Origins of Money

Discussion

Michael Hudson on the Public vs. private origins of money:

"How did early societies organize the exchange of crops for products–and most important, to pay taxes and debts? Was it simply a spontaneous world of individuals “trucking and bartering,” as Adam Smith put it? Prices no doubt would have varied radically as individuals had no basic reference to cost of production or degrees of need. What happened as some individuals became traders, taking what they produced (or other peoples’ products on consignment) to make a profit. If they traveled large distances, were caravans or ships needed–and the protection of large groups? Would such groups have been protected by their communities? Did supply and demand play a role? And most important, how did money emerge as a common denominator to set prices for what was traded–or paid in taxes and to settle debts?

A century after Adam Smith, the Austrian economist Anton Menger developed a fantasy about how and why ancient individuals may have preferred to hold their savings in the form of metals–mainly silver but also copper, bronze or gold. The advantage of metal was said to be that it did not spoil (in contrast to grain carried around in one’s pocket, for instance). It also was assumed to be of uniform quality. So pieces of metal money gradually became the medium by which other products came to be measured as they were bartered in exchange–in markets in which governments played no role at all!

The fact that this Austrian theory has been taught now for nearly a century and a half is an indication of how gullible economists are willing to accept a fantasy at odds with all historical records from everywhere in recorded world history. To start with, silver and other metals are not at all of uniform quality. Counterfeiting is age-old, but individualist theories ignore the role of fraud–and hence, the need for public authority to prevent it. That blind spot is why U.S. Federal Reserve Chairman Alan Greenspan was so unprepared to cope with the massive junk-mortgage bank crisis peaking in 2008. Wherever money is involved, fraud is omnipresent.

That’s what happens in unregulated markets–as we can see from today’s bank frauds, tax evasion and crime that pays very, very well. Without a strong government to protect society against fraud, lawbreaking, the use of force and exploitation, societies will polarize and become poorer. For obvious reasons the beneficiaries of these grabs seek to weaken regulatory power and the ability to prevent such grabitization.

To avoid monetary fraud, silver and subsequently gold coinage from Bronze Age Mesopotamia down through classical Greece and Rome was minted in temples to sanctify their standardized quality. That is why our word for money comes from Rome’s temple of Juno Moneta, where Rome’s coinage was struck. Thousands of years before bullion was coined, it was provided in metal strips, bracelets and other forms minted in temples, at standardized alloy proportions.

Purity of metals is not the only problem with using bullion money. The immediate problem that would have confronted anyone exchanging products for silver is how to weigh and measure what was being bought and sold–and also to pay taxes and debts. From Babylonia to the Bible we find denunciations against merchants using false weights and measures. Taxes involve a role of government, and in all archaic societies it was the temples that oversaw weights and measures as well as the purity of metallic metals. And the denomination of weights and measures indicate their origin in the public sector: fractions divided into 60ths in Mesopotamia, and 12ths in Rome.

Trade in basic essentials had standardized customary prices or payments to the palaces or temples. Taxes and debts were the most important used for money. That reflects the fact that “money” in the form of designated commodities was needed mainly to pay taxes or buy products from the palaces or temples and, at the end of the harvesting season, to pay debts to settle such purchases.

Today’s neoliberal economic mainstream has created a fairy tale about civilization existing without any regulatory oversight or productive role for government, and without any need to levy taxes to provide basic social services such as public construction or even service in the military. There is no need to prevent fraud, or violent seizure of property–or the forfeiture of land tenure rights to creditors as a result of debts. But as Balzac noted, most great family fortunes have been the result of some great theft, lost in the mists of time and legitimized over the centuries, as if it were all natural.

These blind spots are necessary to defend the idea of “free markets” controlled by the wealthy, above all by creditors. This is claimed to be for the best, and how society should be run. That is why today’s New Cold War is being fought by neoliberals against socialism–fought with violence, and by excluding the study of history from the academic economics curriculum and hence from the consciousness of the public at large. As Rosa Luxemburg put it, the fight is between socialism and barbarism.

Public vs. private origins of interest-bearing debt

"Interest rates were regulated and stable for many centuries on end. The key was ease of calculation: 10th, 12th or 60th.

Babylonian scribes were trained to calculate any rate of interest as a doubling time. Debts grew exponentially; but scribal students also were taught that herds of cattle and other material economic output tapered off in an S-curve. That is why compound interest was prohibited. It also was why it was necessary to cancel debts periodically.

If rulers had not cancelled debts, the ancient world’s takeoff would have prematurely suffered the kind of decline and fall that impoverished Rome’s citizenry and led to the decline and fall of its Republic–leaving a legal system of pro-creditor laws to shape subsequent Western civilization.

What makes Western civilization distinctly Western? Has it all been a detour?

Civilization could not have developed if a modern Milton Friedman or kindred Economics Nobel Prize winner had gone back in time and convinced Hammurabi or the Egyptian pharaoh to just let individuals act by themselves and let wealthy creditors reduce debtors to bondage–and then to use their labor as an army to overthrow the kings and take over government for themselves, creating a Roman-style oligarchy. That is what Byzantine families tried to do in the 9th and 10th centuries.

If the “free enterprise” boys had their way there would have been no temple coinage or oversight of weights and measures. Land would belong to whomever could grab, foreclose on or conquer it. Interest would have reflected whatever a wealthy merchant could force a needy cultivator to pay. But to economists, everything that occurs is a matter of “choice.” As if there is no outright need–to eat or to pay.

An economic Nobel Prize was awarded to Douglass North for claiming that economic progress today and indeed throughout all history has been based on the “security of contracts” and property rights. By this he means the priority of creditor claims to foreclose on the property of debtors. These are the property rights to create latifundia and reduce populations to debt peonage.

No archaic civilization could have survived for long by following this path. And Rome did not survive by instituting what has become the distinguishing feature of Western Civilization: giving control of government and its lawmaking to a wealthy creditor class monopolizing the land and property.

If an ancient society had done this, economic life would have been impoverished. Most of the population would have run away. Or else, the Thatcherite/Chicago School elite would have been overthrown. The wealthy families that sponsored this grabitization would have been exiled, as occurred in many Greek cities in the 7th and 6th centuries BC. Or, discontented populations would have walked out and/or threatened to defect to foreign troops promising to free the bondservants, cancel their debts and redistribute the land, as occurred with Rome’s Secessions of the Plebs in the 5th and 4th centuries BC.

So we are brought back to David Graeber’s point that the great reformers of Eurasia rose at the same time that economies were becoming monetized and increasingly privatized–an epoch in which wealthy families were increasing their influence over how city-states were run. Not only the great religious reformers but the leading Greek philosophers, poets and dramatists explained how wealth is addictive, and leads to hubris that leads them to seek wealth in ways that injure others.

Looking over the sweep of ancient history, we can see that the main objective of rulers from Babylonia to South Asia and East Asia was to prevent a mercantile and creditor oligarchy from emerging and concentrating ownership of land in their own hands. Their implicit business plan was to reduce the population at large to clientage, debt bondage and serfdom.

That is what occurred in the West, in Rome. And we are still living in the aftermath. Throughout the West today, our legal system remains pro-creditor, not in favor of the indebted population at large. That is why personal debts, corporate debts, public debts and the international debts of Global South countries have mounted up to crisis conditions threatening to lock economies into a prolonged debt deflation and depression.

It was to protest this that David helped organize Occupy Wall Street. It is obvious that we are dealing not only with an increasingly aggressive financial sector, but that it has created a false history, a false consciousness designed to deter revolt by claiming that There Is No Alternative (TINA)."

(https://mronline.org/2022/07/13/from-junk-economics-to-a-false-view-of-history/)