The Nature and Origin of Money1
I
n the early stages of trade, when economizing individuals are only slowly awakening to knowledge of the economic gains that can be derived from exploitation of existing
exchange opportunities, their attention is, in keeping with the simplicity of all cultural beginnings, directed only to the most1 Theodor Mommsen, Geschichte des römischen Münzwesens, Berlin, 1860, pp. v–xx, and 167 ff.; Carnap, “Zur Geschichte der Münzwissenschaft und der Werthzeichen,” Zeitschrift für die gesammte Staatswissenschaft, XVI (1860), 348–396; Friedrich Kenner, “Die Anfänge des Geldes in Alterthume,” Sitzungsberichte der Kaiserlichen Akademie der Wissenschaften zu Wien: Philologisch-Historische Classe, XLIII (1863), 382–490; Roscher, op cit., pp. 36–40; Hildebrand, op. cit., p. 5; Scheel, op. cit., pp. 12–29; A.N. Bernardakis, “De l’origine des monnaies et de leurs noms,” Journal des Economistes, (Third Series), XVIII (1870), 209–245.
257obvious of these opportunities. In considering the goods he will acquire in trade, each man takes account only of their use value to himself. Hence the exchange transactions that are actually performed are restricted naturally to situations in which economizing individuals have goods in their possession that have a smaller use value to them than goods in the possession of other economizing individuals who value the same goods in reverse fashion. A has a sword that has a smaller use value to him than B’s plough, while to B the same plough has a smaller use value than A’s sword—at the beginning of human trade, all exchange transactions actually performed are restricted to cases of this sort.
It is not difficult to see that the number of exchanges actually performed must be very narrowly limited under these conditions. How rarely does it happen that a good in the possession of one person has a smaller use value to him than another good owned by another person who values these goods in precisely the opposite way at the same time! And even when this relationship is present, how much rarer still must situations be in which the two persons actually meet each other! A has a fishing net that he would like to exchange for a quantity of hemp. For him to be in a position actually to perform this exchange, it is not only necessary that there be another economizing individual, B, who is willing to give a quantity of hemp corresponding to the wishes of A for the fishing net, but also that the two economizing individuals, with these specific wishes, meet each other. Suppose that Farmer C has a horse that he would like to exchange for a number of agricultural implements and clothes. How unlikely it is that he will find another person who needs his horse and is, at the same time, both willing and in a position to give him all the implements and clothes he desires to have in exchange!
This difficulty would have been insurmountable, and would have seriously impeded progress in the division of labor, and above all in the production of goods for future sale, if there had not been, in the very nature of things, a way out. But there were elements in their situation that everywhere led men inevitably, without the need for a special agreement or even government compulsion, to a state of affairs in which this difficulty was completely overcome.
The direct provision of their requirements is the ultimate purpose of all the economic endeavors of men. The final end of their exchange operations is therefore to exchange their commodities for such goods as have use value to them. The endeavor to attain this final end has been equally characteristic of all stages of culture and is entirely correct economically. But economizing individuals, would obviously be behaving uneconomically if, in all instances in which this final end cannot be reached immediately and directly, they were to forsake approaching it altogether.
Assume that a smith of the Homeric age has fashioned two suits of copper armor and wants to exchange them for copper, fuel, and food. He goes to market and offers his products for these goods. He would doubtless be very pleased if he were to encounter persons there who wish to purchase his armor and who, at the same time, have for sale all the raw materials and foods that he needs. But it must obviously be considered a particularly happy accident if, among the small number of persons who at any time wish to purchase a good so difficult to sell as his armor, he should find any who are offering precisely the goods that he needs. He would therefore make the marketing of his commodities either totally impossible, or possible only with the expenditure of a great deal of time, if he were to behave so uneconomically as to wish to take in exchange for his commodities only goods that have use value to himself and not also other goods which, although they would have commodity-character to him, nevertheless have greater marketability than his own commodity. Possession of these commodities would considerably facilitate his search for persons who have just the goods he needs. In the times of which I am speaking, cattle were, as we shall see below, the most saleable of all commodities. Even if the armorer is already sufficiently provided with cattle for his direct requirements, he would be acting very uneconomically if he did not give his armor for a number of additional cattle. By so doing, he is of course not exchanging his commodities for consumption goods (in the narrow sense in which this term is opposed to “commodities”) but only for goods that also have commodity-character to him. But for his less saleable commodities he is obtaining others of greater marketability. Possession of these more saleable goods clearly multiplies his chances of finding persons on the market who will offer to sell him the goods that he needs. If our armorer correctly recognizes his individual interest, therefore, he will be led naturally, without compulsion or any special agreement, to give his armor for a corresponding number of cattle. With the more saleable commodities obtained in this way, he will go to persons at the market who are offering copper, fuel, and food for sale, in order to achieve his ultimate objective, the acquisition by trade of the consumption goods that he needs. But now he can proceed to this end much more quickly, more economically, and with a greatly enhanced probability of success.
As each economizing individual becomes increasingly more aware of his economic interest, he is led by this interest, without any agreement, without legislative compulsion, and even without regard to the public interest, to give his commodities in exchange for other, more saleable, commodities, even if he does not need them for any immediate consumption purpose. With economic progress, therefore, we can everywhere observe the phenomenon of a certain number of goods, especially those that are most easily saleable at a given time and place, becoming, under the powerful influence of custom, acceptable to everyone in trade, and thus capable of being given in exchange for any other commodity. These goods were called “Geld”2 by our ancestors, a term derived from “gelten” which means to compensate or pay. Hence the term “Geld” in our language designates the means of payment as such.3
The great importance of custom4 in the origin of money can be seen immediately by considering the process, described above, by which certain goods became money. The exchange of less easily saleable commodities for commodities of greater marketability is in the economic interest of every economizing individual. But the actual performance of exchange operations of this kind presupposes a knowledge of their interest on the part of economizing individuals. For they must be willing to accept in exchange for their commodities, because of its greater marketability, a good that is perhaps itself quite useless to them. This knowledge will never be attained by all members of a people at the same time. On the contrary, only a small number of economizing individuals will at first recognize the advantage accruing to them from the acceptance of other, more saleable, commodities in exchange for their own whenever a direct exchange of their commodities for the goods they wish to consume is impossible or highly uncertain. This advantage is independent of a general acknowledgement of any one commodity as money. For an exchange of this sort will always, under any circumstances whatsoever, bring an economizing individual considerably nearer to his final end, the acquisition of the goods he wishes to consume. Since there is no better way in which men can become enlightened about their economic interests than by observation of the economic success of those who employ the correct means of achieving their ends, it is evident that nothing favored the rise of money so much as the long-practiced, and economically profitable, acceptance of eminently saleable commodities in exchange for all others by the most discerning and most capable economizing individuals. In this way, custom and practice contributed in no small degree to converting the commodities that were most saleable at a given time into commodities that came to be accepted, not merely by many, but by all economizing individuals in exchange for their own commodities.5
2For obvious reasons, the words “Geld” and “gelten” in this and the following sentence are left untranslated.—TR.Within the boundaries of a state, the legal order usually has an influence on the money-character of commodities which, though small, cannot be denied. The origin of money (as distinct from coin, which is only one variety of money) is, as we have seen, entirely natural and thus displays legislative influence only in the rarest instances. Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state.
5See Appendix J (p. 315) for material originally appended here as a footnote.— TR.But if, in response to the needs of trade, a good receives the sanction of the state as money, the result will be that not only every payment to the state itself but all other payments not explicitly contracted for in other goods can be required or offered, with legally binding effect, only in units of that good. There will be the further, and especially important, result that when payment has originally been contracted for in other goods but cannot, for some reason, be made, the payment substituted can similarly be required or offered, with legally binding effect, only in units of the one particular good. Thus the sanction of the state gives a particular good the attribute of being a universal substitute in exchange, and although the state is not responsible for the existence of the money-character of the good, it is responsible for a significant improvement of its money-character.6
2.The Kinds of Money Appropriate to Particular Peoples and to Particular Historical Periods
Money is not the product of an agreement on the part of economizing men nor the product of legislative acts. No one invented it. As economizing individuals in social situations became increasingly aware of their economic interest, they everywhere attained the simple knowledge that surrendering less saleable commodities for others of greater saleability brings them substantially closer to the attainment of their specific economic purposes. Thus, with the progressive development of social economy, money came to exist in numerous centers of civilization independently. But precisely because money is a natural product of human economy, the specific forms in which it has appeared were everywhere and at all times the result of specific and changing economic situations. Among the same people at different times, and among different peoples at the same time, different goods have attained the special position in trade described above.
6 See Stein, op. cit., p. 55; especially also Karl Knies, “Ueber die Geldentwerthung und die mit ihr in Verbindung gebrachten Erscheinungen,” Zeitschrift für die gesammte Staatswissenschaft, XIV (1858), 266; and Mommsen, op. cit., pp. vii–viii.
In the earliest periods of economic development, cattle seem to have been the most saleable commodity among most peoples of the ancient world. Domestic animals constituted the chief item of the wealth of every individual among nomads and peoples passing from a nomadic economy to agriculture. Their marketability extended literally to all economizing individuals, and the lack of artificial roads combined with the fact that cattle transported themselves (almost without cost in the primitive stages of civilization!) to make them saleable over a wider geographical area than most other commodities. A number of circumstances, moreover, favored broad quantitative and temporal limits to their marketability. A cow is a commodity of considerable durability. Its cost of maintenance is insignificant where pastures are available in abundance and where the animals are kept under the open sky. And in a culture in which everyone attempts to possess as large herds as possible, cattle are usually not brought to market in excessive quantities at any one time. In the period of which I am speaking, there was no similar juncture of circumstances establishing as broad a range of marketability for any other commodity. If we add to these circumstances the fact that trade in domestic animals was at least as well developed as trade in any other commodity, cattle appear to have been the most saleable of all available commodities and hence the natural money of the peoples of the ancient world.7
The trade and commerce of the most cultured people of the ancient world, the Greeks, whose stages of development history has revealed to us in fairly distinct outlines, showed no trace of coined money even as late as the time of Homer. Barter still prevailed, and wealth consisted of herds of cattle. Payments were made in cattle. Prices were reckoned in cattle. And cattle were used for the payment of fines. Even Draco imposed fines in cattle, and the practice was not abandoned until Solon converted them, apparently because they had outlived their usefulness, into metallic money at the rate of one drachma for a sheep and five drachmae for a cow. Even more distinctly than with the Greeks, traces of cattle-money can be recognized in the case of the cattle breeding ancestors of the peoples of the Italian peninsula. Until very late, cattle and, next to them sheep, formed the means of exchange among the Romans. Their earliest legal penalties were cattle fines (imposed in cattle and sheep) which appear still in the lex Aternia Tarpeia of the year 454 B.C., and were only converted to coined money 24 years later.8
7See the last two paragraphs of Appendix I (p. 313) for material appended here as a footnote in the original.—TR.Among our own ancestors, the old Germanic tribes, at a time when, according to Tacitus, they held silver and earthen vessels in equal esteem, a large herd of cattle was considered identical with riches. Barter stood in the foreground, just as it did among the Greeks of the Homeric age, and cattle again and, in this case, horses (and weapons too!) already served as means of exchange. Cattle constituted their most highly esteemed property and were preferred above all else. Legal fines were paid in cattle and weapons, and only later in metallic money.9 Otto the Great still imposed fines in terms of cattle.
Among the Arabs, the cattle standard existed as late as the time of Mohammed.10 Among the peoples of eastern Asia Minor, where the writings of Zoroaster, the Zendavesta, were held sacred, other forms of money replaced the cattle standard only quite late, after the neighboring peoples had long gone over to a metallic currency.11 That cattle were used as currency
8 August Böckh, Metrologische Untersuchungen über Gewichte, Münzfusse und Masse des Alterthums, Berlin, 1838, pp. 385 ff., 420 ff.; Mommsen, op. cit., p. 169; Friedrich O. Hultsch, Griechische und römische Metrologie, Berlin, 1862, pp. 124ff., 188ff.
9 Wilh. Wackernagel, “Gewerbe, Handel und Schifffahrt der Germanen,” Zeitschrift für deutsches Alterthum, IX (1853), 548ff.; Jakob Grimm, Deutsche Rechtsalterthümer, 4th edition prepared by A. Heusler and R. Hübner, Leipzig, 1899, II, 123–124; Ad. Soetbeer, “Beiträge zur Geschichte des Geld- und Münzwesens in Deutschland,” Forschungen zur deutschen Geschichte, I (1862), 215.
10Aloys Sprenger, Das Leben und die Lehre des Mohammad, Berlin, 1861–65, III, 139.by the Hebrews,12 by the peoples of Asia Minor, and by the inhabitants of Mesopotamia, in prehistoric times may be supposed although we cannot find evidence of it. These tribes all entered history at a level of civilization at which they had presumably already gone beyond the cattle standard—if one may be permitted to draw general conclusions, by analogy, from later developments, and from the fact that it appears to be unnatural in a primitive society to make large payments in metal or metallic implements.13
But rising civilization, and above all the division of labor and its natural consequence, the gradual formation of cities inhabited by a population devoted primarily to industry, must everywhere have had the result of simultaneously diminishing the marketability of cattle and increasing the marketability of many other commodities, especially the metals then in use. The artisan who began to trade with the farmer was seldom in a position to accept cattle as money; for a city dweller, the temporary possession of cattle necessarily involved, not only discomforts, but also considerable economic sacrifices; and the keeping and feeding of cattle imposed no significant economic sacrifice upon the farmer only as long as he had unlimited pasture and was accustomed to keep his cattle in an open field. With the progress of civilization, therefore, cattle lost to a great extent the broad range of marketability they had previously had with respect to the number of persons to whom, and with respect to the time period within which, they could be sold economically. At the same time, they receded more and more into the background relative to other goods with respect to the spatial and quantitative limits of their marketability. They ceased to be the most saleable of commodities, the economic form of money, and finally ceased to be money at all.
In all cultures in which cattle had previously had the character of money, cattle-money was abandoned with the passage from a nomadic existence and simple agriculture to a more complex system in which handicraft was practiced, its place being taken by the metals then in use. Among the metals that were at first principally worked by men because of their ease of extraction and malleability were copper, silver, gold, and in some cases also iron. The transition took place quite smoothly when it became necessary, since metallic implements and the raw metal itself had doubtless already been in use everywhere as money in addition to cattle-currency, for the purpose of making small payments.
12Moritz A. Levy, Geschichte der jüdischen Münzen, Leipzig, 1862, p. 7. 13Roscher, op. cit., note 5 on p. 309.Copper was the earliest metal from which the farmer’s plough, the warrior’s weapons, and the artisan’s tools were fashioned. Copper, gold, and silver were the earliest materials used for vessels and ornaments of all kinds. At the cultural stage at which peoples passed from cattle-money to an exclusively metallic currency, therefore, copper and perhaps some of its alloys were goods of very general use, and gold and silver, as the most important means of satisfying that most universal passion of primitive men, the desire to stand out in appearance before the other members of the tribe, had become goods of most general desire. As long as they had few uses, the three metals circulated almost exclusively in finished forms. Later, circulating as raw metal, they were less limited as to use and had greater divisibility. Their marketability was neither restricted to a small number of economizing persons nor, because of their great usefulness to all peoples and easy transportability at relatively slight economic sacrifices, confined within narrow spatial limits. Because of their durability they were not restricted in marketability to narrow limits in time. As a result of the general competition for them, they could be more easily marketed at economic prices than any other commodities in comparable quantities (p. 227). Thus we observe an economic situation in the historical period following nomadism and simple agriculture in which these three metals, being the most saleable goods, became the exclusive means of exchange.
This transition did not take place abruptly, nor did it take place in the same way among all peoples. The newer metallic standard may have been in use for a long time along with the older cattle-standard before it replaced the latter completely. The value of an animal, in metallic money, may have served as the basis for the currency unit even after metal had completely displaced cattle as currency in trade. The Dekaboion, Tessearboion, and Hekatomboion of the Greeks, and the earliest metallic money of the Romans and Gauls were probably of this nature, and the animal picture appearing on the pieces of metal was probably a symbol of this value.14
It is, to say the least, uncertain whether copper or brass, as the most important of the metals in use, were the earliest means of exchange, and whether the precious metals acquired the function of money only later. In eastern Asia, in China, and perhaps also in India, the copper standard experienced its most complete development. In central Italy an exclusively copper standard also developed. In the ancient cultures on the Euphrates and Tigris, on the other hand, not even traces of the former existence of an exclusively copper standard are to be found, and in Asia Minor and Egypt, as well as in Greece, Sicily, and lower Italy, its independent development was arrested, wherever it had existed at all, by the vast development of Mediterranean commerce, which could not be carried on adequately with copper alone. But it is certain that all peoples who were led to adopt a copper standard as a result of the material circumstances under which their economy developed, passed on from the less precious metals to the more precious ones, from copper and iron to silver and gold, with the further development of civilization, and especially with the geographical extension of commerce. In all places, moreover, where a silver standard became established, there was a later transition to a gold standard, and if the transition was not always actually completed, the tendency existed nevertheless.
In the narrow commerce of an ancient Sabine city with the surrounding region, and in keeping with the early simplicity of Sabine customs, when the cattle-standard had outlived its usefulness, copper best served the practical purposes of the farmers and of the city dwellers as well. It was the most important metal in use, certainly the commodity whose marketability extended to the largest number of persons, and the quantitative limits of its marketability were wider than those of any other commodity— the most important requisites of money in the primitive stages of civilization. It was, moreover, a good whose easy and inexpensive preservation and storage in small amounts and whose relatively moderate cost of transportation qualified it to a sufficient degree for monetary purposes within narrow geographical limits. But as soon as the area of trade widened, as the rate of commodity turnover quickened, and as the precious metals became more and more the most saleable commodities of a new epoch, copper naturally lost its capacity to serve as money. With the trade of this people extending over the whole world, with the rapid turnover of their commodities, and with the increasing division of labor, each economizing individual felt more and more the need of carrying money on his person. With the progress of civilization, the precious metals became the most saleable commodities and thus the natural money of peoples highly developed economically.
14 Plutarch, Lives, with an English translation by Bernadotte Perrin, London: William Heinemann, 1914, I, 55; Pliny, The Natural History, translated by John Bostock and H.T. Riley, London: H.G. Bohn, 1856, IV, 5–6; Heinrich Schreiber, “Die Metallringe der Kelten als Schmuck und Geld,” Taschenbuch für Geschichte und Alterthum, II, 67–152, 240–247, and III, 401–408.
The history of other peoples presents a picture of great differences in their economic development and hence also in their monetary institutions. When Mexico was invaded for the first time by Europeans, it appears already to have reached an unusual level of economic development, according to the reports published by eyewitnesses about the condition of the country at that time. The trade of the ancient Aztecs is of special interest to us for two reasons: (1) it proves to us that the economic thinking that leads men to activity directed to the fullest possible satisfaction of their needs is everywhere responsible for analogous economic phenomena, and (2) ancient Mexico presents us with the picture of a country in the state of transition from a pure barter to a money economy. We thus have the record of a situation in which we can observe the characteristic process by which a number of goods attain greater prominence than the rest and become money.
The reports of the conquistadors and contemporary writers depict Mexico as a country with numerous cities and a well organized and imposing trade in goods. There were daily markets in the cities, and every five days major markets were held which were distributed over the country in such a way that the major market of any one city was not impaired by the competition of that of a neighboring city. There was a special large square in each city for trade in commodities, and in it a particular place was assigned for each commodity, outside of which trade in that commodity was forbidden. The only exceptions to this rule were foodstuffs and objects difficult to transport (timber, tanning materials, stones, etc.). The number of people assembled at the market place of the capital, Mexico, was estimated to have been 20,000 to 25,000 for the daily markets, and between 40,000 and 50,000 on major market days. A great many varieties of commodities were traded.15
The interesting question that arises is whether, in the markets of ancient Mexico, which were similar in so many ways to those of Europe, there had also already appeared phenomena analogous in nature and origin to our money.
The actual report of the Spanish invaders is that the trade of Mexico, at the time they first entered the country, had long since ceased to move exclusively within the limits of simple barter, and that some commodities had instead already attained the special status in trade that I discussed more extensively earlier—that is, the status of money. Cocoa beans in small bags containing 8,000 to 24,000 beans, certain small cotton handkerchiefs, golds and in goose quills that were accepted according to size (balances and weighing instruments in general being unknown to the Mexicans), pieces of copper, and finally, thin pieces of tin, appear to have been the commodities that were readily accepted by everyone (as money), even if the persons receiving them did not need them immediately, whenever a direct exchange of immediately usable commodities could not be accomplished.
Eye-witnesses mention the following commodities as being traded on the Mexican markets: live and dead animals, cocoa, all other foods, precious stones, medicinal plants, herbs, gums, resins, earths, prepared medicines, commodities made of the fibers of the century plant, of palm leaves, and of animal hair, articles made of feathers, and of wood and stone, and finally gold, copper, tin, timber, stones, tanning materials, and hides. If we consider not only this list of commodities but also (1) the fact that Mexico, at the time of its discovery by Europeans, was already a developed country with some industry and populous cities, (2) that since the majority of our domestic animals were unknown to them, a cattle-standard was entirely o