Money may have originated through long distance trade, new theory suggests

Two of the most commonly accepted theories for the origin of money are the commodity theory and the chartalist theory. Both have drawbacks, but in recent years, the chartalist theory has gained much traction.

A recent study by archaeologist Dr. Mikael Fauvelle, published in the Journal of Archaeological Method and Theory, proposes that a third theory, examining external factors, may better explain the origin of money in pre-state societies.

Traditionally, two theories on the origin of money exist. The first is the commodity theory, which proposes that money was developed to facilitate internal barter between community members. The premise is that trading one good for another good that you desire is inefficient and unreliable, as you cannot guarantee that the trading partner has the goods you want or that they want the goods you are offering. However, money mitigates this problem.

This theory has recently come under scrutiny as ethnographic and historical studies show that pure barter systems are rare and that most traditional societies use exchange networks based on trust and delayed reciprocity.

Meanwhile, chartalist theory focuses on the role of money as a unit of account, arguing that money was imposed by the state to facilitate taxation, tribute collection, and financing of wars. However, this theory falls flat when looking at pre-state societies that did not tax or had no tribute to collect.

These two theories are often presented as opposing each other. However, not only need they not be mutually exclusive, but they tend to view money as having the same definition in ancient societies as it has today, namely as a medium of exchange, a unit of account, a standard of value, and a store of value.

Dr. Fauvelle provides evidence that supports a third theory, the so-called “Trade Money Theory.” The theory proposes that it was not internal barter problems that money was used to solve but rather long-distance external exchange networks that could not rely on familiar, trust-based relationships of delayed reciprocity.

To support this theory, Dr. Fauvelle examines the money systems of two pre-state societies. “I focused on shell beads in Western North America and Bronze Money in Europe as these are two well-documented case studies with considerable evidence for widespread trade and monetary economies predating the development of ancient states.”

In Western North America, numerous Indigenous societies spanning a multitude of cultures, languages, and regions used shell beads as money for thousands of years prior to contact with Europeans.

According to European explorers and colonists, these shell beads were used to facilitate long-distance trade as well as everyday transactions. These beads had been in use for thousands of years, long before any state society.

According to ethnographic evidence, trade networks were traversed by travelers crossing the entire expanse, not just middlemen, as shown in accounts by the Spanish, who encountered trade parties traveling across the American West, often carrying large amounts of shell wealth.

These trade networks extended from the Pacific Coast up to the Mississippi River, sometimes necessitating thousands of kilometers of travel. In such cases, traders would have had to traverse multiple linguistic, social, and political boundaries. Even if these traders had relatively well-established trade networks, it is unlikely they could have relied solely on delayed reciprocity to facilitate their travels.

Along the way, they would eventually come across strangers with whom they needed to trade, necessitating items of shared value such as shell bead money.

Similarly, in Bronze Age Europe, bronze and copper ingots likely served this role. From Scandinavian rock art depicting conical hats, chariots, and ox-hide ingots to Norse objects such as folding chairs and razors depicting Mediterranean motifs, we know traders and travelers moved across the entire expanse of Europe.

Additionally, the bronze artifacts and copper and bronze ingots commonly found during this time needed raw materials that could only be sourced from a few select areas, namely the British Isles, the Alps, and the Mediterranean, necessitating trade with far-flung regions.

To facilitate the acquisition of these resources, simple barter systems could not be relied upon, especially in regions with such diverse social and political structures.

To facilitate this trade, objects of standardized value were necessary. Studies have shown that the size and dimensions of bronze ingots, rings, and axes were standardized, enabling them to be used as a form of money that could be relied upon to hold value across diverse cultures and regions.

These money systems, initially developed for external long-distance trade, would likely have eventually made their way into internal economic systems, facilitating internal trade, taxation, and tribute payments.

Dr. Fauvelle elaborates, “The use of money would have greatly increased the efficiency of long-distance exchange systems and would have likely led to increased levels of inter-regional interaction. This, in turn, could have funneled more wealth into the hands of regional elites. This is indeed what we see in ancient California with the formation of chiefdoms on the region’s islands and coasts.”

Additionally, he says, “It is quite possible that there are other examples out there of similar processes taking shape in other world regions, and that would be an excellent topic for future research. Ancient Mesoamerica or the Pacific Islands might be two areas to look at in the future.”

“Throughout the world, we see that many different traditional non-state societies have used money for exchange—I think that the comparison of these cases clearly shows that money does not necessarily come about through state control and taxation. The goal of the paper was to provide an explanation for a possible way that money could have developed outside of the control of the state.”

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