2020s >> 2021 >> no-1401-may-2021

Cooking the Books 2

Who invented money?

Whenever goods are systematically exchanged and so become ‘commodities’, one commodity evolves as what Marx called the ‘universal equivalent’ that can be exchanged for any other commodity. So nobody invented money; it came into being spontaneously. At first this money-commodity was gold or silver measured by weight. The next stage in the evolution of money was coinage, where a state stamped an amount of metal to authenticate its weight. In the European tradition this is attributed to King Croesus of Lydia, an area now in western Turkey, in the sixth century BC.

Historical research now suggests that coins may have been invented in China and at a much earlier date, as pointed out by the Mises Institute in an email note of 15 March:

‘China was one of the first countries to develop a metallic money that was valued and exchanged by weight. Evidence suggests that this monetary regime originated during the Shang Dynasty (1766–1122 BC) or the Zhou Dynasty (1122–221 BC). China was also one of the first countries to use precious metals as money and may have invented coined money.’


‘While ideas about the development of money were expressed as early as the seventh century BC, the most prevalent view of money’s origin is attributable to a politician of the sixth century BC. Shan Qi (b. 585 BC) contended that money was invented by one of the ancient philosopher-kings to measure the value of goods. However, several Chinese writers later disputed this story and argued that money originated as a market phenomenon. Sima Qian (104~91 BC) [sic: actually 145~86 BC], Luo Mi (1165~1173 AD) and Ye Shi (1150~223 AD)[sic: actually 1223] basically argued that money grew out of the trading of commodities and could not have emerged in the absence of commodity exchange. Money was only later adopted by kings as an aid in ruling their countries’ (bit.ly/3dc24Sm).

This same debate took place in Europe, with some arguing that coins were introduced by states to enable taxes to be paid in that form and others that they evolved out of commodity exchange. The debate is still ongoing with the proponents of so-called ‘Modern Monetary Theory’ and David Graeber in his book Debt arguing for the former, a position known in the literature as ‘Chartalism’. The other view is defended by Marxists and the Austrian school of economics as represented by the Mises Institute – strange bedfellows as Ludwig von Mises was an arch-enemy of socialism as well as of state capitalism (which he tended to confuse with socialism).

The case for the state being the inventor not just of coins but of money as a ‘universal equivalent’ is given some plausibility by the fact that today the currency – money as a means of exchange – is entirely the creation of the state, ‘fiat’ money as it is known. Gold and silver coins have long ceased to be used as a means of exchange; this is now made up of paper notes and metal discs issued by the state and which have no value in themselves. They are just tokens or counters that can be used to buy things.

However, the commodity-exchange origin of money is still there. Commodity production and exchange is basic to capitalism and the ratios in which they exchange for each other are still related to their labour content. The state issuing more money tokens than needed to carry out these exchanges does not increase the amount of values in existence or to be exchanged. What it changes is the unit in which the price of goods is expressed, reducing it and so raising the number of them to express prices, i.e., increasing prices all round. Which is why the ‘chartalists’ of MMT would come unstuck if ever their policy was to be implemented.

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