Why Did We Invent Money?

An August 2012 article on the Economist ponders the mysteries of why we have money today. It is a question easily answered by many theories, none of them really satisfying. The problem is that every theory put forth so far has been countered by significant exceptions. That is nothing new in science but it certainly frustrates those who wish to explain everything with a self-satisfying nod to science.

Human culture is very ancient. In fact, human culture was preceded by pre-human culture. That is, we know that chimpanzees (our nearest relatives) have culture and therefore it is reasonable to infer that our species’ joint ancestor most likely possessed culture. Culture is generally defined as a set of learned activities passed from one member of a group to another.

Archaeological evidence suggests that ancient Africans were moving snail shells inland as much as 100,000 years ago. We have to ask if the snail shells were the prized possessions of migrant ancestors or if they were part of some form of exchange. The answer may be both, in some cases.

Exchange between groups is necessary for genetic reasons. Our ancestors may not have understood why but they often took mates from different groups. Hence, if a male left a seaside group of ancient humans bearing snail shells he might have joined (or fathered) an inland group of humans who preserved those shells.

The scarcity of the shells may have stimulated a certain value in them for exchange. Exchange might have occurred peacefully for mates and it might have occurred peacefully for survival. For example, at some point a successful group of ancient humans would have increased their numbers sufficiently to divide into two groups. Would they have continued to live on friendly terms with each other?

Two groups of hunter-gatherers living close together, sharing blood kinships, might share hunting grounds in hard times. While this behavior may seem counter-intuitive according to some models (where dearth drives one group to leave a region or to raid neighboring groups’ territories), two closely related groups of humans might not be ready to fight over scant resources if they already understand that cooperation can help both groups.

Exchange between closely related groups might represent one of the reasons why family groups evolved into clans and clans evolved into tribes and tribes evolved into nations. At some level in each stage of our social evolution our ancestors realized (either by reason or by force) that cooperation benefitted all or most members of multiple groups more than competition between the groups.

Imagine an aggressive family group of humans raiding the territory of an unrelated group of humans. The targeted family group might be too weak to repel the raiders, but if they call upon closely related family groups living nearby then they have the advantage of numbers.

Hence, as populations increase the incentive for cooperation between closely-related groups increases as well. And yet some resources will remain scarce, such as seashells among inland regions. These types of resources would thus be highly favored for exchange (unless they were so scarce as to represent something special, perhaps even “magical”, in which case they became treasured heirlooms).

Scarcity must have been mitigated by a continual or occasional inflow of new supplies of rare items: shells, furs and skins, certain types of stone or wood, teeth, bones, antlers, amber, etc. All the things we associate with primitive hunter-gatherer groups who have not yet learned to build permanent shelters could in various ways become scarce and thus force groups to find new sources.

The search for new sources of needed items can lead to aggression, migration to unoccupied lands, or to exchange. Given the lack of data to work with we may as well assume that each option was equally likely when considered for dozens or hundreds of family groups and super groups.

It is the super groups who probably organized competitive exchange, where resources were collected for exchange with other super groups. We already know that in recent millennia hunter-gatherers came together from time to time in very large groups (evidence for which is especially well-documented in Great Britain) numbering in the thousands.

Exchange among large numbers of people who have to travel light (they had neither beasts of burden nor the wheel, so far as we know, for many tens of thousands of years) is best accomplished if relatively small high-value items are carried to resource-rich areas. These high-value items might even comprise works of art (bone carvings, for example).

The medium of exchange should have varied by region and by era. But at some point the resource that became most abundant among sedentary groups would have been most valued by nomadic groups: food. And our wandering ancestors may have eventually found a form of food they could offer to the farmers: livestock.

We don’t know when or how domestication began but imagine driving a few wild goats to a farm village where grains and fruits are available for trade. In addition to goats a nomadic group might herd young pigs (wild boars would be too dangerous), birds, dogs, sheep, and maybe even young cattle. An exchange of meat for grains, fruits, and vegetables would have stimulated localized trading networks.

Imagine a hunter-gatherer group living within a few days’ march of several small farming communities. The hunter-gatherers can frog-march captured game to each village in succession and trade for food and other useful items. Some of the villages may have had contact with several such groups. Hence, tradeable artifacts — even animals — could be passed from village to village in a viral process that would quickly blanket the landscape.

As soon as the farmers learned how to keep the wild animals alive and penned in domestication would begin. More importantly the hunter-gatherers’ trade economy would collapse, perhaps quickly. They would be forced to look farther afield for more unobtainable, harder-to-domesticate animals. Transporting animals to villages would become more difficult. Hence, the more valuable parts of the animals would be retained for trade.

Rhinocerous horn might have been a prized trading item 20,000 to 10,000 years ago. We have never domesticated the rhinocerous family, after all. Such dangerous trophies might have stimulated transformation in trade economies as domesticated animals began to supplement the food supply of farming groups.

At some point the excess resources of the farming groups would allow them to export non-food items to other farming groups: textiles, pottery, metals, tools, etc. The hunter-gatherers might have become the traders of the open lands, each family or clan operating within a relatively small region.

What we can be confident in saying is that media of exchange probably changed through the generations and centuries as each innovation in food and artifact production reduced scarcity of once-valuable items. Eventually the surplusses would have allowed or inspired one or more groups to begin dominating their neighbors.

The rise of the city-state might have occurred simply as a means of self-defense, where family groups formed alliances for protection from raiders and encroachers; and allied families joined together to form clans for even more certain protection. And as clans competed with each other more alliances would be formed.

These alliances could have arisen in several ways: for example, one clan could be devastated by a disease or famine and the survivors taken in to another clan, either as slaves or as mates. Or a clan could have grown so large it had to expand into its neighbors’ territories, resulting in conflict that ultimately led to a conflation of clan groups.

As competition for resources increased the villages had to evolve into cities or they would be destroyed. The evolution of villages into cities, however, would have created new forms of scarcity — and in the close confines of a primitive city there would have been less room for personal store-houses and stockades. Hence, small items of high value would have become important media for exchange.

It is precisely this scenario that some experts cite as the origin of money. Farmers pledged their future crops via tokens made of clay, stone, metal, or perhaps some other materials. These tokens would be exchanged for non-farm commodities: textiles, pottery, labor, protection, etc.

Eventually the states organized the collection and distribution of the most important and highly valued resources for the communal good. But the leaders of these states reaped unforeseen rewards. They controlled the wealth of their civilizations and by that control were able to influence their peoples in ways previously unknown.

The state control of resources almost certainly led to the use of abstract money, tokens which were not tied to crops but which were inherently valued in themselves for exchange, such that they could be used to support whole civilizations without representing anything vital.

Instead of representing a pledge of a share in future production money became a pledge of value by a civilization and in that transformation money became a medium of exchange rather than an exchangeable resource.

Well, that’s one theory anyway.