The Origin of Money 3 – Two Paths to Money

1. Class and Religion

As the very first proto-states began to form in the great alluvial river valleys of the world some time around 8000 years ago, social relations were profoundly transformed. The switch from shifting cultivation to permanent holdings must have called for some sort of land distribution method. The resulting increase in population density created the need for some sort of authority which could allocate resources which were now becoming scarce—things like land and water. New and specialized tasks were called for, from creating bricks, timber and plaster for now-permanent dwellings, to creating storage vessels for grain (granaries, pottery), to digging drainage ditches, irrigation channels and water wells for cereal cultivation (as well as the need to manage all these activities).

Evidence indicates that at this time, class stratification emerged. Increasingly elaborate burials signify that some individuals had gained a measure of control over surplus resources. It is this development which is key to the development of money, not market transactions.

Egyptologist John Henry argues that the origin of money is intrinsically bound up with the transformation from egalitarian tribal societies to class-based societies. It is the ability of one class to impose non-reciprocal obligations on another, he argues, that is the basis of money, not voluntary self-interested transactions among equals. In other words, “…the rise of class society and inequality took place alongside the emergence of money, whereby money played a key role in establishing, maintaining and exacerbating inequality and class division in societies” [1]

Henry points out that traditional societies are egalitarian and have no need for money. They practice the “rule of hospitality” such that everyone is assured access to basic subsistence. Critical resources are owned and managed collectively. Everyone must contribute to the survival of the collective, but such obligations are reciprocal and not top-down. As the tribes made political decisions on a consensus basis, there was no way for one group to impose its will on the majority and gain control over all the surplus resources.

He argues that the uneven nature of creditor-debtor relationships would have precluded money from emerging under such conditions, since money presupposes a credit/debt relationship, and debtors are under one-way obligations to creditors (although this is not entirely correct–as we have seen, feasting is often used to create such unequal arrangements, albeit without formalized “money”).

In this society, there could be no debt. For every debtor there must be a creditor, and such a relationship is one of inequality with creditors having economic power over debtors. Such an arrangement runs counter to the rule of hospitality, violating the right of some – debtors – to subsistence. True, tribal members were placed under various obligations – they must contribute to production, provide for the well-being of their members, etc. – and debt is an obligation. But, such obligations were internal to the collective itself and of a reciprocal nature: all had obligations to all. There was no arrangement in which some would owe obligations to others in a non-egalitarian relationship [2]

Evidence indicates increasing cultural unification among villages along the Nile during the Naqada (pre-dynastic) period. Cereal farming practices spread southward from the delta during Naqada IA-IIB, and southern pottery depicts images of paddled boats which likely unified north and south. During Naqada IIC-D, we see a “cultural unification of Egypt” as funerary practices spread as well. More elaborate burial goods and segregated cemeteries indicate the presence of hierarchy at this time. During Naqada IIIA-B, it is thought that rule by hereditary kings was established (Dynasty 0), and by Naqada IIIC the first dynasty was founded, ushering in “official” Egyptian history. As Henry sums up: “Up to about 4400 BC, the evidence is that Egyptian populations lived in egalitarian, tribal arrangements. By the period 3200-3000, tribal society had been transformed into class society, and over the next 500 years the class structures became solidified around a semi-divine kingship.”

As class stratification emerged, reciprocal tribal obligations would have gradually been transformed into non-reciprocal obligations levied on the majority by a minority–a managerial class who controlled and managed surplus economic production. But how could a small subgroup gain control over the resources produced by the whole tribe? Such a transformation would not have been simply acquiesced to by the majority. As Henry states, “A segment of an egalitarian society cannot (and would not) simply set itself up as a separate and unequal class de novathe practice of inequality…would have to develop as a consequence of historical accident rather than conscious plan…

Henry’s hypothesizes that taxes began when reciprocal tribal levies became concentrated in the hands of administrator elites operating out of the Pharaoh’s household who were tasked with creation and maintenance of the hydraulic system. Through their role as managers of the Nile river, the hydraulic engineers would come to play an increasingly important role in the expansion of the Egyptian economy.

The need for material support for their efforts gave rise to levies to support these activities. While all members of society would benefit from such efforts, the hydraulic engineers would benefit more. Even a small degree of wealth differential would add up over time. At the same time, the engineers would have also garnered control over the trade in the goods moving up and down the Nile. Henry writes:

Given the traditional arrangements of tribal society, it is probable that members of a particular clan (or kinship group) were designated as hydraulic engineers. Such a group would organize the labour which was rotated out of other clans to construct the dykes, levees, and canals. They would also be in charge of the distribution of food, clothing, tools, etc. produced in the tribal villages and regularly sent to wherever the hydraulic system was being worked. And, they would gradually organize the increasingly regularized trade relations that the expansion of the hydraulic system required as the engineers would have the requisite knowledge of those requirements. This would also place them in the position of organizing the goods that served as exportables. In other words, these full-time engineers learned administrative skills beyond those required in the small communities of which tribal society consisted.

…As full-time specialists, they would develop skills and, in particular, knowledge that was not shared by all members of the community. And, as these populations became increasingly dependent on agriculture, they also become increasingly dependent on the specialized knowledge of the engineers…They were now full-time specialists who controlled a significant flow of goods and labour and upon whom the majority of the population were dependent. The old collective rights and obligations of tribal society were being abridged and one group – the majority – was increasingly obligated to another. Inequality was growing and now becoming marked…

As this process unfolded, the appearance of tribal society remained intact, while the substance was transformed.This prevented rival institutions from forming.

Egyptian society was traditionally organized on the basis of phyles. It is thought that these originated in prehistoric times as “totemic clans.” Members of various clans would rotate in and out of service in the king’s household. Increasingly, the king’s administrators usurped the roles formerly played by clan leaders:

The temple staff was organized into groups for which the conventional modern term is phyle (a Greek term meaning company, tribe). This was the common form of temple organization, with five phyles in the Old Kingdom, each one subdivided into two divisions, which apparently worked at different times. Each subdivision, of around twenty men, served for only one month in ten.

Presumably for the extended leave periods they reverted to agricultural or other work in their villages, so that the undoubted benefits of temple service—payments as well as prestige—were widely spread. Whatever ancient reasoning lay behind the system, the practical consequence was a sharing out of jobs by the state. The number of employees required was multiplied by many times, hugely increasing the numbers of people receiving partial support from the state.

Thus, it was a transformation of existing structures, rather than the creation of new ones, that ushered in class society. The same process took place roughly at the same time in Mesopotamia, where the household model remained intact while becoming “institutionalized:”

Johannes Renger (1995) succinctly states: “The records, both written and archaeological, indicate that large institutional households decisively determined the social and economic reality in southern Mesopotamia, i.e., Babylonia, at least since the latter part of the fourth and the beginning of the third millennium.” Kinship was neither marginalized nor replaced by a meritocracy of individualism, rather, an increasing managerial bureaucracy emerged that was controlled by kin-related individuals. Written records and archaeology provide evidence for the existence of large institutional households (oikoi) by the end of the fourth millennium. These institutional households were self-sustaining and autarchic economic units. The household (oikos) constituted the center of the productive economic activities we now handle through the market…[4]

The interdependence of villages up and down the river (and across the canal system in Mesopotamia) would have called for the engineers to apply their skills in a broader context than that of a single village. They would have formed a supra-regional authority to manage the entire watershed, since the agricultural activities one village affected all the others downstream. This would have expanded their reach beyond that of a single village, and far beyond that of the simple territorial clan leaders:

During years of low inundation, one village taking too much of the available water would endanger the production process of villages downstream. During periods of high inundation, failure to attend to needed repairs to the levees in one region would obviously affect not only that area but the whole valley beyond the breach. We also know that in this period, there was a significant shift in the ecology of this region resulting in greater aridity, thus a reduced water flow. Such a development would promote the need for control superseding any particular tribe’s needs or abilities.

Thus, the engineer-administrators, originally based in one tribal organization and practising egalitarian relations with other members of their tribe, would now be called upon to use their knowledge and skills to administer an extended physical area that would include any number of tribes. That is, the engineers increasingly saw themselves as independent of any particular tribe and were now responsible for the well-being of a large population, independent of tribal status…

To keep resources flowing in their direction, the old reciprocal back-and-forth tribal obligations had to be transformed into one-way, non-reciprocal ones. Henry speculates that this was accomplished by religious ideology. The hydraulic engineers became a full-time priesthood. “The older tribal obligations to provide the resources to construct and maintain the hydraulic system were now converted – in part – to maintain a privileged section of the population that no longer functioned, except in a ceremonial fashion, as specialized labour in the production process.”

Tribal societies practice totemic magic; where communication with long-deceased ancestors by the living is used to gain control over the invisible world underlying complex natural phenomena, such as the change of seasons and movements of stars, which were not understood by pre-scientific populations.

Totemism became supplanted by a specialized priesthood practicing “magic” which could intercede with the gods on behalf of humanity. The old tribal totems were converted to a pantheon of animal-headed gods(Horus, Thoth, Anubis, The pharaoh became a divine entity who could intercede with the gods on behalf of humanity. An elaborate funerary architecture and death cult was established to justify these practices. Cosmological symbolism, reaching back to the herding origin of Egyptian culture, was appropriated to create a rich and complex mythology centered around the afterlife. The temples played an increasing role in both the spiritual and also the material management of Egyptian culture. But then again, magic has always really been about manipulating people’s psychology rather than any so-called invisible forces:

“The king had been chosen and approved by the gods and after his death he retired into their company. Contact with the gods, achieved through ritual, was his prerogative, although for practical purposes the more mundane elements were delegated to priests. For the people of Egypt, their king was a guarantor of the continued orderly running of their world: the regular change of seasons, the return of the annual inundation of the Nile, and the predictable movements of the heavenly bodies, but also safety from the threatening forces of nature as well as enemies outside Egypt’s borders.”


Essentially, the spirit world was converted to one of gods, and the control of nature, previously seen as a generally sympathetic force, was now in the hands of the priests. Nature itself became hostile and its forces, controlled by gods, required pacification through offerings. The king -the ‘one true priest’ – and the priests placed themselves as the central unifying force around which continued economic success depended. In so doing, they could maintain the flow of resources that provided their enormously high levels of conspicuous consumption and wasteful expenditures that certified their status as envoys to the natural world.

This encoding of celestial movements in the very earliest monoliths indicates that studying the movements of the stars, planets, sun and moon was associated with management of mass labor and religious concepts from the start. This association can be seen encoded in the form of the earliest cities. Every major priesthood in both the Old world and the New was obsessed with observing the heavens. The bones found with calendrical markings indicate that this probably dated back to the Ice Age with certain “sky chiefs” or shamans.

This ability to mark time and track the movements of the heavens was probably just as responsible for the establishment of the priesthood as was hydraulic engineering, as Carroll Quigley  observes:

…we might infer that, at some remote date, some unsung genius or, better, some observant family, saw a connection between the advent of the flood and the movements of the sun–two events that had not previously seemed connected. This individual or family noted that the rising sun appeared at a slightly different point on the horizon each morning, finally reaching a limit where it hesitated for a few days before it began to return…Thus was born a rudimentary idea of the solar year, the full duration of the sun’s movement back to its starting point. With this information the observer was able to estimate roughly the day on which the flood would arrive each year. This calculation the discoverers kept secret, for their own profit, using the knowledge to work on the fears and superstitions of their neighbors, trying to convince others that they possessed magical powers enabling them to foretell the arrival of the flood, or even the power to make it arrive.

The original discoverers of this information could hardly have told the arrival of the flood within a span of time much less than ten days. However, the fear engendered by the flood was so great, increased by the realization that the crops would fail if it did not arrive, that some, at least, accepted the discoverers’ claims and yielded to their demands for tribute. The discoverers probably offered to reveal the time of the flood in advance to those who would contribute a share of their crops, or perhaps they even threatened to bring the flood or to keep it away if they failed to obtain promises of tithes from the crops of their neighbors. However skeptical these neighbors might be of such claims the first year, no more than one lucky forecast was needed for most of them to become willing givers…The ignorance of the majority made it easy for the possessors of this specialized knowledge to use it as proof that they had supernatural powers.

Moreover, it was not necessary to convince a majority or even many of their neighbors. If any small number contributed, a surplus would accumulate which could be used, in the form of flood protection embankments or irrigation ditches, to provide very concrete evidence that it was worthwhile to belong to the new organization. Thus came into existence the central institution of ancient Mesopotamia–the Sumerian priesthood.

This priesthood became a closed group, able to control enormous wealth and incomes, and concentrated very largely within the study of solar and astronomical periodicities on which their influence was originally based. With the surplus thus created, the priesthood was able to command human labor in large amounts and to direct this labor from the simple tillage of the peasant peoples to the diversified and specialized activities that constitute civilized living. Above all, this centralized direction provided the system of flood control and irrigation on which all subsequent progress was founded. Similarly, these priest-controlled surpluses provided the capital for the many inventions of the age of expansion of Mesopotamian civilization. [5]

Mass labor was channeled to building the elaborate funerary architecture and temples of the Egyptian state religion. In the days before mass media, the prevailing cultural ideology had to be encoded and reinforced by brick and stone. This labor was also organized by phyle. The priestly caste, rather than the tribal leaders, were now perforce the ruling class:

Under the new social organization, tribal obligations were converted into levies (or taxes, if one views this term broadly enough). The economic unit taxed was not the individual but the village. As well, the king and priests did not arbitrarily assign a tax level on the village, but tax assessors and collectors (scribes) met with the village chief who would assemble the village council to negotiate the tax. This appears to have been done on a biennial basis known as ‘counting of cattle’, a census that also served as the dating for the various reigns of the king. Should a village renege on its obligation (default), the chief responsible for the collection of taxes could be flogged by the scribes.

Note that such a punishment makes the chief responsible to the priests rather than to the clan, further eroding the substance of tribal relations. Supervising all the local or regional scribes, and assuring both competence and honesty in this process, was a vizier who exercised central authority in the name of the king.

The central authority used their control over society’s resources to establish a redistributive economy, run through pharaoh’s household. The redistributive economy reinforced the need for levies-cum-taxes from the general population, which were channeled through the Pharaoh’s household and back through all strata of the Egyptian economy:

Tribal reciprocity, though not totally abrogated, was no longer the universal standard among the Egyptian populations, and was replaced by an economy of limited redistribution...while the substance of tribal society was increasingly gutted, the emerging class had to maintain the forms of that organization. This was necessary in order to present the veneer that nothing fundamental had changed when, in fact, everything of substance had been altered…

The economic surplus collected in the form of taxes was directed toward the priests who then redistributed some portion through the various levels of the bureaucracy, the temple artisans, and the workers who laboured on the various religious and hydraulic projects. Hence, Egyptian society (along with others of this type) can be labelled an economy based on ‘redistribution’.

However, it is important not to misunderstand the nature of this term. Such economies did not engage in full redistribution as it would defeat the whole purpose of such an economy if all production were to be first directed to the centre, then flow back through all segments of society in some elaborate redistribution system. Not only would such a system be markedly inefficient, but what would be the point?

Rather, only a portion of the economic surplus, produced by the majority of the population, would flow to the centre, and this share of output would then be apportioned among the minority segments of society as stated above. The priests, of course, would claim the lion’s share.

Simple redistribution would not be enough to secure coercive power, however. In that case, you would be just an intermediary, collecting everything and giving it away. Instead, many of the resources thus collected would be channeled into image building activities: construction projects, hiring specialized craftsmen, acquiring a retinue of retainers and advisors, engaging in overseas trading missions, infrastructure improvements, military campaigns, religious rituals, and other such activities. It is through these activities that redistributive economies, made possible through taxation, became centralized institutions of power cemented in the hands of a hereditary elite.

As long as a chief merely returns everything he has been handed, he gains nothing in wealth or power. Only when he begins to keep a large part of it, sharing it with his retainers and supporters but not beyond that, does power begin to augment…the power of a chief to appropriate and retain food does not flow automatically from his right to collect and redistribute it. Villagers freely allow a chief to equalize each family’s share of meat or crops through redistribution because they benefit from it. But they will not willingly suffer the same chief to keep the lion’s share of food for himself. Before doing this, he must acquire additional power, and that power must come from another source.

The word “redistribution” is often used very loosely. Whenever the word is applied in describing the activity of a chief we should ask two questions (1) “What percentage of the food or goods taken in by the chief is actually redistributed?” (2) “To what percentage of the population are they redistributed?” For chiefly disbursement to be genuine redistribution, both percentages should be high. If the percentages are small, what we have is not real redistribution at all, but something more akin to taxation. And it is in taxation that the sinews of government really lie. When a chief can compel the population to turn food and goods over to him, which he can then apply at will, he is at last manifesting power.

By the selective distribution of food, goods, booty, women and the like the chief rewards those who have rendered him service. Thus he builds up a core of officials, warriors, henchmen, retainers, and the like who will be personally loyal to him and through whom he can issue orders and be obeyed. In short, it is through shrewd and self-interested disbursement of taxes that the administrative machinery of the chiefdom (and the state) is built up. However, the chief who does this is no longer a redistributor, he is an appropriator and a concentrator… Summarizing his findings for chiefdoms generally, Steponaitis noted: “What formally appears to be a redistribution in complex chiefdoms is functionally more akin to the collection of tribute than the institutionalized sharing of surplus.” [6]

This process probably came about through military conquest.

By the fourth millennium BC, three proto-states emerged along the Nile River: This, Naqada, and Heirakonopolis, each centered on a capital city. These shared a common culture, but competed politically. These polities came to be dominated by Heirakonoplis (Nekhen), which went on to unify Upper (southern) Egypt. Upper Egypt conquered the chiefdoms of Lower Egypt (the Nile Delta), creating the Egyptian state and the first dynasty, as depicted on the Narmer Palette. Depictions of martial conquest remained in royal iconography through Egyptian history.

A military needs supplies–food, weapons, and so forth, to wage war. In cases of attack by outsiders, everyone is expected to contribute to common defense. Military operations would also have required levies from the general population. Armies need to be provisioned and fed, and this can only be done with forward planning and large storehouses. But it’s not fair to just requisition supplies from producers who make things directly related to military use. It would have violated egalitarian norms of shared sacrifice in wartime. The answer for this situation was to raise a general levy across the population to support military efforts, even from who produced items not directly related to military use like coppersmiths and chariot-makers.

These contributions would have been paid to those who could organize the surplus in collective defense of the territory, mobilize labor in the form of troops, and engage in successful territorial expansion. The resources of the conquered territories would then flow into the same bureaucratic structure. This process continued apace, as the villages along the Nile became assimilated into a single culture under the reign of a single ruler.

No state is known to have arisen directly from the fusion of autonomous villages. all seem to have been formed through the coalescing of groups already aggregated into supravillage units. Such units were, by my definition, chiefdoms. Moreover, because the aggregation of villages occurs only through war, or the threat of it, any theory of the origin of chiefdoms that foregoes this mechanism is severely handicapped…Once chiefdoms begin to form in a region, the process proceeds rapidly. The military advantage that size alone confers on a society means that even a minimal chiefdom will have a significant edge over its neighbors if they are still independent villages. as a result, it will not be long before autonomous villages as such will cease to exist. Either they will be defeated by and incorporated into one of the existing chiefdoms or they will join forces with other such villages in a defensive alliance, which will itself tend to become a chiefdom. [7]

Eventually, foreigners would become subjugated as well. When populations were overrun, they became subject populations where wealth was regularly extracted from them in the form of tribute. Tribute is essentially an extortion payment from a militarily weak population to a stronger one in order to leave them alone. To collect this tribute, a top-down political apparatus was established which funneled resources from the periphery to a core.

In addition to the portion of the surplus collected now as taxes, the king also collected royal gifts as a form of tribute from foreign populations. As the goods that formed this income could be in the same form as the income that flowed from the internal population, but was the property of the king proper, it had to be kept apart from the internally generated income…

The later Haxamanishya-Akhaemenid-dynasty Persian emperors of 550 to 330 BC, who ended up controlling much of the Near East, perfected this technique. Rather than killing or enslaving defeated populations, they kept them alive and allowed them to live in peace under the rule and laws of the imperial power. In exchange, they set up a tax system which funneled a portion of their economic output into the imperial treasuries. They became, in essence, farmers who kept peasants instead of livestock. This goes to prove Stanley Diamond’s observation that “Civilization originates in conquest abroad and repression at home.” [8]

The necessity of managing these diverse resource flows called for the creation of a bureaucratic structure. Taxes and tribute were assessed in a unit of account, usually a reference to a certain set measure of weight. It was this standard, that is the origin of money, not some sort of intermediate good chosen to reduce barter costs. On this point, the evidence is unambiguous:

At some early point in the Old Kingdom, the growing complexities of the new economic arrangements required the introduction of a unit of account in which taxes and their payment could be reckoned and the various accounts in the treasury could be kept separate and maintained. This unit was the deben (and its fractional denomination, the shdt- 1/12 of a deben)…The fact that the deben bore no relation to any specific object, but referred to an arbitrary unit of weight only, is a certain indication that Egyptian money was decidedly not based on some ‘intrinsic value.’…In other words, money does not originate as a medium of exchange but as a unit of account (and something of a store of value with regard to the king’s treasury), where the measure of value is arbitrarily specified by decree, and goods and services of various qualities and quantities can then be assigned a monetary value to allow a reasonable form of bookkeeping to keep track of tax obligations and payments and to maintain the separate accounts of the king.

It should also be noted that the deben did not serve as means of payment (as with modern money), but did function as the means (or measure) through which payment was made….money as simply a non-tangible abstract unit in which obligations are created and discharged, while it may appear obtuse to a modern economist, should not be all that difficult to comprehend….

2. Tribal obligations and Weregild

A second route to money stems from ancient penal systems set up by tribal societies.

In tribal societies, when a crime is committed, the transgressor is required to make restitution payments to the victim and/or the victim’s family/clan/tribe. The transgressor is considered to be “indebted” or “liable” to the victim(s) until such payment is made. In many languages, the word for “debt” is analogous to the words designating “sin” or “transgression.” Also, the verb “to pay” has its roots in words meaning “to pacify, “to appease” or “to satisfy.” This indebtedness continues until such time as restitution is paid to the victim and balance is restored.

Many Indo-European cultures practice the notion of “blood-wealth,” or Weregild. The term derives from wair meaning man, and gildan meaning “to pay” or “to render.” These were fines assessed by tribal councils and public assemblies and paid directly to the victims or their families in order to prevent blood feuds from escalating out of control. “A long list fines for each possible transgression was developed, and a designated “rememberer” would be responsible for passing it down to the next generation. Note that each fine was levied in terms of a particular good that was both useful to the victim and more-or-less easily obtained by the perpetrator.”

Often, violations were associated with a specific fine based on the severity of the offense. The Code of Hammurabi and the Salic law both specified very specific compensation payments for various offenses (such as gouging out an eye, or cutting off a nose, or manslaughter—must have been fun times back then!). In tribal societies, these could be assessed in terms of cattle, grain, goats, chickens, and even (in ancient Ireland, for example) slave girls!

These payments were originally assessed on a case-by-case basis rather than a regular unit of account. However, over time the idea of weregild gave rise to the idea of general monetary debts owed to authorities, including fees, tithes, taxes, and tribute. “The key innovation, then, lay in the transformation of what had been the transgressor’s debt to the victim to a universal “debt” or tax obligation imposed by and payable to the authority.”

It is almost certain that weregild fines were gradually converted to payments made to an authority. This could not occur in an egalitarian tribal society, but had to await the rise of some sort of ruling class. As Henry argues for the case of Egypt, the earliest ruling classes were probably religious officials, who demanded tithes (ostensibly, to keep the gods happy). Alternatively, conquerors require payments of tribute by a subject population. Tithes and tribute thus came to replace weregild fines, and fines for “transgressions against society”, paid to the rightful ruler, could be levied for almost any conceivable activity. Eventually, taxes would replace most fees, fines and tribute.

Once debts are paid to a central authority, it is unwieldy to juggle all the various types of objects that can be paid. “When all payments are made to the single authority…this wergild sort of system becomes cumbersome. Unless well-developed markets exist, those with liabilities denominated in specific goods or services could find it difficult to make such payments. Or, the authority could find itself blessed with an overabundance of one type of good while short of others.” [9]

For example, tribal payments in ancient Ireland were made in slave girls called kumals. But over time, this became cumbersome, and kumals became simply an abstract unit of account:

Probably the second century a.d. saw the kumal transformed into an abstract unit of account. The laws under King Fegus, king of Uldah, required a blood money payment of “seven kumals of silver” and “seven kumals of land” for the murder of anyone under the king’s protection. These laws clearly show that land and silver were mediums of exchange, and kumals were only a unit of account. These laws were set forth in two legal texts, the Senchus Mor and the Book of Aicill, both of which contained a table legally sanctioning the kumal standard. According to this table:

8 wheat-grains = 1 pinginn of silver
3 pinginns = 1 screpall
3 screpalls = 1 sheep
4 sheep = 1 heifer
6 heifers = 1 cow
3 cows = 1 kumal

The example of slave-girl money in Ireland brings to the forefront four separate functions of money. Money serves as a medium of exchange, a store of wealth, a unit of account or measure of value, and a standard of deferred payment. The slave-girl money evolved into a unit of account only, while the other roles of money were filled by various commodities, land, and precious metals.

Slave Currency of Ancient Ireland (Encyclopedia of Money)

Once again, money arises out of the ability to extinguish a debt, in this case one’s “debt to society”:

According to this view, money is essentially an instrument that denominates and extinguishes social debt obligation. It first quantifies debt obligation between individuals. For example, Joshua has conducted wrongdoing to Henry; hence the public authority determines that Joshua owes to Henry one cattle. In this case, that cattle is the “money” that effectively extinguishes Joshua’s liability/debt to Henry. …Money of account might be a cattle between Joshua and Henry, and then ten watermelons between Helen and Linda, etc.

However, when there emerges the need to denominate debt obligation between individuals and the “society”/central authority in various forms (such as fines, fees, taxes, etc.), a standard unit of account for money was needed to serve as the standard measure of value. By choosing a unit of account as the only means for individuals to extinguish his/her liabilities to themselves, the central authorities “write the dictionary” (Keynes, 1930). Hence, the power of the central authority (state, temple, tribe, etc.) to impose a debt liability (fines, fees, taxes, etc.) on its population gives the former the unique right to choose a particular unit of account as the only means of payment to the central authority.

3. Conclusion

Although these paths to money differ, they are fundamentally similar and provide a historically supported and logically consistent account of the transformation from primitive money to more modern forms.

In both of these scenarios, payments are made to some sort of institutional authority tasked with social maintenance, whether adjudication of disputes, execution of justice, military operations, communal redistribution and welfare, or maintenance of critical infrastructure. As Wray states, “The unit of account is the numeraire in which credits and debts are measured.” Only when this “unit of account” is established can markets form. Thus, both money and markets are creations of the state and are rooted in social hierarchy and inequality.

Two further critical inventions are required to create such a numeraire: accounting and measurement. We’ll discuss how those innovations came about next time.

[1] Semenova and Wray. The Rise of Money and Class Society: The Contributions of John F. Henry (WP 832) (2)

[2] John Henry: The Social Origins of Money: The Case of Egypt. In Credit and State Theories of Money: The Contributions of Alfred Mitchell-Innes. Randall Wray and Edward Elgar, editors. Subsequent passages from Henry are also taken from this work unless noted otherwise.

[3] Barry Kemp: Egypt: Anatomy of a Civilization, pp. 166-168

[4] C.C. Lamberg-Karlovsky: Households, Land tenure, and Communication Systems in the 6th-4th Millennia of Greater Mesopotamia. In Urbanization and Land Ownership in the Ancient Near East. Michael Hudson and Baruch Levine, editors.

[5] Carroll Quigley: The Evolution of Civilizations, pp. 211-213

[6] The Transition to Statehood in the New World. edited by Grant D. Jones, Robert R. Kautz, Cambridge University Press

[7] ibid.

[8] Stanley Diamond: In Search of the Primitive: A Critique of Civilization

[9] L. Randall Wray: The Credit Money and State Money Approaches (Working Paper 32)

The Origin of Money – 2

1. Tally sticks – The First Credits.

A number of notched bones have survived from the Ice Age. The notches and marks made on these bones were clearly made by humans for some sort of intentional purpose.

The interpretation of these bones is, or course, highly speculative. However, a convincing argument has been put forward by studying the patterns inscribed on them that these bones were used as a form of primitive record-keeping. The patterns on them indicate a careful tracking of the lunar waxing and waning as a way of marking off time. Lunar cycles would have been used to track the migrations of herds, the reproductive and moulting patterns of animals, the growth of plants, and even the menstrual cycles of fertile females. In this latter role, they may be related to the enigmatic so-called “Venus figurines,” found throughout Ice-Age Europe, which appear to be pregnant females.

These calendrical rhythms were also used to order the ritual life of Ice Age peoples, indicating that even at this distant phase of history, humans were extremely social and not just isolated bands roaming peripatetically across the landscape:

Calendrical rhythms determined the times when sparse populations came together in the seasonal gatherings that were the occasions for exchange – of family members as well as gifts. These ritual sites typically were on rivers, often near distinguishing natural features such as caves. The most famous sites were orientated to the rising or setting of the sun at the four major points of the year, the solstices and equinoxes….

After the Ice Age (Michael Hudson)

The Lembobo bone is a fibula of a baboon with artificial notches on it which was found in a cave in Swaziland which dates from the Paleolithic period-about 45,000 years ago. The notches are thought to represent some sort of calendrical counting system, probably based on the phases of the moon. The Ishango bone is another baboon fibula bone from about 20,000 years ago bearing similar markings. This is thought to also have a possible lunar calendrical function, but it has also been speculated that it may represent a tally stick. The Wolf Bone, found in Europe and dated from about 30,000 years ago, is another example.

These tally sticks may have been single tally, in which an object is notched as a mnemonic device. Examples include the messenger sticks of the Inuit people, and the knotted strings used many native American tribes. In Peru, these evolved into the khipu: the bundles of strings used to manage the inventory of the Inka redistributive economy.

The other tally stick “technology” was the split tally, in which both parties to a transaction retained a copy of the transaction record as a means of verification. One half would go to the debtor, and the other half to the creditor. Some unique item which could be split apart was chosen, such as stick or a bone. The natural variability of the split and of the material itself prevented forgery. The ancient Chinese used bamboo sticks about the size of two chopsticks for this purpose.

In Medieval England, tally sticks were made of hazelwood harvested from the banks of the Thames near parliament. Such wood had a distinct feel and grain to prevent counterfeiting. Each tally stick would be squared off and marked–V-shaped notches would represent pounds, broad grooves would indicate shillings, and sharp notches would indicate pence. A debtor’s name and a short description of the transaction would be inscribed, and the stick would be split vertically in two down the center. The debtor would retain one piece, called the “foil,” while the creditor would receive the other piece, called the “stock.”

The portion of the stick retained by the creditor retained the entirety of the original base where the stick was cut from the tree or branch to prevent counterfeiting. If marks were altered by one party, the discrepancy would be obvious to the other, making sure the transaction was secure. In fact, the term “stock” used in tallies is the origin of our term today:

Curiously, our modern use of the term “stock” to represent a share in a corporation may derive from the stock and foil technology. Almost certainly the British term for fixed income obligations–stocks–comes directly from the use of stocks and foils up to the early nineteenth century to record loans to the Bank of England. For generations, to have “stock” in the Bank of England literally meant that one held a creditor’s wooden stock, and dividends were presumably collected by presentation of the stock at the bank.

The Origins of Value, p. 110

The tally system survived in England and was a major means for raising funds by the Exchequer for at least six centuries. Often times the credit portion might be transferred to someone else as a form of “payment.” That is tally sticks circulated as money–transferable credit. If the king needed money, he would “raise a tally” by issuing tally sticks addressed to the local tax collector in place of cash. These sticks would then circulate: their value came from the fact that they could be used to pay the tax obligation. The sticks would be presented at the time of tax collection (“I already paid”). In this way, they circulated as bills of exchange.

Geoffrey Gardiner imagines what such a system might look like in a pre-literate society:

Let us assume that the huntsman is in need of a supply of arrows, but until he can hunt he has nothing to give in exchange. So he promises the fletcher ten haunches of venison in exchange for a supply of arrows. In modern terminology he is asking for ‘trade credit.’ In evidence of his promise he notches ten bones and gives them to the fletcher. These are his ‘markers.’ The fletcher needs wood, so he asks the woodsman for trade credit, promising haunches of venison when the hunter has been successful. He could hand over some of the markers of the huntsman as evidence of his promise. The various deals might be notified to the headman, who, we may confidently assume, will also require a reward of venison in return for a promise to enforce the deals. The huntsman gets his arrows, and goes off to the hunt. Having been successful, he pays off his debts to the holders of his markers. The chief gets his reward too.

Wray, Credit and State Theory of Money, p. 119

In reality, the above scenario is not very likely. We know from anthropological studies that In small-scale tribal societies, cooperation is given open-handedly, without the need to have some sort of formal record of who owes what to whom.

But perhaps the notched bones above indicate some sort of dealing with outsiders, perhaps from another tribe. We know that rituals took place at certain specified portions of the year, and during these rituals, exchanges took place. In fact, we know that ritual reciprocal exchange was explicitly designed to establish and maintain social bonds in disparate groups, as in the Kula trade.

Such rituals and exchanges probably took place long before the advent of domesticated agriculture, far back into the Ice Age. The presence of seashell ornaments hundreds of miles inland indicates that such trade routes existed as far back as the Ice Age. We also know, for example, that the ochre used to decorate the painted cave walls at Lascaux did not come from the same region, or nearby, but instead came from hundreds of miles away from deep beneath the earth’s surface, probably changing hands along the way. This ocher indicates that already in the Ice Age there must have already been some sort of primitive “mining” industry.

The aboriginal natives of Australia lived a Stone-Age existence and yet had complex trade routes between various tribes, exchanging stones, ochres, tools, hides, ceremonial items and other resources. Tribes would come together at certain specified portions of the year for rituals involving music and dancing. At these rituals, ceremonial trade would take place.

On the Daly River, south of Darwin, trade took place at occasions when neighbouring tribes gathered for other reasons such as initiation or sacred ceremonies…each man and woman had a special trading partner in a complex network of gift exchange. A vast network of trade routes criss-crossed the Australian continent prior to white settlement, after which the trade contacts were soon broken. Pearl shell was traded from tribe to tribe to the Nullarbor Plain. Native tobacco moved from the central ranges to the south of the continent, while wombat fur for twine making moved from the south to the north. Stone spear heads were traded from the central Australian quarries to the tribes of Arnhem Land.

It’s possible that the tally sicks, whether single or split, were the earliest permanent records of economic transactions that we know of. Such items indicate that money is not a “thing” but transferable credits (neither the bones nor sticks themselves had any intrinsic value). Their simplicity is deceptive. In fact, they are surprisingly effective financial instruments, which is attested to by the longevity. The Napoleonic Code recognized them as valid financial instruments, and some were still in use in part of Central Europe into the Twentieth Century. When the Bank of England retired them from circulation in favor of coins and paper money in the nineteenth century, the tally sticks were burned en masse in a bonfire. The resulting fire burned down the Houses of Parliament; today’s iconic Gothic Revival building alongside the Thames is its replacement.

We cannot be sure that such arrangements ever happened exactly as thus surmised, but notched bones do survive from hunter-gatherer settlements of the Stone Age. Indeed, some are very elaborately notched, suggesting to some scholars quite sophisticated accounting. Others claim that the earliest notched bones are calendrical in character. This scholarly dispute may be of no great significance as accounting techniques must at some stage absorb calendrical technology, as time is an important factor in accounting, and the transition from astronomical notation to a notation of obligations is, we are informed, documented by c. 9000 BC.

Sticks are easier to notch than bones, and the notched stick was the main method of keeping permanent accounts in places with ample supplies of wood until the end of the 18th century. In Chapter 5 of The Universal History of Numbers (1994) Georges Ifrah introduces his readers to the mode of using notched sticks. In the first sentence of the English edition of this comprehensive work of impressive scholarship he tells his readers that notched sticks – tally sticks – were first used at least 40,000 years ago. He states that as a method of accounting the notched stick has stood the test of time. He suggests that only the invention of fire is older technology than the accounting tally.

In the first part of the chapter Georges Ifrah describes notched sticks merely as a means of counting, but on the second page he explains how the tally can be used as a form of bill and receipt, and then likens it to a wooden credit card, nearly as efficient and reliable as the plastic ones with magnetic stripes and microchips with which people today are so familiar.

Wray, Credit and State Theory of Money, pp. 119-120

The next archaeological indicators of formal economic arrangements are small clay tokens found throughout archaeological sites in the ancient Near East after 9000 BC. But to understand their role, we must first understand the changing nature of social relations are we moved into the Neolithic (farming) period of history. The changing nature of social relations due to farming, especially irrigated farming, is necessary to understanding the origin of money.