Markets and Taxes 101
The transformation of barter economies to ones that are monetized, the move from rural to urban living, and the emergence of a highly stratified society with a tiny percentage of ultra-wealthy non-producers sitting on top of the heap all tracked together. As money was invented to enable more efficient markets and greater human specialization, friction on the money supply in the form of explicit or de facto taxes developed along with them. These super mega trends worked together for over 9,000 years, until the forces unleashed by the Industrial Revolution began to change the nature of taxation. In this chapter we will take a look at how these trends tracked together at their beginnings.
Taxation to support rulers and shamans, and to "pay" for public works had been around for many thousands of years before the first money came on the scene. It is clear that well before the last ice age or glacial advance had subsided, human societies had evolved enough complexity to need full time specialists who depended upon "donations" from everyone else in the tribal group to survive. It is even possible that this communal behavior began with proto-human species millions of years ago. The only way we have of making this sort of cultural inference is by the complexity of the tasks that we are certain that they routinely accomplished. At some level of task complexity, task specialization by individuals becomes necessary.
Donations or sharing enabled them to devote themselves full time to their administrative or other specialized tasks. What were these tasks? We cannot know exactly, but the default model we must use by applying Occam's Razor for our starting point, would be to project what we know about the roles anthropologists have documented as being consistently shared by present day societies that are still in the Neolithic.
Note that specialized administrative tasks lead in a different direction from specialized skill tasks such as making clothing, shelters, or flint knapping.
People who worked in community overhead roles provided the necessary tasks of officiating during tribal rituals, arbitrating disputes, and as keepers of the group's stories, which are a key to any society's sense of identity. Of course, those stories and sense of identity also lead to definitions for who exactly is and is not "us," which provides the roots for all sorts of other problems and conflicts, but that's a discussion for another day. I highlighted the words community overhead for a reason. Their role in society is purchased and sustained by everyone else. If the servants of the community become an upper crust elite with a sense of entitlement, the overhead burden they represent can get out of hand and require some adjustment.
We have some speculation that at least in some instances, the elders being supported by the rest of the clan were idlers, and not active participants in the daily productivity tasks of the clan. But this attribute was unlikely to have been a universal feature of all cultural groups. Classed society was not that far removed from being perfectly egalitarian for a very long time. But, by the time of the Sumerians, the notion of a small and somewhat elite class that exercised control over how surplus production would be used had been around for a few thousand years.
In 2008, high in the mountains of eastern Turkey in an area that includes the epicenter of the 2023 7.8 magnitude Kahramanmaras earthquake, the remnants of an early civilization that built stone cities was discovered. Ii has been the subject of intense archaeological work and study ever since. The dates are astounding in that they were first constructed sometime around 12,000ybp. For now we do not have a name for this culture other than "Pre-Pottery Neolithic" (PPN-B), although some people have taken to referencing it by the modern Turkish name for the region, which is Tas Tepeler. There was a another culture in the Levant for which three sites have been identified that has been designated as PPN-A, with most of the monumental stone structures belonging to the slightly later PPN-B period, the one exception being the Tower of Jericho. These cultures may very well have had markets and a monetary system, but by 8,000 years BCE (before the current era) or 10,000 YBP (years before present), the PPN-B culture was gone and left no similarly organized culture in its wake, and the PPN-A also seems to have fallen apart and entered some sort of transitionary phase. I should note that there is some fluidity around the dates for the monuments at the PPN A and B sites. It seems that each time a new bit of datable material is discovered, they are pushed back in time a tad further.
Whatever end up being the finally agreed upon date range for these sites, it is clear that they predate the first evidence we have for a somewhat monetized economy. While a plausible connection of continuity between the slightly later PPN-B sites of the Tas Tepeler region and the much simpler mud brick cities that started to emerge at the far southeastern end of the fertile crescent has yet to be established, at this point such a connecting influence seems unlikely given the distance between them. But clearly, connection or not, such a highly capable society must have evolved a class system complete with a ruling elite and some system of taxation or preferential way of supporting the elite. Or perhaps the entire culture was one big warrior elite living off of the work of all of the less well organized tribal units in the vicinity. Future discoveries in the region will tell us more.
The PPN cultures are important to keep in mind because whenever we say such and such first happened in Sumer or someplace else, we need to put a footnote next to it so that we are reminded that it is entirely possible that whatever it is we are talking about happened once before, in another place and at a much earlier time, but then died out. As of this writing, we have no compelling artifacts or well founded cultural inferences based on the complexity of what we know the accomplished to be able to assert that the PPN cultures were monetized. We humans have been around pretty much the same as we are now for around 200,000 years. Our earliest ancestors must not be presumed to be any less clever than we are today. All that we are and all that we have become is built upon the contributions of those who came before us. So for now we are going forward with the notion that the proto-Sumerians were the first group to use something that looked like money. But stay tuned. It is still possible for something older to turn up.
If our known history tells us anything, it is that our path has not always been one of continuous development and improving things by immediately building upon what we have already accomplished. The story of civilization is sprinkled with false starts and setbacks. Civilizations have risen and fallen many times. It has often been the case that when a civilization had gone into decline or collapsed all together, many of the skills and technologies that had been developed are simply lost for a while. The fall of the Western Roman Empire is a great example of a massive and wide-spread decline in available technologies, skills, and knowledge, and that decline is not a lone example from our known history. The opposite is true as well. There have been instances of specific complex technologies surviving a major decline in the organizational complexity of civilizations. Geared timekeeping and calculating devices from the Romano-Greco era are a good example of this. Such machines survived in the middle east, only to be reintroduced to Europe during the reign of Charlemagne.
For a variety of reasons, as the last glacial advance was retreating, our ancestors started changing the way they lived for the first time in in at least 20,000, and perhaps as much as 40,000 years. A reasonable inference is that as we worked to adapt to the massive global climate change, we were nudged to change our ways. At Tas Tepeler, something took off, sputtered and died. And no, space aliens had nothing to do with that nor anything that came afterward. Early humans, our predecessors, deserve more respect than the spinners of space alien nonsense give them. They were every bit as smart and capable as we are. They just had a very different skillset, and a collection of tools that were much closer in form to the natural materials from which they were made.
What we can say for certain about the culture in the world of the PPN people in the Tas Tepeler region is that the idea of an elite that functioned as a kind of royalty was well established. Once allowed to come into existence, royalty invariably starts to assert not simply the authority necessary to provide administrative services, but they also grab and hold onto the actual ownership of the legal and administrative processes. They seize the right to decide for others and quickly move in the direction of asserting that the gods have ordained their right to do so. Once they are able to sustain a culture's acceptance of royal prerogatives, kleptocracy becomes a part of who they are. As rulers, they assert the right to not only take that which is necessary to sustain themselves as equal members of the society, they start taking more than everyone else, and the best of whatever is available. This usually does not go as far as it was taken by the pharaohs of the Old Kingdom in Egypt, who managed to convince everyone else that they were gods, but examples of individuals who tried tried to go that far can be found in the histories of Japan, China, Rome, and elsewhere. As you might have guessed by this point, I tend to agree with Mark Twain's character Huckleberry Finn when he said: "I don't put much stock in kings and queens."
By the time of the PPN civilization in the Tas Tepeler region, the kleptocratic role of an elite was well established, and thus predated the Sumerians by a couple thousand years. The age of kings and the somewhat idle rich had begun. And along with this assertion of privilege by the few, for the people who carried the burden of public servants wallowing in such hubris, taxation was no longer voluntary. It may have even been the case that the elite had already begun to assert that they were the actual owners of the lands that were worked by farmers, or that they even owned the farmers themselves as vassals or slaves. The fragments of records we have recovered thus far are not clear on this. One more thing we can say for certain is that the emergence of money at first enabled egalitarian markets to work better, soon began to serve another purpose that had exactly the opposite effect.
Lord Acton's observation in his letter to his bishop friend in 1887 was just as true 12,000 years ago as it is today. "Power tends to corrupt, and absolute power corrupts absolutely." His very next sentence in that letter is one we often fail to include, as it knocks many of our modern heroes off of their pedestals. He went on to observe that "Great men are almost always bad men ..." From there he went on to pretty severely criticize Elizabeth I for some of the things she did. Note that compared to current standards of grammar and usage, 19th century English used gender referents differently, with a closer bond with their true Latin roots as opposed to their homonym forms from Germanic languages, but enough on the rather messy way that English has come to be what it is.
This illustration comes from some online course materials of the DuPage Montessori School in Naperville, Illinois. Often the illustrations for children's teaching materials is superior to what one finds in sources aimed at an older population.
It is difficult to be certain as to which city in the region of southern Iraq that we now call ancient Sumer was the first to start using those clay token bits of money that we talked about in the last chapter. We usually point to the city of Uruk where the evidence for this is unmistakable. But, it could have been in any of the many towns and villages of the region. One thing for sure, it was seen as a good idea and quickly spread throughout the region.
At this point in our story, the numismatic curators of the British Museum jumped ahead in their book, and started talking about the distribution system as we think it was working sometime around 2,200 BCE. But, a lot happened in the 5,300 years before that, and it's important to understand this stuff to get a good handle on how human thinking about money developed. So let's defer digging into centralized redistribution systems for now and focus on how the Sumerian markets and taxation system probably worked in the earlier period starting sometime around 7,500 BCE. From there, we will work our way back to the excessive centralization phenomenon the curators talked about at the start of their work, which must be viewed as one of the standard reference works on the story of money and markets.
I found this next part to be somewhat startling. What the archaeological evidence seems to indicate about the early "clay token" period in ancient Sumer, is that their markets were not all that different from what would appear in medieval England many thousands of years later. Markets started out one way, then went through all sorts of machinations and experiments, only to end up working pretty much the same again 6,000 years later. At the beginning and the end of that enormous stretch of time, there was some money (i.e. clay tokens and later small denomination medieval coins), and a lot of bartering on the side, especially in locations well removed from the marketplaces where those early towns took root.
In such markets, when facilitated by a clay tokens, there are two problems that need to be solved. One problem is counterfeiting, and the other is how to enable people to check in their goods in for sale in the market in one town, and then have their tokens accepted at a market in the next town over. The Sumerians came up with a common solution to both problems which may seem like a cumbersome way of doing things to us, but it worked for them for a very long time. It also explains how one of the most awful systems of taxation short of slavery developed. They started keeping records, which of course means that they had to invent a way of doing that. This required both the technology and the processes for using it. Before we dig into it, let's say something briefly about counterfeiting.
Counterfeiting is perfectly inflationary. When there is more money than there are goods to buy, the money is no longer representative of goods that can be bought. It is no longer stored work. Its just bits of clay, or metal, or string, or beads, or shells, or ones and zeros in some bank's computer. It ceases to have any value or meaning in the real world. Money works best when there is exactly the right amount of it in circulation. If there is too little, then the barter system goes on without it. If there is too much, it stops working its magic as a vessel for the storage of the value of work and its productive output. Money that can't buy anything because there is too much money chasing the goods and services that are available, stops being money. So let's refine or expand our definition of money a bit, and suggest that it really has a list of attributes, all of which must be present for it to be money.
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Money is stored work.
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Money is a call upon the productive output of others.
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Money has to have some agreed upon units of value (the fractional cow problem).
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The total amount of money cannot not exceed the amount of things it can buy.
Take away any of these four things, and money is no longer money. We'll dig further into the history of the scarcity of money and look a little more at what happens when there is too much of it later. But now our focus is on the problem the Sumerians had in making their invention work across multiple towns. Their first form of money was just too easy to counterfeit.
There are two answers to the counterfeiting problem: control and scarcity. The control part is easy in a single closed market. Money is created and passed out in a one to one match for the value that has been produced and offered for sale. It's also somewhat easy in the modern digital economy; but, that's jumping ahead about 9,500 years in our story, and skips a lot of good stuff. In ancient Sumer the answer was good record keeping on those supplemental clay tablets. And this solution would last, believe it or not, for nearly 3,000 years. The Sumerians invented writing so they could keep records of the transactions and secure the value of those tokens. For a token to be good it had to be backed up by a record of its issuance that described to whom, for what, and how much. And while cumbersome, that worked when the monetized world was just a few towns in what is now southern Iraq.
But as trade with other towns grew to encompass an ever larger region and network of towns, something better than record keeping was needed. The first solution seems to have been what the curators of the British Museum described in the opening pages of their book. Over time, the Sumerians allowed their central government to simply take everything in that was produced, and then redistribute what their officials deemed to be appropriate for everyone based on who they were and what was deemed to be their needs. Of course, this made it easy of for those in power to keep the best and an ever larger portion of everything for themselves.
We do not know that the Sumerians had what I'll call an estate system, in which the people producing things were also deprived of the ownership of their land and tools, but what they produced was eventually 100% taxed away and then redistributed based on the state's perception of everyone's need. Their are some passages in their records that suggest that by 2,200 BCE they had allowed this to happen to themselves. This of course is identical to the Marxist/Leninist Soviet system, and it had the same problems of corruption. The people doing the collecting and redistributing quickly became corrupt and started to think of themselves as being better than everyone else. So of course they deserved more, and just kept whatever they wanted. Real royalty with all of its negative attributes arrived in ancient Sumer.
At what pace the development occurred in which there were royalty and a taxation system that took everything and redistributed it we cannot say for sure. It wasn't there in 7,500 BCE. There may have been a form of royalty, but it was more along the lines of tribal leadership than people who insisted they were better than everyone else. We can also say that 5,500 years later, a system of highly elevated royalty and a stratified society with partial urbanization was fully in place.
But backing up to 7,500 BCE, we can say that the emergence of an early form of royalty did solve the regional market problem, with many smaller markets being a part of the same overall economy.
When someone with "money" in one town wanted to buy something from a market in another town and use money instead of bartering for it, because of the centralized records and control, the balance between what was available to sell and the amount of money chasing it could be maintained.
Exactly how the Sumerians managed the complexity of the accounting processes involved is unclear. There are some hints in their surviving records, but any description of their system is, of necessity, 90% guesswork. We can't even be certain as to the exact meaning of the surviving cuneiform records that we do have. When the record says that Elutil owns a cow, does that mean he has a cow at home in his field, or does it mean that he has the value of a cow in clay tokens? Did in mean the one in one situation and the other in another one? We're guessing. We know there were records, and that when the topic was the right to an amount of value in the market, there must have been some sort of control and reconciliation process. The surviving records tell us that much. They also tell us that things were sufficiently complicated that they needed to have records. In my imagination it must have been a system of matching each person's spending history to their accumulated earnings, but that is little better than me projecting my bias of perspective from having been an accountant for a while in the 20th century.
Also missing from our understanding of how they did things is the accompanying legal system. We do not have any records of a legal system for the first 5,000 years of monetized society. They must have had one, even if it was unwritten customs that were stable. The oldest surviving remnants of written codes of law are the Ma'at system of Egypt dating to at least 3,000 BCE, and the code of the Sumerian king Ur-Nammu dating to about 2,200 BCE. Then of course, there is the famous Code of Hammurabi stela, which was created sometime around 1,760 BCE. Alas, none of these three provide the details of their associated accounting and monetary control systems.
Regardless of what their accounting and reconciliation processes looked like, there was a need for more flexible money that was not dependent on such burdensome controls to ensure the validity and ownership of the tokens representing money. This need would not be solved in a way that was both easy to use, and safe to trust until about 650 BCE. The solution would evolve over a long period of time, This transformation of money involved the mechanisms of religion combined with a curious behavior that humans share with crows and a very few other species.