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APPENDIX J [1]

History of Theories of the Origin of Money

THE GREAT THINKERS OF antiquity, and following them a long series of the most eminent scholars of later times up to the present day, have been more concerned than with any other problem of our science with the explanation of the strange fact that a number of goods (gold and silver in the form of coin, as civilization develops) are readily accepted by everyone in exchange for all other commodities, even by persons who have no direct requirements for them or whose requirements have already been fully met. A person of the most ordinary intelligence realizes that the owner of a good will give it in exchange for one that is more useful to him. But that every economizing individual of an entire society should be eager to exchange his commodities for small discs of metal, which ordinarily only a few men can use directly, is something that is so contradictory to the ordinary course of events that we cannot be surprised that it appears “mysterious” to even so brilliant a thinker as F.K. v. Savigny (Das Obligationenrecht als Theil des heutigen römischen Rechts, Berlin, 1851–53, II, 406). The problem that science must solve is thus the explanation of human behavior that is general and whose motives do not lie clearly upon the surface. Considering these two features of the problem it is easy to understand why the idea arose of attributing the behavior in question to an agreement between men or to the expression of their collective will (the law), especially with respect to money in its minted form. Plato and Aristotle take this position. Plato calls money a “token for purposes of exchange” (Republic, II. 371; see B. Jowett, trans. & ed., The Dialogues of Plato, London, Oxford University Press, 1892, III, 52), and Aristotle, in a much quoted passage, says that money originated by convention, not by nature but by law (Ethica Nicomachea, v. 5, 1133a, 29–32). He expresses this view even more distinctly in his Politics, where he says that “men agreed to employ in their dealings with each other something . . . for example iron, silver, and the like,” and offers this as his explanation of the origin of money (i.9. 1257a, 36–40).

     The Roman jurist Paulus, whose views on the origin of money have been preserved in Justinian’s code (L. 1. Dig. de contr. emt. 18, 1), solves the problem in a way similar to that of the Greek philosophers. He points to the difficulties involved in pure barter and gives it as his opinion that these difficulties were removed by a public institution (money). Paulus writes that “A substance was selected whose public evaluation exempted it from the fluctuations of the other commodities, thus giving it an always stable external (nominal) value. A mark (of its external value) was stamped upon this substance by society. Hence its exchange value is based, not upon the substance itself, but upon its nominal value.” Thus Paulus also attributes the origin of money to public authority.

     Alongside the views just described, we can also discern attempts of the writers of antiquity to trace the special position occupied by the precious metals as compared with the rest of commodities back to special qualities of the former. Aristotle points to the ease with which they can be handled and transported (Politics,i.9. 1257a, 39–41) and in another place to their relative stability of price (Ethica Nicomachea, v. 5. 1133b, 13–15). Xenophon even observes the wide quantitative limits within which the precious metals, chiefly silver, can be marketed. He argues that if the products of smiths or coppersmiths, or even wine or grain were to arrive on a market in unusually large quantities, they would severely fall in price, whereas silver, and to a smaller extent gold also, always could be exchanged at profitable prices (Ways and Means: A Pamphlet of Revenues, in H.K. Dakyns, translator, The Works of Xenophon, London, Macmillan Co., 1892, II, 335–336). The durability and indestructibility of the precious metals, particularly of gold, was already stressed by Pliny (The Natural History, translated by John Bostock and H.T. Riley, London: H.G. Bohn, 1857, VI, 96–97 and 111–112).

     The extremely fertile literature of the middle ages and the sixteenth century was carefully collected by Philipp Labbé (Bibliotheca nummaria, ex Theologis, Juris consultis, Medicis, ac Philologis concinnata, etc., Rouen, 1672). The collections of René Budel (De monetis et re nummaria, Cologne, 1591) and of Marquard Freher (De re monetaria veterum Romanorum et hodierni apud Germanos Imperii, Lyons, 1605), contain many noteworthy publications of that period (including the tracts of Nicolaus Oresmius and Gabriel Biel). Roscher has discussed several of them in his Grundlagen der Nationalökonomie (Stuttgart, 1892, pp. 301–302, note 6) with great scholarly industry. These tracts were chiefly concerned with the practical problems of coinage, especially with the question of the existence and the limits of the right of princes to change the metallic content of coins, and with the consequences of these changes on public wealth. This problem had become important because of frequent abuses of the coinage by government. In this context, several authors also take the opportunity of discussing the problem of the origin of money, which they solve on the basis of the findings of the writers of antiquity, with regular reference to Aristotle. See Nicolaus Oresmius (Nicole Oresme) (died 1383), Tractatus de origine, natura, jure et mutationibus monetarum (ed. with a translation by L. Wolowski, Paris, 1864, p. ix and p. xciv); Gabriel Biel (died 1495), De monetarum potestate et utilitate libellus (in Gaspar Antonius Thesaurus, De monetarum augmento variatione et diminutione, Torino, 1609, p. 1, also in an English translation, Treatise on the Power and Utility of Moneys,translated and edited by R.B. Burke, Philadelphia, 1930, p. 19); Carolus Molinaeus, De mutatione monetarum quaestiones duo (in R. Budel, ed., De monetis et re nummaria, p. 485); Didacus Covarruvias, Veterum numismatum collatio, in ibid., p. 648; Jacobus Menochius, Consilium XLIX, in ibid., p. 705; René Budel, De monetis et re nummaria, in ibid., p. 10; and Jehan de Malestroit, Les Paradoxes, written in 1566 (reprinted in L. Einaudi, editor, Paradoxes inédits du seigneur de Malestroit, Torino, 1937, p. 97).

     Summarizing the course followed by the investigations of these writers, they almost always begin by showing the difficulties to trade arising from pure barter. They next show how it is possible to remove these difficulties by the introduction of money. In the further course of their arguments, they stress the special suitability of the precious metals for serving as money, and finally, citing Aristotle, they reach the conclusion that the precious metals actually became money by the legislation of men. (Oresmius says that money is an “instrumentum artificialiter adinventum,” op. cit., p. xliv; Biel says that it is “vel ex sui natura vel hominum instituto,”[2] op. cit., p. 2; and Molinaeus says that “inventio et institutio monetae . . . est de iure gentium,”[3] op. cit., p. 486.) However meritorious the service of many of these writers in opposing abuses of the coinage on the part of princes, they did not therefore improve upon the views of antiquity so far as the question of the origin of money is concerned.

     The early Italian and English writers are no exception. Bernardo Davanzati, writing in 1588, strictly follows the views of Aristotle and Paulus, and traces the origin of money back to the authority of the state (“per legge accordata,” see his Lezione delle monete in Scittori classici Italiani di economia politica, Milano, 1803–05, II, 24). Geminiano Montanari (d. 1687), does the same (Della moneta, in ibid., III, 17, 32, and 118). And Lewes Roberts, whose widely read The Merchants Map of Commerce was first published in 1638, represents the economic views of England of the seventeenth century more accurately than any other work of that age, traces the origin of money to the same source (see p. 15 of the Third Edition, London, 1677).

     Among the monetary writers of the first half of the eighteenth century John Law is preeminent for his researches into the origin of money. His contemporary, Boizard, was still attributing the origin of money to public authority, and Vauban (Projet d’une dixme royale, written 1707, republished in E. Daire [ed.], Economistes financiers du XVIIIe siècle, Paris, 1843, p. 51), as well as Pierre Boisguillebert (Dissertation sur la nature des richesses, de l’argent, et des tributs, in ibid., pp. 396–398) did not go beyond stressing the necessity of money as a means of facilitating commerce. Law, on the contrary, most decidedly repudiates the contractual theory, and recognizing, as no author before him, the special position of the precious metals among other commodities, he derives the genesis of the money character of the precious metals from their special characteristics. Thus he is the founder of the correct theory of the origin of money (see his Money and Trade Considered,London, 1720, pp. 4ff.; also his Mémoire sur l’usage des monnaies, written 1706–07, reprinted in Paul Harsin, ed., John Law: Oeuvres complétes, Paris, 1934, p. 167). Law is followed, in his opposition to the theory that traces the origin of money to a contract between men, by Antonio Genovesi (Lezioni di economia civile, in Scrittori classici Italiani di economia politica, Milano, 1803–05, VIII, 291–313), and A.R.J. Turgot (Réflexions sur la formation et la distribution des richesses, written in 1766, and reprinted in G. Schelle, ed., Oeuvres de Turgot, Paris, 1913–23, II, 558–560). Law’s attempt to explain the genesis of the money character of the precious metals from their special nature, was taken up and admirably accomplished in part by Cesare Beccaria (Elementi di economia publica, in Scrittori classici Italiani di economia politica, Milano, 1803–05, XIX, 10–18); Pietro Verri (Meditazioni sulla economia politica, in ibid., XXII, 13–19; and Sulle leggi vincolanti principalmente nel commercio de ‘grani riflessioni, in ibid., XXIII, 21); Turgot (op. cit., II, 558–560; and “Deuxième lettre á l’abbé de Cicé” in ibid.,iI, 143ff.); Adam Smith (An Inquiry into the Nature and Causes of the Wealth of Nations, Modern Library Edition, New York, 1937, pp. 22–29); and J.G. Busch Abhandlung von dem Geldsumlauf,tHamburg, 1780, pp. 279ff.).

     Among more recent writers in the same tradition are: T.R. Malthus (Principles of Political Economy, Second edition, London, 1836, pp. 50–60); J.R. McCulloch (The Principles of Political Economy, Second edition, London, 1830, pp. 129–136); John Stuart Mill (Principles of Political Economy, Edited by Sir W.J. Ashley, London, 1909, pp. 483–488); Melchiorre Gioja (Nuovo prospetto delle scienze economiche,Milano, 1815, I, 118ff.); M.H. Baudrillart (Manuel d’économie politique, Fourth edition, Paris, 1878, pp. 252–262); Joseph Garnier (Traité d’économie politique,iSeventh edition, Paris, 1873, pp. 309ff.); and two German economists, Ch. J. Kraus (Staatswirthschaft,tKoenigsberg, 1808, I, 61ff.), and Aug. Fr. Lueder (National-Industrie und Staatswirthschaft,tBerlin, 1800–04, I, 48ff.).

     Other German economists of the first decades of the nineteenth century show little interest in historical research, and the problem of the origin of money was almost completely neglected in the works of Johann A. Oberndorfer, Karl H.L. Pölitz, J.F.E. Lotz, Karl S. Zachariä, and F.B.W. v. Hermann. This situation continued until, with the reawakening of historical research in the field of our science, the question of the origin of money was again taken up by Karl H. Rau, Johann F.G. Eiselen, Wilhelm Roscher, Bruno Hildebrand and Karl Knies, as well as Karl Murhard somewhat earlier.

     The monographs thus far published have furthered the investigation but little. Adam Muller discusses the desire of men for the state and thinks that the precious metals bring about this union, giving this as his theory of the origin of money (Versuche einer neuen Theorie des Geldes,Reprint Edition, Wien, 1922, pp. 78ff.). Johann G. Hoffmann (Die Lehre vom Gelde, Berlin, 1838, p. 10) attributes the origin of money again to a contract between men. Michel Chevalier (La monnaie, in Cours d’économie politique, Paris, 1866, III, 5) does the same thing. Samuel Oppenheim’s monograph, Die Natur des Geldes,t(Mainz, 1855), is of greater interest, although its importance does not consist so much in a special view of the first origin of money (pp. 4ff.), as in an exposition of the process by which a commodity that has become a means of exchange loses its original commodity character and eventually becomes a mere token of value. Although I must emphatically contradict this opinion, I nevertheless find a clearly expressed thought (or rather an observation) in Oppenheim’s argument which sufficiently explains why we encounter this mistake in the writings of many eminent economists. I refer to the observation that the character of money as an industrial metal often completely disappears from the consciousness of economizing men because of the smoothness of operation of our trading mechanism, and that men therefore only notice its character as a means of exchange. The force of custom is so strong that the ability of a metal used as money to continue in this role is assured even when men are not directly aware of its character as an industrial metal. This observation is entirely correct. But it is also quite evident that the ability of a material to serve as money, as well as the custom on which this ability is founded, would disappear immediately, if the character of money as a material applicable to industrial purposes were destroyed by some accident. I am ready to admit that, under highly developed conditions of trade, money is regarded by many economizing men only as a token. But it is quite certain that this illusion would immediately be dispelled if the character of coins as quantities of industrial raw materials were lost.



[1]To Chapter VIII, Section 1. See note 5 of Chapter VIII—TR.

[2]“either from its own nature or from man’s design” (see Gabriel Biel, Treatise on the Power and Utility of Moneys, translated and edited by R.B. Burke, Philadelphia, 1930, pp. 20–21).

[3]“the invention and institution of money . . . comes from the law of nations.”

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