The fact that slaves and chunks of salt became money in the interior of Africa, and that cakes of wax on the upper Amazon, cod in Iceland and Newfoundland, tobacco in Maryland and Virginia, sugar in the British West Indies, and ivory in the vicinity of the Portuguese colonies, took on the functions of money is explained by the fact that these goods were, and in some cases still are, the chief articles exported from these places. Thus they acquire, just as did furs among hunting tribes, a preeminent marketability.

The local money-character of many other goods, on the other hand, can be traced back to their great and general use value locally and their resultant marketability. Examples are the moneycharacter of dates in the oasis of Siwa, of tea-bricks in central Asia and Siberia, of glass beads in Nubia and Sennar, and of ghussub, a kind of millet, in the country of Ahir (Africa). An example in which both factors have been responsible for the money-character of a good is provided by cowrieshells, which have, at the same time, been both a commonly desired ornament and an export commodity.17 Continue reading →

The history of other peoples presents a picture of great differences in their economic development and hence also in their monetary institutions. When Mexico was invaded for the first time by Europeans, it appears already to have reached an unusual level of economic development, according to the reports published by eyewitnesses about the condition of the country at that time. The trade of the ancient Aztecs is of special interest to us for two reasons: (1) it proves to us that the economic thinking that leads men to activity directed to the fullest possible satisfaction of their needs is everywhere responsible for analogous economic phenomena, and (2) ancient Mexico presents us with the picture of a country in the state of transition from a pure barter to a money economy. We thus have the record of a situation in which we can observe the characteristic process by which a number of goods attain greater prominence than the rest and become money.

The reports of the conquistadors and contemporary writers depict Mexico as a country with numerous cities and a well organized and imposing trade in goods. There were daily markets in the cities, and every five days major markets were held which were distributed over the country in such a way that the major market of any one city was not impaired by the competition of that of a neighboring city. There was a special large square in each city for trade in commodities, and in it a particular place was assigned for each commodity, outside of which trade in that commodity was forbidden. The only exceptions to this rule were foodstuffs and objects difficult to transport (timber, tanning materials, stones, etc.). The number of people assembled at the market place of the capital, Mexico, was estimated to have been 20,000 to 25,000 for the daily markets, and between 40,000 and 50,000 on major market days. Agreat many varieties of commodities were traded.15

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In all cultures in which cattle had previously had the character of money, cattle-money was abandoned with the passage from a nomadic existence and simple agriculture to a more complex system in which handicraft was practiced, its place being taken by the metals then in use. Among the metals that were at first principally worked by men because of their ease of extraction and malleability were copper, silver, gold, and in some cases also iron. The transition took place quite smoothly when it became necessary, since metallic implements and the raw metal itself had doubtless already been in use everywhere as money in addition to cattle-currency, for the purpose of making small payments.

Copper was the earliest metal from which the farmer’s plough, the warrior’s weapons, and the artisan’s tools were fashioned. Copper, gold, and silver were the earliest materials used for vessels and ornaments of all kinds. At the cultural stage at which peoples passed from cattle-money to an exclusively metallic currency,
therefore, copper and perhaps some of its alloys were goods of very general use, and gold and silver, as the most important means of satisfying that most universal passion of primitive men, the desire to stand out in appearance before the other members of the tribe, had become goods of most general desire. As long as they had few uses, the three metals circulated almost exclusively in finished forms. Later, circulating as raw metal, they were less limited as to use and had greater divisibility. Their marketability was neither restricted to a small number of economizing persons nor, because of their great usefulness to all peoples and easy transportability at relatively slight economic sacrifices, confined within narrow spatial limits. Because of their durability they were not restricted in marketability to narrow limits in time. As a result of the general competition for them, they could be more easily marketed at economic prices than any other commodities in comparable quantities (p. 227). Thus we observe an economic situation in the historical period following nomadism and simple agriculture in which these three metals, being the most saleable goods, became the exclusive means of exchange. Continue reading →

Money is not the product of an agreement on the part of economizing men nor the product of legislative acts. No one invented it. As economizing individuals in social situations became increasingly aware of their economic interest, they everywhere attained the simple knowledge that surrendering less saleable commodities for others of greater saleability brings them substantially closer to the attainment of their specific economic purposes. Thus, with the progressive development of social economy, money came to exist in numerous centers of civilization independently. But precisely because money is a natural product of human economy, the specific forms in which it has appeared were everywhere and at all times the result of specific and changing economic situations. Among the same people at different times, and among different peoples at the same time, different goods have attained the special position in trade described above.

In the earliest periods of economic development, cattle seem to have been the most saleable commodity among most peoples of the ancient world. Domestic animals constituted the chief item of the wealth of every individual among nomads and peoples passing from a nomadic economy to agriculture. Their marketability extended literally to all economizing individuals, and the lack of artificial roads combined with the fact that cattle transported themselves (almost without cost in the primitive stages of civilization!)
to make them saleable over a wider geographical area than most other commodities. A number of circumstances, moreover, favored broad quantitative and temporal limits to their marketability.  Continue reading →

Assume that a smith of the Homeric age has fashioned two suits of copper armor and wants to exchange them for copper, fuel, and food. He goes to market and offers his products for these goods. He would doubtless be very pleased if he were to encounter persons there who wish to purchase his armor and who, at the same time, have for sale all the raw materials and foods that he needs. But it must obviously be considered a particularly happy accident if, among the small number of persons who at any time wish to purchase a good so difficult to sell as his armor, he should find any who are offering precisely the goods that he needs. He would therefore make the marketing of his commodities either totally impossible, or possible only with the expenditure of a great deal of time, if he were to behave so uneconomically as to wish to take in exchange for his commodities only goods that have use value to himself and not also other goods which, although they would have commodity-character to him, nevertheless have greater marketability than his own commodity. Possession of these commodities would considerably facilitate his search for persons who have just the goods he needs. In the times of which I am speaking, cattle were, as we shall see below, the most saleable of all commodities.

Even if the armorer is already sufficiently provided with cattle for his direct requirements, he would be acting very uneconomically if he did not give his armor for a number of additional cattle. By so doing, he is of course not exchanging his commodities for consumption goods (in the narrow sense in which this term is opposed to “commodities”) but only for goods that also have commodity-character to him. But for his less saleable commodities he is obtaining others of greater marketability. Possession of these more saleable goods clearly multiplies his chances of finding persons on the market who will offer to sell him the goods that he needs. If our armorer correctly recognizes his individual interest, therefore, he will be led naturally, without compulsion or any special agreement, to give his armor for a corresponding number of cattle. With the more saleable commodities obtained in this way, he will go to persons at the market who are offering copper, fuel, and food for sale, in order to achieve his ultimate objective, the acquisition by trade of the consumption goods that he needs. But now he can proceed to this end much more quickly, more economically, and with a greatly enhanced probability of success. Continue reading →

1.

The Nature and Origin of Money1

In the early stages of trade, when economizing individuals are only slowly awakening to knowledge of the economic gains that can be derived from exploitation of existing exchange opportunities, their attention is, in keeping with the simplicity of all cultural beginnings, directed only to the  most obvious of these opportunities. In considering the goods he will acquire in trade, each man takes account only of their use value to himself. Hence the exchange transactions that are actually performed are restricted naturally to situations in which economizing individuals have goods in their possession that have a smaller use value to them than goods in the possession of other economizing individuals who value the same goods in reverse fashion. A has a sword that has a smaller use value to him than B’s plough, while to B the same plough has a smaller use value than A’s sword-at the beginning of human trade, all exchange transactions actually performed are restricted to cases of this sort.

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Commodities whose prices are not well known or subject to considerable fluctuations also do not pass easily from hand to hand. A purchaser of such commodities faces the danger of “overpaying” for them, or of suffering a loss before he has passed them on due to a fall in price. A “lot” of grain on a grain exchange, or a parcel of popular securities on a stock exchange, can easily change hands ten times in a few hours, but farms and factories, whose value can be determined only after a careful investigation of all the relevant circumstances, are entirely unsuited to rapid circulation. Even people who are not members of a stock exchange will readily accept securities whose prices are not subject to any considerable fluctuation in place of cash payment But commodities that are subject to violent price fluctuations can circulate easily only “below the market,” since all persons who are not willing to speculate will want to protect themselves against loss. Thus commodities whose prices are uncertain or fluctuate severely are also not well suited to free circulation from hand to hand.

Finally, it is clear that the several factors limiting the marketability of commodities will have a multiple  weight wherever commodities are transferred from hand to hand, from place to place, and from one time period to another. Commodities whose marketability is restricted to a small number of persons, whose
area of sale is limited, which can be preserved only for a short time, whose preservation involves considerable economic sacrifices, which can be brought to market only in strictly limited quantities at any one time, or whose prices are subject to fluctuations, etc., may all retain some degree of marketability within certain (even though very narrow) limits, but they are not capable of circulating freely. Continue reading →

In the preceding sections, I have explained the general and specific causes of differences in the marketability of commodities. In other words, I have shown the causes of the greater or less facility with which an owner of commodities can expect to sell them at economic prices. At this point one might be inclined to consider the problem of the greater or less facility with which commodities can circulate through several hands as also solved, since the circulation of a commodity through several hands simply consists of a number of single transactions, and to think that a commodity that can be passed without difficulty from the hands of its owner to some other economizing individual should find its way just as easily from the hands of the second owner into those of a third, and so on. But experience shows that this is not true of all commodities. In what follows, it will be our task to investigate the special causes responsible for the fact that some commodities can be observed to circulate easily from hand to hand while others, even some that have a high degree of marketability, do not.

Some commodities have almost the same marketability in the hands of every economizing individual. Gold nuggets extracted from the sands of the Aranyos River by a dirty Transylvanian gypsy are just as saleable in his hands as in the hands of the owner of a gold mine, provided the gypsy knows where to find the right market for his commodity. Gold nuggets can pass through any number of hands without any decrease whatsoever in marketability. Continue reading →

The fourth cause of differences in the marketability of commodities is thus the fact that the time limits within which com modities can be sold are sometimes wider and sometimes narrower, and that within these limits some commodities can be sold at economic prices at any time, while others can be sold only at more or less distant points in time. If we now turn briefly to the actual phenomena of economic life and observe the extraordinary differences in the marketability of the various commodities, it will not be difficult for us to reduce these differences to one or more of the causes explained above.

A person who owns a quantity of grain has in his possession a commodity he can dispose of at almost any moment he desires wherever there are grain exchanges. Where there are only weekly markets he can still sell it every week at prices that are in accord with the economic situation. He thus has a commodity which, to use a very significant mercantile term, is almost “liquid cash.” The causes of this lie in the large number of persons who have requirements for grain, in the wide spatial, temporal, and quantitative limits of its marketability, in the usually efficient organization of grain markets, and in the lively speculation in this commodity.

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The second cause of differences in the marketability of commodities is thus the fact that the geographical areas within which their sale is confined are sometimes wider and sometimes narrower, and that while there are many trading points within this area at which some commodities can be sold at economic prices, there are only a few such points in the case of other commodities. Owners of commodities of the first category can sell them at will in many places over a wide trading area at economic prices, while owners of commodities of the second category can sell them only in a few places over a narrow trading area.

Thirdly, there are commodities for which a lively and well organized speculation exists that absorbs every portion of the available quantity of the commodities coming to market at any time, even though in excess of current requirements. There are other commodity markets in which speculation is not carried on, or at least not to the same extent, and in which, if they become oversupplied with commodities, either prices fall rapidly, or the commodities brought to market must be taken away unsold. Goods of the first kind can generally be sold in any quantity actually available at a given time with little sacrifice in price, while the owner of a commodity for which no speculation exists can sell quantities exceeding current requirements only with very severe losses or not at all. Continue reading →