As with so many other aspects of economics, the origin of money gets caught up in politics. Many theorists want their preferred model of political economy to become self-evident from their analysis of what money is.
Libertarians want to exclude the state from control of money and therefore assert that gold most exquisitely captures the required properties of money, and therefore it was inevitable that gold would become money, and requires no state imprimatur to do so.
Those whose political programme requires interventionist government, prefer an answer that money was always determined by the state, or its religious components, and that money doesn’t need to have any intrinsic value.
Examples supporting both theories exist in history. Yet, because the origins of money date from the earliest years of civilisation, the scant evidence can be interpreted in multiple ways. Some artifacts of value have survived, but how they were used remains in the realm of speculation.
For example, does the exchange of knife and spade shaped pieces of bronze (China, 1st millenium BC) count as money, because those artifacts were too flimsy to cut or dig? Or was that just a wholesale trade of smithing materials, in standardised amounts. If a string of cowrie shells or wampum beads have cultural and decorative value, do they become money when they are exchanged in specific quantities or is that still just barter? Do the answers to these questions actually depend on how the participating individuals conceived of what they were doing, at the time?
We should note that the evolution of money and money-like objects varied considerably in different parts of the world. Europe, Ancient Egypt, and the Fertile Crescent were linked by trade routes; practice in ancient China may or may not derive from those. Usage in the pre-colonial Americas presumably appeared independently. Yet some common themes appear, driven by social and technological developments.
The origin of money remains unclear because it dates back before the time of the first appearance of writing (c.3000BC). It is quite possible that the concept of numbers first arose in order to be able to make accounting records of livestock and commodities. So there are not any written records of how money came into being, and later written records may represent later evolutions of monetary practice, without necessarily shedding much light on what came before.
Before the modern era, historians reckon a series of Ages, based on the most advanced material for tool and weapon manufacture available in each period. These Ages occured at somewhat different times in different parts of the world, because the ability to manufacture using each material, was not acquired at the same time in different places.
The very approximate dates suggested below are for the Fertile Crescent region known as Mesopotamia, where the earliest civilisation arose: Sumer. Note that scholars are still debating and updating these kind of chronologies.
< 5000 BC – Stone Age (tools are flint, obsidian, stone)
5000 BC – Copper Age begins (also called Chalcolithic)
5000 BC – settlement at Uruk is founded
4000 BC – Uruk pottery begins to dominate Mesopotamia
3500 BC – pictogram tablets at Uruk
3500 BC – cylindrical seals appear – used for marking or branding resources
3400 BC – stone temple built at Uruk
3400 BC – invention of amounts for counting different kinds of things
3300 BC – Bronze Age begins (using copper/arsenic bronze)
3000 BC – development of Cuneiform writing (evolving from pictograms)
3000 BC – invention of the wheel
2900 BC – flood resets the flow of the Sumerian King List
2900 BC – first kings (lugal) appear in Sumer city states
2700 BC – first recorded war (Sumer v Kish)
2700 BC – first walls appear around cities
2600 BC – bronze using tin appears in Sumer
1500 BC – Iron Age begins
We begin our consideration with a late stone age culture of small communities.
Many groups are nomadic, based on hunting, but some are settling in one place based on livestock or farming. Within the group, exchange of goods is based on family obligation, clan obligation or ritual obligation. Because everyone knows everyone else, the obligations are understood by all, and there is no use for money. The other nearby clans may or may not be your friends; you might barter with them or you might fight sometimes. Trade is safer than fighting, but if one group is strong enough they might prefer to fight and pillage. If there is a leader, they might be a chieftain or a council of elders.
For a clan or community of a specific number of people, there is a limit on how much land that group can usefully work (for either crops or animals). Better/more tools might increase productivity of farming such that more land can be cultivated by the same amount of people. Better/more weapons might assist retaining control of current people, animals and land, or alternatively allow acquisition of more people, land, animals, tools. Improved capability at any or all of these things allows the community to grow and to be more resilient and adaptable to unexpected events like bad harvests, or getting raided by neighbours. It is this resilience and adaptability that causes land, herds, people and tools to look like wealth.
What is valuable to a late stone age community?
Firstly we value the clan: the work of the people, the support of family, the fecundity of the mates, the protection of the group.
We choose to live in places where building materials (stone or clay), trees, plants, hunting game, and water are abundant. Anyone can take what they want, if they have the relevant tools. Because these resources are abundant, no one cares to claim exclusive use. Not because these things are not valuable (they are!) but because there is more than enough for everyone.
Where we have crops or domesticated animals, these represent of the work of specific people, and are claimed by those who did the work, or at least by their families. Crops are transient, certainly useful today, but not durable. However herds might be reckoned as wealth: both useful and durable.
Before the era of metals, any tools and weapons would be made of stone or bone. More durable than wood, but they still wear out eventually. Obsidian and flint will take an edge, but need resharpening.
Before copper, three metals were known: gold and silver, which are rare, but sufficiently chemically inactive that they can sometimes be found in their elemental form; and lead, which is a thousand times more common than gold, and because it melts at 327C, it can be extracted from its ore in a normal fire. All three of these metals are dense and durable, yet too soft for toolmaking. But their malleability means that intricate designs are possible. The combination of rarity, malleability and durability made gold and silver an excellent choice for status goods.
The earliest copper smelting is thought to be around 5000BC in Europe, using charcoal to achieve the required heat (1083C). Unlike gold, silver and lead, copper is hard enough to make into tools and weapons, and its use was known in Mesopotamia. Lack of access to tin, meant that tin bronze did not appear there until much later, but copper/arsenic bronze appeared around 3300BC.
As with Egypt and the Nile, the fertility of the flood plain of the lower Tigris and Euphrates rivers makes for a great place to settle and do agriculture. Successful farming and plentiful crops allows larger communities to thrive, which in turn allows larger agricultural projects to be attempted, like irrigation canals. During the period from 4000BC onwards, the settlements of lower Mesopotamia grew in size and population, and are collectively known as the Sumer civilisation.
The leading settlement, Uruk, may have had 40,000 residents by 3100BC.
Working out what went on in Uruk before 3000BC is complicated by the fact that each new building project over two thousand years was built on top of the remains of what was there before. But by 3400BC there appears to have been some kind of stone temple building on top of a mound or ziggurat at Uruk. Similarly, there is evidence from the same period of a substantial mud-brick temple at Eridu.
Each of the cities of Sumer had its patron deity: Inanna at Uruk, Enki at Eridu, and so on. By the time of written records after 3000BC, these deities were conceptualised as owning the city and everyone in it. The Sumerians believed that the sole purpose of humanity’s existence was to serve the gods. The human ruler of the city, the ensi, was considered to be the premier servant of the god, and controlled a significant proportion of the economic activity of the city. Kings, in the sense of military leaders, did not appear until around 2900BC.
How this theocracy arose is unclear: the existence of the stone temple at Uruk predates written records by up to five centuries. But we can speculate, based on what was happening by the time written records appear, and inferring what would need to have gone before, to reach that later state.
For some of the temple cities, such as Nippur, their god (Enlil) was believed to have built the city himself. So it is possible that the names of the gods represent the founder of the settlement or else an early famous leader. Later leaders may have invoked the name of a famous forebear as justification for their own pre-eminence or else to re-assert the self-evident correctness of their adminstrative policies. (Gilgamesh may be another example: probably a real king of Uruk, then later deified in accounts written long after his time.)
The cities themselves appear to have been built at economically useful locations, rather than at the presumably more random distribution of already existing sacred places. Each city is on higher ground, but near the Tigris or Eurphrates rivers, and thus on the trade route from the Indus to the Levant, allowing acquisition of trade goods like copper and bronze tools. The cities are about one day’s journey apart from each other, which is useful for long distance traders.
Given that the major crop was barley, the original choice of settlement location may be for a threshing floor, which requires a large flat surface at an elevated point, open to the wind for winnowing.
The threshing floor would be a communal resource, to which each local farmer would bring their crop. It would be natural for such a location to then acquire storage facilities to keep out pests and thieves from the threshed grain; it’s higher and drier, and thus away from risk of river flood damage. The convergence of people using the threshing floor and storage facilities would make this open space the obvious location for both market trading and community discussion. By the same logic, it is also the obvious place to build a shrine or altar for the local god.
As time goes on, if there is an unresolved dispute within the community, it is likely to be the priest of the shrine who is asked to seek the will of the gods for a solution. Over time, the priests build up a corpus of rulings, which become the basis for community law. As the local repository of righteousness, the priests then look like a good choice to administer the shared community assets like the threshing floor, the storage rooms, the trade weight standards, and charge for their use.
Once in control of the community assets, it is not hard to see how the priests might justify building a larger temple with more storage space, or instituting a regular tithe to support themselves. They might also be the driving force behind community projects like irrigation canals and road maintenance. They will hold the definitive examples of each weight and volume used for trading. They will certainly need to be keeping records of who owns what in the storage house, and perhaps also of who owes what to the temple itself; there are now just too many people to be able to rely on the face to face social obligation structures which work in village scale communities.
It is into this temple milieu of storage, resource accounting and trading that the first written signs appear, usually incised onto clay tablets. The earliest forms are pictograms, probably representing crop types, products, places or gods. There are also cylindrical seals, which can be rolled along clay to produce a sort of signature or manufacturer’s mark. A pure tally system of counting becomes unwieldy for large amounts, so sometime around 3400BC there appear symbols which represent specific amounts of specific things, crops or products: (one cubit, two mina, etc), although not yet of pure numbers (one, two) or phonetic writing. Accountancy is born!
For Michael Hudson, this is the origin of money: credit and debt records in the temples of early Sumer, recorded as specific weights of barley. This is no longer merely a social obligation; these debts are now written and enforceable.
Because of the time gap between planting and harvesting, few payments were made at the time of purchase. When Babylonians went to the local alehouse, they did not pay by carrying grain around in their pockets. They ran up a tab to be settled at harvest time on the threshing floor. The ale women who ran these “pubs” would then pay most of this grain to the palace for consignments advanced to them during the crop year. These payments were financial in character, not on-the-spot barter-type exchange.
Temples housed the workshops where most export textiles were woven (in contrast to the homespun for subsistence use). They were endowed with resources to support their community’s dependent labor to weave textiles and undertake other export production. Toward this end, much of the community’s land was set aside for use by the temples to support their nonagricultural labor force and official staff. Additional lands were held by the temples (and in time the palaces) on which to graze their herds, above all the sheep whose wool was woven by public dependents into the textiles exported for the raw materials not found in the Mesopotamian alluvium.
As a means of payment, the early use of monetized grain and silver was mainly to settle debts. This monetization was not physical; it was administrative and fiscal. The paradigmatic payments involved the palace or temples, which regulated the weights, measures and purity standards necessary for money to be accepted. Their accountants that developed money as an administrative tool for forward planning and resource allocation, and for transactions with the rest of the economy to collect land rent and assign values to trade consignments, which were paid in silver at the end of each seafaring or caravan cycle.
As noted by Hudson, while the internal economy of each Sumer city ran on barley credit, the external trade economy was settled in silver. Both systems ran alongside each other and later records show the temples published fixed exchange rates between them.
Based on his understanding of Sumer temple practice, Hudson criticises other theorists who assert the origin of money as directly based on barter practice coalescing around the most marketable commodities: gold and silver. Yet he recognises that trade between cities did involve silver, presumably as foreign merchants would have little use for a “tab” at the temple of a Sumerian city, because they were not citizens and thus owed no dues there.
In accepting that barley or silver could be used to settle debts at the Sumer temples, he implicitly supports the notion that a metal did emerge as commodity money in Sumer. For Hudson, whose concept of money naturally includes credit instruments, the temple credit/debt records are the first money. For those who regard only self-clearing commodities as money, the temple records are just credit, still reliant on a counter-party, and thus not really money.
It could be said, that by choosing to reckon temple debts in specific weights of barley, that the even the temple accountants had already made barley into the first commodity money. Yes, it was accounted in temple debt records, rather than physically circulating, but the unit of account is barley-by-weight.
Hudson prefers these written records of temple barley debts as the first money, because that notion supports his view of money as being primarily given value by the state. He wants his temple economy to represent the public sector, a benign regulator of the otherwise rapacious traders. His temples provide employment, administer community land, finance public works, standardise weights and measures, and regulate market prices. Yet, he recognises that the temples were profit-making and interest-seeking, so possibly outside a modern definition of the public sector.
Hudson applauds the actions of the later Sumerian kings in cancelling all debts owed to the temples (which I also support), but seems less interested in the morality of the systematic debt enslavement which necessitated such debt cancellation. Do the Sumer temples represent a benign public sector, or are they rather the administrative vehicle of a dominant oligarchic clique, absorbing the economic surplus of the community?