About money-things, money-tokens and currencies material and abstract
In casual use, the word “money” carries a very wide range of meanings. Let’s introduce a simple vocabulary to help clarify the meanings of this word.
Private property, jewellery and the need of keeping track
For over a million years, and until about 10,000 years ago, our ancestors lived as hunter-gatherers in small bands of a few dozen people. Their survival depended on sharing what little they had. Among items that were not subject to communal sharing were body adornments: amulets, talismans, lucky stones etc. These probably played a role in the gradual emergence of private property and of the concept of material value. The link between jewellery and money persisted until the 20th century, as cowrie beads were used as both body ornaments and “money” in some parts of the world.
Knowing precisely who owes what to whom is not necessary among members of a tightly knit band of hunter-gatherers. However, as humans became sedentary and started living in larger groups, private property and more complex social interactions developed. Keeping track became important.
We define money-things as valuable physical things that came, by social convention, to be used as a standard measure of value. Examples of money-things my include: a bead of cowrie shells, a measure of grain, a weight of silver, a cake of salt, a bundle of brass rods, an embroidered cloth, etc.
We observe that these money-things generally have some of the characteristics we expect: they are more or less uniform, fungible, portable, divisible and durable — although a cake of salt or a sack of barley are obviously much less durable than a piece of silver, and a large Rai stone is neither divisible nor portable. Money-things are also generally at least somewhat rare, or at least difficult to obtain or manufacture. In the case of grain, however, it became a money-thing in ancient Babylon not because of its rarity, but because of its vital importance in everyday life.
Social and ceremonial currencies
Money-things, in the widest sense of the meaning, had (and sometimes still have) a wide range of uses, going far beyond the uses of money that we are familiar with. While many money-things were indeed used in commerce, some had mainly ceremonial purposes while others were used as a social currency, to pay for bridewealth, to atone for crimes, etc. Some were used mainly as gifts.
It is not because someone writes about a thing as being “money” that that thing was necessarily used like the money we know. An observer may see a money-thing change hands and conclude that it is a “payment”, even though the transaction may have a purely ceremonial or social context. Also, the fact that a thing or artefact is valuable does not by itself make it money.
Let’s take the example of wampum, the shell beads used by some American Indian tribes. Wampum was indeed used as a form of money by colonists in the 17th century, but before that Indians did not use wampum for commerce. Wampum was used for record-keeping and as a certificate or seal of authority. It was also widely used in religious ceremonies, to commemorate important events and as a gift for political purposes, mainly in dealings between tribes.
Another famous example are Rai stones, which are often cited as having been used as “money” on the island of Yap in the Pacific. The largest such stone is 3.6 meter high and weighs 4,000 kg, but the most famous is undoubtedly the large Rai that was lost at sea during transport — it retained its value by common consent and continued to be used for transactions. Rai stones were, and apparently still are, used almost exclusively for social transactions. Their use in commerce, for example in exchange for food, was rare. This is not surprising: a reluctance to use social currencies in commerce has been observed in many cultures. Certain African tribes even had a formal tabu against using brass rods, their social currency, in trade.
As humans, we simply find is difficult, even somewhat distasteful, to give a commercial value to a social relationship. Who would want to put a monetary value on a friendship? And almost no-one would ask to be paid when a neighbour asks for a cup of sugar, or wants to borrow a screwdriver.
In the light of the examples above, it makes sense to restrict the use of the word “money-thing” to commodities or artefacts that were actually used for trade and commerce. So we will use money-thing as shorthand for commercial-money-thing. As to social-money-things and ceremonial-money-things, we can simply continue calling them social currency and/or ceremonial currency.
Promises of money-things
Once humans became sedentary, mutual obligations become more formal as the concept of private private property became entrenched. In a self-reinforcing cycle, a community would start to agree on a common money-thing, for example a measure of grain, as mutual obligations were more often expressed in that money-thing.
The key point is that the need to formalise obligations drove the emergence of money-things. Before money-things, one farmer may have “bought” a wine jar from his neighbour, with the understanding that the neighbour would get something indefinite but of equivalent value at some time in the future — which leaves room for interpretation. With a common money-thing, the deal can be more explicit: “here is the jug of wine, you owe me 3 measures of wheat.” Note that no actual wheat needed to change hands, nor would the debt necessarily be repaid in wheat. People most likely understood very well that you do not need the physical money-thing itself to make a promise of that money-thing. Remember that the humans who started using money-things for commerce only around 10,000 years ago had intellectual capacities similar to ours.
To summarise, the emergence of money-things most likely went hand in hand with the usage of denominating debt in such money-things, even in the absence of the money-thing itself. In other words, money-things emerged together with promises of money-things.
Modern money, aka money-tokens
The next step was the standardisation of money-thing promises to make them transferable and widely accepted: we will call these money-tokens. This required the invention of symbols for record keeping, from which full writing systems emerged in due course. Another condition was the existence of widely-trusted institutions as issuers.
Money-tokens started to be used in Mesopotamia sometime around 2,000 BC. The first proto-banks were the great temples of Babylon, later commercial banking developed, offering loans and bank accounts that resembled, in inchoate form, what we have today. When a credit balance with a temple, a bank or a reputable trading house is generally accepted for payment, we have the essential characteristics of money as we know it today. In other words, from the very beginning, money-tokens were what one might call “modern money”.
The ancient Babylonians did not have coins or paper, but bank drafts and clay tablets representing IOUs were widely used. Some of these clay tablets used an ingenious system of tamper-proofing.
The introduction of money-tokens was important for economic development, as it allowed the economy to grow more or less independently of the actual availability of the underlying money-things.
Characteristics of a money-token
A money-thing is, by definition, something tangible and self-contained. A money-token is a much more complex construct, being essentially a contract.
A money-token is defined by several elements:
- its physical form — or lack thereof, in the case of a ledger entry. In some cases, as with coins, the token will have an intrinsic value;
- the issuer, whose credit typically determines most of its value;
- a reference to some measure of value, which we will call the currency;
- the amount, as expressed in the currency;
- additional terms, essentially equivalent to terms of a contract.
To give an idea of what “additional terms” of a money-token might be, consider bracteates as used in Northern Germany between the 12th and 14th century. They were recalled on a regular basis, usually once or twice a year, and had to be exchanged for new coins of lesser value. For example, for every 5 old coins one might receive only 4 new coins. A modern example of a demurrage currency is the so-called Wörgl Experiment in 1932–33.
Currencies: from material to abstract
Let’s now focus on the currency in which a money-token is expressed, which is one of its essential characteristics.
The earliest money-tokens naturally referred to money-things. The holder of a credit balance of ten shekels with a temple would expect to receive ten shekels in pure silver for his money-token, plus accrued interest. We call this a material, or concrete currency.
The age of purely material currencies did not last that long. After the Hittites invaded Babylon in 1595 BC, silver became scarce. The shekel, however, continued to be used as an abstract unit of account — an abstract currency. A credit of one shekel might still have retained some link to a past value of silver, but was no longer a claim on an actual shekel-weight of silver. Much later, during the late stages of the Roman Empire, the denarius, initially a silver coin, continued to be called “silver” even when it became a mere copper coin. Today, the Israeli shekel is a completely abstract currency, the link with silver is purely semantic.
This emergence of an abstract currency was not a fluke. Abstract currencies became the rule during Antiquity and until early modern times; occasional attempts to reintroduce material currencies were made, but never with lasting success. Only since the 18th century do we see relatively successful and longer-lasting attempts to reintroduce material currencies, in the form of gold and/or silver standards. This era came to an end when the United States closed the gold window in August 1971.
What is Money? by A Mitchell-Innes
Credit theory of money (Wikipedia)