Anthropology teaches us that the history of money is the history of debt, since money serves only as the unit of account for debt. In primitive societies, the birth of debt was rooted in the emergence of human social networks and was the product of the earliest human credit interactions. Debt not only drove the development of the social network of relationships of the time, but also determined the moral hazard posed by religion and the market transactions and labor relations within human tribes, forming the credit vehicle for the earliest human economic activity.
This paper is the first in the historical evolution of money, describing the different roles and functions that money played in the early social credit system and the expansion of empire.
The Monetary Origins Debate
The anthropologist David Graeber argues that, in debating the earliest development of human credit, economics often suffers from the fallacy that money and markets emerged in human history well before the emergence of political institutions, so that the pricing of labour preceded the concept of the “state”. It is also significantly later than the pricing of commodities. However, because of the human tendency to avoid profit and harm, humans eventually created money to be used for bargaining and reducing transaction costs in order to maximize profit margins. This absurd theory of the origin of money came from a historically famous English economics professor, Adam Smith, but thanks to his contributions to economics, the theory became so widespread in the academic world that no one questioned its archaeological basis for a long time.
It is precisely because Adam Smith became the originator of traditional economics that traditional economists, including him, have argued that, historically, the birth of money predated the birth of credit. However, David denied Adam Smith’s idea: throughout human history, there have been a large number of small human communities that have used barter transactions without actually creating “money,” which is only recorded and measured, not traded and circulated. In such small societies, human transactions are dependent on the familiarity of credit and the collective moral constraints of the village (Obligation), and these relationships of rights and obligations cannot be discussed outside the context of earlier religious and political structures. Thus, David Graeber counters that in many of these acquaintance societies, each person has debts to others and explicitly remembers the object of the debt and the height of the debt in an abstract sense. Even though “money” existed in some early human communities, it did not function as a medium of exchange, but more as a unit of account. This bookkeeping function is also reflected in the fact that early human civilizations did not use money for taxes and transactions, but rather for measuring resources such as food and rent.
Archaeological research shows that before the invention of metal coinage, many civilizations had already developed a sophisticated monetary system, including the Mesopotamian, Egyptian, Chinese Shang, and Indus Valley civilizations. One of the most well-documented civilizations was in Mesopotamia: the Sumerian civilization of 3500 B.C., which built large temples and monasteries as its main economic base, hosting thousands of priests, technicians, and bureaucrats. By that time, the Sumerian civilization had developed a uniform system of credit based on the Silver Shekels. This bookkeeping system had its origins in the service bureaucracy, and was used for the daily chase of the distribution and flow of resources between departments. Thus, the technocrats in the temple used the Silver Shekels’ unit of account to record a variety of credit obligations such as rents, loans and fines, instead of writing them as IOUs that were widely circulated and traded on the market for credit transfer and storage of value.
Most of the transactions in the daily marketplace are still done in the form of credit entries, such as using future credit (the wheat harvest in two months) to trade existing goods (a merchant’s knitted straw shoes). Thus, the book-keeping function of money, as opposed to its value-storing and trading functions, was the first to be widely used, and the invention of metal as a trading currency came much later than one might think.
At the same time, the birth of money was not what economists assume it to be by economic logic: the problem of double demand in a barter society led to the invention of money (the emergence of equivalents) and eventually to the formation of a system of commodity exchange (the invisible hand behind it). However, it was only eventually when political institutions were born (monopoly on the right to coin money) that the system of virtual money (debt/credit money) became widespread.
In contrast, David Graeber argues that before the advent of sovereign minting, money for value storage and trading functions was a fairly small percentage of early civilization’s use, and that instead, debt-based money was the basic unit of early human transactions and interactions. Debt-based money gave rise to the earliest human credit system, and the transmission of debt itself did not require physical “money” at all, but was based on the moral foundation inherent in human communities.
The earliest social credit: primitive debt
What accounts does the proponent of credit money theory, led by Mitchell Innis, keep, when he argues that money is not a commodity, but a bookkeeping device? That is a debt, and a debt is an IOU (IOU: I owe you) or a promise to pay or honor the “real value” behind it (such as gold, silver, or commodities). For example, I exchange goods with you for a bank note that you certify as cashable. domination and slavery, rather than the physical collateral that we assume has value. So this is what the earliest monetary system really looked like, based on a primitive debt system constructed from IOUs with no physical collateral.
“The true origin of money is to be found in crime and reparation, war and slavery, honor, debt and redemption.”-David Graeber
The Historical Laws of Money: fiat vs metalism
Among these, the central idea of the theory of credit and national currency is Chartalism, promoted by the German historian Knapp: in a legal system dependent on some kind of political domination, the debtor guarantees the legitimacy of the debt by adding his signature to the IOU, while an arbitrator enforces the debtor’s obligation to repay the debt. Thus, the fiatists discuss the fundamental value of money as deriving from the strong rule of a sovereign system.
Conversely, the opposing central idea of fiatarianism is Metallism, the theoretical proponent represented by Carl Menger, while they argue that the fundamental value of money is born out of the transactions between money and commodities. From this, Metallists argue that fiat money, which is backed by sovereign credit, has no intrinsic value and that only money with the addition of metals (gold, silver and bronze) has value. This is because it is always believed that it is the metal inherent in the currency that is the real source of value in commodity transactions, not the symbol of sovereignty on the back.
The fiat scholar Knapp believed that in a monetary system, it does not matter what the physical currency in circulation is, as long as the state allows people to pay taxes on that currency, the composition of the currency is meaningless. It is no coincidence that we find the principles of the modern monetary system very similar to this one, since this is where the first modern central bank, the Bank of England, came into being. But does this mean that metallicism has lost out to fiat money in its historical development? This is not the case.
In fact, the earliest inventions of money fundamentally contradict what traditional economists say: that money was created to overcome the inconvenience of bartering; that it was in fact originally only a debt, a unit of measure for the transmission of credit; and that it has a value as a commodity for exchange, going back to the time when it was actually invented. So, according to Keith Hart, a leading monetary archaeologist, money is both a commodity and a debt. For example, when I write an IOU to you for the return of three pairs of hay shoes, you can trade a piece of sheepskin with another merchant for the equivalent of the IOU, provided the merchant recognizes my credit for the return of the three pairs of hay shoes. Thus, the true function and properties of money at the moment of its creation depended largely on the definition and use of money by that different human civilization. (The Sumerian and Egyptian civilizations defined money as only a debt, but not a commodity in circulation; the early Chinese civilizations did the same with their money, which belonged to a variety of credit instruments, such as knotted notes.)
Since the facts indicate that all ancient civilizations were credit systems, when did we get a currency that was truly branded as a symbol of sovereignty? Archaeology tells us that between 600–500 B.C., coin minting occurred simultaneously on the North China Plain, in the Ganges Valley of Northeast India, and in the coastal region of the Aegean Sea. And how do archaeologists then explain the emergence of minting technology? In fact, after money was transformed from a plain instrument of account to a medium of exchange by which commodities were priced, the sovereign branch monopolized the issuance of money circulating in the market through economic incentives, i.e., the monopoly on the right to coin money. When did the sovereign sector implement a tax system? Looking back at the thinking of many ancient kings, we soon realize that the essential reason for empires to achieve a uniform monetary system was to pay taxes, and that taxes could not be paid without the violent rule and military expansion of political institutions throughout history. Thus, Graeber argues that the origin of coinage was largely the result of violent rule.
Monetary Unity and Imperial Expansion in the Axial Era
Earlier, we asked: did metalism really lose out to voucherism? While we find that many early human societies did establish a sound credit system with credit money, i.e., debts/IOUs, gold and silver then became the dominant commodity currencies — that is, at least most transactions were done through the exchange of hard currency consisting of precious metals. The wheels of monetary history were turned around.
The pattern of monetary history has been succinctly summarized by David Graeber in this timeline: “The historical cycle begins in the earliest days of the agricultural empire (3500–800 B.C.), when virtual credit money dominates… During the Axial Age (3,500 B.C.), the dominance of virtual credit money has been dominant…. (800 AD — 600 AD), minting of coins flourished and there was a widespread switch to metal money. Virtual credit money returned in the Middle Ages (600–1450 AD)…During the Age of Capitalist Empires (1450–1971 AD), there was a massive global reintroduction of gold and silver money. It wouldn’t really end until 1971 when Richard Nixon announced the decoupling of the dollar from gold. Its end marked the beginning of yet another virtual currency phase.”
Thus, under the Axial Era, Graeber argued that the expansion of war and the creation of empires led to the creation of metal coinage. In fact, the flow of money was able to consolidate imperial sovereignty. For part of the birth of imperial power was due to the fact that currency allowed the empire to better pay its army and train its troops, which were no longer distributed in the form of spoils, but rather in a centralized currency: once the empire had unified and devoured the resources of the defeated nation, it issued currency as collateral, which had the characteristics of fairness and efficiency, and greatly increased the efficiency of army mustering and the morale to fight.
The best historical example of this is the famous Alexander the Great. His successful reign is not only reflected in the decade-long Alexander’s Crusade, which helped Greece defeat the vast Persian Empire and invade India, while culturally Hellenizing the occupied territories, but also in the establishment of an effective system of warfare and rule. In this regard, David Graeber argues that behind this picture of strength and prosperity was a well-functioning financial apparatus that continued to absorb precious metals, monopolize the right to mint them, and then distribute them to the army and return them to the original creditors who supported the campaign — not unlike the one designed to encourage kings to pay for foreign aggression by borrowing from the nobility, forcing The populations of the conquered territories accepted the new tax and monetary system as part of their daily transactions.
Geoffrey Ingham calls the result a “military-coinage syndrome”, but David thinks it would be more accurate to call it a “military-coinage-slavery syndrome”, because in the course of the invasion, the defeated people were forced to accept the new system of taxation and currency. The latter captives would form large groups of slaves who would be sent by the Empire to work in the mines, which in turn would produce more precious metals. This was used to increase the liquidity of the currency and to reinforce the rule of violence based on taxation, maintaining the daily expenses of the army. And this process, he vividly describes as follows.
“When Alexander set out to conquer the Persian Empire, he borrowed much money to pay and supply his army, and then minted his first coins to pay his creditors. He also obtained a constant supply of money by melting down the gold and silver he had plundered in his first few victories. An expeditionary force, however, required payment, and not a small one at that: Alexander’s army consisted of about 120,000 men, who were paid half a ton of silver a day. For this reason, the conquest of Persia also meant that the existing Persian mining system and mint would need to be reorganized around meeting the needs of the invading army; and the ancient mines were, of course, run by slaves. In turn, most of the slaves in the mines were prisoners of war. The unfortunate survivors of Alexander’s siege of Tyro, the city, most likely worked in such mines.”
Thus, the birth of the metal-money system undoubtedly provided ancient kings with a reasonably viable and violent solution to massive foreign aggression, a unified monetary system, and the plundering of scarce precious metals. At the same time, develop a set of military rule dependent on the tax system. But have we ever wondered whether these instruments of imperial domination, with their debt-ridden expansion, were sustainable? If the expansion ceased, how would the debts that the emperor had borrowed be returned and settled?
Surprisingly, the Roman Empire, with its great military expansion and its draconian enforcement of slavery, also developed a debt crisis in its later years. The reason behind the crisis was that the military expansion and the plundering of precious metals began to fail to sustain its high daily financial expenses, causing a large number of free peasants to go bankrupt and be reduced to slavery like prisoners of war. Faced with the oppression of the corrupt aristocracy, the slave communities, deprived of their freedom to protest and demonstrate, gradually became aware of their resistance, which eventually led to a violent political revolution.