Theories on the Origins of Money

Or, how little bits of metal became a social and institutional technology.

Bronze imitation cowries. Zhou Dynasty, ~900 BC

This is a list of references. It is a work in progress and suggested additions are welcome.


The idea that money is a creature of law, and money originated from some powerful entity’s desire to control economic activity.


States created tokens so that they could extract value from people. If people are forced to pay tax tokens to the state, then people will want to be paid in tokens themselves.

Credit and Debt

Money originated in ancient penal systems to pay restitutions for wrongdoing. Alternatively, money originated to provide a unit of account for measuring wrongdoing.


The idea that the value of money derives from the purchasing power of the commodity upon which it is based, and emerged from human action, not state decree.

Marginal Utility

In early barter systems, humans learned that some goods were more “saleable” than others – that is, they had greater trading, or purchasing, power. The most saleable commodity came to be used as money because it offered the most marginal utility.


The expected future purchasing power of money explains its current purchasing power.


Early humans collected and transferred durable goods of unforgeable costliness to enable mutual cooperation between untrusting parties.



The value of money is its authenticity and reliability as a measuring stick of economic activity.

16 thoughts on “Theories on the Origins of Money

  1. This doesn’t really fit the theme of what you’re outlining here, but it is about how little bits of metal (well, clay) became a social and institutional technology, and you might find it interesting if you haven’t already come across it.

    Denise Schmandt-Besserat has a theory that writing originated with accounting. 10000 years ago, people kept accounts by using clay tokens that represented their goods. Different-shaped tokens stood for different things — maybe a sphere was a cow, a pyramid was a goat, etc.

    These tokens were sealed into clay envelopes, and that was your account. Eventually, people started marking the outside of the envelope with impressions of the tokens inside, so they could see what was in the account without breaking it open. Then they realized they could just draw the impressions into clay with a stick, without bothering with tokens in the first place. Those became glyphs, and from there, it was a short step to hurling abuse on twitter.

    1. This does look very interesting indeed, but 1) it seems to be only about Mesopotamia and 2) an equally likely scenario is that accounting just accelerated a process that was already underway. In general, I’d say that any simple theories about the origins of language / writing / money etc require a healthy dose of scepticism. And as far as I know, the oldest Chinese inscriptions are all about ancestor cult and divination, not accounting…

      That being said, Mitchell-Innes writes about Mesopotamian “shubati” tablets in one of his essays on money.

      1. It may vary by culture. The oldest Chinese inscriptions are indeed on “oracle bones” for divination purposes. Pottery remnants have been found in China from at least 20,000 BC, but I don’t know of any accounting-related markings on those.

  2. In ‘The Great Transformation’, Karl Polanyi detailed how a feudal society, where output was divided by reciprocity and tradition, transformed into a market society, where monetary exchange dominates economic life.
    Monetary value is meaningless without the market. The market system of allocation requires money as its bloodflow. Money which is not being circulated, not registering preferences within the system of prices, is not serving its purpose. Imho

    1. The move from feudal society to market economy may have been just an echo of a far more important transition a few millenia earlier:

      “Humans are social animals. We have evolved living in small bands, sometimes fighting, but mostly cooperating and helping each other: there was no choice, it was simply a matter of survival. From the very beginning, life as a human was a constant give and take. As long as the social unit was small enough, this could be done in a completely informal way.
      When we became sedentary, the size of our social groups increased. We started to live in villages. Within the extended family, the previously informal give and take remained, but for transactions with others, people began to keep track of their obligations.”

      In the end, money is about keeping track. You don’t do it with close family (although… times are changing) and maybe a couple of very very close friends (maybe!) but you definitely do it with everyone else…

      And yes you need a market so you know what something is worth.

  3. Elaine, thank you for this exposition, it provides a very useful overview. But we need to classify, these theories are not equally relevant.

    Here we have Menger and von Mises who are basically obsolete. It has taken a century or so, but even economists in their ivory towers are starting to see that taking some input from historians and anthropologists makes sense. We now know (and Mitchell-Innes wrote about it 100+ years ago) that there was probably never any barter economy of any significance in human history! And regression theory? Se non è vero, è ben trovato (and it’s mostly “ben trovato”)

    Knapp? History shows that money can exist without any kind of central government. Yet another thought experiment… he describes what money is today, not where it comes from.

    Mitchell-Innes? Maybe, but even there the point is not so much about the ORIGIN, but about what money ACTUALLY WAS throughout most of history, namely credit.

    Then you have the ideas of Nick Szabo: makes sense in a very specific context: tribal society (no need for accurate accounting) in contact with other tribes (no trust, but accurate accounts needed). It is not THE origin of money, just one scenario.

    Bottom line: a single theory about the origin of money does not make sense.

    What makes sense is to discuss what money almost always became: a credit system.

    1. My goal here is not to evaluate the validity of different theories, but to provide a list of references to the theories that exist. Whether or not they are relevant is left as an exercise to the reader 🙂

      I have an earlier post on historical credit systems here.

  4. I’m not sure about a literray reference, but I think there is a reputational element to the “shell trading” thing, westeners seem to grasp strongly onto the shell thing, but usually also mention “animal teeth” where used also. Shells are relatively uniform, but teeth are not. Bigger animals have bigger teeth! If you are wearing many large boar tusks, anyone seeing that will surmrise you have killed many large boars. (boars are quite dangerous animals, btw) therefore, you are good at killing things, so don’t mess with this person! trade with them instead!

    Maybe occasionally you give one of your trophies to someone else, to _represent_ some debt expecting to get it back at some point of course. So, even if someone is wearing a large tooth, maybe it doesn’t mean they killed it themself, but a friend who owes them a favor does. You don’t want that favor to become beating you up!

    but good to see a whole list of theories! most of the time someone is just trying to promote one story.

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