The Origin of Money

There are as many speculative accounts about the origin and beginnings of money as there are sound propositions. The most common theory sees money as having arisen from trade in goods. Among others, Carl Menger (1909) postulated that money evolved spontaneously from the logic of the market. In order to obtain the desired good despite different inherent values of goods and the time discrepancy between supply and demand, people began to accept as an intermediate good assets that were both high in demand and suited as a medium of exchange because they were durable, easy to transport and divisible. The merits of indirectly exchanging goods with the help of money soon found adherents, so that in time, it became common practice to put a money tag to all kinds of everyday transactions. This in fact is how thinking in economic terms evolved.

Bernhard Laum (1924) formulated the concept of “sacred money.” He assumed a religious and sacrificial origin of money. Money, stated Bernhard Laum, did not owe its origins to the market, but rather evolved from symbolic acts such as sacrifices to the gods, payments to priests and amends for injuries and deaths. The good that best symbolized the value of the sacrifice and the atonement – such as cattle in ancient Greece – served as a prototype of money and was ultimately used as a standard for measuring market value in exchanges. Georg Friedrich Knapp (1906) also argued against a market-logic approach when he labeled money “a creature of the state.”

Yet other theories define money as a system of symbols that make exchanges independent of time, persons and particular situations. These approaches are also useful for explaining the forerunners of money in archaic societies and sidestep simple categorization into societies which use money and societies which do not.

According to John Maynard Keynes, “an article may be deemed to have some at least of the peculiar characteristics of money (1) if it is regularly used to express certain conventional estimates of value such as religious dues, penalties or prizes, or (2) if it is used as the term in which loans and contracts are expressed, or (3) if it is used as the term in which prices are expressed, or (4) if it is used as an habitual medium of exchange.” (The Collected Writings of John Maynard Keynes, XXVIII Social Political and Literary Writings, The Origins of Money)