Two major origin (myths) — cost-minimising medium of exchange (orthodox view) vs. unit of account (chartalist view):
The predominant (orthodox) narrative on the origin of money makes reference to Adam Smith’s passages in Chapter VI of his magnum opus, Wealth of Nations, in which he explains the circumstances that led to the introduction of money:
“When the division of labour has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society. But when the division of labour first began to take place, this power of exchanging must frequently have been very much clogged and embarrassed in its operations. […] [When] no exchange can […] be made between them[,] he cannot be their merchant, nor they his customers; and they are all of them thus mutually less servicaeble to one another. In order to avoid the inconveniency of such situations, every prudent man in every period of society, after the first establishment of the division of labour, must naturally have endeavoured to manage his affairs in such a manner, as to have at all times by him, the peculiar produce of his own industry, a certain quanitity of some one commododity or other, such as he imagined few people would be likely to refuse in exchange for the produce of their industry.” [1] (own emphasis)
He goes on to contemplate further on this topic. In short though, Adam Smith (1723-1790) and later Carl Menger (1840-1921) regarded money ‘as a market-let response to reduce barter costs’. [2] For money to have emerged, it needed to fulfil the property of "saleableness" (i.e. portability, durabability, divisablity). [3]
The other view explains money’s origin with states’ coercive power to define the way its citizens are allowed to settle tax liabilities. [4] In this strand of monetary economics, money’s primary function is said to be consisting of that as a unit of account. As governments impose taxes payable only in money, thereby creating a demand for money, means in the same instance that it will be widely accepted as payment for goods: ‘the state forces the economy away from barter for its own fiscal purposes’. [5] The monetisation of taxation first introduced money as a generally accepted means of payment into societal practice and, in the same instance, the state - in his function as a guarantor of legal order - also regulated ‘through its legal apparatus […] the structure of extant debts’. [6]
Knapp?
Overview and empirical evidence in the evolution of monetary practices:
(Mono- and Bi-)Metallism
In assessing to what extent the theoretical categories and historical conjectures of monetary economics are consistent with what we really know about ancient societies, Peacock arrives at many conclusions, a preliminary one being that money acted as a unit of account, even when it had not yet become active in market transactions [2]
Fiat Money
Graeber + Aglietta + Di Muzio + Schumpeter + Werner / Ryan-Collins
Theoretical development of monetary economics:
Ancient examinations
Contemplating on early monetary phenomena was being conducted by Plato (428 BCE - 348 BCE) and Aristotle (384 BCE - 322 BCE). While the latter was already conscious of the risk of money being abused as a means of power and corruption, he did conceive it as a ‘neutral’ commodity facilitating the exchange of goods and as a way to increase the welfare of all those involved in the transactions respectively. The former, however, contended that the value of money was not ‘intrinsic’. In this way, Plato can be seen as an early proponent of nominalist and social constructionist views, i.e. money being rather a matter of law and convention. [Ingham, 2020, p. 16] see also Schumpeter
Eich
Metallism vs. Chartalism
reviews of Menger’s and Knapp’s theories, as well as of the debates on the origins, evolution, and functions of money. It is worth emphasising functions of money because, as Peacock remarks, while the orthodox view stresses the role of money as a medium of exchange, the state theory emphasizes its role as a unit of account. [1]
[2]
Sources:
[1] Smith, A. (1979) ‘Chapter IV: Of the Origin and Use of Money’, in An Inquiry into the Nature and Causes of the Wealth of Nations - Volume 1, Indiana, US: Liberty Fund, pp. 37-38.
[2] Davies, R. (2015) Economics: Making Sense of the Modern Economy, New York, NY: Profile Books.
[3] Ibid.
[4] Werner, R., Ryan-Collins, J., Greenham, T. and Jackson, A. W. (2011) Where does money come from? A Guide to the UK monetary and banking system, London: New Economics Foundation, p. 35.
[5] Davies, R. (2015) Economics: Making Sense of the Modern Economy, New York, NY: Profile Books.
[6] Knapp, (1923) The State Theory of Money,
Peacock, M. (2013) Introducing Money, London: Routledge.
[2] Ibid.
Ingham, G. (2020) Money, Cambridge, UK: Polity Press, p. 16.
Schumpeter, J. A. (1963/1954) History of Economic Analysis, New York, NY: Oxford University Press, p. 56?
Di Muzio, T. and Robbins, R. H. (2017) ‘Theory, History and Money, in An Anthropology of Money, New York, NY: Routledge.
Aglietta, M. (2018) [2016] Money: 5,000 Years of Debt and Power, London: Verso.
Graeber, D. () Debt: The First 5,000 Years,