What Counted as Money Before Even Gold

In an earlier review of Paper Money Collapse, I argued that it is one of the best works of economics in many years.

Even so, the book did leave me uncertain on a couple important points, one of which relates to what counted as money before 2500 B.C. and as an alternative to gold or silver in some ways ever since. 

Here, for example, from Sidney Homer’s A History of Interest Ratesis a quick recap of those alternatives and their effect on the terminology of finance today:

Cattle breeding has supplied us with many financial terms used in later money economies. For example, there is our word capital and our term pecuniary, from pecus, meaning a ‘flock’ in Latin. Sumerians used the word mas for calves and for interest. The Egyptian term ms, meaning interest, is derived from the verb msj, which means ‘to give birth.’ Early Greeks, in fact, valued their precious metals in terms of cattle. In The Odyssey, one of the suitors promised to bring Ulysses a contribution ‘of bronze and gold to the value of twenty oxen.’

Cattle probably comprised the first true productive assets or capital of tribes or individuals. . . . [And] as cattle and grain became available and in demand in quantities above consumption requirements, they provided a form of primitive money; that is to say, they became commodities of sufficient value and uniformity that they could conveniently be used as a standard medium of exchange for other commodities. They could also be loaned out at interest. In addition, they provided a standard of valuation.

Such money predated the use of precious metals as currency. More to the point, the supply of it was definitely elastic (a characteristic Schlichter names as the primary fault of any paper money system).

And yet, despite being elastic, people across many geographic regions used cattle (and other commodities) as money—and successfully so, whether for saving, consumption, or investment. Again, quoting from the same source:

As early as 5000 B.C., in the Middle East, dates, olives, figs, nuts, or seeds of grain were probably lent to serfs, poor farmers, or dependents, and an increased portion of the harvest was expected to be returned in kind. We shall find later abundant evidence of this type of transaction surviving in modern primitive tribes. Animal money could be, and was, loaned out and provided its own increment. Foods and animals were the most important forms of money used by the original Sumerian, Indo-Germanic, and Semito-Hamitic peoples and were so used in Egypt, Mesopotamia, America, India, and China before town civilizations developed.

With the development of town culture in the ancient Orient, credit became very important. Mining had developed, and now inanimate objects, especially metals, such as gold, silver, lead, bronze, and copper, were loaned out at interest. This is as much as to say they were treated as though they were living organisms with the means of reproduction…

Given the above, I finished Schlichter’s book questioning whether an elastic supply of money as such is harmful.

I can see how the relative inelasticity of gold makes it a more valuable form of currency—particularly for anyone engaging in long-range contracts. I can also see how the elasticity of grains or cattle limits their use as the sole foundation of a currency.

But I do not see how an increased supply of either of these latter within a society that uses a basket of such commodities to back its money would be catastrophic.

It seems that although an elastic supply of something may limit the role that it can play as a currency, its characteristic of being elastic can only cause substantial harm within the context of a fiat or paper money system.

If this is so, the implications for preserving one’s wealth in a breakdown of our current system or for what could back an ideal and new monetary system could easily differ from Schlichter’s recommendations. It would also call for a slight change in how Schlichter’s thesis should be seen.

For example, anyone concerned with keeping their wealth secure from the risks posed by central bankers the world over, may look more seriously into real assets aside from or in addition to gold—rebalancing their portfolio when one asset or another has made a big move higher.

Similarly, anyone concerned with what should back a new system of money if the present system collapses, may argue for a non-political currency backed by a wide range of commodities, including but not limited to gold alone (as many people are calling for).

Again, as I stated at the start, I finished Paper Money Collapse uncertain on a couple important points such as the above. I’m nothing near negative on it as a whole, however, and if you haven’t already you can see why by reading my earlier review of it.