The following reconstruction is made with the help of various sources listed at the end of this paper. Their content is not in every aspect identical.
The origins of money
The most common explanation for money's invention is an economic one. Where it was customary in early days for trading communities to exchange goods through barter, the necessity of always having to have on hand some valuable product to exchange with the party whose goods one wanted became too limiting. The invented solution was for the vendor to accept payment in form of a universally agreed-upon product (e.g. grain) which, if not needed immediately could itself be used as payment for the vendor's own purchases. The generic term for materials used in this fashion was "Money" in the English language, "Argent" in French, "Geld" in German.
Joe Cribb1 points out that the definition of money economists normally like to use in describing this activity - "medium of exchange" - is technically inaccurate. It is more accurate to define money as a "means of payment". No goods exchange normally takes place in a monetary transaction. Money is given for goods which pass in one direction only, from vendor to purchaser. But it is interesting to surmise that the term "medium of exchange" may have originated from another, less recognised role of money. This is the role of communication - exchange in the sense of human exchange - that is fostered whenever money changes hands. William Bloom2 emphasizes this role of money (citing the anthropological research of Paul Einzig3) the origins of which stretch back to the exchange of the earliest money artifacts in primitive and pre-barter gift societies.
A further claim (J. P. Hallmark4) is that the origin of money lay in its role as a sacred offering to the Gods; with priests acting as arbiters of value. Many kinds of precious objects have been used as money in this way. When the governing authority in society shifted from priesthood to empire this custom led to the first forms of state taxation (e.g. Tributes in the Roman era). The German word for money "Geld" (old English "Gield") originally meant "sacrifice".
The English word "Money" is also loosely associated with another supposed origin of money's creation - that of providing a store of value. In Rome the mint was in the temple of the Goddess Juno Moneta (in the Greek Mnemosyne), the goddess of memory. Moneta is also translated as "she who warns"... There is no shortage of imaginable situations Moneta might have been warning about!
The French word "Argent" on the other hand, meaning "silver", does not indicate a particular role of money but refers to one of the earliest materials used for it.
Finally, Margrit Kennedy5 suggests that the original impulse for inventing money was something altogether different. She postulates that it derived at the time of primitive matriarchal societies when men were thrown out of the community. She suggests that in order to secure a place for themselves, men demarcated pieces of land, the ownership of which was then paid for by promises/debt/promissory notes. These notes were the earliest forms of money.
Which of these various origins of money is in truth the original? While opinions may differ each of the functions described is probably still playing its role subliminally, if not overtly, in the everyday money exchanges and transactions that colour our contemporary lives.
The roles of money
Several of the roles money plays have already been mentioned. Money as a means of payment, as a vehicle in human exchange, as a sacred offering, as a store and measure of value, and as a promissory note in exchange for ownership.
In a completely different sense however it is worth noting that money has come to adopt a role in society which is rarely identified. This is the role of "magic". Money has come to occupy an almost mercurial place in terms of its link between having an idea and its manifestation. Desire an object and it can become instantaneously real in your hands through simply going to a store and handing money over for it! Money in this sense, and maybe unwittingly, has been given the role of "power object" or agent of transformation and through this has itself become an object of desire and motivator of action. If, as may well be argued, this is now the major role unconsciously ascribed to money in contemporary society - and it is indeed difficult nowadays for most people to imagine acquiring things and realising projects without money - it is then at the same time the greatest source of collective illusion.
The place to search for revealing the nature of this illusion is in the manifestation of money itself. Money does not in an act of magic grow like apples on trees - even if some banks and investment brokers would like to have the general public believe so. Neither does it come into being through interest payments or even from earnings from working. These are simply examples of redistribution of an existing money stock. Money is created by a limited number of individuals, people to whom you and I, through our inherited governmental and banking systems, delegate monopoly powers. This happens in a very concrete, down to earth, systematic way. The magical "power object", agent of transformation and motivator of action turns out at the end of the line, not to be money itself, which is merely a neutral object or information blip on a computer screen, but human beings in the creation of this money. And moreover at the very end of this line, this magic resides not with those individuals with the monopoly powers but, actually, with you and me in the daily act of legitimising their powers. We forget this at our peril. It is in this forgetting that money takes on the illusion of itself being magical and powerful and we become vulnerable to the arbitrary or intentional manipulations of those who have not forgotten!
The forms/materials of money
Here are some of the materials and forms used as money in the course of history: Feathers, stone(s), iron, salt, seashells, gold, silver, copper, bronze, paper, barley, porcelain, cloth, cattle, plastic: featherwork coils, stone discs, iron rods, bars of salt, gold rings, metal coins, paper and plastic notes, beads, bronze vessels, "Manillas" - copper rings/bracelets, electronic accounts.
The symbols, artwork, numerics and security codes in coins and notes
This topic could alone form the subject of a lengthy book. Much of the artwork on coins and notes is intricate and exquisite in its beauty, power and symbolism. Clearly this has to do with money's role as a store of value. The more intricate the design, the more powerful the imagery, the less capable of forgery - the better the money will hold its value and power over time.
The first coins had Gods, or animal symbols of power on one side, symbols of myths on the other. The Romans replaced the first side with their Caesars and the second with messages. After the fall of Rome there was a return to mythology but designs have since increasingly represented a secular society, latterly monarchs and politicians, more recently objects and nature as well as famous scientists, architects, artists and others recognised as having contributed to society. It has been suggested that many of the recent designs represent human potential, our hope for the future and maybe the "power symbols" of the present day6.
14000BC The first indications of the use of money. Wall paintings in Egypt depict gold rings being weighed on a balance.
2600BC Records of payments made in Mesopotamia (the area running North-South, East of Palestine and Syria, and including Babylon - the Sumerian culture). Payments made in barley (the original "Shekels").
2400BC Payments made in silver
2260BC The "Talent-stone" is used as a counterweight, setting the standard for weighing silver
1750BC First known "bank" in Sipper, Mesopotamia. The temple holds silver and other goods, lends it out and charges interest.
700BC The first creation of coins, minted in North Syria and Lydia (now Turkey), made of electrum, an alloy of gold and silver. For the first time on record the real metal value in the coin is less than its nominal face value.
500BC Silver coins minted in Athens, Corinth and Aegina
Copper coins minted in Sicily and in Southern Italy
400BC Copper and Bronze coins struck in Rome
Silver coins struck in India, influenced from Greece, via Iran
Bronze coins in the shape of tools struck in China
300BC Aristotle proposes that the right to create money should be vested in the monarch or state as a monopoly.
1100AD First known circulating notes in China
1200-1500AD "Brakteaten" money, slivers of gold and silver leaf. These are issued by local townships in Europe and called in three times each year, losing 25% of their value each time. Used for taxation and to encourage circulation, this money was unpopular but its use coincided with the Renaissance period, the legacy of whose prosperity we still enjoy today.
1500 AD Attractive gold coins are produced in Venice to replace the fragile Brakteaten slivers, for use in international trade. Ironically the replacement of the Brakteaten system and Brakteates by gold does not herald a golden era, but the reverse.
1500AD A silver coin is struck in Joachimstal, Bohemia. This is known as the Thaler, later dollar.
1700AD Start of the banking system as we know it today. Evolution of the goldsmiths into bankers (a "bank" was a shelf on which gold was stored) through the printing of paper receipts (the first banknotes). Then accounts, credit/loans, interest on loans, cheques; leading to further myriad financial paper instruments; to plastic credit and debit cards; and now to electronic money. Originally all paper money is convertible into gold on demand. With the passing of time progressively less so. On the assumption that not everyone at any one moment will want to redeem their notes for gold, bankers start to issue notes in multiples equivalent to several times the value of metal deposited in their vaults. Over time this practice becomes established convention and, under the technical title of "fractional reserve" banking, is to the present day passed down unquestioned by generations of economics professors to their students, as a central part of a well-ordered modern economy.
1930's - and at other times in history when there has been a shortage of national currency - local towns and villages issue their own money/"scrip". While many of these initiatives are successful in generating local economic activity, they are quickly suppressed by governments fearing loss of sovereignty. Exception: the UK channel islands of Guernsey and Jersey, whose prosperity can be distinctly correlated to their freedom (since the 1870s) in creating and managing their own currencies .
1944 The Bretton Woods Treaty. Through this, the major industrial nations agree to go on the "gold exchange standard". This means that nations are no longer compelled to keep the reserves which back their currencies in gold, but can now also hold them in US dollars. A gold value and exchange rate for transfers between them is fixed at US$35 per ounce. This agreement on convertibility of money into gold is however only between nations and their national banks. From now on the right which ordinary citizens hitherto also possessed, to demand gold in redemption of their bank notes, is unilaterally cancelled.
The purpose of The Bretton Woods Treaty was to effect an orderly basis for international trade and money flows after the ravages of economic depression in the 1920s, 30s and the second world war. By removing citizens' rights to redeem gold for their money, the risk of the sytem being put in jeopardy by a run from arbitrary private interests demanding gold was allayed. At the same time nations and their national banks could now - at least temporarily - control the system. A certain degree of stability was indeed obtained, which was the Treaty's intention.
[In parenthesis however it needs to be mentioned that the core underlying reason why such a measure was necessary in the first place is the chronically unstable structure of the fractional reserve system. The weak point of a fractional reserve system is that all activities are built on a collective fiction that each person with a bank note can exchange it for some real cover (e.g. gold), whereas in reality this is not so ... and that this fiction does not matter because people are not all going to come and ask to convert their notes to metal at the same time. However the fiction does matter. Paradoxically it is precisely the fiction itself which makes the system permanently vulnerable to a run, because when ordinary people wake up to the truth and are concerned about preserving the purchasing power of their savings, they are indeed likely to come and demand their savings - all at the same time. No treaty or similar measure can mitigate the eventual effects of this chronic risk of a run; only delay them. The Bretton Woods Treaty afforded such a delay, at a price (that of removal of "gold-cover" from the ordinary citizen's money). But a side-effect of the treaty, the elevating of the US Dollar to the world's global currency returned the problem back to the global stage in 1971 (see below), with a vengeance, and it remains one for as long as fractional reserve banking remains a pillar of accepted banking practice].
1971 Having spent several years simply printing US dollars (- enabled through the US Dollar's role as global currency -) to finance its roles as global policeman (Vietnam) and world industrial powerhouse, the US suddenly finds itself with insufficient gold backing its currency. It is unable to satisfy potential claims from the Bank of England and the Bank of France, looking to exchange some of their swelling dollar reserves into the metal. US President Richard Nixon, within a larger package of economic measures, unilaterally reneges the Bretton Woods agreement and delinks the US dollar from cover by gold. Other countries follow suit and there is consequently a delinking of all major currencies from any kind of gold or gold-related standard. Whereas up to this point there exists a relation between the world of money - its creation, volume, circulation and distribution - and the real world of material, goods, products, services, trade and exchange, from this point on the orderly tie linking these two worlds is severed. To the extent there is any link at all between the two worlds it becomes an arbitrary one and the system is now "wild".
Certain expert sectors are aware and recognise the significance of this event and the possibilities for new sources of personal and corporate profit from this situation. For most people however life carries on as normal, unaware that the purchasing power of the money they are earning and saving, and the rules of the games underlying the security of these, are totally changed, now at the mercy of a wild system.
With gold cover as an ultimate restraining influence gone, the way is now open for anyone in the right position, to print virtually limitless amounts of financial instruments in US dollars, or other currencies, out of thin air - money - and put these into circulation without any cover or backing. There are three conditions to having the "right position". First, the technical know-how to recognise this opportunity. Second, an established network of customers who already favour the issuing institution with their confidence and will thus accept this new generation of financial instruments without question. And third the infrastructure to generate these instruments in a country outside the national borders of the currency in question, because within a country's borders National Bank restrictions, regulations and controls still obtain.
The first to take advantage of these new conditions are the commercial banks, operating through foreign/offshore branches. The majority of their clients cannot tell the difference - and are probably not particularly interested in the difference even if they can tell - between money created within a country subject to a certain degree of technical control from the country's National Bank, and money created offshore, without any controls whatsoever. The second major group to do this, again profiting from the confidence already enjoyed within their wide network of customers, are the credit/debit card companies who "print money" simply by extending peoples' credit/debit limits.
Through the collapse of the Bretton Woods Treaty and this development, National Banks actually lose technical control over the global financial system, i.e. their mechanical interventions in the markets are technically no longer of sufficient magnitude to guarantee the outcomes they intend. For the time being, however, they remain influential; but their influence is on a weaker footing - psychological rather than technical. Their ability to control and manage the global financial system, either individually or jointly through entities as the International Monetary Fund starts to look increasingly precarious.
In the meantime an increasingly complex secondary, so-called "derivative" market develops, in which the financial instruments created above (representing debts to be repaid with future maturity dates) are themselves given a value in the market and traded ... generating further families of financial instruments which can, likewise, be given a value and themselves traded. This enterprise is initiated and promoted by financial traders in a relatively small inbred circle. These traders take small percentages, but large sums, from these trades, credited directly to their bank accounts (as prior charges legally) where they can be used to buy real things today. This activity now starts to drive the whole financial system. Once again the ordinary man in the street is not aware of the erosion in the purchasing power of his savings and earnings (through redistribution) as a result of these practices.
[The name of this game strategically for banks and traders, now as it has been all along since banks started the practice of fractional reserve banking, is not to use money created in this way directly for purchase of goods and services - the banks' profiteering would be too crass, obvious to all and thus short-lived, - but to use it as an instrument of credit generating long-term legally protected interest monies as debt; and then legally protected commissions on the trading of these debt instruments].
The end effect of this is an accelerating polarisation of wealth, increased numbers of people becoming indebted while a declining number of individuals own ever more; increased volatility in financial markets, increasing numbers of enterprises becoming squeezed for cash - in a series of positive feedback loops; and increasing numbers of people starting to wake up and study the reasons for this.
1980s Invention and introduction of the first LETS (Local Economic Trading) system in Canada, similar in principle to the new and successful alternative currency systems in the 30's; but initiated by civil groups rather than public authorities. Anyone can start a LETS system in their area with or without the help of computerised accounting.
1990s Proliferation of LETS systems in Anglo-Saxon countries. Starting to spread in others. Contrary to the reaction in the 30s, public authorities are now demonstrating support, recognising LETS as a possible means to generate local activity and employment; without imposing a burden on their already heavy indebtedness. And are starting to consider issuing their own local currencies.
Other, newer forms of money or quasi-money are also starting to become popular. Voucher systems (e.g. air-miles offered by airline companies), telephone cards, electronic cash cards, retail credit/debit cards with discounts and bonuses, commercial barter organizations with parallel currencies and Internet money.
At the same time as local and decentralised systems proliferate, there are also developments in the opposite direction, towards centralisation. In the minds of ordinary people the US dollar has, if anything, strengthened its position as the world's global currency and plans proceed to eliminate many of the national European currencies, consolidating them into a single, unified "Euro" in 1999..
Where are we today?
It seems as if we have arrived at a multi-directional cross-roads as we look today (March 1998) into the future. Clearly our economic system, of which fractional reserve banking and compound interest are two elemental structures, is creating a society progressively polarised into rich and poor; in a dynamic that cannot be sustained indefinitely. Our large financial institutions are now fusing into giants to become more effective in playing with and against each other in a relatively small "pond"- casino with very high monetary stakes; while a growing proportion of the population and of enterprises working and manufacturing real goods and services find themselves increasingly indebted and starved for cash/working capital. This structure is mirrored at all levels of society, from local to national levels; and internationally between countries. While one can now see logically that this system has eventual collapse written into its own design if the pattern of development continues unchecked - and will head in this direction all the faster as increasing numbers of people recognise what is happening and withdraw their legitimacy from it - there maybe an opposing stabilising factor lending it resilience and inertia. This is the possible willingness of the main profiteurs to take large losses rather than see this collapse happen. A collapse means they lose everything. So they actually gain if they only lose a lot! What is involved is writing off/forgiving debts and recirculating savings into the real world economy with zero or minimal percent returns; both on a large scale. The action, if it occurs would represent a self-organizing, balancing and self-compensating mechanism within the system. At the moment however this is an untested and speculative premise.
At the same time as the mainstream monetary system seems ever more transparently to be failing and heading for some kind of collapse, the prospect for alternative LETS-type systems has never seemed so correspondingly positive. As people start to withdraw legitimacy and emotional loyalty from the mainstream, the alternative systems are increasingly gaining appeal, through their simplicity in concept, transparency and common-sense. These new systems are also a simple progression from personal barter trade/exchange amongst individuals - and between companies - which is today undergoing a worldwide renaissance. They offer not just individuals, but also companies, non-profit organisations and public authorities freedom to act and trade where it might otherwise be impossible through lack of cash or heavy debt loads.
However a change of system alone is not likely to be a panacea. It needs to be recognised that the mainstream money system exists and is founded upon certain psychological precepts about justice, earning money, work ethic, greed and shortage, profit and scarcity etc., applicable some 200 years ago and relatively little changed today. Without a deeper questioning into the wider social purpose of money and the monetary system - maybe even a return to its original benevolent and contributory impulse - it is probable that the conditions in our present system will simply reproduce themselves in any new one. What is therefore called for, along with any systems changes, is fundamental self-questioning and review of the way money as a "substance" is today perceived, related to and handled; individually, organisationally, societally and globally.
And the future?
An unpredictable element as we look into the future is the effect of the new microchip technologies on the form or forms of money. As money becomes little more than a unit of account in an accounting system, confirmed on a piece of paper or computer screen, less and less the piece of paper itself, its management and the institutions set up to manage it, hitherto banks, are likely to change. While yet difficult for many people to grasp, because they are so accustomed to money being only created by banks (like prayers being created by churches!), it will become increasingly obvious that anyone can create money or quasi-money, simply in the process of trading. When the "penny drops" about this, the whole construct of money-lending through monopoly creation of credit by banks or credit card companies with interest, will fall away; simply because it will be uncompetitive. It will be obvious that it is nonsense to legitimise a monopoly bank to create money and then charge you interest on it, when you can create that money for nothing, either by yourself or with a LETS type group!
With this realisation we are likely to see a further proliferation of newly initiated self-created money schemes in an expanding movement, mirroring the take-up of computers, fax machines or the Internet. Internet money and the facilities Internet offers are likely to be part of this movement of multi-offerings. When this occurs it will signal a further demise of the present mainstream system, since the hierarchical structure of the present system is unlikely to be able to match the needs demanded. The form of networked heterarchy such as Internet shows that it is capable of the higher adaptivity to customised need, higher speed and higher intelligence all of which will be required.
What services will be offered by these new "money managers" and who will be the principal players? This is difficult to foresee. While the large banks should theoretically have an advantage in this market - as they currently have the contact with the customers - they are presently strategically positioning themselves to divest themselves of this advantage. Telecoms and other utilities or companies with established networks and regular billing systems will be at the forefront in taking over the business. And there could be many small newcomers. If the pattern of market evolution of the new information technologies is anything to go by, what we may expect to see is a period of initial competitive proliferation by many players. After a time this will be followed by a "self-selected sort out" into a few accepted key ones, cooperating and settling amongst themselves upon certain mutually compatible "industry standards" for the longer term. Looking forward to the year 2000 and beyond, the the future history of money, and its managers, looks wide open.
Zürich, March 1998
1. "Money - from Cowrie Shells to Credit Cards", edited by Joe Cribb, British Museum Publications Ltd., London, 1986.
2. "Money, Heart and Mind", by William Bloom, ARKANA Penguin Books, 1996
3. "Primitive Money", by Paul Einzig, Pergamon Press, 1966
4. "Das Phaenomen Geld", by Jan Peter Hallmark, Diplomthesis, C.G. Jung Institute, Zürich 1989
5. From a presentation in Aarau, Switzerland, on 16th Nov. 1992
6. "Das Phaenomen Geld", by Jan Peter Hallmark, Diplomthesis, C.G. Jung Institute, Zürich 1989
Addtitional sources from which information was drawn, without specific references in the text, are the following:
7. "The Death of Money", by Joel Kurtzman, Little Brown & Co., 1993
8. "The Future of Money - beyond Greed and Scarcity", pre-book manuscript by Bernard Lietaer, 1996
9. "Short Circuit", by Richard Douthwaite. Green Books UK, 1996