The Value Problem
In order to truly understand the nature of money and the great opportunities and risks that it poses in the modern world, it helps to understand a little bit about how and why it was invented in the first place. A good place to begin is with the three economies and the tension that exists among them.
Just like all other creatures, we humans started out with only one sort of economy. Within our families and tribal groups we did things for each other and the group. Along the way we discovered that some individuals are better at some tasks than others. So Grog ended up leading the hunt, and Marg ended up leading the preparation of hides.
Chores are and were logical task assignments based on what aptitudes people seemed to display, or the acceptance of quite arbitrary biases in task sharing that seemed to work. This is the basic structure of what I'll call the tribal economy, but it could just as easily be called something like the family economy.
At some point, in the deep recesses of pre-history our proto-human ancestors started to work in larger communities. We can say with a high degree of certainty that homo erectus worked in groups that would have been conducive to the introduction of a barter system. And there can be no doubt that Denisovans and Neanderthals had barter systems throughout their entire time on this earth. Barter economics enables the members within very large groups or tribes to trade for the higher quality productive output of individuals beyond the immediate chore group. It also enables the flow of scarce resources which may be more available in one territory compared to another. Another way of looking at the economics of tribal and barter work and the subsequent sharing or trading of our productive output, is that they avoid some uglier sides of coercion and violence. Deals are better than fights.
We can make some inferences about the social and economic complexity of our predecessors by the things we know accomplished. But, when exactly the idea of doing a trade first emerged is something we cannot say. It could have been early as two million years ago or as recently as a few hundred thousand. The one thing we can say for certain is that by the time of the dawn of the Neolithic, and perhaps as early as 100,000ybp (years before present), people were trading goods within their extended tribal groups. We can also observe trade became a well established feature of every cultural group within every surviving species of our genus.
If the history of economics begins with the emergence of barter societies, we can make a defining statement. Bartering economics, and later monetary systems, emerge to enable human specialization. If a society derives value by allowing one or more of its members to focus on some skill or activity, that individual's other needs must be provided by the rest of the group. At some point in the emergence of larger and more socially complex groups, this group provided support for specialization is accomplished by trades and deals. Keeping track of who is owed what becomes sufficiently cumbersome, that each individual producer figures out what they need or want, and simply trades the productive output of their own specialties to satisfy these needs and wants. Bartering is a solution to population growth and an increase in specialization.
One of the standard economic tensions that must have appeared, at least by the time barter economies started to develop, were notions of ownership and fairness. Of course these concepts are also badly colored by our many points of view and biases that go with them. Thus, the economic elements within the seven deadly sins, including lust, gluttony, greed, sloth, wrath, envy, and pride started to grow and become a problem right along with the imbalances that result from the many social complications that emerge as extended communities grow in size. These perceptual and behavioral issues were around long before money came on the scene.
Money is not the root of all human evils, but a pretty good argument can be made that the presence of money, or its absence if it is known to exist and felt to be relevant, can add significantly to the challenges of daily life. One striking observation that jumps out at us when we take the time to plot a curve of the history of money in terms of the percentage of a culture that was using it, and then along side it another curve that depicts the percentage of people living in urban settings, is that the two are very much identical. We could plat a third curve that would have a nearly identical shape that tracks relative wealth distribution in society showing how much the lower 99% of the population had at any given time. This is not to say that one is either the cause nor even the enabler of the other two, but questions about this relationship beg to be understood. Has money pushed us around, or did the growth of cities and and the social stratification that came with them catalyze the creation of money? Or, perhaps was it a non-virtuous feedback loop for a very long while, which then started a process of becoming virtuous when something else changed? We'll return to these issues in a later section on the value and valuation challenges that are always present in our economic lives. The key observations we can make here is that the nature of money and society are bound together; over time they have changed together; and in the present day we are in the midst of one of the biggest such changes in all of human history.
Resuming our look at the history of money, we can say with a great deal of certainty that it was the growth of complex barter economies which gradually created the conditions which demanded that money be invented. Thus it should come as no surprise that some version of money was invented independently many times around the world. Each place that money was invented, it took on a form and came with customs that were unique to that location. Before we get into that, let's take a look at the emergence of markets in a barter economy.
At some point in the growth of extended barter communities, a place gets designated where people gather periodically to exchange their productive output with each other. If the same place is used for this purpose long enough, eventually someone may decide that it's easier to just live there, especially if their trade can be easily practiced near the meeting place. Perhaps the best flint knapper or the best hide processor is the first to do this. Once one specialist decides to live near the periodic meeting place of the extended clan, a second and then a third such specialist is likely to copy them. Thus bigins the process by which some of these early meeting places evolved into villages. I find the villages in parts of England with their medieval crosses in the center of the village market square to be a particularly charming example of this. But the practice of meeting in such places probably predated the erection of those market crosses, perhaps by many thousands of years in some cases.
In a barter economy, as soon as a marketplace is created and a large enough gathering of folks have started to use it on a regular basis, a huge inconvenience in the market process becomes obvious and cries out for a solution. How does one trade fractions?
Let's say that someone brings a a recently slain aurochs, the progenitor species of modern cattle, to trade at the market. What they might reasonably want to take home is a pretty big pile of different items, each from a different attendee at the market. So somehow the meat for the aurochs needs to get divvied up with bits and pieces of its value being given to each person in the market from whom the owner of the hunter or hunters who slew the aurochs would like to trade. Pretty soon what was once a simple barter transaction is a hugely complex thing involving half a dozen or more folks. The first instance for which we have any certainty, where a bunch of folks came up with a solution to this problem that starts to look like a primitive sort of money, happened sometime around 9500 years ago, or perhaps a bit earlier in an area we now call Sumer near the Persian Gulf.
We are jumping into Mr. Peabody's Wayback Machine here. Most people have trouble with the time scales of human history and prehistory, let alone geologic timescales. Geologists use the term "deep time" the way astronomers and cosmologist use the term "deep space." But those are near impossible terms to grasp, since they are both logarithmic in nature. The distances between the stars in our galaxy is trivial compared to the distances between the galaxies, and the term deep space encompasses both. We have the same challenges when it comes to maintaining a frim grasp of the timespans involved in human history and prehistory.
The numismatic curators at the British Museum produced a wonderful book on the history of money that was published in 1997. These are professional historians whose job it is to work with these time scales, and they are among the most expert folks in their fields on the planet. And yet, even they did not properly capture in their text the implications of "deep time," even though I think they made a credible effort to do so, and I think their book is perhaps the best there is on the topic.
By deep time here, we are not working with the scale time used to talk about the dinosaurs or the formation of the planets. We're right up much closer to the present than those things. And yet, we are still going back to an almost unimaginably long ago period in time compared to how we typically think about things in our daily lives. When talking about the Sumerians, the curators managed to blend what was happening in the Sumer of 9,500 years ago with what was happening in Sumer a mere 5,000 years ago. That would be roughly equivalent to talking about the construction of the pyramids in Egypt as a phenomenon of our time here in the present day, right along with construction of suspension bridges and the creation of the internet.
As an aside, my use of the word Sumer to describe this area is very problematic. Archaeolinguists and archaeologists often break the cultural periods of the early southeastern fertile crescent into a number of periods, and like to refer to the Sumerians at the people who used a distinct language and who left a distinctive style of artifacts beginning around 4,500 BCE. Several cultural periods based on artifact styles predate the linguistic Sumerians, including the Ubaid period (~5,500 - 3,700 BCE), the Halaf, Hassuna, and Samarra periods, and the A and B phases of the pre-pottery Neolithic. There can even be a "pottery Neolithic) period added to the mix. So I'm using an extreme shorthand here, and referring to the physical area shared by all of these sequential cultures and calling it Sumer much in the same way one would refer to the part of the island of Great Britain, occupied by England as England, even when talking about the pre-Celtic cultures that once called it home.
Another problem with the way we think about time deals with our perception of the rate at which societies change. I have a vivid memory of my grandfather telling about a Sunday drive in his buggy when he was courting grandma sometime around 1910. Cars were unusual, Almost all roads between towns at that time were dirt, and not even paved with gravel. And they always stayed well back from rivers and streams where the good flat bottom land made for the most productive fields. It was unthinkable to slash across good bottom land with roads the way they are built today. I have a hard time imagining that world. As I write this I've recently marked the completion of my 73rd year, and the world today is quite dramatically different from the one I knew as a teenager in the 1960s. But 500 years ago, the world in which one's grandparents grew up was basically identical to the one in which your life would run its course. Things tended not to change in any significant way within a single lifetime, nor even two or three generations. If we run the clock back 4,000 years, life and the world as people experienced it would typically remain unchanged for dozens of generations.
The process of change from the world of the Neolithic peoples in Sumer of 9,500 years ago to what it was like in that area 4,000 years ago was extremely gradual, and probably not even sensed as a constantly changing world in the way we experience it. Imagining such a slow pace of change is very difficult for us.
Over those 5,500 years the peoples in the southern areas of the land between the rivers went from having very small villages where their markets were located, to one of sprawling cities with big walls. Culturally, they had to have also transitioned from what had been a fairly egalitarian society, to one with significant urban hierarchies and royalty. The enormity of the change was immense but glacially slow.
Of course, saying anything about their cultural evolution is more guesswork than not. In truth, we know almost nothing about the cultural evolution as it pertains to social stratification in those dim recesses of our history, other than somehow it happened. The inflection point on this chart indicating when we ended up with god-like royalty is sufficiently wild to be considered random. We know it had happened by the time of the first dynasty in Egypt. Getting our heads around the enormity of the timescales in this history of money is quite difficult. When talking about the very early history of money and its invention, we are going way way way back in time - to an almost unimaginably far back place in time before things got to be as they are now. We're going back way way way before the pyramids were a gleam in some budding pharaoh's eye.
There is an excellent YouTube video on the Sumerians here. It is the work of Christopher Cressey, who describes himself as an "Existentialist Philosopher, Ancient Sumerian Cuneiformist, and Historian ..." and a few other things as well. At least on the topic of ancient Sumer, he does a fantastically good job. Some of his other ramblings may be a bit loony, but it probably takes such an eccentric person to devote the time required to do such a fine job digging into this bit of history.
One thing that is striking about the people of ancient Sumer is that the variety of the goods they produced required levels of skill specialization that went well beyond what is practical in a simple barter economy. The problem of fractional trading in the market becomes much too complicated once there are a few dozen shops or stalls, each offering a relatively narrow range of goods. Some sort of process for converting goods brought to market for relatively small uniform units for calculating value is needed. Also needed is a method for keeping track of who has how many such units. The invention of money requires the simultaneous invention of a way to record names and labels.
The proto-Sumerian solution, some 9,500 years ago, was to use what was readily at hand, which happened to be the clay they used for just about everything they built. It is important to think of these people as being almost exactly like us. They lived in a less technologically developed society, but they still had technology fads. Once some hot new thing was invented, they tended to use it for as many things as possible. The invention of pottery was just such a hot new technology. That they would use it for some sort of token system that was the first form of money should not be surprising.
This pattern of using the hot new technology for the very first physical notion of monetization would be repeated many times around the world. For the people in ancient Sumer it was bits of hardened clay. Elsewhere, such varied things as knotted string, shells, bits of torn cloth, small pebbles, notched wood or bone, and many other solutions to this need would be used. Our best guess is that the Sumerians had someone they put in charge of keeping the market organized, and that this person setup some sort of booth where one could check in one's wares and get some clay tokens designating how much credit they were getting in return for use in the market that day. Were these tokens kept at the check-in booth or used as a currency at each stall? We cannot know for certain, but because they were quite small, it would have been easy to carry around a bunch of them in a cloth or leather pouch and use them the way we used to use coins and paper money. This is all pure speculation. All we have remaining are quite a few surviving examples of these clay tokens and some very good inferences about the values assigned to some of them, which were typically commodity equivalents. For example, a little cone shaped token might represent a set amount of grain. But the transactions and token exchange, assignments, and storage process? We are simply guessing based on what we know they needed to get done.
One amazing thing that we can say with a degree of certainty is that variations of this system lasted for about 4,000 years. This is one of the more challenging ideas to grasp when it comes to money. 4,000 years is a very long time indeed, and little bits of clay seemed to work just fine for folks throughout that time. While we cannot know exactly how these bits of clay were used, there are a few things about the Sumerian markets which we can be fairly certain.
What we can know is that three very big ideas of enormous importance were created by this approach to enabling a higher levels of specialization and a wider variety of goods being made available in Sumerian markets.
The first was the idea of converting the output of work into units of value. Thus money, right from day one, is a means of storing work for future use.
The second thing that was created was a system of putting marks on the clay to designate unit values. Later, larger clay tablets would be used to record the distribution transactions. Thus, the seeds of writing were created as a byproduct of solving the fractional value problem.
Finally, a rational system of taxation based on unit values was also created.
All social systems, from the most simple family units of countless species up through modern human societies, have some sort of organizational overhead need. At least by the time of the Upper Paleolithic, and almost certainly in the Middle Paleolithic as well, some family and tribal specialists had task assignments associated with telling stories, setting disputes, and leading the hunt. As the complexity of these task assignments grew, these individuals needed to be supported in their material and food needs by the productive output of the other members of the social group. This was the beginnings of taxation, and in the beginning it was almost certainly free of any hint of coercion. The most primitive tribal units tend to be relatively egalitarian. Yes the boss can be very bossy, as many bosses are, but they are not some notion being everyone else's "betters," as gradually became the popular notion among some folks.
When large groups of people live together in some form of community, there are always projects and services that require the support of everyone. In barter and monetized economies much of this support requires some form of taxation. But, the administration of taxation can become a tool that amplifies social stratification. Taxes that are poorly or unfairly administered can do as much harm as good. These coercive aspects of taxation and the emergence of a more obviously stratified social structure almost certainly predates the emergence of money by thousands of years, and social stratification was not instantly made worse by the emergence of money. But, the emergence of money did create the means for greatly amplifying social stratification, so it happened. Did this transformation take only a few generations or a couple thousand years? We cannot know for certain. But 4,500 years after those first Sumerian clay tokens were first used, kings that had been elevated to the status of god-like pharaohs were doing their thing.
The story of money and the story of social stratification go hand in hand. For part of the journey we have been on for the past 9,500 years, they have been the same story. Direct transactional contact between all producers and all consumers was almost certainly necessary in a world with only tribal and barter economies. Everyone needing something from the market, as a seller, comsumer, or both, went in person, and did their own trading with the productivity of their own hands. But, the evolution of taxation, once the concept of money had been created, started to change society in profound ways that are still giving us headaches these many thousands of years later. And, importantly for our story of money, the changes brought on by the growth of complex markets and taxes had outsized influences on both the process of creating and distributing money. But as is the case with many things, the conditions that create one set of possibilities, also contain the the seeds that may eventually flip things around and go the other way. Such has been the case with money and its role in social stratification. Money is now a vehicle helping to move us back toward a more egalitarian society, even though it doesn't fell like that most of the time. And, as you may have already guessed, the way taxes work has been the key to both.