This post is part of a series on the Properties of Money. See the introduction
In the introduction we outlined that the key function of money is to make payments - to denominate and discharge debts - and that its three properties can be defined as follows:
- the Unit of Account is for denominating debts
- the Medium of Exchange is for discharging debts, here and now
- the Store of Value is for discharging debts, elsewhere or later
We also introduced the tensions between them:
- UoA/MoE: liquidity - the tension between elasticity and discipline
- MoE/SoV: legitimacy - the tension between “bad” and “good” money
- SoV/UoA: solvency - the tension between deflation and inflation
In this post we explore the Unit of Account, its origins and significance.
Origins: Reproducing Families and States
The Unit of Account allows us to denominate debts. It is an accounting device for managing the reproduction of human societies. But where does it come from and what does it account for?
Consider that there are, broadly speaking, two distinct origins of money, and with them the Unit of Account. We might call these the “anthropological” origin and the “political” origin.
The anthropological origin of money is embedded in the logic of kinship; in negotiating reproduction and in settling feuds, in dowries and wergeld, payments in celebration and for transgression.1 We take this to be the older of the two, a staple of the Paleolithic, of the way human families have reproduced themselves for tens or hundreds of thousands of years.
The political origin of money is much more recent; a fabrication of the Neolithic, of the newfound need to manage agricultural surplus. It is embedded in the logic of formal accounting, states, and writing, of grain inventories and tax collection, of credits and payments for food and labour.
Something strange appears to have taken place some 5000 years ago, at the dawn of the Bronze Age, as these two origin threads became intimately bound up and entangled with one another, setting the stage for what we recognize as the 5000 year history of monetary institutions. But we would do well to keep track of their difference - for as we will see, each flows in its own way, representing different kinds of circuits, and a basic distinction between outside and inside money.
In anthropological money, the accounting follows the logic of kinship and religion, of reproductive power and justice. Units of Account are taken from nature in the form of stable quantities of valuable material private possessions that represent wealth - heads of cattle (or people), units of shell or gems, bracelets or ingots of silver. These are prized and accumulated for their essentially religious value. But they do not necessarily become generalized media of exchange, used to lubricate markets. Rather, they are used to denominate payment in a certain circuit of social obligations by virtue of their prestige - their ability to store value.
In political money, accounting follows the logic of redistributive states, of the accumulation and distribution primarily of grain. Writing appears to have emerged in service of this accounting, and to have developed as an extension of earlier token-based accounting techniques that go back to the early Neolithic.2 Ever since we’ve had agricultural surplus, we’ve had technology to account for it.
This latter form of accounting is a process of creating new, persistent computational spaces outside our brains to represent - and thereby manage - reproduction on a much grander scale. It constitutes a new medium for denominating and discharging obligations - ultimately, a new medium of money. But with it implies a new kind of obligation, a new way to exert power over an individual’s future, a new kind of bondage. We will have to return later to the deep association between slavery, violence, accounting, and money.
Hey, there’s metal in this money!
For the early states, the Unit of Account likely began from the physical counting of barley - by grain. There were surpluses of other goods as well to manage, but grain was primary, and dominated the denomination of debts. In this way, grain could be seen as comprising all three of the Unit of Account, Medium of Exchange, and Store of Value. But not for long.
At some magical moment in ancient Mesopotamia, a certain count of grain was equated with a weight of silver, giving rise to the first standardized Unit of Account - the shekel.3 In some sense, our present monetary disorder is the 5000 year consequence of the shekel.
How and why this equivalence came about between barley and silver, we can only speculate. Gold, silver, and copper were surely already seen as prestige goods, flowing in high status circuits, with jewelry and other metal artifacts being found in burials throughout the 4th millennium BC. The metals and metallurgy have always had a deeply religious quality.4
Copper, at least, had significant utility beyond religious value, and had become the basis for a new kind of technological revolution as the Neolithic gave way to the “Calcolithic”, or Copper Age, and then to the also copper-based Bronze age. But gold and silver were much less useful. Perhaps they were already in use as a kind of anthropological money, with jewelry and other artifacts being paid as dowries or in tribute to the gods. There is also speculative evidence that metal axes, too small or fragile to be actually useful, may have functioned as a kind of proto-currency, as they have been found throughout early societies.5
No doubt, the equivalence between a weight of silver and a count of grain was facilitated by the metaphorical properties of weight - something all matter shares. Indeed, it seems the origins of measurement standards and metrology also lie in the late 4th millennium BC, and this is an area where metals, and especially precious metals, actually have a direct utility - by way of their density, as a weight. Perhaps it was the earliest metal weights, representing masses of real goods (grain, oil, etc.), that would motivate the equivalence between weights of metal and the settlement of debts denominated in grain. A large count of grain would have, on average, a roughly consistent weight, which could be represented by a much smaller object: a weight of silver. The word shekel itself even means “to weigh” - but also, “to pay.”
This was also a time, in the late 4th millennium BC, when abstract numbers may not have existed yet - computation was done with literals. Meaning perhaps the unit of the shekel, a weight of silver equivalent to say 180 grains of barley (a month’s worth of pay), emerged to facilitate computation with larger numbers.
However it happened, and why it was silver, we will never really know. But this metaphorical equivalence between the weight of metal and the count of grain has come to dominate our thinking on money. Millennia old traditions recount that money is a metaphor, a substance which can stand in for all other substances. But money is not just metaphor, a means of assessing quantitative equivalence - money is metonymy, a means to sequence debt denomination and discharge.6
So we have two distinct origins of money, an anthropological one and a political one and they are fused in the temple palaces some 5000 years ago into a kind of money that uses a standard weight of silver as the Unit of Account - the shekel. The shekel served as an accounting device, especially for denominating and clearing inter-departmental debts within the palaces. But it was also used to denominate debts that could be settled by a Medium of Exchange - primarily, a count of grain, though to a lesser extent, weights of silver. Counts of grain served as the primary medium of exchange for the majority of payments, which were smaller, while weights of silver served for larger, usually mercantile transactions. Different media of exchange flowing in different circuits of obligation.
Over time, weights of silver would come to play an increasingly important role as a Medium of Exchange as the scale of commerce grew. Thus for two thousand years, up to and even beyond the introduction of coinage in the ~7th century BC, money was defined in terms of a weight of metal. And finance, even a thousand years before coinage, was surprisingly modern.7 Coinage will no doubt play a critical role in our story, but money, as a weight of precious metal, is a much older phenomenon.
Outside In, Inside Out
While anthropological money flows in a web through kinship circuits to balance the circulation of natural, religious, and reproductive powers, the defining circuit of political money is the simple fiat loop between the state and the individual, between state spending and taxation, denominated in the state’s Unit of Account. This loop is made possible by writing, but it is instantiated with a new kind of power by the link between the written nominal unit and an intrinsic quantity of material - between the Unit of Account and the value stored in its medium. The fiat loop is emphasized heavily by MMT and Chartalist schools of money. While this loop between individual and State no doubt plays a critical role, it implies a narrow focus on the political form of money, at the expense of the anthropological form.
The Unit of Account offers us the ability to denominate unlimited amounts of debt, to define entire ecosystems of unhinged money inside our written accounts. An inner world of pure elasticity. But it is balanced, even disciplined by an exterior, an outside world of scarce physical value, substantiated outside the confines of the written asylum in the hard reality of substantive things. Thus we confront the duality of inside and outside money. Inside money is written money, it’s money that is someone else’s liability, money that is but an IOU. It is political money. Outside money is physical money, it’s no one’s liability (but nature’s!), it is pure asset. It is anthropological money.
The MMT focus on political/inside money is no doubt motivated by a world where the dominant outside money is actually just the liabilities of a central bank - itself a kind of inside money, pretending to be outside, an emperor without clothes. How the accounting done by the anthropological/outside money comes to be embedded in that of political/inside money is a profound problem. The MMT crowd is inclined to delegate the relevant accounting largely to processes of government spending, but this is almost certainly insufficient. Beyond just thinking about the fiat loop, it is worth looking for loops that might exist throughout the trade economy, accounting for other aspects of reproduction. It turns out these loops exist in significant proportions, and can provide the foundation for new systems of collaborative debt reduction. We can see from such systems the great power to be had in rethinking the structure of the Medium of Exchange. We’ll get to that.
With the introduction of coinage in the 7th century BC, the Medium of Exchange would begin an evolutionary trajectory towards ever more accessible and prominent forms, formalizing the market pattern and further empowering commerce as an anonymous force independent of the State. We will have more to say about coins and the development of media of exchange later on. But the technology of written accounts - of accounting - would not evolve considerably for another thousand years until the development of Hindo-Arabic numerals and Islamic bookkeeping techniques in the late first millennium AD.8 As these techniques collided with the new paper technology and paper money radiating out of China, the confluence of advances in accounting and writing technology once again breathed fresh life into the Unit of Account, unlocking powerful new mechanisms for debt denomination to restructure society. And as the Mongols brought a thousand years of Eastern cultural evolution back West, these mechanisms would most famously come to be wielded by the merchant bankers of Renaissance Italy as they ignited a banking revolution that would turn money inside out.9
The history of money, since the shekel, is one of a great tension between two types, between inside and outside, nominal and metal, political and anthropological. Between the Unit of Account and Medium of Exchange. We call this tension liquidity.
We turn to the banking system, and the problem of liquidity, next.
- Banaji (2020). A Brief History of Commercial Capitalism.
- Chachi (2005). Origin and Development of Commercial and Islamic Banking Operations
- Drumm (2021). The Difference That Money Makes.
- Einzig (1949). Primitive Money: In its Ethnological, Historical and Economic Aspects
- Eliade (1978). The Forge and the Crucible.
- Hudson (2004). The Archaeology of Money: Debt versus Barter Theories of Money’s Origins.
- Ingham (2004). The Nature of Money.
- Jaynes (1976). The Origin of Consciousness in the Breakdown of the Bicameral Mind.
- Kantorowicz (1957). The King’s Two Bodies.
- Michailidou (2002). Weight and value in Bronze Age economies in the Aegean and the Near East: A discussion on metal axes of no practical use.
- Mattessich (1994). Archaeology of accounting and Schmandt-Besserat’s contribution
- Powell (1996). Money in Mesopotamia
- Rubin (2010). Bills of exchange, interest bans, and impersonal exchange in Islam and Christianity.
- Schmandt-Besserat (1986). The Origins of Writing
- Stork (2013). Social use of metal from the Late Chalcolithic to the Early Bronze Age in the Upper Euphrates Valley
- Veenhof (1997). “Modern” Features in Old Assyrian Trade.
- Zaid (2004). Accounting systems and recording procedures in the early Islamic state
Ingham (2004, pg. 91) similarly distinguishes two origins of money, the first and earliest based on an institutionalization of public debts to society (the Wergeld type), the second and latter on the need for early agrarian states to calculate equivalencies. Hudson (2004) also offers these two types, but adds a third that is similar to the first but focused on religious payments of food rather than Wergeld style compensation for injury. The wergeld origin gives us the deep association between Indo-European words for sin, debt, guilt, and money, and leads Ingham and others to take this as an argument for money’s origin in law. What these theorists miss is that what we call the anthropological origin includes not just the institutions of law (e.g. wergeld and religious payments) but also the institutions of marriage (e.g. dowries), and the latter is probably actually the older. The critical role of women and reproductive power in early monetary logic is explored more fully by the Mimbres School. ↩︎
Schmandt-Besserat (1986) developed the theory that the abundance of small objects of different shapes found across the Near Eastern Neolithic represents a form of accounting for debts of different goods. According to this theory, each shape represented a different good (e.g. grain, oil, etc.) - if I lent you some grain, I’d keep an object in the shape that meant “grain” to account for the debt, and I’d destroy the object when you pay the grain back. During the late Neolithic, the shapes begin to be found in clay “envelopes” which presumably represent a collection of debts. Ultimately the shapes come to be stamped directly into the surface of the clay before being deposited in the envelope, which according to Mattessich (1994) represents an early form of double entry accounting. This appears to be the origin of cuneiform writing in Mesopotamia. Not long after, by around 3300 BC, the objects are discarded with and debts are accounted for by marks etched directly into clay tablets. Writing had been born. ↩︎
We first find reference to shekels in Sumerian city states of the late 4th/early 3rd millennium. By the mid-3rd millennium, Sargon of Akkad ruled over the world’s first empire and standardized the measurement system across city states, leading to a more precisely defined shekel. ↩︎
See Eliade (1978) for a review of the religious quality of metals and metallurgy. Jaynes (1976) suggested that shiny objects like metals and gems had effectively psychoactive properties, which motivated their religious quality. Words for precious metals often mean “shiny”. The metals Copper, Silver, and Gold also comprise all elements in the second last column of the transition metals section of the periodic table, giving them a commonality in atomic structure that may define their physico-psychological uniqueness. ↩︎
A further discussion of metal axes as proto-currency and progenitor of metal money can be found in Michailidou (2002). Einzig (1949) contains various examples of axes used as currency in various places across Eurasian history, stating “In a very large number of instances weapons, especially axes and double axes, are presumed to have been used as currency” (pg. 197). Powell (1996) notes that the Sumerian sign for “shekel” seems to be a picture of an axe and that the word for shekel also meant axe. Stork (2013) highlights the occurrence of axes as grave goods with a proto-cuneiform on them perhaps representing some stored value. ↩︎
See Chapter 1 in Drumm (2021) for critique of “money as metaphor” (and two of its main proponents, Aristotle and Marx), and for elucidation of “money as metonymy.” The notion of “money as metaphor” takes for granted the cost to provision the market and the availability of the money itself. In modern markets, goods do not have a singular price the way “money as metaphor” might suggest. Rather, there are different prices for buying and selling a good, separated by a spread set by the dealers who make markets liquid. As those spreads widen, the market can effectively disappear. Money as metonymy emphasizes the inherent temporal quality of markets and monetary dynamics. ↩︎
See Veenhof (1997). For instance by the early 2nd millennium BC there is full blown profit-seeking arbitrage trade, denominated in silver, and organized as investment contracts. Goods were exported from Mesopotamia to Anatolia where they were exchanged for silver that could be brought back to Mesopotamia. As Mesopotamia had no silver mines and had already monetized silver, the metal was worth more there than it was in Anatolia, which did have silver mines but where silver’s monetization was less developed. Hence the emergence of a silver arbitrage trade. ↩︎
According to the Quran, Muslims were required to follow strict accounting practices in order to satisfy the requirements of zakat, a form of religious tax. With the rise of an Islamic state in the 7th century AD, this became law, and the State undertook comprehensive accounting practices, which were likely copied by Islamic merchants, who in turn would influence the Italians. These Muslim accounting practices included many of the precursors to the double entry bookkeeping that would later arise in Italy. See Zaid (2004). The Quran also required Muslims to more generally record all debts, giving rise to a flourishing practice of bills of exchange. See Chachi (2005). ↩︎
Italy is often pointed to as the origin of what we identify as modern capitalist banking practices. Why these practices emerged in Italy when they did, and not earlier in the Islamic world, which Italy inherited so much from, is an invigorating question. Italy occupied a strategic geographical position as a gateway from the Muslim to European worlds, and played a key role plundering Islamic territory during the crusades, bringing new wealth to Europe. Rubin (2010), puts forth two arguments for the development of finance in Italy. The first is based on a subtle difference between how bills of exchange function in Islamic and European contexts - in Europe they involved a currency exchange, while in the Islamic world they did not, motivating their evolution into a more financial and speculative instrument in Europe, but not in Islam. The second argument is based on the ability of Italian city-states to decouple their political legitimacy from religious authority in a manner which never occurred in the Islamic world, allowing for a weakening of the ban on charging interest. Banaji (2020, pg. 132) also highlights that Italy inherited the legal concept of the person from Roman Law, as well as theories of the Body of Christ, neither of which existed in Islam, and which led to the development of the concept of the corporation. Kantorowicz (1957) analyzes the extent to which the corporate superstructure derives from a long history of theorizing about the Body of Christ, first in the form of the Church, which is in some sense the first Corporate Body. These corporate concepts are later applied in the secularization of states and in the emergence of commercial persona. Notably, medieval Islam had bankers, but no banks (Chachi, 2005), and credit, while widely extended, was limited to more personal networks (Rubin, 2010). The more impersonal system of modern banking would only emerge later in Italy. ↩︎