Did Money Evolve? You Might (Not) Be Surprised

It’s all about social accounting

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By Steve Roth

You probably won’t be surprised to know that exchange, trade, reciprocity, tit for tat, and associated notions of “fairness” and “just deserts” have deep roots in humans’ evolutionary origins. We see expressions of these traits in capuchin monkeys and chimps (researchers created a “cash economy” where chimps were trained to exchange inedible tokens for food, then their trading behaviors were studied), in human children as young as two, in domestic dogs, and even in corvids — ravens and crows.

But humans are unique in this as in many other things. We use a socially-constructed mechanism to effect and mediate that trade — a thing we call “money.” What is this thing? What does it mean to say that it’s “socially constructed”? What are the specifics of that social construct? How does it work?

Money has lots of different meanings when you hear it in the vernacular. A physical one- or five-dollar bill is “money,” for instance (“Hands up and gimme all your money!”). But so is a person’s net worth, or wealth (“How much money do you have?”), even though dead presidents on paper or even checking-account balances are often insignificant or ignored in tallies of net worth (think: stocks, bonds, real estate, etc.).

You might think you could turn to economists for an understanding of the term. Not so. They don’t have an agreed-upon definition of “money.” The closest they come is a tripartite “it’s used as” description that completely begs the question of what money is: It’s used as a medium of account, as a medium of exchange, and as a medium of storage. I and many others have pointed out the myriad problems with this tripartite non-definition. Start by asking yourself: what in the heck do they mean by “medium” in each of those three? You’ll often hear economists speak of (undefined) “monetary assets,” “monetary commodities,” and similar, attempting to communicate in absence of a definition.

When economists speak of the “money supply” (a stock measure, not a flow measure as suggested by “supply”), they are gesturing toward a body of financial securities that are somewhat currency-like. Primarily: they’re used in exchanges for real-world goods and services, and have fixed values relative to the unit of account — e.g. “the dollar” (think: “the inch”). They assemble various “monetary aggregates” of these currency-like things — MB (the “monetary base”), M0, M1, M2, M3, and MZM (“money of zero maturity”). Here’s a handy chart on Wikipedia.

This conflation of “money” with currency-like financial securities reveals a basic misunderstanding of money that pervades the economics profession. That misunderstanding is based on a fairly tale.

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In the golden days of yore, it is told, all exchange was barter. Think: Adam Smith’s imagined bucolic butcher and baker village. This worked fine, except that your milk wasn’t necessarily ready and to hand when my corn came ripe. And moving all those physical commodities around was arduous. This inserted large quantities of sand and mud into the gears and wheels of trade.

But then some innovator came up with a great invention — physical currency! Coins. “Money.” This invention launched humanity forward into its manifest destiny of friction-free exchange and the glories of market capitalism.

Except, that’s not how it happened. No known economy was ever based on barter. And coins were a very late arrival.

The best efforts at understanding the nature and origins of money have come from anthropologists, archaeologists, and historians who actually study early human commerce and trade, and from various associated (“heterodox”) fringes of economic thinking. David Graeber recounts much of this history (though unevenly) in Debt: The First 5,000 Years. Randall Wray, a leading proponent of the insurgent and increasingly influential Modern Monetary Theory (MMT) school of economics, has offered up some great explications. (Though even he is reduced, at times, to talking about “money things.”) If you’re after a gentle introduction, Planet Money has a great segment on money’s rather vexed history and odder incarnations.

The main finding from all this: the earliest uses of money in recorded civilization were not coins, or anything like them. They were tallies of credits and debits (gives and takes), assets and liabilities (rights and responsibilities, ownership and obligations), quantified in numbers. Accounting. (In technical terms: sign-value notation.) Tally sticks go back twenty-five or thirty thousand years. More sophisticated systems emerged six to seven thousand years ago (Sumerian clay tablets and their strings-of-beads predecessors). The first coins weren’t minted until circa 700 BCE — thousands or tens of thousands of years after the invention of “money.”

These tally systems give us our first clue to the nature of this elusive “social construct” called money: it’s an accounting construct. The earliest human recording systems we know of — proto-writing — were all used for accounting.* So the need for social accounting may even explain the invention of writing.

This “accounting” invention is a human manifestation of, and mechanism for, reciprocity instincts whose origins long predate humanity. It’s an invented technique to do the counting that is at least somewhat, at least implicitly, necessary to reciprocal, tit-for-tat social relationships. It’s even been suggested that the arduous work of social accounting — keeping track of all those social relationships with all those people — may have been the primary impetus for the rapid evolutionary expansion of the human brain. “Money” allowed humans to outsource some of that arduous mental recording onto tally sheets.

None of this is to suggest that explicit accounting is necessary for social relationships. That would be silly. Small tribal cultures are mostly dominated by “gift economies” based on unquantified exchanges. And even in modern societies, much or most of the “value” we exchange — among family, friends, and even business associates — is not accounted for explicitly or numerically. But money, by any useful definition, is so accounted for. Money simply doesn’t exist without accounting.

Coins and other pieces of physical currency are, in an important sense, an extra step removed from money itself. They’re conveniently exchangeable physical tokens of accounting relationships, allowing people to shift the tallies of rights and responsibilities without editing tally sheets. But the tally sheets, even if they are only implicit, are where the money resides.

This is of course contrary to everyday usage. A dollar bill is “money,” right? But that is often true of technical terms of art. This confusion of physical tokens and other currency-like things (viz, economists’ monetary aggregates, and Wray’s “money things”) with money itself make it difficult or impossible to discuss money coherently.

What may surprise you: all of this historical and anthropological information and understanding is esoteric, rare knowledge among economists. It’s pretty much absent from Econ 101 teaching, and beyond. Economists’ discomfort with the discipline’s status as a true “social science,” employing the methodologies and epistemological constructs of social science — their “physics envy” — ironically leaves them bereft of a definition for what is arguably the most fundamental construct in their discipline. Likewise for other crucial and constantly-employed economic terms: assets, capital, savings, wealth, and others.

Now to be fair: a definition of money will never be simple and straightforward. Physicists’ definition of “energy” certainly isn’t. But physicists don’t completely talk past each other when they use the word and its associated concepts. Economists do when they talk about money. Constantly.

Physicists’ definition of energy is useful because it’s part of a mutually coherent complex of other carefully defined terms and understandings — things like “work,” “force,” “inertia,” and “momentum.” Money, as a (necessarily “social”) accounting construct, requires a similar complex of carefully defined, associated accounting terms — all of which themselves are about social-accounting relationships.

At this point you’re probably drumming your fingers impatiently: “So give: what is money?” Here, a bloodless and technical term-of-art definition:

The value of assets, as designated in a unit of account.

Which raises the obvious questions: What do you mean by “assets” and “unit of account”? Those are the kind of associated definitions that are necessary to any useful definition of money. Hint: assets are pure accounting, balance-sheet entities, numeric representations of the value of goods (or of claims on goods, or claims on claims on…). That’s where I’ll go in my next post.

Sneak preview: we’ll start by thinking carefully about another (evolved?) human social construct without which assets don’t, can’t, exist — ownership.

* Some scholars believe repeated symbolic patterns going back much further, in cave paintings for instance, embodied early “writing,” but that is widely contested, and nobody knows what the symbols — if they are symbols — represented.

29 November 2015

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  • Intersting thoughts. Following the logic, if I do my buddy a favor (e.g. give him a ride to the airport), he may feel he “owes me one.” Would that fall under your definition on “money?”

    • No, by this def it would have to be numerically specified in a unit of account to be money.

      • And clearly the use of numeric specification of units of account began when the number of “owes me one” started to get too large to be reliably remembered. Probably with the advent of agriculture, large surpluses, and larger groups that formed in towns and early cities.

        Seems probable that there is a clear evolutionary link there in the emergence of money as a concept from “owes me one” – which is common in many social species (even vampire bats).

    • Derek R

      It’s an evolutionary precursor to money. There’s definitely debt involved but the debt’s magnitude is only roughly specified. So a favour is a gift rather than money. But a gift with a repayment obligation attached.

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  • Brian Gladish

    So, were cigarettes money in POW camps? Chocolate? Doesn’t their use support Menger’s evolutionary account of money? Weren’t they the most liquid commodities in those circumstances?

    • Cigarettes were certainly used as physical currency in POW camps (they were simultaneously a consumption good; that itself is what imbued them with consensus exchange value). See the para above beginning “Coins and other…”

      Ask yourself this: if you, a thousand years before coins were invented, have 1,000 obols or whatever (choose your unit of account) in credit recorded on the tally sheets of the village cooperative — an asset — do you have “money”? If money is physical currency, obviously not. But that’s the whole definitional issue that’s at issue.

  • Wim Nusselder

    I’d say that money is hybrid: both a social (accounting) construct and token-based.
    See Perry Mehrling’s Why is money difficult?
    Also see my Licensed to print money, expecially some of the Bank of England hyperlinks in it.

    If money is a social construct, created by performative language, as long as most people understand and talk about money as being primarily token-based money (i.e. concrete things), than money IS … primarily token-based even though >95% of monetary transactions is done in ledger-based money (moving around bank account balances).

    • Thanks, Wim!

      Perry’s work is great. Also love your piece, and the BOE has been delivering some of the best writing and thinking on the subject over recent years. (Also BIS.) I love this piece in particular, by BOE and IMF economists:

      Addressing the core, ubiquitous economic confusion between money and real resources/goods. (cf the oxymoron, “financial capital.”)

      But I’ll say: both your and Perry’s pieces are crippled, IMO, by the fundamental definitional problem, conflating two different conceptual constructions of “money”: 1. currency-like financial securities, and 2. (my definition here) the unit-of-account-designated value of balance-sheet assets. (See definition of “assets,” above.)

      • Wim Nusselder

        Dear Steve,

        I just happened to be reading that very piece by Zoltan Jakab and Michael Kumhof, having failed to have a closer look when it appeared half a year ago.
        It was referred to in this -equally useful, broader, more recent- piece by Richard Werner, which is however written in a style that makes it more vulnerable to criticism and being bypassed:

        How is my analysis of social reality crippled by definitional problems?

        Do you agree with my idea that the reality of money is determined by the experience and perception of its users (rather than by anyone’s definition)?

        You may want to have a look at

        • Great Werner piece, thanks. Will spend some time with it. Your style statement refers to Werner or Jakab/Kumhof? Werner certainly has impressive credentials, making him hard to dismiss…

          “Do you agree with my idea that the reality of money is determined by the experience and perception of its users (rather than by anyone’s definition)?”

          Well it depends what you mean by money. No comment on whether money’s “reality” is affected by any definition, not sure what that means. But I do think we can’t talk about it (including talking about its “reality”) if we don’t agree — at least provisionally, for the duration of the conversation — on what the word means. Cause unfortunately words are the only things we have with which to talk!

          Eliezer Yudkowsky has a great tip for rationalizing conversations that are going off track — remove the problematic word, require everyone to replace it with what they mean, precisely, by that word.

          • Wim Nusselder

            The writing of Richard Werner gives me the impression that he (feels like he) IS dismissed by too many people.
            Money is what ‘money’ refers to for those who use the word.
            The word is prodominantly used by non-economists (because every responsible adult uses the word and most of them have little clue about economics).
            Therefore agreement or disagreement among economists about its definition is not going to change a lot in its meaning.
            As economists we can describe money as anything with which people pay, store value and calculate value (all three conditions having to be met) and still have not sufficiently defined it to calculate its interaction with other variables in a model.
            That is indeed not sufficient compared to the relationships between say ‘force’, ‘speed’, ‘mass’ and ‘energy’ in physics.
            Physics is not economics, however.
            The possibility to build an economic model that fits economic reality is far less than the possibility to build a physics model that fits reality, because economic reality consists of humans that will try to circumvent the economic ‘laws’ that they are aware of.
            Eliezer’s advice may work for buildings models together, but it doesn’t work for getting clarity on what THEY mean (the other people using the word ‘money’).

  • The energy analogy may go much deeper … Energy took a long time for humans define because it’s directly related to the conservation law that exists because of a symmetry principle (time symmetry of physics), sort of like momentum (for space symmetry). In fact, energy is better defined by that symmetry principle and we should really think of energy as that which is conserved because of time symmetry.

    Is money hard to define because it is actually related to a conservation law that exists because of a symmetry principle of economics (homogeneity of degree zero: doubling supply and doubling demand leads to no change in price)?

    • Jason, this is damned interesting thinking. I’ve visited your page a couple of times, but it’s going to take me a while to wrap my brain around your understandings — I’m still a long ways away.

      I’ve also been thinking a lot about money as information, though that simple formulation doesn’t do much for me, isn’t even really correct (or useful) as it stands. It needs expansion, elaboration, also narrowing, generally clarification (in my head). I want to figure out how to express (whatever it is I figure out) in Aha! sound-bite tweets. 😉

      I’m just starting Why Information Grows: The Evolution of Order, from Atoms to Economies by Cesar Hidalgo (who to my surprise and delight tweeted this post). I’ve read enough to say to you: if you haven’t read it, run don’t walk. It’s right up your alley. Definite Aha! moments in there, closely related to my thinking and I think yours.

      I’ll try to spend some quality time with your linked post over future days, love to discuss more.

      • Cheers, Steve. I replied with some discussion/answers to your comments on my blog by the way.

        I have been reading Hidalgo’s book (originally out of fear that he had scooped me! … it is definitely a good primer for thinking about information and entropy).

        And I’d certainly be interested in discussing more.

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  • I will note that because the oldest coin known is 2700 years old and made of gold & silver alloy does not necessarily mean that this is when coinage was invented. Much of Greece in that era used livestock as money as the Masai still do today. When there is a commons, livestock makes a lot of sense. Similarly, stored grain can be used as a depreciating asset and that form of money dates back at least 17000 years.

    Money defined in law as fines is found in the records of Ur 2000 BC. And shekels are in evidence from 3000 BC. Shell money is ancient and used all over the world as humans expanded across the globe. It is still in use in Papua New Guinea, exchangeable for modern money. Our earliest ancestors probably mostly followed the coasts, wiping out massive populations of sea turtles as we went – easy pickings for us until we had to turn to other things. There is evidence from Neanderthal ears that they were deep divers. Humans tend to like the beach, and I think we evolved there for a long time before going back inland. So shells make ancestral sense.

    The use of feather belts in Papua New Guinea is of unknown age. However, PNG has over 800 languages, many of them totally unrelated linguistically, and an equal number of different cultures. People in neighboring valleys have strikingly different phenotype. There is reason to believe that the feather belt money may be tens of thousands of years old, along with pigs which are still used as money there, and the shell money.

    Obsydian trading networks have been around for tens of thousands of years and obsydian is studied to determine ancient trade.

    The use of clay for script recording of debts and inventory of commodities has its earliest records in a period that post-dates the use of various commodities and placeholders like shells as money. It’s interesting to note that clay tablets are readable by the blind as whell as the sighted, and that the conical ones fit well into the hand. I think it is probable that this earliest invention of writing gave blind people a place in society that was respected. But the things to account for came first, and the exchange of those things also came first. It wasn’t until we had large numbers of people living together in sizeable towns that the need for recording became more important, and so we invented it.

    What exactly tally sticks indicate is a matter of debate. The Ishango bone might be a calendar as Marschak argues. It may be something else. I think it’s a bit of a stretch to call tally sticks accounting just because they were used for that in medieval England.

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  • Manneken

    Money is contextual information, with an open interface.

    Which is why the information society is so disruptive, and modifies so much about the way we define and exchange value.

    It also explains why current economic theory (such as it is) is so extremely poor at explaining “what is really going on” (not to quote the Donald). Since most economists lack knowledge, not only of the scientific method or social or behavioural sciences, but also of the way technology is changing, they are missing out on most of what is actually happening.

    Look at the way Open Source is creating enormous value, but without any monetary translation…

  • milo

    Steve, I like your reading of the early tally system, but have a slight problem with your time line. You say tally sticks have been used for the past 25-30,000 years– but we have no firm proof of that. Yes, we’ve found sticks with notations on them. But without writing we can’t say for sure these represent debts. More likely they are astronomical observations. The Lebombo Bone had 29 notches, for instance, and is most likely a lunar device.

    Fully articulate writing doesn’t go back much before the last 47 centuries (some will maintain 55 or 56). And at that point we certainly do find a developed, modern economy based on landowners, tenants and the urban royalty. Or, in a word, ‘civilization’.

    I’d be interested in reading any sources you can offer. One I like, available on the web, is Michael Hudson’s masterful ‘Lost Tradition of Biblical Debt Cancellations’. Well worth reading, in explanation of the problems encountered by early economists working at the Temple.

  • Macrocompassion

    I don’t find the definition of money to be so difficult because what is significant is not what it is but what it does. Money is the medium of exchange when the value of the goods, services, access rights, valuable document etc., needs to be assessed. Trust is the criterion for the amount of deficit money that can be used in a country, and today that amount can be more than 10 times the actual face value of the paper and metal currency. This suggests that these countries are socially stable. Money can be stored, although mostly it is passed on, so as that its owner can receive interest or gain of some kind for the right of exchange that having the money provides. This means that the rate of its circulation is a useful measure of macro-economic activity.

    Money is used for counting the value of property and goods, convenience in trade and limited government control of the progress of the macro-economy. Many economists treat money as being something separate from trade, and think in terms of banking and national matters, but money cannot be considered only in this way because the only real time when it is significant is when it is involved in trade and exchange.

    A country where there has been an large increase in the amount of money, in the long run will not necessarily become more prosperous, because the prosperity is due to produce not paper. Short-run changes are affected, but compensating inflation is a natural result of greater amounts of money and the long-term effect is on savers whose loose purchasing power, not producers of goods, services, etc.

  • pkrumm


    Hope you find this as it comes in very late, after I just found it and the post on property rights.

    I find it interesting that you defined money early on in this piece and then ignored that definition as you went along. Money is an accounting system that “tallies , , . credits and debits (gives and takes), assets and liabilities (rights and responsibilities, ownership and obligations), quantified in numbers. Accounting. (In technical terms: sign-value notation.)”

    In simpler terms, money is an accounting system that records commitments and claims on commitment. All the rest is dross.