-48.

Semenova, A. 2011. “Would You Barter With God? Why Holy Debts and not Profane Markets Created Money,” American Journal of Economics and Sociology 70.2: 376–400.

von Reden, S. 2002. “Money in the Ancient Economy: A Survey of Recent Research,” Klio 84.1: 141–174.

Wallace, R. 1987. “The Origin of Electrum Coinage,” American Journal of Archaeology 91: 385–397.

Menger’s Nuanced View on the Origin of Money

Carl Menger’s writings on the origin of money contain a curious, but undeveloped, concession to chartalism.

First, there was this concession in Menger’s 1892 paper:

“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).

Secondly, in Menger’s revised essay on money, published later in 1909, we have this:

“Commodities that have become generally used intermediaries of exchange, if only within certain geographical boundaries and possibly even only within certain segments of the population of a territory, are called money (livestock money, shell money, salt money, etc.) in scientific usage (not necessarily in everyday life!).

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: 33).

It would be a mistake, however, to press these cautious statements too far: Menger remained an advocate of the barter spot trade theory of money’s origins, although he was willing to concede what later Austrians have emphatically denied.

Nevertheless, there is a 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).

BIBLIOGRAPHY

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. 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.].

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

My Posts on the Origin of Money

I have assembled a set of two lists of links and a bibliography below, as follows:

(1) my posts on the origin of money and the debate between David Graeber and Robert P. Murphy;
(2) some external links on the debate between David Graeber and Robert P. Murphy, and
(3) a bibliography on the origin of money.

First, however, I will give a quick summary of Graeber’s view on the origin of money in his recent book (Graeber 2011). It is curious that, in discussion of Graeber’s book, many people cannot even get his arguments right. It is important to note that Graeber does not deny that money in some historical circumstances can emerge from barter between strangers, especially in long distance trade. Graeber cites the cacao money of Mesoamerica and the salt money of Ethiopia as instances of money emerging through barter (Graeber 2011: 75; on Ethiopian salt money, see Einzig 1949: 123–126). Graeber also cites the views of 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). What Graeber denies is that the Mengerian or the barter spot trade theory is a universal theory of the origin of money.

Money-less societies are frequently dominated by debt/credit transactions, or “gift exchange,” not by barter spot trades. 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 (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 abstract unit of account in which debt/credit transactions were still the predominant system (Graeber 2011: 40). The use of coinage, when it was developed, could remain uneven and coins scarce.

In a society where debt/credits are the major transaction, IOUs/debts can be transferable and used as a means of payment or medium of exchange. Graeber thinks of an example:

“Say, for example, that Joshua were to give his shoes to Henry, and, rather than Henry owing him a favour, Henry promises him something of equivalent value. Henry gives Joshua an IOU. Joshua could wait for Henry to have something useful, and then redeem it. In that case Henry would rip up the IOU and the story would be over. But say Joshua were to pass the IOU on to a third party—Sheila—to whom he owes something else. He could tick it off against his debt to a fourth party, Lola—now Henry will owe that amount to her. Hence money is born.” (Graeber 2011: 46).

A type of medium of exchange could emerge in theory in this way in small communities, or communities of specific people like merchants where IOUs can be verified. The empirical evidence demonstrates that this is precisely how promissory notes and bills of exchange become a medium of exchange. A kind of debt money can emerge in communities where there exist people willing to accept it or cancel the debt IOUs (Graeber 2011: 74). Graeber notes how for centuries English shops issued their own wood, lead or leather token money as debt money redeemable at the particular merchant’s store (Graeber 2011: 74). Graeber’s eclectic view on the origins of money is expressed in this way:

“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)

Graeber, however, doubts that local or community debt/IOU money systems can “create a full-blown currency system, and there’s no evidence that they ever have” (Graeber 2011: 47). But this is where Georg Friedrich Knapp’s (1842–1926) chartalist theory of money comes in (see Knapp 1905; Knapp 1973 [1924]). When the state issues IOUs it can do so on a large scale, and then demand the same IOU tokens back as payment of taxes. Graeber notes the use of tally sticks in the Middle Ages: the British exchequer could issue them, and they would circulate as tokens of debt owed to the government (Graeber 2011: 48–49), but also circulate as a medium of exchange within England accepted for payment of taxes (Davies 2002: 146–151). Graeber (2011: 59–62) also refers to the thesis of Grierson on how wergeld-like customs could create a system of measurement of relative values (Grierson 1978: 11; Grierson 1977).

The origins of money, then, lie in different sources, and not simply in a barter origin of money theory.

Graeber also notes how primitive monies (called non-commercial money or social currency) – like shell money in the Americas or Papua New Guinea, cattle money in Africa, bead money, feather money, and so on – are often 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). A commercial money can most probably arise through non-commercial money.

The story of money is thus rather more complex than neoclassical economists or Austrians imagine.

My list of posts on the origin of money and the other links are below:

“Debate on the Origin of Money,” August 25, 2012.

“The Origin of Money in the Digest of Justinian,” August 21, 2012.

“Alfred Mitchell Innes on the Credit Theory of Money,” March 24, 2012.

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

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

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

“Money as a Unit of Account and its Origins,” February 11, 2012.

“Quiggin on the Origin of Money,” February 10, 2012.

“David Graeber on Debt and Money, Part 2,” February 9, 2012.

“David Graeber versus Robert Murphy: A Review,” January 24, 2012.

“David Graeber on the Origins of Money,” January 23, 2012.

“Bibliography on the Origins of Money,” January 19, 2012.

“Alla Semenova on the Origins of Money,” January 15, 2012.

“Mises on the Origin of Money,” January 12, 2012.

“The Origins of Money,” January 8, 2012.

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

“Money as Debt,” December 26, 2011.

“David Graeber’s Response to Robert Murphy,” September 9, 2011.

“The Origin of Coinage in Ancient Greece,” April 29, 2011.


EXTERNAL RESOURCES

Graeber, David, 2009. “Debt: The First Five Thousand Years,” Eurozine.com, 20th August.
An early summary of Graeber’s work on debt.

“What is Debt? – An Interview with Economic Anthropologist David Graeber,” Nakedcapitalism.com, August 26, 2011.
The original interview with Graeber that sparked the debate.

Gene Callahan, “Fiat Currency,” Saturday, August 27, 2011.
A summary of Graeber’s interview that sparked off a debate between Gene Callahan and Robert Murphy.

Robert P. Murphy, “Have Anthropologists Overturned Menger?,” Mises Daily, September 1, 2011.
This is Robert P. Murphy’s response to Graeber’s interview at Nakedcapitalism.com.

Robert Murphy, “David Graeber’s Response to My Article,” Mises.org, September 8, 2011.
This is a summary of David Graeber’s comments on Robert P. Murphy’s article “Have Anthropologists Overturned Menger?.”

Robert Murphy, “Murphy Replies to David Graeber on Menger and Money,” Mises.org, September 8, 2011.
This is Murphy’s reply to David Graeber’s comments.

David Graeber, “On the Invention of Money – Notes on Sex, Adventure, Monomaniacal Sociopathy and the True Function of Economics. A Reply to Robert Murphy’s ‘Have Anthropologists Overturned Menger?,’” September 13, 2011.
David Graeber’s final response to Murphy, published on Nakedcapitalism.com.


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