Month: May 2017

“The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”
–J.M Keynes

Last time we saw that the “conventional” definition of money does not hold in an anthropological context. We saw that different “money-things” functioned in different and often distinct spheres of exchange. We also saw that “money” was used primarily to discharge social obligations, rather than being used in closed-ended spot transactions. Often times, money used in market exchanges was kept distinct and separate from what was used in reciprocal social obligations, often to protect social relationships from monetization, as Karl Polanyi pointed out.

These facts are important to keep in mind when discussing the history of money.

1. The conventional theory is wrong

The conventional view is that money evolved to reduce transaction costs in an imaginary barter society. An intermediate commodity that would serve as a “medium of exchange” would be chosen by all members of the community through a process of trial-and-error. Not just any item would do, however. It had to be durable. It had to portable. It had to be divisible. And it couldn’t be too common, otherwise money would lost its value.

Gold (and silver), being all of these things, gradually emerged as the most logical choice. It does not oxidize or decay. It is malleable into different shapes. It is portable. It is reasonably rare:

Karl Menger, an Austrian economist, set out one school of thought as long ago as 1892. In his version of events, the monetisation of an economy starts when agricultural communities move away from subsistence farming and start to specialise. This brings efficiency gains but means that trade with others becomes necessary. The problem is that operating markets on the basis of barter is a pain: you have to scout around looking for the rare person who wants what you have and has what you want.

Money evolves to reduce barter costs, with some things working better than others. The commodity used as money should not lose value when it is bought and sold. So clothing is a bad money, since no one places the same value on second-hand clothes as new ones. Instead, something that is portable, durable (fruit and vegetables are out) and divisible into smaller pieces is needed. Menger called this property “saleableness”. Spices and shells are highly saleable, explaining their use as money. Government plays no role here. The origin of money is a market-led response to barter costs, in which the best money is that which minimises the costs of trade. Menger’s is a good description of how informal monies, such as those used by prisoners, originate.

On the origin of specie (The Economist)

Alfred Mitchell-Innes, the author of a groundbreaking paper on the true origins of money, laid out the conventional theory this way:

…under primitive conditions men lived and live by barter…as life becomes more complex barter no longer suffices as a method of exchanging commodities, and by common consent one particular commodity is fixed on which is generally acceptable; and which therefore, everyone will take in exchange for the things he produces or the services he renders and which each in turn can equally pass on to others in exchange for whatever he may want…this commodity thus becomes a “medium of exchange and measure of value.”

…a sale is the exchange of a commodity for this intermediate commodity which is called “money;”…many different commodities have at various times and places served as this medium, of exchange, – cattle, iron, salt, shells, dried cod, tobacco, sugar, nails, etc.;

…gradually the metals, gold, silver, copper, and more especially the first two, came to be regarded as being by their inherent qualities more suitable for this purpose than any other commodities and these metals early became by common consent the only medium of exchange…

What the Classical and Austrian economists did, in essence, was to try and imagine the origin of money by envisioning a society much like their own–Western European market societies, complete with dense populations of strangers, centralized governments and banks, and occupational specialization–and then take money away. How would people cope? They would have to barter for things, of course! And then they constructed the rest of the narrative from there.

However, this is bad anthropology, and bad science. Ancient societies were very different from their own market-oriented societies. Market societies are a historical contingency based on a great variety of factors, many which were not known to classical economists. You cannot simply imagine one’s own society, complete with all its various complex political and socioeconomic arrangements, and then take away one variable to construct the history of that variable.

Rather than using empirical reasoning to arrive at their conclusions, they used deductivist reasoning not rooted in actual data. Their conclusions were also predicated on the aggregate actions of isolated individuals who had no pre-existing social relationships with each other, something also not found in actual societies.

Several problems emerged almost immediately with this narrative. One is the extreme unlikelihood of a single standard emerging without recourse to some sort of established central authority, as Randy Wray notes:

Orthodoxy has never been able to explain how individual utility maximizers settled on a single numeraire. While the use of a single unit of account results in efficiencies, it is not clear what evolutionary process would have generated the single unit. Further, the higgling and haggling of the market is supposed to produce the equilibrium vector of relative prices, all of which can be denominated in the single numeraire. However, this presupposes a fairly high degree of specialization of labor and/or resource ownership–but this pre-market specialization, itself, is hard to explain.

Once markets are reasonably well-developed, specialization increases welfare; however, without well-developed markets, specialization is exceedingly risky, while diversification of skills and resources would be prudent. It seems exceedingly unlikely that either markets or a money of account could have evolved out of individual utility maximizing behavior.

Geoffrey Ingham argues that the typical sequence has it backwards: money had to be established first, before markets could form. Otherwise, how could anonymous market exchanges take place? In other words, money is historically anterior to markets, and therefore could not have emerged out of innumerable market transactions:

‘In the first place, without making a number of implausible assumptions, it is difficult to envisage that an agreed money of account could emerge from myriad bilateral barter exchange ratios, as the Mengerian commodity theory implies. How could discrete barter exchange of, say, 3 chickens to 1 duck or 6 ducks to 1 chicken, and so on, produce a universally recognised unit of account? The conventional answer that a ‘duck standard’ would emerge ‘spontaneously’ involves a circular argument. A single ‘duck standard’ cannot be the equilibrium price of ducks established by supply and demand because, in the absence of a money of account, ducks would continue to have a range of unstable exchange ratios.

As opposed to discrete truck and barter, which produces myriad bilateral exchange ratios, a true market, which produces a single price for ducks requires first and foremost a stable unit of account’.

As we have seen, most specialization took place within the context of a redistributive economy, whereby specialized products would be collected and redistributed by some sort of central authority such a tribal chief, religious authority, or palace, rather than a market-oriented one. Other economies functioned on a household basis where craft specialists were members of the same household and produced items for internal use of the group rather than external market exchange. Although some specialists might sell their surplus goods outside of the household context, and households exchanged surplus commodities with each other, this likely was not done through barter exchanges. Instead, merchant intermediaries would likely acquire surplus commodities from various households and store them for later use. These merchants would then match up goods with buyers over time in their shops. In other words, the producer was usually not also a seller. This was just as likely conducted through credit/debit relationships rather than though barter. This is how many small village markets operate even today in developing countries.

Another flaw in this theory is that very often specialist producers would have nothing to barter with until they first procured the the land or raw materials they needed in order to create their item. This means exchanges are often spaced out in time as well as space, requiring not spot transactions but, once again, credit.

For example, a farmer needs to acquire land and seeds long before she has any crop to sell. A herdsman needs to first procure the cattle for breeding before he can sell the calves. A smith needs to first procure metal before he can forge a tool. All of these exchanges require not spot trades, but rather credit. This means that barter was an unlikely basis for an economy even in more complex, specialized Neolithic economies:

The idea that barter, that is the direct free exchange of goods and services, was a viable basis for an economy is unrealistic for two reasons. First, due to the seasonal nature of many products, the things which people need to exchange may not be produced at the same time of the year.

Second, and even more important, is the fact that most productive activities involve a sequence of stages from the production of the primary raw material to the sale of the finished product. The perfecter of the finished article has nothing to exchange with the producer of the raw material: the latter has to supply on credit terms, that is on trust that at some future time he will be reimbursed in some way.

Wray, Credit and State Theory of Money pp. 118-119

There are other problems as well. The historical evidence indicates that in ancient times, precious metals were far too valuable to be used in everyday transactions:

…it should not be accepted on faith that using monetary metal was simpler than barter. To begin with, the high value of silver and gold implied that they would be used only for large transactions. In the Old Babylonian period (2000-1600 BC), notes Marvin Powell, a shekel ‘represented a month’s pay’, thereby limiting the ability of most people to pay on the spot for consumer transactions. Measuring smaller quantities of monetary metal became more error-prone, with deviations rising to about 3 per cent for small weights.

Wray, Credit and State Theories of Money p. 101

This “stable unit of account” is what allowed markets to form and market trading to take place. It was a schedule of price equivalencies evaluated against a common standard which allowed market trading to take place. All historical and anthropological evidence indicates that this stable unit of account was established through the actions some sort of central governing authority, whether political or religious, in every society. In other words, money was first and foremost a social technology which facilitated cooperation and trade; it was not generated spontaneously through the gain-seeking actions of numerous “rugged individualists” by osmosis. It was a way of recording debts and credits, and was never an intrinsically valuable “thing.” The fact that precious metals were used to keep track of these is a historical contingency which masks the true nature of money.

In addition, coins are what have survived. The systems of credit clearing which underlay these items do not preserve in the archaeological record. This gives the mistaken impression that the precious metals contained in coins were what was being traded for, and credit was just a substitute–a promise to pay gold and silver later because the former were just to hard to carry around.

The flaws of the conventional theory are summed up by Tim Johnson:

The narrative that money emerges out of barter has become part of received wisdom and as with most ‘common sense’, it has no basis in fact. Just as astrophysicists use telescopes to look back in time, anthropologists visit isolated communities to see how society evolved, and the evidence of this research is summarised by Caroline Humphrey (a.k.a. Lady Rees of Ludlow):

“Barter is at once a cornerstone of modern economic theory and an ancient subject of debate about political justice, from Plato and Aristotle onwards. In both discourses, which are distinct though related, barter provides the imagined preconditions for the emergence of money …[however] No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing.” [Humphrey, 1985, p 48]

What actually happens in practice is that when individuals knew each other, exchange was based on reciprocity; a gift would be given in the anticipation of it being reciprocated in the future (when they don’t know each other there is barter, but in such situations money cannot emerge because cowrie shells might be important in one society, and gold in another).

One of the most famous stories illustrating the role of reciprocal exchange has concerns an anthropologist who after spending some time with bushmen, gave one of them his knife. When visiting the group some years later, anthropologists discovered that the knife had been owned, at some point in time, by every member of the community. The knife had not been communally owned, its ownership had passed from one person to the next and its passage was evidence of a social network in the community, just as the motion of planets is evidence of an, otherwise invisible, gravitational field.

Lady Credit (Magic, Maths and Money)

So how did money really come about? That’s what we’ll start to look at next time.

1. Money is what money does.

What is money? It seems like a such simple question, but is anything but. For most of us, money is anything we can use to pay for stuff. It is the thing we earn at our jobs, which we then use to buy everything we need.

But in traditional societies, there are no “jobs” and no “markets.” So did they have money? If not, did they have “wealth?”

The usual way to define what constitutes “money” is to use the customary tripartite division given in economics textbooks: money is a means of exchange, a store of value, and a unit of account. For example, this Web site gives the “conventional” definition of money:

THE PROPERTIES AND FUNCTIONS OF MONEY
The item serves as a medium of exchange. In order for an item to be considered money, it must be widely accepted as payment for goods and services. In this way, money creates efficiency because it eliminates uncertainty regarding what is going to be accepted as payment by various businesses.

The item serves as a unit of account. In order for an item to be considered money, it must be the unit that prices, bank balances, etc. are reported in. Having a consistent unit of account creates efficiency since it would be pretty confusing to have the price of bread quoted as a number of fish, the price of fish quoted in terms of t-shirts, and so on.

The item serves as a store of value. In order for an item to be considered money, it has to (to a reasonable degree) hold its purchasing power over time. This feature of money adds to efficiency because it gives producers and consumers flexibility in the timing of purchases and sales, eliminating the need to immediately trade one’s income for goods and services.

As these properties suggest, money was introduced to societies as a means of making economic transactions simpler and more efficient, and it mostly succeeds in that regard. In some situations, items other than officially designated currency have been used as money in various economies.

For example, it used to be somewhat common in countries with unstable governments (and also in prisons) to use cigarettes as money, even though there was no official decree that cigarettes served that function.

https://www.thoughtco.com/what-is-money-1147763

But it turns out that this definition of money is highly misleading. By using the customary tripartite definition of money, we define what money is. That is, anything that fulfills all of the above criteria is “true” money, and by extension, anything that does not meet all of the these criteria is not “true” money” or maybe, “partial” money, or “money-like”.

But this is a mistake, argues anthropologist George Dalton, in his essay, Primitive Money (PDF). It is incorrect to determine what constitutes “true” money by comparing it to the Dollars, Yen, Pounds, Euros, Francs, Yuan, Pesos, Dinars, and so on, that we use in our market-oriented, capitalist economies. In our societies, these functions are all carried out by a single object that we call “money.”

In traditional societies, however, these purposes may be accomplished by a whole host of other “money-things.” When we see such items used in exchanges, we call these “money-things” primitive money:

…if one asks what is “primitive” about a particular money, one may come away with two answers: the money-stuff-woodpecker scalps, sea shells, goats, dog teeth-is primitive (i.e., different from our own); and the uses to which the money-stuff is sometimes put-mortuary payments, bloodwealth, bridewealth—are primitive (i.e., different from our own).

Dalton summarizes the ways in which primitive money differs from the type of money used in modern market-based industrial economies:

Primitive money performs some of the functions of our own money, but rarely all; the conditions under which supplies are forthcoming are usually different; primitive money is used in some ways ours is not; our money is impersonal and commercial, while primitive money frequently has pedigree and personality, sacred uses, or moral and emotional connections. Our governmental authorities control the quantity of money, but this is rarely so in primitive economies.

The problem with the customary tripartite definition of money is that the distinctive features of what we call “money” all derive from us living in Western-style market-oriented economies with centralized governments and banking systems. As a result, they simply do not apply to primitive economies! For this reason, Dalton argues, judging what constitutes “primitive money” by comparing it with our own is fundamentally wrong. As Dalton points out, we would never do that in other areas of life when trying to understand other cultures:

[Anthropologists]…use the bundle of attributes money has in Western market economy to comprise a model of true money. They then judge whether or not money-like stuff in primitive economies is really money by how closely the uses of the primitive stuff resemble our own-a strange procedure for anthropologists who would never use the bundle of attributes of the Western family, religion, or political organization in such a way… Anthropologists do not hesitate to contrive special terms for special actions and institutions when to use terms from their own society would be misleading. They do not talk about the family, but about nuclear, extended, and matrilineal families. The same should be done with economic matters…

Other societies have very different social and economic arrangements than our own. In cultures where markets are absent or peripheral, and where banking systems are nonexistent, the type of anonymous, all-purpose “money-stuff” that we use in daily life is unknown. Many items in traditional cultures serve as “money-stuff,” but do not fulfill all of the criteria listed above, causing anthropologists and economists to erroneously dismiss them as not being “true” money.

In order to truly understand what constitutes “primitive” money, Dalton argues, we need to know how it is used, what it is used for, and who is using it. We typically do not make such distinctions when talking about Western capitalist market economies because it is assumed that all exchange is mediated by impersonal market transactions. Also, most exchanges are essentially commercial in nature, with other money uses being subsidiary. However, this is not the case in traditional cultures where markets play only a tangential role in social affairs:

Dollars have that set of uses called medium of exchange, means of payment, standard of value, etc., precisely because our economy is commercially organized. Where economies are organized differently, non-commercial uses of monetary objects become important, and ‘‘money” takes on different characteristics.

The question is not-as it is conventionally put-are shells, woodpecker scalps, cattle, goats, dog teeth, or Kula valuables “really” “money?” It is, rather, how are the similarities and the differences between such items and dollars related to similarities and differences in socio-economic structure?

…To concentrate attention on money traits independently of underlying [social] organization leads writers to use the traits of Western money as a model of the real thing (while ignoring the structure of Western economy which accounts for the money traits). Then any primitive money which does not have all the traits of the Western model money is simply ruled out by definition-it is not money. This does not get us very far towards understanding primitive and peasant economies…

Dalton identifies three major types of economic arrangements distinct from the types of cosmopolitan, commercially-oriented market-based societies that we live in in the West. The uses and definitions of money are subsequently determined by these socio-economic arrangements. It should be noted that most economies prior to the advent of modern Western industrial capitalism fall into one of these three major categories:

Type I: Marketless – In marketless communities, land and labor are not transacted by purchase and sale but are allocated as expressions of kinship right or tribal affiliation. There are no formal market-place sites where indigenously produced items are bought and sold. These are “subsistence” economies in the sense that livelihood does not depend on production for sale. The transactional modes to allocate resources and labor as well as produced items and services are reciprocity and redistribution…

Type II: Peripheral Markets Only – Everything said above about marketless economies holds true for those with only peripheral markets, with one exception: market-place sites exist in which a narrow range of produce is bought and sold, either with some moneystuff used as medium of (commercial) exchange, or via barter in the economist’s sense (moneyless market exchange). We call these market exchanges “peripheral” because land and labor are not bought and sold and because most people do not get the bulk of their income from market sales…

Type III: Market-Dominated (Peasant) Economies – Small-scale market-dominated communities share with our own nationally integrated market economy the following features: (i) a large proportion of land and labor as well as goods and services are transacted by market purchase and sale; (ii) most people depend upon market sale of labor or products for livelihood; (iii) market prices integrate production. Labor and land move into and out of different production lines in response to profit (and other income) alternatives, as indicated by market prices. In such economies, the medium of (commercial) exchange function of money is the most important; the other commercial uses of money facilitate market transactions, and the same money is used for non-commercial transactions.

Peasant economies differ from primitive (subsistence) economies in that peasant producers depend upon production for sale. However, both peasant and primitive communities differ from large-scale, developed, nationally integrated Western economies on two counts: modern machine technology is largely absent, and traditional social organization and cultural practices are largely retained.

Rather than trying to define what money is in traditional economies, we should be looking at what money does. What may function as money in one context (e.g. the settling of debts), may not function in another (e.g. a means of exchange), and still again not in another (e.g. a store of value). It is also determined by the social relations between parties to the exchange. Different types of money are used in different types of transactions. For example, market exchange is very different from reciprocal gift exchange, which might be again different than redistribution carried out by centralized authorities such as chiefs or village elders.

For example, no one would head off to the marketplace with a herd of cattle in order to purchase things on sale from the vendors there. But cattle are often described as “money” in primitive societies because they are used for payments such as dowries. Cowrie shells might serve for impersonal market exchange with strangers, but would be inappropriate for bride exchange, restitution payments, or payments to authorities. In addition, the units used to denominate the exchange might be completely different from the objects used to settle the transaction. Debts denominated in a unit of account might be settled with any number of items— livestock, sea shells, tobacco, salt, bags of valuables, semi-precious stones, etc. Thus, it is very different from the type of general-purpose money that we are used to.

For example, payments to centralized political institutions in many ancient cultures were  extracted in the form of labor (corvée). This appears to have been the earliest known form of “taxation.” So is labor “money?” In ancient Mesopotamia, labor for large institutions was often remunerated with goods such as oil, salt, barley and beer. Does that make things like barley and beer “money?”

Not only does our definition of money distort our view of other cultures, but of historical economies as well. Many economic historians try and jam previous social relations into the Procrustean bed of “market” exchange by looking at the similarities, without acknowledging the differences. This allows them to claim that markets are timeless and universal—a natural feature of the human species stemming from our alleged innate desire for profit. But our modern economic arrangements, centered as they are around market exchange, may not be appropriate for analyzing past societies:

If we have a hard time applying modern economic theory to ancient societies, it is straightforward to see that we cannot get too exercised about the instruments that they used as money. For us, the notion of money is intertwined with the existence of a banking system. Modern banking system[s] developed over centuries, and they are far more complex entities than their equivalents in earlier eras. We will have a hard time relating our notions of money to the views of ancients…

http://www.bondeconomics.com/2016/05/should-we-care-about-history-of-money.html

Our exclusive focus on commercial exchange obscures the multiple roles that various “money-things” played in traditional societies. We tend to define money solely by market purchases (a medium of exchange).

In traditional societies, however, most exchanges are not impersonal commercial transactions, but instead are based on the discharging of reciprocal social obligations–for example, dowries, bridewealth, restitution for crimes to aggrieved parties (i.e. bloodwealth, weregeld), offerings to the gods/ancestors, initiation fees, child growth payments, military compensation, mortuary payments, tribute, and so on. Many things fulfill the functions of “money” in these contexts, but are very different from the type of general-purpose money we use in market transactions. As Marcel Mauss noted in The Gift, most exchanges in traditional, small-scale, societies are based around reciprocal gift-giving, and not market exchange for profit.

By contrast, the money that we use is a product of centralized institutions such as governments and banks in order to facilitate commercial (i.e. Impersonal market) transactions in fully-integrated, price-fixing markets:

The medium of (commercial) exchange function of money in our economy is its dominant function, and all other commercial uses of money are dependently linked-derived from-the use of dollars as media of (commercial) exchange.

For example, dollars are also used as a means of (commercial) payment of debt arising from market transactions. It is purchase and sale of resources, goods, and services which create the money functions of means of (commercial) payment and standard for deferred (commercial) payment. All the commercial uses of money are consequences of market integration, simply reflecting the highly organized credit and accounting arrangements that facilitate market purchases.

This is why economists in writing about our economy need not attach the qualifier “commercial” to the money uses. Indeed, we in our market-integrated national economy sometimes regard the terms “money” and “medium of exchange” as interchangeable. But for primitive communities where market transactions are absent or infrequent, it would be distorting to identify money with medium of (commercial) exchange…

In market-oriented societies, most items are for sale (alienable) and this is coordinated by prices, which assumes a concept of universal economic value which is often lacking from non-market societies. Furthermore, selling and producing for the market is absolutely essential for survival for most people, unlike traditional (i.e. subsistence) economies. Market transactions are usually impersonal and anonymous, and do not depend on status relations between the buyer and seller. In traditional societies, however, the social relations between giver and receiver are paramount. Thus, primitive money is often neither impersonal nor fungible:

…our market economy [is] based on contract rather than status…having the money price is a sufficient condition for buying most goods. Not only is Western money anonymous, so to speak, but money users are also anonymous: the market sells to whoever has the purchase price and only rarely imposes status prerequisites on the use of money as medium of (commercial) exchange.

In contrast, there usually are status prerequisites in non-commercial uses of primitive money. For example, in the use of cattle as means of (reciprocal) payment of bridewealth, status requisites such as lineage, age, rank of the persons, must be complied with. The money users are not anonymous, and a special kind of limited purpose money is necessary to the transaction.

In addition to not being fungible, primitive money is often not divisible. Certain “monies” can only be used for certain types of transactions, and “lower” money is not necessarily convertible into “higher” forms, like we are used to with our cents adding up to quarters adding up to dollars. Seeing money through our own system leads to mistakes and distortions, as Dalton points out using the example of papers written about the shell money used on Rossel Island in the Pacific by an economist named W.E. Armstrong in the 1920’s:

Armstrong asserts that Rossel Island money is a rough equivalent of our own: that it is a medium of exchange used to purchase a wide range of goods and services, and that it is a standard of value for stating prices…The Rossel Islanders use two types of shell money, ndap and nko. Ndap money consists of individual shells (Armstrong calls them coins), each of which belongs to one of 22 named classes or denominations, which Armstrong ranks from 1-22, a higher numbered class indicating a higher valued shell…

By ranking [Rossel island shell monies] 1-22 Armstrong implies that the differences between ndap shell classes are cardinal differences: that a No. 22 is 22 times more valuable than a No. 1, in the sense that a $20 bill is 20 times more valuable than a $1 bill. There are no such cardinal differences among ndap shells. To number them 1-22 is to give a false impression of similarity between ndap shell classes and Western money denominations and a false impression about the commensurability or the “purchasing power” relationship between lower and higher numbered ndap shells … the shells are not quite like dollar bills numbered 1-22 with a No. 20 (say), bearing twice the value of a No. 10, or an item priced at No. 20 purchasable with two shells of No. 10 variety… something priced at No. 20 must be paid for with a No. 20 shell, rather than with lower denomination pieces adding up to 20. ..Nos. 18-22 cannot be acquired by any amount of lower class shells, and there is no way of gauging how many times more valuable a No. 18 is compared to a No. 6 because they enter entirely different transactions.

Without exception, Nos. 18-22 enter non-commercial transactions exclusively: they are used as means of (reciprocal or redistributive) payment or exchange in transactions induced by social obligation. Payments of a No. 18 are a necessary part of ordinary bridewealth, as well as necessary payment for shared wives, and for sponsoring a pig or dog feast, or a feast initiating the use of a special kind of canoe. No. 20 is a necessary indemnity payment to the relatives of a man ritually murdered and eaten, a transaction which is part of mortuary rites for the death of a chief. Moreover, there is a connection between shells 18-22 and lineage affiliation which Armstrong notes but makes nothing of. “. . . Nos. 18 to 22 are regarded as property peculiar to chiefs, though continually lent by the latter to their subjects.”

Primitive money is often not general purpose. As seen above, very different “money-things” may be used for different (and distinct) purposes–reciprocal gift exchange, centralized redistribution, the settling of debts, payments to collective institutions (i.e. taxes), restitution, and so on:

In primitive economies-i.e., small-scale economies not integrated by market exchange-different uses of money may be institutionalized separately in different monetary objects to carry out reciprocal and redistributive transactions. These money objects used in non-commercial ways are usually distinct from any that enter market place transactions. And the items which perform non-commercial money uses need not be full-time money, so to speak; they have uses and characteristics apart from their ability to serve as a special kind of money.

In contrast, the dollars that we use are general-purpose, and can be used by both private and public entities for anything-the settlement of debts, the payment of taxes and fines, redistribution, gift exchange, etc.

Primitive money is often non-commercial. Many exchanges take place outside of the market:

…anthropologists use Western monetary terms ambiguously whenever they fail to distinguish between the market and the non-commercial modes of transaction. [Conrad] Reining, for example, states: “There seems to have been little exchange among households although iron tools and spears made from locally smelted ore had a limited application as a medium of exchange, being used primarily for marriage payments”

…Since brides are not acquired through impersonal market transactions by random buyers and sellers, the iron tools are not used as media of (market) exchange, but as media of (reciprocal) exchange: as part of a non-commercial transaction in which a man acquires a bundle of rights in a woman and her children in return for iron tools and other indemnification payments to her kin…

It seems useful to regard the bridewealth items as special purpose “money” because the iron tools and spears-or in other societies, cows or goats-are the required items, and because they carry out money uses which do have counterparts in our own society. Whether one calls them special purpose monies or highly ranked treasure items necessary to the transaction…only matters when the subject of money uses in primitive compared to Western economies is raised. Then we can show that cows and armbands of shells do perform some of the uses of dollars but in noncommercial situations…

Those aspects of primitive economy which are unrelated to market exchange can only be understood by employing socio-economic terms: ceremonial prestige and subsistence goods; reciprocity and redistribution; spheres and conversions; limited purpose money. Such terms contain a social dimension and so allow us to relate economic matters to social organization, and to express the folk-view toward the items, services, persons, and situations involved.

The economist dealing with monetary transactions in Western economy need not concern himself with personal roles and social situations because of the peculiarly impersonal nature of market exchange. The anthropologist dealing with marketless transactions cannot ignore personal roles and social situations and still make sense of what transpires.

…When we consider money in communities not integrated by market exchange-the Nuer, the Trobriands, the Tiv-it becomes essential to distinguish among the several transactional modes and among the several money uses: primitive money-stuff does not have that bundle of related uses which in our economy is conferred on dollars by market integration and by the use of dollars in both commercial and non-commercial transactions. The differences between cattle-money or shell-money and dollars are traceable to the differences in the transactional modes which call forth money uses. When [anthropologist Bronislav] Malinowski says that kula valuables are different from Western currency, he is really pointing out that reciprocal gift-giving is different from market purchase and sale…

Kula armbands, potlatch coppers, cows, pig tusks, Yap stones, etc., are variously described as money of renown, treasure items, wealth, valuables, and heirlooms. Malinowski says kula valuables are regarded like crown jewels or sports trophies in Western societies. Writers on East Africa say that cows are regarded like revered pets. Such treasures can take on special roles as non-commercial money: their acquisition and disposition are carefully structured and regarded as extremely important events; they change hands in specified ways, in transactions which have strong moral implications. Often they are used to create social relationships (marriage; entrance into secret societies), prevent a break in social relationships (bloodwealth, mortuary payments), or to keep or elevate one’s social position (potlatch). Their “money-ness” consists in their being required means of (reciprocal or redistributive) payment.

Anthropologists have developed a concept called spheres of exchange to explain this phenomenon. Exchanges can only take place between specific individuals in specific contexts. This is done to protect the underlying social relations of a particular culture.

The concept of spheres of exchange was introduced by Paul Bohannan and Laura Bohannan in analyzing their field work with the Tiv in Nigeria. The Bohannan’s discuss three types of ranked exchange objects, each restricted to its own separate exchange sphere; ideally, objects do not flow between spheres.

The subsistence sphere included food such as yams, grains, vegetables, and small livestock, as well as eating utensils, farming tools and tools for food-preparation. The second sphere of wealth included brass rods, cattle, white cloth, and slaves. A third and most prestigious sphere was marriageable female relatives.

“In calling these different areas of exchange spheres, we imply that each includes commodities that are not regarded as equivalent to those commodities in other spheres and hence in ordinary situations are not exchangeable. Each sphere is a different universe of objects. A different set of moral values and different behavior are to be found in each sphere.” As a result, it is considered immoral to use prestige objects to purchase goods from a lower sphere. Similar examples of exchange spheres have been noted by Frederik Barth among the Fur of Sudan; by Raymond Firth among the Tikopia in the south Pacific; by Bronislaw Malinowski in the Trobriand Islands off New Guinea amongst others.

https://en.wikipedia.org/wiki/Spheres_of_exchange

In traditional economies, many resources are communally available and the artificial scarcity that market production requires is not present. As a result, primitive money is usually not under the control of a centralized authority which determines its quantity and value:

It has often been noted that in primitive societies there is seldom any conscious control by political authority over money objects. Such is not merely a difference between primitive monetary systems and our own, but one that reflects differences between their economic systems and ours.

In economies not integrated by market exchange, non-commercial monetary transactions are only occasional events (e.g., bloodwealth, bridewealth), and non-commercial money is not usually connected with production and daily livelihood. That the non-commercial money-stuff may be fixed in quantity for all time (Yap stones), or increase in quantity only through natural growth (cows, pig tusks) does not affect production and daily livelihood (as would be the case with us if dollars were fixed in quantity).

Market economies, on the other hand, rely upon the issuance of general-purpose money by a centralized authority. The quantity of this “official” money must be carefully managed by the authorities, since everyone is dependent upon production for the market in order to survive:

In national market economies, governments deliberately control the quantity of general purpose money because dollars (francs, sterling) carry out market sales which the populace depends on for livelihood. Roughly speaking, if the authorities allow too much money to come into use as medium of (market) purchase, the result is inflation. If the authorities allow too little money to come into use, the result is deflation and unemployment (a contraction in the rate of market purchasing below the full employment capacity rate of production). The need to deliberately vary the quantity of money is a direct result of economy-wide market integration.

This sort of money comes into being specifically to facilitate markets. As we shall see, all the evidence indicates that fully-integrated Western-style markets were brought into being by the issuance of the “money-thing” by centralized authorities, and did not spontaneously arise by higgling and haggling amongst numerous unrelated strangers. This “money-thing” differs in various cultures, but pieces of (durable) metal became the most common thing to use in the large agrarian states of Eurasia, although other things also served this purpose. As Ingham put it; “money is logically anterior to and historically prior to the market.”

Moreover, we tend to make a distinction between general-purpose “money” which is issued by a central authority (such as a mint or bank) for commercial purposes, and other forms of wealth—a distinction which is arbitrary and may not hold for other cultures.

Even in our modern industrial societies, what constitutes “money” is not so clear-cut. For example, government bonds are considered to be a store of wealth, yet they are not typically used for commercial transactions. Bonds are denominated in dollars (or whatever the bond-issuing government’s currency is), as is a checking account, yet the checking account can be drawn upon to pay for goods and services, while the bond cannot. Thus, bonds are not considered “money,” even though both bonds and checking accounts are theoretically stores of value denominated in the same unit of account.

Even in industrial economies, there are often parallel, local, community-oriented, and private currencies that exist alongside the “national” currency. One example of this is frequent-flier miles, which can be redeemed for any number of items besides flights. Another example might be gift cards. These are issued by vendors and typically used for gift exchange, such as holidays, birthdays, and wedding/baby showers. They can be exchanged for any items for sale at the vendor’s store. Are gift cards “money?” They are denominated in dollars, and can be used as a medium of exchange and a store of value, but they cannot be used in payment of taxes or to purchase goods from other retailers.

In U. S. economy, objects such as jewelry, stocks, and bonds are not thought of as money because (like cattle among the Bantu) these come into existence for reasons other than their “money-ness.” Each is capable of one or two money uses, but not the full range which distinguishes dollars, and particularly not the medium of (commercial) exchange use of dollars…Dollars serve as a store of (commercial and non-commercial) value because dollars can be held idle for future use. But this is true also for jewelry, stocks and bonds, and other marketable assets. However, in U. S. economy jewelry is not a medium of (commercial) exchange because one cannot spend it directly, and it is not a means of (commercial or non-commercial) payment because it is not acceptable in payment of debt or taxes…

In our society, all these different types of exchanges, both public and private, are mediated by the existence of integrated, universal, price-fixing markets. The money used for everyday commercial transactions is the same as that used to pay taxes, fees, and fines. The government, which issues the currency, purchases what it needs using these same markets, including labor and military support. The unit of account (dollars) in which prices are denominated bears the same name and 1:1 equivalency with the currency issued by the government (also called dollars). Debts are denominated in dollars, and dollars “can be used to settle all debts, both public and private” as it says right on the bill itself. The government issues the currency and manages its supply to prevent excessive inflation and deflation, which would adversely impact the markets. This makes our “universal” definition of money only really applicable to centralized bank money in market economies such as of our own:

In the economies for which the English monetary vocabulary was created, there is one dominant transactional mode, market exchange, to which all money uses relate…Economists do not find it necessary to distinguish among the transactional modes of market exchange, reciprocity, and redistribution, because market exchange is so overwhelmingly important. For the same reason economists do not find it necessary to describe at length the different uses of money in our own economy: with only a few exceptions they all express market exchange transactions.

U. S. dollars may be called general purpose money. They are a single monetary instrument to perform all the money uses. Moreover, the same dollars enter modes of transaction to be called redistribution and reciprocity, as enter into market exchange. These features of U.S. money are consequences of economy-wide market integration…In U. S. economy the government makes use of the market in the process of redistribution: medium of (commercial) exchange money earned as private income is used by households and firms as means of (redistributive) payment of politically incurred obligation (taxes). The government then buys on the market the services and products it requires-civil servants, guns, roads-to provide community services.

In our system, the same can be said for another mode of transaction, reciprocity, or gift-giving between kin and friends. The same money serves the different transactional modes: in purchasing a gift, the money paid is used as medium of (commercial) exchange; giving the gift is part of a reciprocal transaction (a material or service transfer induced by social obligation between the gift partners). If cash is given as a gift, it is means of (reciprocal) payment of the social obligation discharged by the gift-giving…redistribution and reciprocity make use of market exchange and make use of the same money used in market exchange. In Western economy, therefore, tax and gift transactions appear as simple variations from the private market norm-special types of expenditure or outlay-which present no theoretical difficulties.

American reliance upon market sale for livelihood and upon the price mechanism for allocating resources to production lines does the following: it makes the medium of (commercial) exchange use of money its dominant attribute, it makes other money uses serve market transactions, and it confers that peculiar bundle of traits on our general purpose money which mark off dollars from non-monetary objects. It is our market integration which makes it necessary to institutionalize all uses of money in the same money instrument.

In summary, Dalton argues that by viewing all societies through the lens of our disembedded market-centric economy, we cannot truly understand primitive money, which remains embedded in the underlying social relationships and extra-market transactions.

Two distinctions which allow us to contrast primitive and Western money are the distinctions between commercial and non-commercial uses of money, and between marketless economies, those with peripheral markets only, and market-integrated economies. In sum, money has no definable essence apart from the uses money objects serve, and these depend upon the transactional modes that characterize each economy: as tangible item as well as abstract measure, “money is what money does.”

2. A traditional example: Yap stone money

The “stone money” used on the Micronesian island of Yap is one of the most famous examples of “primitive” money. This system was described extensively by an American physician-turned-anthropologist William Henry Furness, who visited the island in 1903.

On Yap, stones called fei were used as currency. These consisted of limestone rocks of argonite quarried on the nearby island of Palau and transported to Yap by boat (Yap itself had no metal deposits). They had a hole in center to facilitate transport. These stone wheels ranged enormously in size, from small enough to carry, to several tons apiece, but in reality they were rarely moved. Neither were they exchanged hand-to-hand in spot transactions.

Rather, ownership of the stones was transferred by mutual agreement among islanders to settle outstanding debts. These were typically “exchanged” by oral agreement, usually for large-ticket purchases such as dowries. In fact, in one famous incident, a large fei stone ended up on the bottom of the ocean during transport. It was decided that, since such items were rarely moved anyway, this stone could still be used as currency, as Furness explains:

“[I]t was universally conceded…that the mere accident of its loss overboard was too trifling to mention, and that a few hundred feet of water off shore ought not to affect its marketable value … The purchasing power of that stone remains, therefore, as valid as if it were leaning visibly against the side of the owner’s house, and represents wealth as potentially as the hoarded inactive gold of a miser in the Middle Ages, or as our silver dollars stacked in the Treasury in Washington, which we never see or touch, but trade with on the strength of a printed certificate that they are there.”

In this case, primitive money was in no way used a medium of exchange. The island’s economy had few tradeable commodities anyway besides fish, coconuts and sea cucumber. Stone money certainly did not facilitate barter or trading in markets. Rather, these were records of debt and credit relationships, mainly centered around reciprocal social obligations. The fei stones were the denominations. This was the origin of money, not barter for sale, as Felix Martin notes:

The story of Yap does not just present a challenge to the conventional theory’s account of money’s origins…[i]t also raises serious doubts about its conception of what money actually is. The conventional theory holds that money is a “thing”–a commodity chosen from amongst the universe of commodities to serve as a medium of exchange–and that the essence of monetary exchanges is the swapping of goods and services for this commodity medium of exchange. But the stone money of Yap doesn’t fit this scheme.

In the first place, it is difficult to believe that anyone could have chosen “large, solid, thick stone wheels ranging in diameter from a foot to twelve feet” as a medium of exchange–since in most cases, they would be a good deal harder to move than the things being traded…it was clear that fei were not a medium of exchange in the sense of a commodity that could be exchanged for any other–since most of the time, they were not exchanged at all…in the case of the infamous shipwrecked fei, no one had ever seen the coin in question, let alone passed it around as a medium of exchange. No, there could be no doubt: the inhabitants of Yap were curiously indifferent to the fate of the fei themselves.

The essence of their monetary system was not stone coins used as a medium of exchange, but…the underlying system of credit accounts and clearing of which they helped to keep track…the inhabitants of Yap would accumulate credits and debts in the course of their trading in fish, coconuts, pigs, and sea cucumber. These would be offset against one another to settle payments. Any outstanding balances carried forward at the end of a single exchange, or a day, or a week, might, if the counterparties so wished, be settled by the exchange of currency–a fei–to the appropriate value; this being a tangible and visible record of the outstanding credit that the seller enjoyed with the rest of Yap.

Coins and currency, in other words, are useful tokens to record the underlying process of clearing. They may even be necessary in an economy larger than Yap, where coins could drop to the bottom of the sea and yet no one would think to question the wealth of their owner. But currency is not in itself money. Money is the system of credit accounts and their clearing that currency represents.

3. So, what is money really???

As we saw above, the customary tripartite definition of money simply does not work in trying to understand what money really is. It gives us little insight into economies not based around fully-integrated price-fixing markets.

A better way might be to define the essential nature of money, rather than its particular contextual uses:

In discussions about money, its three functions are often mentioned: “store of value, medium of exchange, and unit of account” — the order of these may vary. This is usually said in a peremptory tone, as being self-evident and not really worth discussing. These three functions of money constitute the tripod on which the accepted wisdom about money rests.

Let us start by noting that the usual approach is to try and define the nature of a thing, before describing its functions and features. It is therefore curious that money would be defined by its functions. The reason is that, since the beginning of modern economics, there has been great confusion about the nature of money — a confusion that has not been definitely resolved until today…

Debunking the “three functions of money” (Medium)

According to Alfred Mitchell-Innes, the nature of money is credit, or more specifically a credit/debit relationship:

“Credit is the purchasing power so often mentioned in economics works as being one of the principle attributes of money, and, as I shall try to show, credit and credit alone is money. Credit, and not gold or silver [or cattle, or pigs tusks, or iron bars or cowrie shells…] is the one property which all men seek, the acquisition of which is the aim and object of all commerce.”

By understanding that money is credit, we may get closer to understanding primitive money than by trying to use the customary three-part definition given in economics textbooks. From this essential nature, the various functions of money arise, although they may not all be subsumed in a single instrument.

For example, it’s clear in the above examples that there is a debit/credit relationship based in the reciprocal social obligations of a particular society. If I acquire a bride from you, I owe you compensation for her “loss” from your household. If I have wounded you, I owe you for the bodily injury. In peace treaties, villages are often compensated for the loss of warriors from their tribe–essentially the loss their productive capacity. The same concept is used for killings—the aggrieved family is owed for the loss of their family member and his/her future productive capacity. Pigs may be exchanged to settle this “debt” as, for example, in New Guinea. In fact, the words for “debt” and “sin” or “transgression” are the same in many languages. If I make offerings to the gods or ancestors, I owe the gods/ancestors for their continued intercession and favor. To a large extent, every one of us is in “debt” to our ancestors.

These debts may be settled immediately, or they may be deferred.

The store of value function of money comes from its ability to settle outstanding debts. I can store up value by holding onto claims on other people’s labor or assets. I can then redeem these at a later date. The value comes from what it is redeemable for (along with how reliable the claims are, which, in turn, depends on the social conditions). The total amount of money circulating in such cases has little impact, which is why it is not centrally controlled in primitive societies.

More than 97% of all money is created when banks provide loans to governments, businesses or individuals. “National” money is really bank-debt money–outstanding IOUs from banks. The money issuer is in debt to the bearer. Money is created when banks extend loans. When money is created on the bank’s liability side, a loan is facing it on the asset side. These assets (including bonds, includes bonds, which are securitized loans) are what give the bank’s money its value.

The unit of account function becomes more important when writing and numbers are introduced into a society, the society becomes larger, and markets are introduced (Types II and III). In gift economies, credits and debits are informal and are known by both parties. In larger societies, more formal means are required. Debts are denominated in a unit of account, which engenders the concept of equivalent value for unrelated items—i.e. prices. This may, in turn, develop into the idea of universal economic value. These units are usually introduced by political leaders, for example, to determine tax or restitution payments.

The unit of account may be separate from the medium of exchange, however. For example, I may owe someone fifty quatloos for a bride, but that debt may be paid with any number of items – cows, grain, beer, pigs, axes, gold, jewels, etc. Thus, in considering what “money” is, it’s important to make this distinction. For us, they are one in the same (i.e. dollars), but in the past and in other cultures, these were often different. Even in late medieval Europe prices were often listed in an “official” unit of account but paid for with a wide variety of different coins (leading to a brisk money-changing business that tracked equivalencies between the various types of circulating coins).

The medium of exchange aspect of money, so emphasized by anthropologists and economists, is relatively minor. You can have an economy—even a market-based one–without it, so long as you have a way to clear credits and debits, as the case of Yap showed.

The “medium of exchange” aspect has clouded our definitions of money going back to the very founding of economics. Adam Smith argued that all sorts of commodities functioned as mediums of exchange in primitive cultures. If you go to a museum today, for example, you’ll see all sort of things that were supposedly used as “money,” from quetzal feathers to wampum beads, to cowrie shells. This gave rise to the idea that money was always some sort of “thing” that was used as an intermediate good for people to trade for the things they really did want.

Smith used the example of cod in Newfoundland. In his view, cod was a convenient “medium of exchange” used because there was no metal available. People would just swap cod, even if they didn’t want it, knowing that cod could be exchanged for whatever they did want. Smith argues that some commodity would always be chosen based on the prevailing local conditions: dried cod in Newfoundland, tobacco in Virginia, sugar in the West Indies, cacao shells and quetzal feathers in Mesoamerica, wampum beads in North America, and even iron nails in Scotland.

The problem is, it’s very difficult to get from this type of barter trading to the creation of “money.” If I hold to on to various items not because I want them, but because others do, this is not a sufficient condition for one single thing to become institutionalized as money. People do this all the time with all sorts of different items in traditional societies. However, there is no evidence that the kind of universal, all-purpose “money” that we use ever arose out of this sort of behavior. Exchanges were likely done “open-handedly” or through credits, just like at bars today: “I owe you one.”

It turns out that the “father of economics” had gotten it wrong. Almost immediately, other economics writers noticed problems with this story. In the cases Smith cited, trade was actually accounted for in some sort of unit of account. Outstanding balances were settled in commodities, but that did not make such commodities into “money”:

In every case, these were examples of trade that were accounted for in pounds, shillings, and pence, just as it was in modern England. Sellers would accumulate credit on their books, and buyers debts, all denominated in monetary units. The fact that any net balances that remained between them might be discharged by payment of some commodity or other to the value of the debt did not mean that the commodity was ‘money.’ To focus on the commodity payment rather than the system of credit and clearing behind it was to get things completely the wrong way round. And to take the view that it was the commodity itself that was money, as Smith did, might start out seeming logical, but would end in nonsense. As Alfred Mitchel Innes…summed up the problem with Smith’s report of cod-money:

“A moment’s reflection shows that a staple commodity could not be used as money, because ex hypothesi the medium of exchange is equally receivable by all members of the community. Thus, if the fishers paid for their supplies in cod, the traders would equally have to pay for their cod in cod, an obvious absurdity.”

Cowrie shells, for example, can really be seen as debt markers (i.e. tokens). They simply allow the easy quantification and tracking of outstanding debt. Money is just an IOU, evidence that the issuer is in debt to the bearer. Even in spot transactions in markets, we can see that money is simply debt.

If I buy a chicken from a market vendor for 5 quatloos, the seller functionally “gives” me a chicken and I’m in debt for 5 seconds until I hand over the “money-thing,” which immediately extinguishes that debt. Or if I happen to hand over the “money-thing” first, they are in debt to me by 1 chicken until they settle that debt moments later by handing the chicken over to me. The “money-thing” can be anything–what matters is the debt. That debt may be settled on the spot or later. The price unit and the “money-thing” may be equivalent, or they may be different.

In many cases, the real distinction between “primitive” money and “true” money is that true money is transferable credit. This allows debts to circulate in the economy as third-party IOUs. This allows business to be transacted among unrelated people. What matters is the trustworthiness of the issuer of IOU’s. As Felix Martin writes:

Money is not a commodity medium of exchange, but a social technology composed of three fundamental elements:

– The first is an abstract unit of value in which money is denominated.

– The second is a system of accounts, which keeps track of the individuals’ or the institutions’ credit or debt balances as they engage in trade with one another.

– The third is the possibility that the original creditor in a relationship can transfer their debtor’s obligation to a third party in settlement of some unrelated debts.

This third element is vital. Whilst all money is credit, not all credit is money: and it is the possibility of transfer that makes the difference. An IOU which remains for ever a contract between just two parties is nothing more than a loan. It is credit, but it is not money. It is when that IOU can be passed on to a third party-when it is able to be “negotiated” or “endorsed, comes to life and starts to serve as money. Money, in other words, is not just credit-but transferable credit. As the nineteenth-century economist and lawyer Henry Dunning Macleod put it:

“These simple considerations at once shew the fundamental nature of a Currency. It is quite clear that its primary use is to measure and record debts, and to facilitate their transfer from one person to another; and whatever means be adopted for this purpose, whether it be gold, silver, paper, or anything else, is a currency. We may therefore lay down our fundamental Conception that Currency and Transferable Debt are convertible terms; whatever represents transferable debt of any sort is Currency; and whatever material the Currency may consist of, it represents Transferable Debt, and nothing else.”

As we shall see, this innovation of the transferability of debts was a critical development in the history of money. It is this, rather than the graduation from a mythical barter economy, which has historically revolutionised societies and economies. In fact, it is barely an exaggeration-if we make allowance for the unmistakable overtone of Victorian melodrama-to say, as Macleod did:

“If we were asked-Who made the discovery which has most deeply affected the fortunes of the human race?’ We think, after full consideration, we might safely answer-The man who first discovered that a Debt is a Saleable Commodity.”

So, then, the difference between “primitive” money and “real” money might be stated as the transferability of debt, or “debt as a saleable commodity”. Primitive money is simply whatever is used for interpersonal transactions based on the prevailing social conditions. These transactions can (and usually do) take place outside of markets, and profit is seldom involved.

But true “money” as we know it emerges once the “money-stuff” becomes transferable credit between various third parties, denominated in some sort of abstract, commonly agreed-upon unit of account. These credits and debts can then circulate, facilitating economic coordination between unrelated people. Typically debts owed to some sort of powerful political entity—whether it be chief, king, temple, palace, emperor, sovereign, or democratic government, are what typically circulate as money universally throughout an economy.

…even though [money] is nothing but credit, cannot just be created at will by anyone. For sellers to accept buyers’ IOUs in payment, they must be convinced of two things. They must have reason to believe that the debtor whose obligation they are about to accept will, if it comes to it, be able to satisfy their claim: they must believe, in other words, that the money’s issuer is creditworthy. This much would be enough to sustain the existence of bilateral credit.

The test for money is more stringent. For credit to become money, sellers must also trust that third parties will be willing to accept the debtor’s IOU in payment as well. They must believe that it is, and will remain indefinitely, transferable-that the market for this money is liquid. Depending on how powerful are the reasons to believe these two things, it will be easier or harder for an issuer’s IOUs to circulate as money. It is because of this third critical element of transferability that money issued by governments, or by the banks which governments endorse and backstop, is thought to be special…

While it may seem like a discussion of “primitive” money is merely of academic interest to anthropologists, it is, in fact, critical to understanding the history and the essential nature of money–“whence it came, where it went,” as John Kenneth Galbraith put it.

How did “primitive” money become modern? We’ll start telling that story next time.