Chapter 3. Monetary reality through history.
- This chapter's goals.
- Non-monetary barter.
- Monetary reality among primitive peoples.
- Money systems of incoming civilizations.
- Introduction of real metallic money.
- From metallic money to paper money.
- The non-convertible bank note.
- Bibliographic references for this chapter.
1. This chapter's goals.
In the previous chapter, when speaking of
the elements of the money systems, we have exposed our arguments in such
a way as to suggest somehow a succession of steps in the evolution of the
market and of the money systems therein contained.
This succession of steps could be summed up as follows:
At the beginning the market works without any money system, by means simply
of a non-monetary barter.
In the second step, money units appear with their mercantile value, and
monetary barter starts.
Finally, in some dynamic and evolving markets the use of monetary instruments
is introduced, which allow the elemental monetary exchange to take place.
As we have already said, this interpretation is not necessarily historic;
we have therefore avoided all sorts of actually historical references all
along the previous chapter, and we have stressed
the more theoretical aspects of the money systems.
We have also said that the theoretical interpretation had been made
on the basis of real historical facts. In order not to be limited just
to a theoretical interpretation, which always simplifies excessively the
complexity of real facts, and which besides would be considered as totally
arbitrary, in this chapter we will give the actual references of the facts
which have been the basis of our interpretation. These facts should establish
an empirical basis for our interpretation.
We must warn that reconstruction of the historical development of the
monetary reality is a difficult task, both among prehistoric or ancient
populations and among present day primitive peoples: existing documents
are few and incomplete, and their interpretation is a delicate job.
With these limitations we start.
2. Non-monetary barter.
From studies of utilitarian exchange among primitive peoples existing
at present, it can be deduced that in these societies barter has not a
purely utilitarian character, but it fills mainly a social function. Making
an ethnographic comparison, probably we could say the same of prehistoric
In fact, in human groups with a simple social organization -the so-called
hunting and food-gathering economies- the individual and familiar fare
is produced within the community, therefore the utilitarian exchange is
not vitally necessary. It is necessary from a social point of view, as
it used to establish friendship and alliance with other groups or to strengthen
existing social relations within the same group.
Because of the great importance of this social element, primitive barter
is often full of formalism, of complex rites related to magic, that is
to a sacral conception of man's life. Every exchange act is considered
as sacred, the same as all other social relations.
3. Monetary reality among primitive peoples.
Among presently existing peoples, the knowledge and utilization of some
sort of money system is to be found in three parts of the world: West and
Central Africa; Melanesia and Micronesia; and the west of Northern America.
It must be stressed that the peoples of all these places have advanced
utilitarian relations of neolithical type, either agricultural or pastoral.
This neolithic utilitarianism is, however, still little specialized: every
small social producing unit can provide itself in great measure and therefore
barter still holds a strongly social character.
These peoples do not know any writing system, but they have money systems
made up of what we have called money units and mercantile values.
In fact, among the primitive peoples of the above mentioned regions
-not only there, but especially in those places- some objects (which of
course may vary according to the people involved) have a great social importance:
they are symbols of riches and give great importance to those possessing
Because these object are often exchanged ceremonially during some social
happening, many ethonologists have compared them to a «reduced»
or primitive form of metallic money which was used among all the present
day civilized people, until it was definitely substituted by compulsory
bank notes between 1914 and 1936.
Of course, a completely different interpretation can be given. These
objects seem to have two clearly separate functions. The first one, essentially
social, to create and keep friendship: it is developed through a real and
actual exchange of the objects in well specified occasions of great social
The same objects have a closely utilitarian second function, and they
are standards for measuring value in the exchange of current utilitarian
In this second case, these objects are never actually exchanged, they
are only an abstract reference to calculate comparison among other goods
valued in them. That is exactly what we have called money unit.
The values applied in money units to each merchandise are the mercantile
values of such goods.
In some cases, the ethnographic documentation we have is not enough
to confirm or discard with a sufficient empirical basis this interpretation.
This depends in the first place from the prejudice of some ethnographers
who lead their observation to a given reality, forgetting others more important
for an overall study of primitive utilitarianism.
Notwithstanding these difficulties, we have chosen a couple of examples
which seem to follow the indicated direction:
- First example: in the Admiralty Islands (Papua-New Guinea)
the natives can evaluate all their possessions in shells and dog's
teeth. In current exchanges shells and dog's teeth are almost never
used, but their use is compulsory in ritual exchanges.
- Second example: among the Lele of Kasai (Zaire), the raffia
cloth is the nuptial possession that every man must have if he wants to
marry. But at the same time all the goods which are exchanged non ritually
can be valued in units of raffia cloth. In these exchanges, the raffia
cloth does not appear as a real good, but only as a value standard.
We therefore say that among these peoples there are abstract money units
and not real monetary objects. To extend this interpretation to
all neolithic peoples who knew some sort of monetary reality, it would
be necessary to make deep studies which are reserved to ethnographers.
4. Money systems of incoming civilizations.
Archaeology has shown in the last decades how the first civilizations
of south-west Asia (Mesopotamia, Elam, Near East), of the Indo valley,
in Egypt, and later of the Aegean, of the Danube valley, etc. were born.
These civilizations or «city cultures» were based on an
advanced neolithic utilitarianism, with extensive cultivation of cereals
and with a growing division of work.
For the first time writing appears, but writing is a consequence of
a previous social practice which we must mention, the current utilization
of monetary instruments as the ones described in the previous
From the very beginning of the neolithic age probably these societies
had such money units, almost always abstracted starting from the
prototypical or more important goods. In Mesopotamia, for example, they
used a barley measure and later a given weight of silver. In Egypt, the
common measure of mercantile values was the «uten», a copper
coil of a more or less fixed weight. In Homer's Greece, the abstract money
unit was the «ox». Neither the barley or silver in Mesopotamia,
nor copper in Egypt, nor oxen in Greece were actually exchanged in every
market operation. As we have already said, we consider these goods as money
units, simply because they were taken as a common abstract measure of the
value of all other goods, or, said in other words, all other goods could
be evaluated in terms of these units.
On the other hand also from the beginning of the Neolithic Age (8.500
b.C) there is in southern Asia a development of an accounting system with
Considered as a whole, this system had about 15 different sorts of tokens,
with different shapes and separated in about 200 subdivisions according
to sizes, marks and fractionary variations. It seems clear that every specific
shape had its own significance. Some tokens perhaps show numerical values,
while others represent specific objects, specially mercantile goods.
We do not know exactly the use of this token system within the most
primitive neolithic societies of southwest Asia, but it seems reasonable
to think that it was a system to record the various operations and exchanges
effected with the produce of the harvest and herds. The idea of recording,
of collecting and fixing in a document2,
is the embryo of a later development of the monetary instruments.
In fact, these communities have slowly evolved along 5000 years with
their accounting and recording system almost unchanged. When they reach
the Bronze Age during the second half of the fourth millennium b.C. (from
3500 to 3000 b.C.) they suffer an important economic progress: there is
a rapid increase of population in what is now Iran and Iraq; the first
crafts appear and also the beginning of a high scale trade. This sort of
economic explosion produces important changes in the token system, because
of the pressure brought to bear by the great trade development. It is now
necessary to record not only production, but also stocks, freight rates,
salaries and, above all, merchants need to record their operations.
The appearance of new shapes of tokens and of new sub-types is important,
but still more important is the appearance of new ways of using the system.
These new ways, which appeared in the last century of the fourth millennium
b.C., are especially the two explained here.
In the first place, about 30 % of the tokens found have a hole. This
might mean that some tokens concerning a specific operation were stringed
together as a book.
But even more interesting is the appearance of «bullae»
in Mesopotamia. The «bullae» were some sort of clay pots or
envelopes to hold a number of cards. This is a direct evidence that the
user wanted to separate the cards concerning a given operation.
The author of these researches thinks that the bullae were created to
give the agents of an operation a smooth surface where the personal seals
of the people implied could be stamped -according to the Syrian custom-
as a way of giving legal force to the commercial act. The fact that most
of the 300 bullae discovered up to now have stamps of two different seals
confirm this hypothesis.
We have therefore an actual monetary document, which records
all the specific peculiarities of every actual exchange, besides the seals
(which are like signatures) of the persons involved.
Beyond what Schmandt-Besserat says, we might introduce a further hypothesis:
that these monetary documents might have worked as the monetary instruments
we have described in the previous chapter. Besides
being a documentary record, bullae might have been used for an accounting
This second hypothesis is more risky than the other one, as we have
no real facts to sustain it empirically. However, some tokens make it indirectly
plausible. We can make two verifications.
- First verification: in all the Mesopotamic plain a so-called
«temple trade» is developed from the end of the fourth millennium
b.C. Apparently temples worked not only as a sacred institution, but had
also important social and utilitarian dimensions. Within the temple, and
under its protection, all sorts of agricultural, crafts and manufacturing
activities are developed. It seems that the temple used the land's surplus
to keep crafts, artistic and cultural activities, acting as a redistribution
system. These complex activities caused the temple to develop also, little
by little, complicated accounting systems for the control of all the movements
of goods, personnel and salaries.
- Second verification: in Ammurabi's time (about 1800 b.C.) when
metallic money had started to be introduced, it is known that Assyrian
merchants living in Asia Minor, who extracted copper, used a system for
settling debts between accounts.
Even if the two considerations do not say anything directly on the existence
of monetary instruments-documents, they do allow us to say that the necessary
technical elements for the existence of such instruments were already available.
Complex systems of accounting and compensation between accounts had already
been developed. Therefore it is possible that during the second half of
the millennium may have been developed in Mesopotamia a money system based
on the monetary instruments-documents, at least among the great merchants
and the temple. In this system the temple may have had a banking role.
Of course it is necessary to find more direct proofs for the suggested
hypothesis. But it is also true that many a prejudice have been opposed
for a long time both to the statement of this hypothesis and above all
to the research of the empirical data which might sustain it. In the first
place the metallist prejudice -that is the a-critic belief that the first
monetary means were the real metallic means- has led research through predetermined
paths and has precluded consideration of central points for a new interpretation.
Among the thousands and thousands of pages written up to now on the first
civilizations, there are few references to the actual way in which monetary
exchanges were effected, and even less are the interpretations of the few
existing data on this subject.
Finally, we must point out that the bullae became at a later date the
famous tablets of cuneiform writing. As a matter of fact, the tokens
which were stored within the bullae were indicated through outside marks;
until they discovered that these marks were clear enough and the tokens
were no longer necessary. Writing had been born.
As soon as the first monetary instruments-documents appear, the elemental
barter, that is the direct exchange of goods for goods, disappears for
the first time, to give way to the delayed exchange which we have called
elemental monetary exchange. Probably these instruments-documents were
only used by the great merchants; but even so, the simple introduction
of elemental monetary exchanges in the market has as a direct result that
for the first time the equilibrium of the global market is taken into consideration.
In fact, when all the market works on elemental barters, this
market must necessarily be in equilibrium, because every elemental barter
is self-balanced. But when elemental monetary exchanges are introduced,
even only in a small proportion, the global equilibrium of the market disappears
because the elemental monetary exchanges do not present a real equilibrium
between two real merchandises, but only an artificial equilibrium, inter-accounts,
between a real merchandise and some money units which have arbitrarily
To re-establish the real equilibrium of the global market, we must appeal
to a strategy: the strategy of equalizing the total value of the available
buying power. This strategy is called invention (or exvention
if applicable) of money or buying power.
Probably the ancient priests of Mesopotamia were aware of this problem
and solved it, since they first introduced operations of loans and credits,
that is professional banking operations.
5. Introduction of real metallic money.
The monetary instruments-documents were introduced as simple instruments,
as a simple accounting device to avoid problems of barter. They were therefore
of a radically abstract-auxiliary nature and had no intrinsic value. Their
working did not imply the exchange of any real object, only the reference
to an abstract money unit. Even if the money unit was represented symbolically
by a real merchandise (a sack of barley, an ox...) these goods did not
actually take part in the operations. They were used as an abstract reference
to the value of the exchanged goods and not to be exchanged for other goods.
In Mesopotamia, probably from the middle of the third millennium b.C.,
appears a new type of monetary instrument: metallic coins.
Together with the progress in evaluating metals (weight, quality...),
the custom of paying cash becomes general: we must keep in mind
that one of the money units in Mesopotamia was the siclos (with
its multiples and submultiples), that is a weight for a precious metal.
Little by little there was a change from paying with a monetary instrument-document
to paying in cash.
Even if at the beginning the practice of recording every elemental operation
-through the presence of witnesses and the use of a money instrument-document-
is carried on, little by little it is forgotten and cash payments are effected
any documents, completely anonymous.
The circumstances which brought about this change of direction in money
history cannot be easily explained. Among them the most significant might
Quicker and easier operations, at a time when writing was a complicated
art which very few knew;
The possibilities of concealment and therefore of corruption introduced
by the new money system. The final result of this process is the introduction
of a new money system well known by everybody: the metallist money system.
In this system the monetary instruments-documents, auxiliary-abstract,
free from intrinsic value, become real monetary instruments with intrinsic
value, without any documentary value. A real merchandise, a precious metal
(gold, copper, silver...) is chosen among all others to act as a paying
means in any exchange of all the others. Therefore, in this system the
money unit is called merchandise money.
In Hammurabi's time (1792 to 1750 b.C.) it is a normal practice in Babilonia
to use gold, silver or copper ingots. But not only in Mesopotamia this
decisive change was introduced. Let us remember some of the historical
civilizations which adopted sooner or later the new money system. In the
Indus valley, copper bars were used; the Hittites used iron ingots; at
Mycenae, bronze plates imitating animal skins; in China, bronze plates
like dresses, etc.
The first metallic money instrument had very different shapes and metal
qualities, even within each civilization and each state city. Therefore
in each operation metal had to be weighed and probed.
Later, to avoid this problem, metal pieces used had a weight and quality
according to norm. The guarantee was the seal of the person who stamped
the pieces: these pieces are the actual coins. The first coins to
be documented are from the VII century b.C. in Asia Minor.
While at the beginning anybody with sufficient authority and riches
could mint his own coins, at a later date this function became an exclusive
monopoly of official bodies.
It is easy to understand that when the use of metallic money becomes
general, one of the basic characters of the primitive money instruments
is lost: documentation.
In every mercantile operation the only function of metallic money is
to be a paying means, that is an instrument which allows a good
transaction to be made. By delivering some coins, any situation of market
exchange can be considered as paid and settled.
6. From metallic money to paper money.
Metallic money spread quickly and was well accepted by all the civilized
peoples of antiquity. However, its own nature held the seed of its obsolescence.
In fact, metallist systems have a very precise limitation to their development:
the quantity of minting metal in every geo-political society
at any given time. This limitation is so precise, that soon it became apparent
that the systems of metallic and concrete money had to be discarded
to go back little by little to money systems whose character was an absolute
As we have already said several times, money systems are abstract constructions
with the function of making the exchange of real goods easier, because
of their evaluation. These abstract constructions are simple images of
the real goods exchanges and must circulate simultaneously, evolving and
being adapted to them. When this adaptation does not happen spontaneously,
it becomes necessary to introduce an appropriate monetary strategy: the
invention of money.
In a regime of metallic money this strategy becomes impossible. In fact
the philosopher's stone which transforms any metal in gold has not yet
been discovered, therefore it is not possible to increase at will the existence
of monetary metal when it is insufficient for the quantity of goods on
Every time a market becomes in excess dynamic and productive, the lack
of minting metal causes new sorts of monetary instruments to appear,
less limited in their possibility of expansion.
Historically, bankers have been originators -and main beneficiaries,
even if not the only ones- of these new forms of money, more and more abstract
and far from the reality and intrinsic value of metallic money.
Let us see now, very shortly, the history of this return to the necessary
abstraction of the money system, which is not definitely reached until
Already in the Middle Ages, in Europe, the shortage of precious metals
urged kings and other minting authorities to effect money manipulations
either secretly or publicly. Since the coinage and legal circulation of
money were in their hands, these authorities could make the face and legal
value of the coins not to correspond to the actual value of the metal.
This could be done in two different ways: by minting new coins with the
same face value but with a lower contents of metal; or oficially and artificially
increasing the face value of the pieces in circulation. This way, the minting
authority could effect payments using a smaller quantity of metal. These
proceedings were ordinary practice during the whole of the Low Middle Ages,
when royal treasuries were almost permanently indebted and could solve
their problems with this monetary stratagem.
But this solution was short lived, as the logic consequence of the manipulations
was the increase of prices and salaries; an increase which produced a new
difficulty to the treasury, which was compelled to effect new manipulations,
starting an endless cycle. Of course the ones to suffer more were always
the lower classes, who had not enough buying power to face the price increases,
and who could not manipulate the money which was imposed on them.
With the money manipulations of the Middle Ages the gap is opened, which
will begin the separation of the actual value of the concrete metallic
money from the money value which is artificially applied, according to
the needs of the market.
When America is discovered, with magnificent treasures to be plundered
and important mines of precious metals, it seems that shortage of metals
is at an end. But this period of plenty is relative, because at the end
of the Middle Ages an enormous development of trade has taken place and
by consequence also of the need of money.
To meet these needs the bankers of the time invented a new practice
to face the metal shortage: the draft.
At the beginning, drafts are only a way to settle debts from a distance
and to avoid therefore the danger of transporting metal. But later the
draft implies also a notion of credit, that is of payment delayed
in time. We must point out the fact that this new sort of monetary
instrument, which we might call credit paper, was already known
in Mesopotamia from the beginning of the introduction of actual metallic
The letter of credit in all its varied forms both historic and
present, has a character and definition in the fact of originating a new
circultation to be added to the circulation of metallic money.
When a draft goes from hand to hand, being used as a paying means currently
accepted, it is a simple promise of paying cash at a given date;
but this cash does not exist yet. Therefore the draft does not substitute
metallic money, it joins it. It is a new monetary instrument which, besides,
has no intrinsic value, as the only element which keeps it going is the
(however immaterial) that when the paying term becomes due, payment will
actually take place.
When a bank discounts a bill and pays it in cash, this payment is also
a monetary creation, as the bank, by paying in advance uses money from
its clients. In this way one only quantity of metallic money appears twice:
in the current account of the depositor and in the hands of the one who
has cashed the bill. This situation apparently abnormal only disappears
when the draft is payed at maturity.
The bank takes up the risk that the draft may not be paid, but this
risk is not very important if the balance between total deposits
actually made and total credits given is held within reasonable
The evident limitation of credit paper is that, for a very exact length
of time, it is tied to the real metallic money. A draft has not a limitless
duration, and the buying power it represents disappears at maturity after
it has been honoured.
This limitation disappears when the bank note is introduced.
The bank note was invented in 1656 by Palmstruk, a banker of Amsterdam.
It is simply an acknowledgement of debt by the bank producing it.
The bank, instead of meeting its obligations towards its clients by giving
them metallic money, delivers bank notes; in these documents the
bank acknowledges its debt for a given quantity of metallic money.
These bank notes, when the holder so wishes, can become metallic money.
Bank notes are to the bearer, that is nameless: they have not
a personalized beneficiary, and they can go from hand to hand without any
limitation. They have no given term of maturity, therefore they can circulate
indefinitely until somebody decides to change them for metallic money.
Because of this mobility they represent a very important money circulation.
Therefore there are two permanent and well differentiated money circulations.
On the one hand, the circulation of real metallic money. On the other hand,
the circulation of bank notes, which have no longer any intrinsic value
but which hold a permanent promise of conversion into metal and therefore
are based on the trust towards the emitting bank, in its ability to face
conversion requirements. The circulation of bank notes has still a relationship
with real money: the permanent possibility to be converted.
Thanks to the possibility of emitting bank notes, the bases were set
to avoid the shortage of precious metals, which even if new mines were
discovered in the XIX century, were still insufficient. The XIX century
is already fully industrialized: this produces a high increase of the needs
of buying power at a rythm which precious metals cannot follow.
Banks, thanks to bank notes, can issue higher amounts than the hard
cash deposits. This is common practice, and, as we have already said, it
causes no problems, as long as a reasonable ratio is held between metallic
money and bank notes. Better still, this practice is absolutely necessary
for the market, since through these mechanisms the necessary monetary instruments
are produced when metallic money is insufficient.
The money system based on the parallel circulation of metallic money
and bank notes is currently called «gold standard». This system
is a peculiarity of all the XIX century.
7. The non-convertible bank note.
In the end, also the «gold standard» became unsuitable for
the needs of a market as developed as that of the XX century. With the
new evolution of the money system, monetary instruments become completely
abstract, completely foreign to any real and intrinsic value.
During the XIX century, central banks of several states monopolized
the emission of bank notes, which then became legal. But every time a State
had political or economic problems -production crises, wars, revolutions...)
and had more expenses, this State had to produce more and more bank notes,
until the inevitable trust crisis arrived. Everybody wished to convert
his notes in metal, and the only solution for the state was to declare
a compulsory use of the notes, which meant it was impossible to convert
them into precious metals. Only when the situation became normal again
could convertibility be re-established.
must point out that an important forerunner of the inconvertible bank notes
is to be found in the Law system (1716-1720), and in the «assignats»
of the French Revolution.
During World War I the enormous war expense almost completely emptied
the chests of the participating states. Most of the gold from these states
«emigrated» to the U.S.A. Banknotes were produced in great
quantities and, of course, convertibility was suppressed.
Since then, the money systems of the «civilized world» were
distinguished by the inconvertibility of bank notes. After the war, some
countries tried to reintroduce a partial convertibility, but the 1929 crisis
definitely put an end to it.
the system born in World War I is based on the abandonment of metallic
money, as far as utilitarian relations are concerned. In international
relations, the role of gold is held, but only until 1971, when president
Nixon untied dollar from gold, and unilaterally denounced the treaty of
Bretton Woods of 1944.
The superiority of the inconvertible bank note, which we will simply
call paper money, is the peculiarity of the new monetary stage.
This paper money, which is still in use in our days, holds no relationship
with gold nor with any metal nor real merchandise. It does not represent
any quantity of gold, and it cannot be converted into it.
Which is then the nature of paper money? which is its basis? Paper money
is simply based on the social agreement which has made it the necessary
instrument of the mercantile exchanges and on the trust given it, as an
instrument which fulfils its function adequately. Therefore its nature
is radically auxiliary-abstract. Its value is that of an instrument helping
us in accountancy and exchange of real goods; it has an auxiliary and abstract
value, and not an intrinsic and real value: this can only be a peculiarity
of real goods.The money system has finally gone back to its fundamental
8. Bibliographic references for this chapter.
With respect to pre-monetary barter and utilitarian exchange relations
With respect to abstract money units among primitive peoples:
Sahlins, M.: Economia de la Edad de Piedra.
With respect to abstract money units in ancient civilizations,
Godelier, M.: Economia, fetichismo y religión en las sociedades
primitivas. (Chapter IX), Madrid, S. XXI, 1978
Firth, R. (compiler): Temas de antropologia economica. (El racionamiento
primitivo, by Mary Douglas). México, Fondo de Cultura Económica
1974 (original edition 1967)
Herskovits, M.J.: Antropología económica (chapt. XI, Dinero
y riqueza) México, Fondo de Cultura Económica.
With respect to accounting systems and the bullae in Southwest Asia:
Finley, M.I.: El mundo de Odiseo (Chapt. IV: Riqueza y trabajo) Fondo de
Cultura Económica, México, 1980 (original edition 1954).
Carlton, E.: Ideology and social order, (pag. 136-137), London, Routledge
& Kegan Paul, 1977.
Klima, J.: Sociedad y cultura en la Antigua Mesopotamia (chapt. X, Comercio
y crédito), Akal 1980 (original edition 1964).
Polanyl, K. and others: Comercio y mercado en los imperios antiguos, Barcelona,
Ed. Labor 1976.
With respect to European monetary history:
Schmandt-Besserat, D.: El primer antecedente de la escritura, in Investigación
y Ciencia, No. 23, August 1978.
The Cambridge Encyclopaedia of Archeology, Cambridge University Press,
Daste, B.: La monnaie, vol I la monnaie et son histoire, Paris, les editions
the details of the development of this system of accountancy come from
Denise Schmandt-Besserat. For its explanation we have used her article
«The Earliest Precursor of Writing»,
published in Scientific American. June 1977, Vol. 238, No. 6, p. 50-58.
this case they are evidently pre-writing documents.