The question that we must look to answer is not how money emerged as a medium of exchange, rather how a precise system of measurement or money as a unit of account was developed?
Where did money come from and what has it done to human society?
Money has a long history with diverse ramifications. The historical trajectory of humanity shows that money's dominance in the capitalist society is the root of contemporary inequality.
In economics, it is a popular argument that the invention of money replaced the barter system. However, upon investigation, one will realise that this is just a fairy tale.
The standard theory about money goes something like this: once upon a time, humans lived, survived, and thrived through a barter system. People directly exchanged various things they possessed for things they needed.
Someone might have collected fruits but desired to have meat. Hence, they would exchange around 20 apples for a chunk of meat. However, on a usual day, if someone with meat wanted something else, what would they do? This is how the ingenious human mind came up with the idea of money—as a medium of exchange.
The publication of Wealth of Nations by Adam Smith in 1776 formally established the story of how money came into being. In a way, this was the founding myth of classical economics. However, anthropologists around the world have not yet found traces of any such practice preceding the invention of money—as David Graeber has argued in "Debt: The First 5,000 Years".
The origin myth of money assumes that humans were only involved in spot trade. But human sociality does not just involve momentary trading. Even in contemporary life back then, if one needed honey but did not have it, they could ask their neighbours for some honey without having to give them something in return instantly, but rather repay in some other time and form.
So, the question that we must look to answer is not how money emerged as a medium of exchange rather how a precise system of measurement or money as a unit of account was developed?
In exploring this new set of queries, David Graeber proposes to turn the entire story of origin of money. He argued, credit and debt came first and thousands of years later money as a unit of account appeared espousing a direct equal barter system.
For instance, 20 apples equal a chunk of meat (if there were any shortage of money supply at that time). This resonates with Marcel Mauss's idea of The Gift (1925), which involved giving, receiving, and reciprocity as the foundation of human social life.
However, credit and debt before money was fundamentally different in character. In the Egyptian civilisation, there was a complex and centralised taxation system. But there was no tradition of lending money on interest which has become a pervasive practice under capitalism. In the Mesopotamian civilisation of 3200 BC, money as a unit of account appeared to keep a track of allocation of resources to their industrial complexes.
In Mesopotamia, one can trace existence of interest-bearing loans used in deals between administration and merchants conducting trade with people in faraway lands. This practice later developed into a form of consumer loan for farmers, which created a possibility of debt-traps owing to bad harvests. Hence, people started pawning family goods and resources to repay loans and interest.
Debt before the advent of a universal form of money was more social in nature than an economic bond. Later, people's borrowing for paying taxes institutionalised a credit system.
Taxes also facilitated the use money in the form of cash or coinage. The use of money began as a payment to soldiers in the empires of China, India, and Mediterranean - in the form of bits of gold or silver. People then were forced to pay their taxes back with the money provided to the soldiers, which eventually created a market based on money or cash.
I believe, we have a brief idea of a life before money debt, i.e., economic debt. Now we can turn our attention to the question posed earlier about why and how the sense of social debt started to be precisely quantified? David Graeber proposed, a potential for violence did the trick. Money as an exact equivalent negated the possibility of violence and was popularised with recurrent wars.
Social debt was transformed into a form of money debt or credit as we now know. However, the social nature of different forms of debt still is the foundation of our life. Even the free market capitalists - who models human relations on the exchanges of a market - if invited into a dinner will someway return the favour.
As money in its broadest sense is a social construct, we should stop creating it endlessly. But in today's world we see endless debt creation.
The Institute of International Finance estimated that global debt exceeded $257 trillion in the first quarter of 2020, increasing from $188 TN at the end of 2018. With this unprecedented rate of creating money out of nothing in the form of credit, the world is in a downward spiral of debt trap.
This vast amount of debt reflects the desire for profit and accumulation in capitalism, which has no end, a tendency Hegel had termed "bad infinity" in the early 1810s. This trend has created extreme disparity in the world despite humongous economic growth. One can refer this as madness of the capitalist logic, as David Harvey rightly pointed out in the book Marx, Capital, and the Madness of Economic Reason (2017).
The irrationalities of the current economic system fuelled by the credit money is proven by the fact that one can deposit money in a savings account of any financial institution and the money increases at a compound rate without the depositor doing anything. It reflects the role of money in capitalism today.
Money now has both use and exchange value; it is a commodity itself and also foundation of social relations as credit, as Keith Hart has pointed out in "Heads of Tails: Two Sides of the Coin" (1986).
One can lend out money to others with an aim of producing surplus value and the interest given is the exchange value. Recently, a report of CNBC claimed, Berkshire Hathaway had a record $137 billion in cash and equivalent instruments on its balance sheet at the end of the first quarter of 2020.
The money is ready to be invested in companies for profit in the coming days. During the economic recession in the post-pandemic time, the rich are likely to benefit as it is good to have a lot of money, but it is even better to have it when nobody else has it. Consequently, the poor segments are likely to become poorer and must work at even lower wages, making the rich even richer. The root of these "insane forms" can be traced back to the 1760 industrial revolution.
The industrial revolution has led the countries to be connected in an unprecedented way. Ironically, the world is also divided into consumers, producers, capitalists, and workers. The world economy has evolved a lot because of the inherent need of a capitalist system to grow bigger - generating ever more profit. Capitalism's over reliance on money has been swelling inequality, amid consistent economic growth, as Karl Marx has long argued it would.
At the present juncture of social inequality, even if we do not agree with the Marxist idea of social revolution, we still do not know how to avoid it.
Mohammad Tareq Hasan is an anthropologist and teaches at the University of Dhaka. This is first part of a two-part series on Money, Debt, and Human Society.