Origins of Money - To replace taxes not barter

Geoff Riley

10th April 2017

Money was not created to replace barter, as most historians suggest, but to boost trade that rulers could tax. This new theory of the origins of money is presented by central bank economist Vincent Bignon at the Royal Economic Society's annual conference at the University of Bristol in April 2017.

The standard explanation for the invention of money is that it was created by rulers as a trade-off, as they gave up the opportunity to keep records of transactions (and allow some traders to avoid tax) because of the inconveniences of barter, which limited trade.

Instead, the new study argues, historical records show that money was introduced in many societies where there were sophisticated credit arrangements in place that had already replaced barter. In these cases, money was both more encompassing than credit – and cheaper. 

Also, by introducing money, rulers forced traders to do business that could be taxed. Money was often introduced in a society when a ruler needed to raise taxes, for example, because of war.

The authors comment: 

‘Today’s debate about the cashless society revolves around the benefits of discouraging the use of an anonymous payment technology with the hope of replacing it with one that keeps track of the names of transactors. We argue that this opposition was the initial trade-off faced by rulers in antiquity when they contemplated introducing the first coins or banknotes.’

Read more about this research here

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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