Mainstream economists long ago accepted simplistic ideas of a market economy as a basis for analysis (with “money” merely a veil and thus safely ignored), making their entire opus largely useless.
To avoid this error, better scholars highlight the profound social-organizing roles of currency systems: The tax/tax-credits system and the banking systems that build-out from it (the former organizes public goods, the latter, private production).Clint Ballinger
For modern states these systems began to develop after the period of state formation from around 1500 AD on. Remarkably, however, research shows that “modern” tax-credit systems date back to the very first states (Sumer, 3500 BC) and the dawn of history (record-keeping and writing stem from the same accounting base as the first tax systems in ancient southwest Asia)....
Commodity exchange units-of-account almost certainly predate 3500 BC temple state-money. Neoclassical Econ is still nonsense.
Clint Ballinger
See also from Clint
How the euro illustrates an important point on the origins of “money”
11 comments:
Occam's Razor:
"Here's a chicken, pay me back sometime".
That's the simplest thing that works.
With strangers and other groups?
We have Cash and Carry in the modern economy. That doesn't negate the existence of business credit.
Humans instinctively know when people are good for their promises. We're astonishingly good at knowing who owes us and who we owe. So much so that we don't really think about it.
Money is nothing more than a tradeable credit (loan). As with any loan it needs to be underwritten. The more questionable (or less trustworthy) the credit the higher the demands for security / collateral (i.e commodity). Even if the issuer of the credit is not questionable, the acceptor of the credit needs to have some reason or see value in what final payment of that credit is -if not then the trade can only happen under different or highly discounted terms (needs more collateral).
I recall early econ classes where examples of barter between natives and explorers as examples of how money was just a simple "veil" to underlying barter economy. The correct interpretation would say that the natives had zero reasons to trust the credit worthiness of the explorers and therefore were only willing to trade on a true barter basis.
To anyone who understands credit and underwriting it should be no surprise that "money" so often has had a commodity component to it. Anyone who wishes or needs to use that money to complete a foreign or distant transaction is likely facing a discount to the acceptability of the credit. If the money is also a commodity then there is also a built in collateral component that makes the transaction easier or more risk tolerant.
@ Unknown
No historian of money here, but from what I have read, the scenario you describe is the way it was for the most part. Credit involves some kind of obligation, formal or informal, involving either mutual trust or compulsion on the part of the lender. This generally occurred intra-community. Trade with others, on the other hand, was chiefly through goods exchange. This developed into the classical view of international trade by David Ricardo based on comparative advantage. This view dominated analysis of international trade subequently, and it was one of the first topics in intro to econ when I took it over half a century ago. Has it changed much since?
Mercantilism was about international exchange based on precious metals, especially for manufactures. The wealth of nations was measured in their stocks of precious metals.
In short, credit was the basis for endogenous economic exchange while the basis for exogenous economic exchange was commodity goods. Trump and his advisors are thinking largely in these terms, it seems. They don't like China accumulating USD credit instead of buying US goods, but Japan doing doesn't seem to bother them. Maybe there is more it?
International credit explodes post WWII with lend lease, for example, and the establishment of the IMF and World Bank. But the system pretty much remained the same until August, 1971, when Nixon took the US of the gold standard for international exchange. After Bretton Woods (1944), the dolar had emerged as the global reserve currency, with the USD convertible to gold at a fixed rate as the basis for international trade.
Previously to 1971, settlement in gold was conducted in gold bricks deep in the bowels of the FRBNY. I once saw the "gnomes" moving kilo gold bricks from cell to cell with the cells marked by country name. Some cells had many bricks and others few. The gnomes were wearing steel boots.
So, while international trade was conducted in the USD as the reserve currency, it had a commodity anchor.
When the world went off the gold standard for international trade and currencies floated relative to the USD as the global reserve currency, there was no anchor for the USD. MMT oberserves that this increased policy space but with greater risk of price instability.
The MMT JG with a USD price anchor to a commodity (a unit of labor time) would provide an anchor based on a real good as an way to increase price stability while retaining more flexible fiscal space than under a monertary system without an anchor to a real good.
there couldnt have been "money!" in 3500 BC that predates the Roman Pantheon in which sat the goddess "juno-moneta" (devine female role as protectress of funds see BOE logo...) the transliteration of her last name is where from came the figure of speech "money!"...
You have to use a different name for the concept of what you are talking about 3500 years ago... the word is probably in the archeological record....
But it ain't "money!"...
And while your at it you probably want to avoid the figure of speech they used 3500 years ago and look for the actual technical term....
There's an article by Edward Fuller on banking over the last 4,000 years or so here:
https://www.cobdencentre.org/2019/10/100-banking-and-its-advocates-a-brief-history/
Neil: "We're astonishingly good at knowing who owes us and who we owe. So much so that we don't really think about it."
Yes, there is a theory that the human brain became so complex primarily to analyze social interactions. This also explains the continued human fascination with social things (such as Love Island, fiction in general, etc).
My point is simply that a measure would evolve before a decree. Likely systems of liabilities evolved first also, then began to be recorded when became too complex.
In the first instance, the units were customary commodity measures. These could float quickly (but this wasn't understood; see the euro article).
To some other comments here: On barter: the story is always misinterpreted. It says there will NOT be (in the social, population etc growth we know happened) barter in those processes; there will be commodity exchange. We see it in the Lohmi of Nepal, for instance (Graeber's prime "example," weirdly and incorrectly).
See https://clintballinger.wordpress.com/2020/01/18/the-barter-story-is-about-the-absence-of-barter-clarifying-an-earlier-post/
Thanks Ralph, will check it out
@ Clint
Right. Commodity exchange is not necessarily barter. Some seem to conflate them.
Barter is exchange of a good that someone desires for use with someone else willing to accept a good one has use for. Then the issue of couble coincidence of wants arises, and from that some derive the invention of money as a universal good that serves as a numeraire.
No evidence of that ever happening in ancient societies. Lots of evidence of exchange based on trust, which was the basis for development of the concept of credit that led to units of accounting and accounting records.
Commodity exchange is different from simple barter. Parties may exchange goods based on perceived arbitrage value for use in further exchange to improve their position. This is exchange of commodities instead of facilitating each other's use.
From ancient times international traders would load up on commodity goods they knew had value elsewhere and exchanged those goods for commodity goods that had value back home knowing they could exchange them further at economic advantage.
I am acquainted with traders that do this today.
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