Monday, August 10, 2009

The origins of money

Came across a review article by Professor Michael E. Smith, The Archaeology of Ancient State Economies [link to pdf download], which I found enlightening.

The references to the origins and history of money I found particularly striking, so have followed up by reading John F. Henry The Social Origins of Money: the Case of Egypt [pdf] and Eric Tymoigne & L. Randall Wray Money: an Alternative Story.

After reading the three articles, I am convinced that the term money is not only fraught, but often a positive bar to clear thinking since not only can one be talking about rather different functions that may or may not be conjoined but which of those one means can become unclear, encouraging somewhat unhelpful debate about what is “really” money.

While I also found the Henry and Tymoigne & Wray pieces enlightening, their views of "primitive communism" seemed a bit, well, primitive.

The notion that hunter-gatherer societies were happy collectivities certainly does not seem to accord with the evidence that I am aware of—including the high levels of violence. Nor does the notion that there was no property or exchange. Land, fisheries, etc may not have been owned but tools, canoes, pets, individual kills, etc seemed to have been. One got status from contributing, but they were seen as personal contributions. Like all human collectivities, hunter-gatherer societies had to deal with free rider problems.

Indeed, it seems to me that by drawing some big thick line between egalitarian/tribal societies and hierarchical ones, both pieces on the origins of money actually somewhat undermined their analysis. It is surely more plausible that early rulers worked from existing notions of obligations rather than imposed entirely new ones with no antecedents.
Those existing notions of obligations included (indeed especially) trade: as I understand it, there is considerable evidence of trade over long distances by hunter-gatherer societies. This sort of exchange, where one was not dealing with kin obligations, is surely a very plausible basis from which to develop other non-kin exchanges.

(Tymoigne & Wray did include an informative discussion of African colonial examples where European imperial rulers tried to use tax obligations in money to get work out of the inhabitants. But such were also very much outside impositions from already monetarized societies.)

Salzman’s Culture and Conflict in the Middle East sets out tribal societies which are both egalitarian and very property and exchange oriented. To be sure, they are pastoralist societies on the other side of the development of agrarian rulership and so are more exchange-oriented than hunter-gatherer societies are likely to be. Still, the wider patterns do seem to fit in with Harold Demsetz’s classic essay on the origins of private property, which used the example of Amerindians and the fur trade.

Indeed, the notion of weregild makes little sense without a notion of private property or a notion of exchange. Trade—an exchange of items each values more than the other (otherwise why bother?)—and compensation—a transfer which balances something already done—are surely natural conjunctions. Indeed, Mitchell Innes’ 1913 What is Money? and 1914 The Credit Theory of Money articles (used by both Henry and Tymoigne & Wray) indicates one can have trade and exchange without any physical medium of exchange at all, long before electronic transfers.

I found Tymoigne & Wray’s dismissal of units of account being able to arise out of exchange rather puzzling. There is a classic 1945 piece on how cigarettes emerged as currency (both a unit of exchange and of account) in PoW camps. A more recent manifestation of the same process has occurred as a result of smoking being banned in US federal prisoners, so tins of mackerel have apparently emerged as currency

It is clearly very useful to have a generic trade item that can function as a medium of exchange, a unit of account and a store of value. To be sure, prisoners come from monetarised economies, but it still provides useful and recurring examples where central authority is not required. As was also not required in the medieval trading Innes describes.

There also seems to be some tendency to look for unnecessary complexity. Regarding Tymoigne & Wray’s comment that scholars are unsure why silver took over from barley as a unit of account in Mesopotomia, since silver is easily portable and does not decay, its value as a medium of exchange (such as for temple obligations) over barley is surely enough to explain why it took over as a unit of account. Indeed, the process they describe of whittling down of units of account to silver and barley and then just silver looks like a process of selection for just such efficiency.

That coins are creation of states/rulership, that exchange does not need coins—or even generic trade items in whatever form—all seemed straightforward. But Tymoigne & Wray in particular seemed to be straining too hard to make money entirely an act of authority. Much of the medieval patterns they describe seemed to be as much about commercial activity not needing official sanction—and that being a problem for rulers—as rulers organising their own resource demands.

Part of the problem seems to be their using an unhelpful definition of capitalism:
capitalism (an economic system based on production for market to realize profits).
But “production for market to realize profits” is just commerce. The point of trade is to exchange something you want less for something you want more. What is distinctive about capitalism is that the factors of production themselves are exchangeable in markets. Which means a prime avenue for profit is the purchase and production of capital. (Hence the notorious tendency of capitalist societies to produce ever more capital.)

Because of their unhelpful definition of “capitalism”, Tymoigne & Wray are inclined to systematically downplay trade and commerce on the grounds that a given society was not “capitalist”. Well, no, but that does not imply there is not trade or commerce. Which is why I particularly liked Prof. Smith’s point about commercialisation as a specific axes on which societies could differ, as it does not run commerce and capitalism together and sees commerce as a thing in itself.

What I did very much get out of both pieces on the history of money was how important debt and liability is in creation and development of money and how unhelpful it is to focus on coins. The Tymoigne & Wray piece (as with Innes’ pieces earlier) was also very good for showing how media of exchange could be “virtual” long before computers.

While all the above reading was good in focusing on empirical evidence and the complexity of “money” it also shows just how inherently conceptually difficult money is.

There also seems to be a genuine opportunity for some fruitful cross-disciplinary collaboration. In the words of an email I received from an anthropologist:
… people like Wray don’t know the ethnographic literature and thus provide unbalanced accounts of early money and non-western economies. But on the other hand, economic anthropologists working on “primitive valuables” don’t cite much of the literature in economics. … the chartalists … perspective seemed to fit well with what archaeologists have found, and it is a perspective that few archaeologists seem familiar with … But it would be great if someone would synthesize the various perspectives in light of archaeological and historical evidence.

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