A Brief History of Money
A Brief History of Money is an essay by Jack Rusher, published here Tuesday, October 31, 2006. It is part of Science For Humanists.

In the beginning the market was without currency and there were lambs and wheat and barley upon the scales.

This essays leans heavily on Fritz Heichelheim’s An ancient economic history; from the palaeolithic age to the migrations of the Germanic, Slavic and Arabic nations, Karl Polanyi’s The Livelihood of Man, Morris Silver’s Economic Structures of the Ancient Near East, and various articles by I. J. Gelb in the Journal of Near Eastern Studies.

1. The Black Sea fossil record shows a switch from freshwater to saltwater life around 7,600 years ago, and evidence of human habitation has been found at the old lake’s edge — now 100 meters beneath the surface.

2. We have the petroleum industry to thank for extensive hydro-geological surveys of the area.

Waters rose the world over at the end of the last Ice Age, pushing the Mediterranean Sea over the Bosphorus into a massive freshwater lake that we now call the Black Sea1, and transforming a vast riverbed marsh into the Persian Gulf2. Neolithic populations from all over the Ancient Near East were displaced into warm, wet places that had been cold and dry, carrying with them harrowing tales of flood and salvation.

3. The word “Mesopotamia” is Greek for “between the rivers.”

4. Iraq’s “marsh arabs” lived this way at the confluence of the Tigris-Euphrates, building reed houses identical to ones pictured on 5,000 year old stone carvings, until the marsh ecosystem was destroyed in the aftermath of the first Gulf War (c. 1994).

5. The Sumerian word for these plains was “E-din,” which — by way of Akkadian — became the Hebrew “Eden” of the Bible. The Garden has since become a desert.

Some of these refugees settled in southern Iraq, between the Tigris and Euphrates3 rivers, in an area that was then a wet marshland4. They cultivated the dark soil and built dams, dikes and canals to tame the rivers. Nomadic herders grazed animals on the steppes to the east5, bringing livestock to trade for grain, and fisher-folk brought a fresh catch from the then near-by sea.

6. This struggle to preserve valuable things against the inexorable pressure of time continues today.

The places where herders, fishermen and farmers met were the first markets, where goods were traded by barter. There was, suddenly and for the first time, more than enough to go around. This abundance led to the creation of the mother of all savings accounts: pottery. Once there were pots in which to store agricultural goods, food science was born. Because agricultural productivity is seasonal but need is perennial, barley became beer, wheat became flour and then bread, milk became yogurt and then cheese6.

7. Artistic representation pre-dates these tokens. The key difference here is the use of a token to represent a specific thing, rather than as an example of an entire class of things. These tokens are the union between art and counting that eventually gave birth to writing. See: How Writing Came About, Denise Schmandt-Besserat. Or, for a quick introduction, this article.

It’s not hard to imagine how difficult it must have been to bring a large supply of agricultural goods (live sheep, ceramic urns full of grain, and so on) to market. This physical problem led to the creation of tiny clay tokens formed into shapes representing various commodities. These tokens were swapped at market to make exchanges that were later fulfilled with actual deliveries. This proto-money is the first recorded use of a material abstraction to represent a real object in communication7.

A small collection from the 8,000 or so trade tokens that have been found in Iraq, Iran and Syria. Photo: Denise Schmandt-Besserat (without permission).

One problem with these tokens was the ease with which they could be counterfeited. The solution was to certify a set of tokens by sealing them in a clay pot that had been impressed with each token and the producer’s personal sign. Over time it was realized that the tokens themselves were superfluous: the inventory and seal were enough. Clay inventory tablets replaced pots full of tokens, and numbers appeared when the convention changed from pressing a symbol for sheep into the clay ten times to pressing a symbol for the number ten followed by a symbol for sheep (a major leap in abstraction).

8. The Neolithic forerunner of the social insurance we see in modern democracies.

9. Egypt will be the subject of another essay.

Communities developed around marketplaces and farming collectives. One of the benefits of communal living was a shared granary into which all farmers contributed wheat and barley. If a farmer’s crop failed on a given year, he was still able to survive on a ration paid from the central granary, a kind of early risk-pooling8. Tribal headmen became grange-keepers who paid out rations and conducted ceremonial rituals to appease the gods. These communities eventually grew into cities that were larger than any collective living arrangement mankind had ever known, and the grange-keepers became the hereditary Royal Households of Priest Kings who ruled over the cities of Egypt9 and Mesopotamia for the following several thousand years.

The Limitations of Barter
10. The number of different clay tokens found in rural sites is limited to a few categories (animal, vegetable, labor), while the number in the cities climbed into the hundreds.

City life means a much larger diversity of goods and services. This is lovely for one’s standard of living, but it’s a problem for the barter system. Barter works like a currency exchange where each commodity has a different exchange rate relative to every other commodity. In the countryside, where there were only a few commodities, this was okay, but in the cities it became too hard to tell whether a transaction was a good deal10.

This exchange rate problem is compounded with the problem modern economists refer to as “the coincidence of wants,” which is a way of saying that for a trade to occur each person must have something the other wants, and must have it at the right time. This leads to economic transactions that look like a story from Aesop’s Fables: the butcher wants a loaf of bread, the baker wants some cheese, the cheesemonger wants some horseshoes, and so on.

11. (until everything is rated using a single commodity, it’s impossible to provide a uniform pricing metric).

The modern way of describing these negative properties is “they raise transaction costs,” which is a formal way of saying that they make doing business more expensive in time, headache and resources. The solution, one that has arisen everywhere in the world, is to pick a single commodity to use as a medium of exchange — a proxy for all other kinds of goods — and thus a unit of account by which to figure and compare prices11

A Babylonian tablet inscribed with the directions for brewing beer (c. 3100BCE). It is part of a series of tablets that account for an order of 134,813 liters of barley to be delivered to the brewery at the temple of Inanna in Uruk over the course of 37 months.

The Barley Standard
12. In case it’s not obvious, this meant that during hard times one could literally eat the family savings.

The early Mesopotamians used a weight of barley as their first currency. It seems important to point out to the modern reader, accustomed as she must be to the way modern currency works, that this money was different from the money of today in some very important ways. It was an actual edible commodity that could be used to make soup, bread and beer, for one thing12, and for another, it was prone to decay: pests ate it, it tended to rancidity if kept for too long, and so on.

13. Consider the staying power of a pure service (gone immediately), a loaf of bread (can be held for a couple of days), a pot of barley (a year or two), a suit of clothes (a few years), a bronze plow-blade (a decade or more), and, at the extreme end of the durability continuum, the land itself (seemingly eternal at the time).

This latter property of the currency was shared with most goods in the economy, all of which fell somewhere along a continuum of impermanence13. The impermanent nature of these goods is linked to the underlying ecosystem from which all value ultimately arises; everything that wasn’t made of sand (pottery) or metal (tools and jewelry) was the direct product of sunlight and bio-mass, and consequently subject to unavoidable near-term wear and decay.

The harmony between the nature of the goods in the market and the nature of the currency meant that — although incomes were far from equal — no one could get very rich because their money would lose its value within a couple of years. This storage problem was carefully studied by those with high incomes, particularly the Priest Kings who — though a small hereditary minority — received a tithe from every producer in the community. Their surplus income was so large that they were unable, even with the technologies of beer and cheese, to store all the commodities they received.

14. Literally “barley weight” in Akkadian; it was both a unit of currency and a unit of weight, just as the British Pound was originally a unit denominating a one pound mass of silver.

15. The modern currency of Israel is also called the shekel.

You probably won’t be surprised to learn that the idea of taking a smaller cut didn’t occur to the ruling class of ancient Mesopotamia. Instead, some time between 3,000BCE and 2,500BCE it was decided that temple taxes would only be accepted in the most expensive and durable commodity known at the time: silver. They chose silver for this purpose because, unlike barley, silver doesn’t spoil. These new silver weights, called shekels14, were the prototype for the other currencies of the Ancient Near East15.

A hematite weight used to measure one mina (60 shekels) worth of silver (c. 1300BCE).

Abstract Value
16. Interestingly, similar arm-band money was used in Africa until the 1940s.

17. Metal currency at least 2,000 years before Croessus of Lydia.

Silver’s practical value to the ancients was essentially nil, but — rather like the peacock’s tail — the ability to expend resources on adornments was an important status marker. Silver’s value was derived entirely from its uselessness and scarcity, which made it valuable for being valuable in much the same way that Paris Hilton is famous for being famous. As if to make the wealth-status connection as obvious as possible, the Sumerians — who never minted coins — pioneered Bronze Age bling in the form of spiral silver armbands16 in even multiples of the shekel17.

18. (though barley was still used as small change).

19. (that fulfill biological needs)

20. (that fulfill social wants)

Silver quickly became the primary currency18 of the rich, who could now “store value” indefinitely. We should pause here for a moment to make very clear the problem they were trying to solve and the nature of the solution. A small minority controlled such a large share of the society’s resources, so much more than they could consume, that they were forced to waste excess commodities, thus they sought to overcome the natural limitations of ecological productivity using a mixed metaphor in which short-lived organic commodities19 were “converted” into long-lived metallic ones20.

A Babylonian shekel coin minted much later under Persian rule (c. 300BCE).

Introducing: Usury
21. This, rather than expulsion from the Garden, should be called the Fall.

22. That is, the inelastic supply of tokens operated perversely relative to the unavoidably elastic supply of agricultural goods.

23. The Hebrews — Abraham was born in Ur — understood that monetary interest amounted to an act of aggression against the borrower. Consequently, Jews are forbidden from charging other Jews interest in no less than fourteen places in the Tanakh.

24. These remedies are well attested, but the historical record is thin enough that one may be tempted to reject a causal relationship between metallic currency, usury and fiscal collapse. There is, though, a better documented example from a later period below.

Whether the Priest Kings realized the full implications21 of their decision is lost to history. We do know that the Sumerian economy developed some now familiar problems: tokens became more desirable than the commodities they represented22, it became possible to capture a one-time economic advantage as a set of tokens and then use access to those tokens (“stored value,” which is to say “certificates of past productivity”) to extort goods from future producers, and, finally, usury arose23, which combined with a downturn in agricultural productivity during a period of climatic fluctuation to collapse the economy. By the time of the Code of Hammurabi the government had centralized price controls — setting rates of exchange between commodities and currency, including a fixed price for beer — and instituted periodic debt-clemency to return farmland lost over bad debts24.

25. Loans had traditionally been granted as seed crop or livestock, from which some portion of the first regeneration was given back to re-pay the loan. The Sumerian language used the same term for “interest” and “calf,” while the early Egyptian word for “interest” also meant “to give birth.” Because wealth was land, livestock and crops, the original financial metaphors were strongly ecological in character. Once metallic currency became the standard a distinction between “repayment in kind interest” and “monetized interest” (equivalent to the modern distinction between interest and usury) appeared.

26. My favorite demonstration of its inherent oddness is this: had Judas Iscariot invested his 30 pieces of silver at a compounded rate of 4% per annum, it would today be a mass of silver larger than the Earth.

Bad debts were an unforeseen consequence of storing value in inorganic currency. Loans were no longer repaid in kind through the natural reproduction of the thing lent25, and metal tokens neither grow when planted nor produce offspring when stored together. New financial abstractions also paved the way for such oddities as compound interest26.

27. The Greeks, unlike the Mesopotamians, didn’t adopt money (in the inorganic value store sense) until they minted coins (c. 525BCE, after Croesus).

Most modern economists would suggest that none of this is a problem, that a borrower should buy seed with his loan, cause the crop to multiply, sell the crop, and pay back the loan with the proceeds of that sale. Unfortunately, once the unit of exchange becomes a special indexical commodity whose supply is not related to the supply of the commodities it indexes, a grim cycle arises. This cycle was demonstrated in the well-documented events that followed the Attic states’ adoption of money27 and coins:

A Greek coin minted in Alexandria under Roman rule (c. 268CE).

“Before the introduction of coined money the peasant farmer borrowed commodities and repaid the loan in kind, […] after the introduction of coined money the situation became decidedly more difficult […] he must take a loan of money to purchase his necessary supplies at a time when money was cheap and commodities dear. When a year of plenty came and he undertook to repay the loan, commodities were cheap and money was dear.” — Introduction to Greek Legal Science, George M. Calhoun and Francis de Zulueta

The ramifications of this situation were exacerbated by the legal codes of ancient Greece, which allowed moneylenders to foreclose on property and — in extremis — force debtors into slavery. Wealth collected in the hands of a few parties who then used usurious lending practices to exploit and ultimately destroy the Greek middle class of free farmers.

28. The Greek word used was “Seisachtheia,” or “shaking off of burdens.”

Athens was saved by Solon, who “shook off28” all debt. He emancipated enslaved debtors, returned their lands, and even went so far as to buy back those who had been sold into foreign slavery. After these initial steps, he set floor prices for agricultural goods, placed upper limits on the acquisition of property, and re-minted the coins of the realm at lowered weights to increase the money supply. If any of this seems strikingly similar to the measures taken during the Great Depression under the advice of Lord Keynes, well, the resemblance isn’t just a coincidence of needs.

29. (i.e. a gradual decay of stored value)

In a very real sense modern economics is still suffering the effects of a 5,000 year old swindle. The modern wisdom that a small rate of inflation29 is part of a healthy economy comes down to the need to make our silver behave a little more like barley.

© 1972-2008 Jack Rusher, unless otherwise noted. All rights reserved.