1: The Origin of Money

“Money is a portable form of wealth that has no value, unless it can easily be exchanged for something really useful, such as goods, services or tangible assets”. ~Anon

The Origin of Money

Life was easier before the invention of money – or was it? If we observe the behavior of other primates, it is clear that in  earliest days of mankind’s existence there would only have been three ways that resources would have changed hands. These would have been by way of : -

• Theft

• Forced Coercion

• or Gifts

      The first two alternatives, despite their rather dubious ethical base, have proved to be an extremely successful way of re-distributing products and resources over the years. They have gone from strength to strength  and have now become fully institutionalized and can be recognized alternately as either organised crime or taxation.   Gifting (or giving) has more positive connotations – but where (if anywhere) did this entirely altruistic means of circulating goods lead to in the long run? The answer is truly surprising! In a few lines we will show how the humble activity of passing gifts around led directly to the invention of money. Truly gifting was the remote ancestor of the complex global financial system we suffer from today, but how did all this come about? Read on – the trail is not difficult to follow. 

Gifts

As any parent of an active teenager will testify, the one-way flow of handing out gifts is unsustainable in the long run and is not always satisfying to either party. However, the mutual exchanging of gifts (a far more attractive proposition) has always been a way of fostering harmony between individuals and groups. In the ancient world it was commonplace for the leaders of tribes and nations to exchange substantial gifts with one another as tokens of respect and to foster harmonious relations between their peoples. As resources varied from place to place, the givers would ideally choose items abundant in their own area but needed (and thus valued) by the receivers.

YOU MAY NOT ALWAYS GET THE GIFT YOU WANTED

(stock photo from 123RF)

Barter

Although mutual gift exchange between individuals and states was an excellent form of re-distribution, it was haphazard and limited in scope and could occasionally lead to dissatisfaction if the reciprocation was perceived to be inequitable. It only took a small mindshift to realise that simply swapping your spare goods with another person for something you really need was a much more satisfying way to exchange resources than to rely on the vagaries of mutual gifting. And so we come to the birth of trading. The most basic form of trading, by the direct swapping of wares between two individuals, is known as barter.  It may have been a very simple concept to embrace, but it was a truly monumental milestone in the development of human civilisation.

 

TRADING IN THE MARKET

In the ancient world every village or town would have had its own market place for agricultural produce, where local commodities and hand crafted wares, such as woven cloth and pottery, could be directly exchanged in barter between individuals. The aim of the market was to satisfy everyone’s need for obtaining the items they could not produce themselves. Scarce items would be more in demand  and more valuable as trading commodities. This created an incentive to produce more of these scarce items. However, once there became an abundance of these goods the demand would be satisfied and so they would become less valued as trade items. Certain  astute individuals, understanding this fundamental law of supply and demand, realised that they could actually make a good living as middlemen – moving goods between producer and consumer and keeping a portion of the goods that they had bartered for themselves. So the profession of the trader arrived, together with the profit motive, and the improved efficiency of the market benefited all. All of the fundamental elements of basic economic theory were now in place and the nascent market economy was set on an unstoppable course to become  institutionalised and all this was long before the invention of money. 

“Money is the root of all evil”. ~Anon

Trading

Although there would always be room for bargaining for advantage, trading in a local market was based around a generally accepted set of relative values regarding the worth of items to be bartered in a particular locality e.g. three sheep were worth one cow in Jericho. In another town or city, such as at Babylon,  it might be accepted that a cow traded for four sheep. As already emphasised, scarce resources would always be in demand in those markets where supply was limited and would therefore have a high trade value. The corollary was also true – that goods were “cheaper” where supply was abundant.  This basic consideration would provide the motivator for inter-regional trade as resources were always unevenly distributed. 

Often a three-way trade was needed if the home economy did not produce the preferred trade goods for barter in the foreign markets that had the specific imports desired by its citizens. Traders often found it necessary to first trade their own goods in a third locality to find some acceptable commodities  that could in turn be traded for the goods that would be most valuable at home. Sometimes multiple trades would need to be concluded to obtain a particular commodity. Obviously all this additional traveling over great distances to facilitate the complexities of the trading dynamics was tedious and dangerous. 

TRADERS COULD FACE LONG AND TEDIOUS JOURNEYS

The solution to this problem of having to make several superfluous journeys was to find one non-perishable commodity that had sufficiently high value and portability, such that it was in demand everywhere and then trade this in just one subsequent transaction to obtain the particular goods that the target market desired.

Silver Bullion

Because of its recognized high worth (due to relative scarcity), silver bullion was the single commodity adopted  by the ancient world to be this universal store of value. Gold was also recognized, but was too scarce to facilitate regular trade. Once the basic principle of using silver was accepted, goods could either be bartered in the old fashion  or exchanged for a weight of pure silver, as measured by the merchants’ scales. The inter-regional trade was facilitated because exotic goods could be acquired by making a single trip directly to the point of origin, and the deal concluded by simply handing over a certain weight of silver bullion to the foreign merchants. There was no more need for additional side journeys for the trader and his donkey train unless he was looking to acquire other commodities as well. 

The attraction of this novel concept was that much wealth was created for merchants, as the exotic goods were always worth more in silver at their destination than at their point of origin. Moreover, profits held in silver did not deteriorate with time. Silver was simultaneously a measure of wealth, a store of value and a commodity. It must be emphasised that the adoption of silver as a universal store of value, did not eliminate the direct bartering of goods at the local markets, which would continue for many more centuries, as most country folk had little access to the precious metal. However, the “silver standard“ had certainly opened up a more efficient “wholesale” trade between the professional merchants and their suppliers and this would have greatly stimulated inter-regional trade. 

Movement Towards a Monetary System

It is thought that true coinage came into being around the 7th century BCE, but almost a thousand years earlier, something approaching a  proto monetary system had evolved in Asia Minor and the Near East.  It was actually a relative valuing system, based on a kind of  silver standard, which regulated the barter transactions of local markets. Although there would always be room for bargaining to obtain an advantage, the relative value of any item being exchanged in a particular market was more or less established (pegged) by the generally accepted trade value that such an item would fetch if traded against against silver. 

In effect the worth of everything that could be exchanged, from a slave to a bolt of woolen cloth or a jar of olive oil, was usually assessed in terms of so many weight measures of pure silver. The accepted weight measure of silver was the talent. This weight varied somewhat from region to region. According to Wikipedia, an Attic or Greek talent was 26kgs = 57lb. This was a substantial quantity of silver, so it was sub-divided into smaller units for everyday use, such as the mina or even smaller drachma or Babylonian shekel. Bear in mind that most local trades still took place as direct exchanges of goods between individuals, without any actual physical movement of silver. The silver standard was simply the way of establishing relative worth - and this certainly did not imply that the actual settlement of a trade had to be in silver - unless this form of payment was mutually agreeable to both participants. This was just as well, as there was only so much silver bullion in circulation. 

In effect this inter-relationship between the goods and a theoretical weight of precious metal was akin to setting a monetary value to a trading commodity in the modern sense. The treasurers of city states and royal households could use this concept to draw up accounts for their masters that were easy to understand. This also had added benefit as intangibles, such as wages and taxes, could also be assessed in so many weight measures of silver.

SLAVES WERE A VALUABLE COMMODITY

The First Steps Towards a Banking System

Another innovation, adopted by traders during the early part of the Middle Bronze Age (2200-1600 BCE), made large scale, inter-regional  physical movement of silver somewhat less necessary to sustain commerce. During this period enterprising Assyrian traders from southern Mesopotamia (modern Iraq) began establishing lucrative trade routes as far north as Anatolia in modern Turkey. These sophisticated merchants then set up a kind of proto-banking system by establishing the practice of exchanging “promissory notes” with fellow merchants or their agents in many distant cities throughout the Ancient Near East. These payment undertakings were recorded upon baked clay tablets, written in old Assyrian cuneiform script. They were extremely durable and many such contracts have survived to this day. The system was based  purely on trust and facilitated inter-regional trade by guaranteeing future settlements in appropriate weights of silver for goods already supplied.

These contractual debts could be offset against contra charges for goods sent off in the opposite direction – thus negating to a considerable extent the actual physical movement of bullion. This was a major plus factor as brigands often infested remote mountain passes along the trade routes. The Assyrian merchants had set up a fairly sophisticated system of issuing trade credits that put a lot more liquidity into the commercial environment and made everyone’s lives easier. However, for the contracting parties, the implied proviso was always that whenever deemed necessary, any transaction or debt settlement could always be settled in silver itself, with the aid of a set of scales. 

“Money can’t buy friends, but you can get a better class of enemy”.  ~ Spike Milligan

The Limitations of Payment in Bullion

By their very nature, some kinds of transactions always demanded direct payment in actual silver. However, payment in physical bullion was a rather unwieldy process, especially when having to make large numbers of separate payments within a limited time – such as in providing wages for mercenary troops, impatient to get home with their loot following a successful battle. This could be a vexing problem for any king, who would want to be rid as soon as possible of the burden of having an unruly host of armed men camped on his doorstep. Having served their purpose, he needed to get rid of them before they ate him out of house and home or burned down the palace in frustration at the slowness of having to wait while the bailiffs carefully weighed out each individual share.

 The solution was the invention of coinage.

“If I’m caught short, I just buy more money at the ATM”. ~ Anon Blonde

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