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It has been suggested that History of Money be merged into this page or section. (Discuss).


David Graeber

David Graeber stresses that, contrary to the mainstream narrative, virtual money did not follow real money, but the other way around. Violence and conquest created debt, which created virtual money, and only in certain historical periods, real coinage, which is associated with the rise of the state.

History then, can be seen as a recurring cycle of real and virtual money.

David Graeber:

"Towards a History of Virtual Money

Here I can return to my original point: that money did not originally appear in this cold, metal, impersonal form. It originally appears in the form of a measure, an abstraction, but also as a relation (of debt and obligation) between human beings. It is important to note that historically it is commodity money that has always been most directly linked to violence. As one historian put it, ‘bullion is the accessory of war, and not of peaceful trade.’i

The reason is simple. Commodity money, particularly in the form of gold and silver, is distinguished from credit money most of all by one spectacular feature: it can be stolen. Since an ingot of gold or silver is an object without a pedigree, throughout much of history bullion has served the same role as the contemporary drug dealer’s suitcase full of dollar bills, as an object without a history that will be accepted in exchange for other valuables just about anywhere, with no questions asked. As a result, one can see the last 5 thousand years of human history as the history of a kind of alternation. Credit systems seem to arise, and to become dominant, in periods of relative social peace, across networks of trust, whether created by states or, in most periods, transnational institutions, whilst precious metals replace them in periods characterised by widespread plunder. Predatory lending systems certainly exist at every period, but they seem to have had the most damaging effects in periods when money was most easily convertible into cash.

So as a starting point to any attempt to discern the great rhythms that define the current historical moment, let me propose the following breakdown of Eurasian history according to the alternation between periods of virtual and metal money:

I. Age of the First Agrarian Empires (3500-800 BCE)

Dominant money form: virtual credit money

Our best information on the origins of money goes back to ancient Mesopotamia, but there seems no particular reason to believe matters were radically different in Pharaonic Egypt, Bronze Age China, or the Indus Valley. The Mesopotamian economy was dominated by large public institutions (Temples and Palaces) whose bureaucratic administrators effectively created money of account by establishing a fixed equivalent between silver and the staple crop, barley. Debts were calculated in silver, but silver was rarely used in transactions. Instead, payments were made in barley or in anything else that happened to be handy and acceptable. Major debts were recorded on cuneiform tablets kept as sureties by both parties to the transaction.

Markets, certainly, did exist. Prices of certain commodities that were not produced within Temple or Palace holdings, and thus not subject to administered price schedules, would tend to fluctuate according to the vagaries of supply and demand. But most actual acts of everyday buying and selling, particularly those that were not carried out between absolute strangers, appear to have been made on credit. ‘Ale women’, or local innkeepers, served beer, for example, and often rented rooms; customers ran up a tab; normally, the full sum was dispatched at harvest time. Market vendors presumably acted as they do in small scale markets in Africa, or Central Asia, today, building up lists of trustworthy clients to whom they could extend credit.

The habit of money at interest also originates in Sumer – it remained unknown, for example, in Egypt. Interest rates, fixed at 20 percent, remained stable for 2 thousand years. (This was not a sign of government control of the market: at this stage, institutions like this were what made markets possible.) This however, led to some serious social problems. In years with bad harvests especially, peasants would start becoming hopelessly indebted to the rich, and would have to surrender their farms and, ultimately, family members, in debt bondage. Gradually, this condition seems to have come to a social crisis – not so much leading to popular uprisings, but to common people abandoning the cities and settling territory entirely and becoming semi-nomadic ‘bandits’ and raiders. It soon became traditional for each new ruler to wipe the slate clean, cancel all debts, and declare a general amnesty or ‘freedom’, so that all bonded labourers could return to their families. (It is significant here that the first word for ‘freedom’ known in any human language, the Sumerian amarga, literally means ‘return to mother.’) Biblical prophets instituted a similar custom, the Jubilee, whereby after seven years all debts were similarly cancelled. This is the direct ancestor of the New Testament notion of ‘redemption’. As economist Michael Hudson has pointed out, it seems one of the misfortunes of world history that the institution of lending money at interest disseminated out of Mesopotamia without, for the most part, being accompanied by its original checks and balances.

II. Axial Age (800 BCE – 600 CE)

Dominant money form: coinage and metal bullion

This was the age that saw the emergence of coinage, as well as the birth, in China, India, and the Middle East, of all major world religions.ii From the Warring States period in China, to fragmentation in India, and to the carnage and mass enslavement that accompanied the expansion (and later, dissolution) of the Roman Empire, it was a period of spectacular creativity throughout most of the world, but of almost equally spectacular violence.

Coinage, which allowed for the actual use of gold and silver as a medium of exchange, also made possible the creation of markets in the now more familiar, impersonal sense of the term. Precious metals were also far more appropriate for an age of generalised warfare, for the obvious reason that they could be stolen. Coinage, certainly, was not invented to facilitate trade (the Phoenicians, consummate traders of the ancient world, were among the last to adopt it). It appears to have been first invented to pay soldiers, probably first of all by rulers of Lydia in Asia Minor to pay their Greek mercenaries. Carthage, another great trading nation, only started minting coins very late, and then explicitly to pay its foreign soldiers.

Throughout antiquity one can continue to speak of what Geoffrey Ingham has dubbed the ‘military-coinage complex’. He may have been better to call it a ‘military-coinage-slavery complex’, since the diffusion of new military technologies (Greek hoplites, Roman legions) was always closely tied to the capture and marketing of slaves, and the other major source of slaves was debt: now that states no longer periodically wiped the slates clean, those not lucky enough to be citizens of the major military city-states – who were generally protected from predatory lenders – were fair game. The credit systems of the Near East did not crumble under commercial competition; they were destroyed by Alexander’s armies – armies that required half a ton of silver bullion per day in wages. The mines where the bullion was produced were generally worked by slaves. Military campaigns in turn ensured an endless flow of new slaves. Imperial tax systems, as noted, were largely designed to force their subjects to create markets, so that soldiers (and also of course government officials) would be able to use that bullion to buy anything they wanted. The kind of impersonal markets that once tended to spring up between societies, or at the fringes of military operations, now began to permeate society as a whole.

However tawdry their origins, the creation of new media of exchange – coinage appeared almost simultaneously in Greece, India, and China – appears to have had profound intellectual effects. Some have even gone so far as to argue that Greek philosophy was itself made possible by conceptual innovations introduced by coinage. The most remarkable pattern, though, is the emergence, in almost the exact times and places where one also sees the early spread of coinage, of what were to become modern world religions: prophetic Judaism, Christianity, Buddhism, Jainism, Confucianism, Taoism, and eventually, Islam. While the precise links are yet to be fully explored, in certain ways, these religions appear to have arisen in direct reaction to the logic of the market. To put the matter somewhat crudely: if one relegates a certain social space simply to the selfish acquisition of material things, it is almost inevitable that soon someone else will come to set aside another domain in which to preach that, from the perspective of ultimate values, material things are unimportant, and selfishness – or even the self – illusory.

III. The Middle Ages (600 CE – 1500 CE)

The return to virtual credit-money

If the Axial Age saw the emergence of complementary ideals of commodity markets and universal world religions, the Middle Ages were the period in which those two institutions began to merge. Religions began to take over the market systems. Everything from international trade to the organisation of local fairs increasingly came to be carried out through social networks defined and regulated by religious authorities. This enabled, in turn, the return throughout Eurasia of various forms of virtual credit-money.

In Europe, where all this took place under the aegis of Christendom, coinage was only sporadically, and unevenly, available. Prices after 800 AD were calculated largely in terms of an old Carolingian currency that no longer existed (it was actually referred to at the time as ‘imaginary money’), but ordinary day-to-day buying and selling was carried out mainly through other means. One common expedient, for example, was the use of tally-sticks, notched pieces of wood that were broken in two as records of debt, with half being kept by the creditor, half by the debtor. Such tally-sticks were still in common use in much of England well into the 16th century. Larger transactions were handled through bills of exchange, with the great commercial fairs serving as their clearing-houses. The Church, meanwhile, provided a legal framework, enforcing strict controls on the lending of money at interest and prohibitions on debt bondage.

The real nerve center of the Medieval world economy though was the Indian Ocean, which along with the Central Asia caravan routes, connected the great civilisations of India, China, and the Middle East. Here, trade was conducted through the framework of Islam, which not only provided a legal structure highly conducive to mercantile activities (while absolutely forbidding the lending of money at interest), but allowed for peaceful relations between merchants over a remarkably large part of the globe, allowing the creation of a variety of sophisticated credit instruments. Actually, Western Europe was, as in so many things, a relative late-comer in this regard: most of the financial innovations that reached Italy and France in the 11th and 12th centuries had been in common use in Egypt or Iraq since the 8th or 9th centuries. The word ‘cheque’, for example, derives from the Arab sakk, and arrived in English only around 1220 AD.

The case of China is even more complicated: the Middle Ages there began with the rapid spread of Buddhism, which, while it was in no position to enact laws or regulate commerce, did quickly move against local usurers by its invention of the pawn shop – the first pawn shops being based in Buddhist temples as a way of offering poor farmers an alternative to the local usurer. Before long, though, the state reasserted itself, as the state always tends to do in China. But as it did so, it not only regulated interest rates and attempted to abolish debt peonage, it moved away from bullion entirely by inventing paper money. All this was accompanied by the development, again, of a variety of complex financial instruments.

All this is not to say that this period did not see its share of carnage and plunder (particularly during the great nomadic invasions) or that coinage was not, in many times and places, an important medium of exchange. Still, what really characterises the period appears to be a movement in the other direction. Money, during most of the Medieval period, was largely delinked from coercive institutions. Money changers, one might say, were invited back into the temples, where they could be monitored. The result was a flowering of institutions premised on a much higher degree of social trust.

IV. Age of European Empires (1500-1971)

The return of precious metals

With the advent of the great European empires – Iberian, then North Atlantic – the world saw both a reversion to mass enslavement, plunder, and wars of destruction, and the consequent rapid return of gold and silver bullion as the main form of currency. Historical investigation will probably end up demonstrating that the origins of these transformations were more complicated than we ordinarily assume. Some of this was beginning to happen even before the conquest of the New World. One of the main factors of the movement back to bullion, for example, was the emergence of popular movements during the early Ming dynasty, in the 15th and 16th centuries, that ultimately forced the government to abandon not only paper money but any attempt to impose its own currency. This led to the reversion of the vast Chinese market to an uncoined silver standard. Since taxes were also gradually commuted into silver, it soon became the more or less official Chinese policy to try to bring as much silver into the country as possible, so as to keep taxes low and prevent new outbreaks of social unrest. The sudden enormous demand for silver had effects across the globe. Most of the precious metals looted by the conquistadors and later extracted by the Spanish from the mines of Mexico and Potosi (at almost unimaginable cost in human lives) ended up in China. These global-scale connections that eventually developed across the Atlantic, Pacific, and Indian Oceans have of course been documented in great detail. The crucial point is that the delinking of money from religious institutions, and its relinking with coercive ones (especially the state), was here accompanied by an ideological reversion to ‘metallism’.iv

Credit, in this context, was on the whole an affair of states that were themselves run largely by deficit financing, a form of credit which was, in turn, invented to finance increasingly expensive wars. Internationally the British Empire was steadfast in maintaining the gold standard through the 19th and early 20th centuries, and great political battles were fought in the United States over whether the gold or silver standard should prevail.

This was also, obviously, the period of the rise of capitalism, the industrial revolution, representative democracy, and so on. What I am trying to do here is not to deny their importance, but to provide a framework for seeing such familiar events in a less familiar context. It makes it easier, for instance, to detect the ties between war, capitalism, and slavery. The institution of wage labour, for instance, has historically emerged from within that of slavery (the earliest wage contracts we know of, from Greece to the Malay city states, were actually slave rentals), and it has also tended, historically, to be intimately tied to various forms of debt peonage – as indeed, it remains today. The fact that we have cast such institutions in a language of freedom does not mean that what we now think of as economic freedom does not ultimately rest on a logic that has for most of human history been considered the very essence of slavery.

V. Current Era (1971 onwards)

The empire of debt

The current era might be said to have been initiated on 15 August 1971, when US President Richard Nixon officially suspended the convertibility of the dollar into gold and effectively created the current floating currency regimes. We have returned, at any rate, to an age of virtual money, in which consumer purchases in wealthy countries rarely involve even paper money, and national economies are driven largely by consumer debt. It’s in this context that we can talk about the ‘financialisation’ of capital, whereby speculation in currencies and financial instruments becomes a domain unto itself, detached from any immediate relation with production or even commerce. This is of course the sector that has entered into crisis today.

What can we say for certain about this new era? So far, very, very little. Thirty or forty years is nothing in terms of the scale we have been dealing with. Clearly, this period has only just begun. Still, the foregoing analysis, however crude, does allow us to begin to make some informed suggestions.

Historically, as we have seen, ages of virtual, credit money have also involved creating some sort of overarching institutions – Mesopotamian sacred kingship, Mosaic jubilees, Sharia or Canon Law – that place some sort of controls on the potentially catastrophic social consequences of debt. Almost invariably, they involve institutions (usually not strictly coincident to the state, usually larger) to protect debtors. So far the movement this time has been the other way around: starting with the ’80s we have begun to see the creation of the first effective planetary administrative system, operating through the IMF, World Bank, corporations and other financial institutions, largely in order to protect the interests of creditors. However, this apparatus was very quickly thrown into crisis, first by the very rapid development of global social movements (the alter-globalisation movement), which effectively destroyed the moral authority of institutions like the IMF, and left many of them very close to bankrupt, and now by the current banking crisis and global economic collapse. While the new age of virtual money has only just begun and the long term consequences are as yet entirely unclear, we can already say one or two things. The first is that a movement towards virtual money is not in itself, necessarily, an insidious effect of capitalism. In fact, it might well mean exactly the opposite. For much of human history, systems of virtual money were designed and regulated to ensure that nothing like capitalism could ever emerge to begin with – at least not as it appears in its present form, with most of the world’s population placed in a condition that would in many other periods of history be considered tantamount to slavery. The second point is to underline the absolutely crucial role of violence in defining the very terms by which we imagine both ‘society’ and ‘markets’ – in fact, many of our most elementary ideas of freedom. A world less entirely pervaded by violence would rapidly begin to develop other institutions. Finally, thinking about debt outside the twin intellectual straightjackets of state and market opens up exciting possibilities. For instance, we can ask: exactly what do free men and women owe each other, what sort of promises and commitments should they make to each other, in a society in which that foundation of violence had finally been yanked away?" (

L. Randall Wray on Lesley Kurke: Origins of money in the state

Source: From a Review of Coins, Bodies, Games, and Gold, by Leslie Kurke, Princeton University Press, Princeton, New Jersey, 1999; xxi, 385; paper $29.95 (ISBN 0-691-00736-5), cloth $65.00 (ISBN 0-691-01731-X). Reviewed by L. Randall Wray, University of Missouri—Kansas City.

L. Randall Wray:

"We all know the orthodox story about the origins of coins. A commodity money functioning as a medium of exchange replaced inconvenient barter. Eventually, societies settled on precious metals due to their inherent characteristics (high value-to-weight, divisibility, and so on), which were later stamped to indicate fineness and to reduce counterfeiting. At the same time, it has long been established that the first coins were issued in Lydia and East Greece, probably no earlier than the third or fourth quarter of the seventh century B.C.. The dating is puzzling, because we also know that money, local markets, long-distance trade, and even complex financial instruments existed for several thousands of years before coins were invented. If precious metal coins were indeed invented to reduce transactions costs, one wonders why it took so long for sophisticated traders to discover them. Further, as Innes (1913) has pointed out, while coins might have been important to the Greek world and perhaps to the Roman world, they played a relatively unimportant role throughout most of European history—with bills of exchange far more important for long-distance trade and with tally sticks or entries on merchant ledgers sufficient to finance domestic trade (a point confirmed by recent scholarship, such as that of McIntosh 1988). Unfortunately, economists—even Institutionalists—have paid far too little attention to this paradox.

Numismatists and cultural archeologists have been, at least recently, more reluctant to impose modern economistic thinking on early societies. As Polanyi warned long ago, the Greek economy was "embedded" in other noneconomic institutions, "the economic process itself being instituted through kinship, marriage, age-groups, secret societies, totemic associations, and public solemnities." (Polanyi 1968 p. 84) Leslie Kurke, Professor of Classics and Comparative Literature at the University of California—Berkeley, tackles this subject from a close analysis of the literary texts of the period, sans economistic blinders. While, as she admits, "this is a hard book to characterize"—and, I might add, a difficult book to read—it provides an analysis that I found to be eminently engaging and largely consistent with an Institutionalist approach. Indeed, Kurke approvingly quotes the passage from Polanyi above, and carefully adopts the embedded/disembedded dichotomy throughout her book, arguing "the fact of an embedded economy must make a difference to the causes for the invention of coinage". (p. 5) The two main questions she attempts to answer are: Why were coins introduced?, and, Did this represent a conceptual revolution?

She begins by quoting an intriguing passage from Herodotus:

The Lydians use customs very similar to those of the Greeks, apart from the fact that they prostitute their female children. And first of men whom we know, they struck and used currency of gold and silver, and they were also the first retail traders. And the Lydians themselves claim that also the games that now exist for them and for the Greeks were their invention. (p. 3) Note how Herodotus juxtaposes prostitution, coinage, retail trade, and games—all (inaccurately) attributed to the Lydians, who are otherwise supposed to be much like the Greeks. As Kurke wonders, "why do all these phenomena form a natural class for the historian (if they do)? In a sense, the entire discussion that follows is an attempt to make this a comprehensible list: to explain why it is especially so for a mid-fifth-century writer and why it occurs in Herodotus’s Histories." (pp. 3-4) Her discussion is based primarily on literary texts, although there is also some analysis of art (of an erotic nature, with photographs). There are two problems. First, as she emphasizes, "we possess only 5 to 10 percent of the original literary and artistic production" (xi). Second, while prostitution, games, and retail trade are frequently discussed and linked in the literature, coinage is virtually never discussed (at least in a positive sense; almost all references are to counterfeiting). One might conclude that coinage must have been quite unimportant, meriting barely a mention. Quite the contrary, Kurke insists, pointing to ample precedent in psychoanalysis, deconstructionism, and Marxist criticism for concern with what the texts don’t say. She also notes that the greatest Greek democracy, Athens, produced not a single text supportive of democracy—rather, all contemporaneous discussion of Athenian political theory was written by a hostile elite. While her line of argument might appear far-fetched, one can imagine the cultural archeologist in 4050 studying today’s economic textbooks. As Heilbroner (1999) has famously argued, the word "capitalism" almost never appears in any current text. Is one to conclude that capitalism is not important at the turn of the new millennium? Or, does the deafening silence tell us more about the ideology of the brown-nosing sycophants who write textbooks? Is capitalism never mentioned because of its overriding dominance in our modern society? Kurke notes that Kraay (1964) revolutionized numismatics when he argued that coins were invented to standardize payments made by and to the state. He challenged the economist’s assumption that coins originated to facilitate trade by noting that the early denominations were too large, that circulation of coins was too narrow, and that use of coins was limited to Greeks while trade existed for thousands of years without coins. Kurke recognizes that some of Kraay’s evidence has since been disputed, however, her primary objection is that Kraay had not paid sufficient attention to culture, institutions, and other social and political motivations. In her view, "the minting of coin would represent the state’s assertion of its ultimate authority to constitute and regulate value in all the spheres in which general-purpose money operated simultaneously—economic, social, political, and religious. Thus, state-issued coinage as a universal equivalent, like the civic agora in which it circulated, symbolized the merger in a single token or site of many different domains of value, all under the final authority of the city." (pp. 12-13) In a sense, the choice of precious metals for coinage was a historical accident, a pointed challenge to elite monopoly over precious metal. By coining precious metal, the polis appropriated the highest sphere of gift exchange, and with its stamp it asserted its ultimate authority—both inwardly (or domestically) but also outwardly (in long-distance trade): "For every Greek polis that issued its own coin asserted its autonomy and independence from every other Greek city, while coinage also functions as one institution among many through which the city constituted itself as the final instance against the claims of an internal elite." (p. 13) As the polis used coins for its own payments and insisted on payment in coin, it inserted its sovereignty into retail trade in the agora. Mainstream economists frequently assert that growth of the local market was associated with expansion of democracy, but Kurke stands the typical Austrian argument on its head by noting the critical role played by the polis in wresting control away from the elite. By tying the invention of coinage to the special circumstances of Greece, Kurke’s analysis makes it clear why coins have been so unimportant to other economies before and since.

Of course, from the perspective of Greece, coinage was no historical accident. As Kurke argues, introduction of coins arose out of a "seventh/sixth century crisis of justice and unfair distribution of property". (p. 13) Coins appeared at this particular time because the polis had gained sufficient strength to rival the symposia, hetaireiai (private drinking clubs) and other institutions and xenia (elite networking) that maintained elite dominance. At the same time, the agora and its use of coined money subverted hierarchies of gift exchange, just as a shift to taxes and regular payments to city officials (as well as severe penalties levied on officials who accepted gifts) challenged the "natural" order that relied on gifts and favors. It is no coincidence that elite literary works disparaged the agora as a place for deceit, and coinage was always noted for its "counterfeit" quality. As Kurke argues, as coins are nothing more than tokens of the city’s authority, they could have been produced from any material. However, because the aristocrats measured a man’s worth by the quantity and quality of the precious metal he had accumulated, the polis was required to mint high quality coins, unvarying in fineness. (Note that gold is called the noble metal because it remains the same through time, like the king.) The citizens of the polis by their association with high quality, uniform, coin (and in the texts the citizen’s "mettle" was tested by the quality of the coin) gained equal status; by providing a standard measure of value, coinage rendered labor comparable and in this sense coinage was an egalitarian innovation. Obviously the elite reacted to such developments, although in a veiled manner. When money is discussed in the texts, its introduction is invariably attributed to tyrants who destroy the nomos, the community, the devine order. It is also interesting that the elite usually attributes invention of money to the requirements of scorned retail trade—just as modern economics does, albeit without scorn—rather than to the struggle to assert sovereignty of the polis. As Kurke argues, this "mystification" of the origins of money is ideological—as it remains today—a purposeful rejection of the legitimacy of democratic government." (


"Tribal society had exchange, but it was ceremonial and mostly designed to increase social cohesion rather than to maximize the globule's utility. Further, there was no need of a medium of exchange or even of a numeraire since the exchanges were fixed by custom. We know that elaborate compensation schedules were developed to prevent blood feuds; these required measuring the debt one owed for injuries--actual and imagined--that were inflicted on others. The wergeld, bridewealth, cumhal, and so on, were specific and were established in public assemblies--they were not the result of individual higgling and haggling.13 They say it cost four times as much to deprive a Russian of his moustache as to cut off one of his fingers, and while it is hard to imagine why, much less, how, one would go about doing that, the codes could easily provide a variety of payments for a variety of injuries and hence had no reason to determine that a moustache is worth four fingers, although modern day historians would want to calculate that as it makes a nice story and confirms our prejudice regarding Russian men.

No, we have to look elsewhere for money. We could look to early Egypt but there the evidence is somewhat murky, partly because they had a habit of writing on papyrus that mostly did not survive. Historians say the pyramids were built without money, and while I think that is doubtful, we'll probably never know for sure. However, fortunately, Mesopotamia had a lot of clay and not much else, and so when they invented writing and numbers to keep track of debts, they wrote it on clay tablets. As a result, we probably know more about the finances of Sumer in the 3rd millennium BC than we will ever know about the dealings of the Japanese Finance Ministry in 1997.

As I said, there wasn't much reason to standardize wergeld payments. If you lost a moustache or beard and the payment was a cow, that would be fine and dandy because unless you were exceedingly unlucky you'd probably only lose one or two or a half dozen moustaches over your lifetime and receive one or two or a half dozen cows in restitution. As a consequence, there would be little danger of becoming satiated in cows. Besides, it might begin to look a little suspicious, or at least tacky, if you lost a moustache in order to demand a horse.

On the other hand, the reasons for standardizing payments to the temple and palace are obvious. In the beginning, the temple could just demand that the village give 10% of everything produced, and since most of what the village produced was barley, and since barley is also what the temple mainly wanted and consumed, that was a nice neoclassical double coincidence. But when the palace was full of barley and wanted goats or bricklayers or mercenaries, it would have to impose a goat tax or bricklayer tax or mercenary tax, or find a bricklayer or mercenary or goat who happened to need barley. So the tax debts and payments were standardized in the mina money unit, which represented 60X60X2 grains of barley, which weighs about a pound, and from which all the modern weight units and money units come: The shekel, the lira, the pound sterling--whatever, as Bob Dole says.

The palaces then farmed-out tax collections to tax collectors who took the wives as bond servants and forced the villages into perpetual tax and interest indebtedness. Here it would not matter what the wife looked like, since she was merely collateral, unless she did happen to look like Jackie and the creditor happened to look like JFK, in which case happy double coincidences, or something like that, might generate some debt relief. After the Monica affair, you all get the picture.The clay shubati ("received") tablets record these and other debts.15 Each tablet indicated a quantity of grain, the word shubat i, the name of the person from whom received, the name of the person by whom received, the date, and the seal of the receiver. The tablets were either stored in temples where they would be safe from tampering, or they were sealed in cases which would have to be broken to get to the tablet. Unlike the tablets stored in temples, the "case tablets" could and did circulate. A debt could be cancelled and taxes paid by delivering a tablet recording another's debt, whereupon the case could be broken to verify the debt terms.

And so it went for several thousand years before King Pheidon of Argos issued the first coin in the seventh century BC.16 In other words, taxes, debts, and price lists existed for thousands of years before anyone had the bright idea of reducing transactions costs by creating money through stamping coins. Well, they were slow learners. Or were they? Were coins the first money? Were they created to reduce transactions costs in markets? Did they reduce transactions costs? Were coins important in market exchanges?

No! Markets got along just fine without coins both before and after their invention. From the earliest times, markets operated on the basis of credits and debits. We are not speaking here solely of wholesale trade among merchants, for even the smallest sales to consumers took place on credit, which would be carried on the books of the merchant for years before being cleared. Furthermore, if anything, coins increased market transaction costs, as we shall see in a moment.

Let us skip forward a couple of thousand years to medieval Europe, where coins were certainly well-known, but little used. As Mitchell Innes said: "For many centuries, how many we do not know, the principal instrument of commerce was the tally."18 This was a stick of hazelwood, notched to indicate the amount of the purchase or debt, created when the "buyer" became a "debtor" by accepting a good or service from the "seller" who automatically became the "creditor". The date and the debtor's name were written on two opposite sides of the stick, which was then split so that the notches were cut in half with the name and date on both pieces of the tally. The split was stopped about an inch from the base of the stick so that one piece, the "stock" was longer than the other, called the "stub". The creditor would retain the stock (from which our terms capital and corporate stock derive) while the debtor would take the stub (a term still used as in "ticket stub") to ensure that the stock was not tampered. When the debtor retired her debt, the two pieces of the tally would be matched to verify the amount of the debt. Of course, wooden tallies were not the only records as there was nothing unique about hazelwood. There appear to be copper tallies from Italy from 1000 to 2000 years B.C., purposely broken at the time of manufacture to provide a stock and stub. And, really, the encased shubati tablets were nothing more than tallies, with the case resolving the tampering problem so that no stub was required.

A merchant holding a number of tally stocks against customers could meet with a merchant holding tally stocks against the first merchant, "clearing" his own tally stub debts. In this way, great medieval "fairs" were developed to act as "clearing houses" allowing merchants to settle their mutual debts and credits without the use of a single coin". While textbooks teach that these fairs were great, early, markets, actually the retail trade originated as a sideline to the clearing house trade.

There are several problems with the textbook, marketplace story. First, the tally debts (in the form of clay tablets) are at least 2000 years older than the oldest known coins. Second, the denominations of all the early precious metal coins (even the least valuable) were far too high. For example, the most common denomination of the earliest electrum coins would have had a purchasing power of about ten sheep.20 They might have sufficed for wholesale trade of large merchants, but they could not have been used in day-to-day retail trade. It is also quite unlikely that coins would have been invented to facilitate trade, for Phoenicians and other peoples with sophisticated trade managed without coins for many centuries. Indeed, the introduction of coins would have been a less efficient alternative in most cases.

Finally, while we are accustomed to a small number of types of coins (always issued by government, with perhaps one coin for each denomination) the typical case until recently was a large variety of coins, sometimes including many with the same face value but different exchange value, issued by a wide variety of merchants, kings, feudal lords, barons, and others. Indeed, in Gaul at one point there were 1200 different coinages.21 Notethat the textbook story relies on choice of a particular precious metal precisely to reduce the transactions costs of barter. However, in reality, the poor consumer was faced with a tremendous number of coins of varying weight, denomination, alloy, and fineness. Indeed, it is difficult to believe that the typical member of these societies would be more able to assess the value of a coin than she would be able to assess the value of, say, a cow. Rather than reducing transactions costs by using precious metals, it would likely have reduced transactions costs to use cows! Note it does no good to argue that cows are less divisible, because the coins were far too valuable to have been used in daily transactions, anyway. In other words, lower-cost alternatives to coin were already in use. Surely hazelwood tallies or clay tablets had lower non-monetary value than did precious metals. Thus, it is unlikely that metal coins would be issued to circulate competitively (for example, with hazelwood tallies) unless their nominal value were well above the value of the embodied precious metal. So it is not surprising that the value of a coin was almost always well above the value of the embodied precious metal.

What then are coins, what are their origins, and why are they accepted?

Coins appear to have originated as government "pay tokens" (in G.F. Knapp's colorful phrase22), as nothing more than evidence of debt. Given the large denomination of the early coins and uniform weight (although not uniform purity--which probably could not have been tested at the time), coins were most likely invented by kings to make a large number of uniform payment in the form of precious metal to reduce counterfeiting. Indeed, according to R.M. Cook, coins were probably invented to pay mercenaries. It was likely recognized from the very beginning that the purpose of the coin was to give the population a convenient means for paying taxes. Use of these early coins as a medium of exchange was an "accidental consequence of the coinage", and not the reason for it. So from the very beginning, coins were intentionally minted to provide "state finance". This explains the relatively large value of the coins, which were evidence of the state's debt to "soldiers and sailors". The coins were then nothing more than "tallies" as described above--evidence of government debt.

Coins, then, are mere tokens of the crown's debt, like the tally. But why on earth would the crown's subjects accept hazelwood tallies or token coins?

Innes supplies the answer:

"The government by law obliges certain selected persons to become its debtors. This procedure is called levying a tax, and the persons thus forced into the position of debtors to the government must in theory seek out the holders of the tallies and acquire from them the tallies by selling to them some commodity in exchange for which they may be induced to part with their tallies. When these are returned to the government treasury, the taxes are paid."

The vast majority of revenues collected by inland tax collectors in England as well as the majority of government spending were in the form of the tallies. Each taxpayer did not have to individually seek-out a crown tally, for matching the crown's creditors and debtors was accomplished "through the bankers, who from the earliest days of history were always the financial agents of government".27 Note, also, that use of the hazelwood tallies continued in England until 1826 when they literally went out in a blaze of glory. After 1826, when tallies were returned to the exchequer, they were stored in the Star Chamber and other parts of the House of Commons. In 1834, in order to save space and economize on fuel it was decided that they should be thrown into the heating stoves of the House of Commons. "'So excessive was the zeal of the stokers that the historic parliament buildings were set on fire and razed to the ground."

The inordinate focus of economists on precious metal coins and market exchange then appears to be misplaced. The key concept is debt, and specifically, the ability of the state to impose a tax debt on its subjects; once it has done this, it can choose the form in which subjects can "pay" the tax. Certainly the government's tokens can also be used as a medium of exchange, but this derives from its ability to impose taxes, and indeed is necessitated by imposition of the tax (if one has a tax liability but is not a creditor of the crown, one must offer things for sale to obtain the crown's tokens).

There are other matters that we could go into, such as the wide-spread belief that evil kings purposely debasedtheir coins by reducing gold content to obtain seigniorage--which is nonsense since the value of the coins wasn't determined by the gold content anyway.29 The coins were nothing but evidence of the crown's debt.

Instead, kings periodically "cried-down" the nominal value of their token coins as a well-recognized method of taxation; rather than delivering one coin to pay a tax, one had to deliver two, so one had better get out ones's sword to serve in the King's army to earn another coin to avoid being on the receiving end of the tax collector's sword. I could also go into the relatively recent development of the gold standard, which occurred partly in response to the crying-down but also due to a great deal of confusion and mystification that came to see gold as the guardian of the value of the currency. And this is quite interesting because it is only after the purposeful and visible hand of government imposed the gold standard that we finally achieved anything like the sort of monetary system that the orthodox economists imagine to have sprung from the minds of atomistic globules of desire.

But I don't have time for that because we need to get back to Keynes and the General Theory of Employment, Interest, and Money . Note that interest makes up a third of the General Theory , at least according to the title. Terry told us last year that no one at Post-War Columbia paid much interest to interest, which is rather a strange omission if anyone had read the title. Or had read the Bible.

Let us go back to those tax collectors who would pay the tax for the village, putting it in debt bondage at an interest rate of about 33% per year.30 That is pretty high. I suppose those at Columbia had the typical view of interest--that it should matter for investment. But, as Terry said, when you think about fluctuations of the MEC schedule, they can easily swamp even a 33% interest rate.31 And that is true but it is not the point. If, instead, one thinks about the interest rate as the rate of growth of liabilities--as Kenneth Boulding did--one gets closer to the problem.32 From the Babylonians to Keynes it was recognized that debt claims on income have a tendency to rise more quickly than the ability to pay because of the miracle of compounding. This is the so-called Soddy principle.33 Hence, from the time of the first debts, debt cancellation was the means to wipe slates clean to prevent mounting debts from concentrating all wealth in the hands of the creditors. When a temple was built, all debts were cancelled. When a new ruler came to power, all debts were cancelled. Babylonians and everyone else until the time of the Roman empire had a circular view of time. The world begins in year one with a clean slate, when the emperor cancels all debts, and then debts grow at about the rate of interest until he dies or reaches the 30th year of his reign, when a clean slate restores the natural way of things and time begins anew. Hence, the Biblical references to Redemption and Forgiveness and Hallelujah, too--not spiritual relief, but real world debt relief. What is the good news to which the gospel refers? Debt cancellation. It is no coincidence that much of the Ten Commandments as well as the Code of Hammurabi have to do with debt and interest. "Don't covet thy neighbor's wife"--that had nothing to do with sex, until the uptight Paulines got hold of it, but rather with coveting her as a bondmaid.34 So, clean slate, debt cancellation, redemption.

What does Keynes call it? Euthanasia of the Rentier. Why not debt cancellation? Because we adopted Roman Law--a law of property and a linear view of time. We cannot go back, we can never begin anew with a clean slate. Debts are never forgiven; property is never returned to the debt bondman. Diamonds aren't forever, debt is. Thus, all we can do is to drive the interest rate to zero. We will always be in debt, but at least it won't grow at a compounded rate." (


Succeeding stages of reciprocal exchange acccording to Thomas Greco:

(mbauwens note: this periodization is rejected by anthropologists and historians of money, see David Graeber above)

  1. Barter trade - Barter is the most primitive form of reciprocal exchange as it only involves two people and depends upon the "double coincidence" of needs. (90)
  2. Commodity money - The first step on the ladder is when traders began to accept commodities for their exchange value. Traders accept the commodity because there is sufficiently high demand (or "general demand" as Greco says) for them. (Determining which commodities can serve as money seems to be a good application of the Keynesian beauty contest). Commodity money, of course, includes gold and silver coins and Greco points out that transactions with commodity money "essentially remained a barter trade of one thing for another." (90) Elsewhere, Greco credits E.C. Riegel with the term "split-barter."
  3. Symbolic money - Claim checks or receipts for deposited commodities like gold or wheat are symbolic money. What's noteworthy about symbolic money is its acceptability "derives from the fact that it can be redeemed by the holder on demand for the amount of commodity that it represents." (92) Greco spends relatively little space on symbolic money and calls it the half step between commodity money and credit money.
  4. Credit money - The "great monetary transformation" from commodity and symbolic to credit money (an IOU) both gave humanity the ability to expand the money supply to meet the needs of commerce and also provided a new major vector for abuse. The origin of credit money is attributed to goldsmiths whose original business was to issue (create and put into circulation) paper receipts (symbolic money) for gold deposits. Again, people readily accepted these paper banknotes because they could be redeemed for gold on demand. The goldsmiths noticed that as long as they had a safe buffer of surplus gold, they could create additional banknotes. They could create a lot more than they could spend so they started making loans with these additional banknotes. With this new financial innovation, both credit money and fractional reserve banking were born and goldsmiths became bankers. Do you see a problem? Greco reveals "one of the most fundamental problems with paper money historically was the fact that both symbolic paper and credit paper were both made redeemable for gold." (94) Inevitably, banks would run out of gold and shut down. This failure to distinguish between symbolic paper and credit paper was the source of chronic financial instability manifested by bank runs and panics and led people to mistakenly distrust all paper money. Greco tells us the important question to ask is "What does the paper represent?"


Key Books to Read

Book: Money. Understanding and Creating Alternatives to Legal Tender. Thomas Greco.


A classic of the monetary transformation movement.

Book: Money; A Mirror Image Of The Economy by Dr. J.W. Smith at

Davies, Glyn. A History of money from ancient times to the present day, 3rd. ed. Cardiff: University of Wales Press, 2002. 720p. 0-7083-1717-0 (paperback). - reprinted November 2005. See