How exactly did money become an object of value?

6 October

In a sense, because it’s there to measure value, money has only ever been an object of value. But there are different theories about how it was invented. One theory is that it’s essentially a means to facilitate barter: I have a table, you have a loaf of bread, how do we get together? That’s a story where the markets already exist and money is moving them.

The alternative theory is that money is really a means to measure debt. People in Mesopotamia in 2000BC were indebted to each other, in particular they were indebted to the state, and money was invented as a unit of account of debt, a book-keeping device. Rather than a means to facilitate real transactions, it’s from the very beginning a financial construct.

Although you’ll find the first theory in a lot of economics textbooks, I would think that the second theory is actually quite strong. The first presupposes that the markets for goods existed before the introduction of money. There’s no evidence that there were extensive barter systems prior to money, and it’s hard to believe there were sophisticated markets out there before people had money to exchange against items.

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