What Are the Origins of the Money We Use Today? Revisiting Heinrich Schurtz’s Groundbreaking Research

By Michael Hudson

First of two parts

The late 19th century saw economists, mainly German and Austrian, create a mythology of money’s origins that is still repeated in today’s textbooks. Money is said to have originated as just another commodity being bartered, with metal preferred because it is nonperishable (and hence amenable to being saved), supposedly standardized (despite fraud if not minted in temples), and thought to be easily divisible—as if silver could have been used for small marketplace exchanges, which was unrealistic given the rough character of ancient scales for weights of a few grams.^[1]

This mythology does not recognize government as having played any role as a monetary innovator, sponsor, or regulator, or as giving money its value by accepting it as a vehicle to pay taxes, buy public services, or make religious contributions. Also downplayed is money’s function as a standard of value for denominating and paying debts.^[2]

Although there is no empirical evidence for the commodity-barter origin myth, it has survived on purely hypothetical grounds because of its political bias that serves the anti-socialist Austrian school and subsequent “free market” creditor interests opposing government money creation.

Schurtz’s Treatment of Money as Part of the Overall Social System

As one of the founders of economic anthropology, Heinrich Schurtz approached the origins of money as being much more complex than the “economic” view that it emerged simply as a result of families going to the marketplace to barter. Surveying a wide range of Indigenous communities, his 1898 book, An Outline of the Origins of Money, described their trade and money in the context of the institutional system within which members sought status and wealth. Schurtz described these monetary systems as involving a wide array of social functions and dimensions, which today’s “economic” theorizing excludes as external to its analytic scope.

Placing money in the context of the community’s overall system of social organization, Schurtz warned that anyone who detaches “sociological and economic problems from the environment in which they emerged… their native land… only carries away a part of the whole organism and fails to understand the vital forces that have created and sustained it.”

Looking at Indigenous communities as having preserved presumably archaic traditions, Schurtz viewed trade with outsiders as leading wealth to take an increasingly monetary form that eroded the balance of internal social relations. Schurtz deemed the linkage between money, debt, and land tenure to lie beyond the area on which he focused, nor did he mention contributions to group feasts (which historian Bernard Laum suggested as the germ from which Greek obols and drachmas may have evolved).^[3]

The paradigmatic forms of Indigenous wealth were jewelry and other items of personal adornment, decorations, and trophies, especially foreign exotic products in the form of shells and gemstones or items with a long and prestigious history that gave their wearers or owners status.

Thorstein Veblen would call the ownership and display of such items conspicuous consumption in his 1899 book, The Theory of the Leisure Class. They had an exchange value, as they do today, but that did not make them monetary means of exchange. Schurtz saw many gray areas in their monetization: “Beads made of clay and stone are also crafted by Indigenous people and widely used as ornaments but rarely as money.”

At issue was how a money economy differs from barter and from the circulation and exchange of useful and valued items in a social economy. Was Indigenous exchange and wealth pre-monetary, an archaic seed that led to money’s “more ideal forms?”

Schurtz’s Distinction Between Inside-Money and Outside-Money

Exchange with outsiders was typically conducted by political leaders as the face of their communities to the outside world. Trade (and also payment of tribute) involved fiscal and social relations whose monetary functions differed from those of the domestic economy but ended up dovetailing with them to give money a hybrid character. Schurtz distinguished what he called outside-money from inside-money, with outside-money ultimately dominating the inside monetary system.

“The concept of money,” he wrote, originated “from two distinct sources: What functions as the foundation of wealth and measure of value for property and serves social ends within a tribe is, in its origins, something entirely different from the means of exchange that travels from tribe to tribe and eventually transforms itself, as a universally welcomed commodity, into a kind of currency.”

Inside-money was used within communities for their own exchange and wealth. Outside-money was derived from transactions with outsiders. And what was “outside” was a set of practices governing trade outside the jurisdiction of local governance.^[4]

Schurtz’s distinction emphasized a characteristic of trade that has continued down through today’s world: the contrast between domestic payments subject to checks and balances to protect basic needs and navigating status hierarchies but (ideally) limiting sharp wealth disparities, and exchange with outsiders, often conducted on islands, quay areas, or other venues socially outside the community’s boundaries, subject to more impersonal standardized rules.

Throughout the ancient world, we find offshore island entrepots wherever they are conveniently located for conducting trade with outsiders.

These islands kept foreign contact at arm’s length to prevent mercantile relations from disturbing the local economic balance. Egypt restricted foreign contacts to the Delta region where the Nile flowed into the Mediterranean. For the Etruscans, the island of Ischia/Pithekoussai became the base for Phoenician and Greek merchants to deal with the Italian mainland in the eighth and seventh centuries BCE. North Germans seem to have conducted the Baltic amber trade through the sacred island of Helgoland.

“The emergence of specific internal monetary systems is always supported by the inclination to transform outside-money into inside-money, and to employ money not to facilitate external trade, as one might assume according to common theories, but rather to obstruct it,” Schurtz concluded. In his chapter, “Metal as Ornament and Money,” he pointed out that it was foreign trade that led metal to become the primary form of money. “While most varieties of ornament-money gradually lose their significance, one of them, metal-money, asserts its ground all the more and finally pushes its competitors out of the field.” He added that: “Metal-money made from noble metals is not a pure sign-money, it is at the same time a valuable commodity, the value of which depends on supply and demand. In its mature form, it therefore in itself embodies the fusion of inside-money with outside-money, of the sign of value and valuable property with the means of exchange.”^[5]

This merging of inside- and outside-money is documented already in the third millennium BCE in the Near East. Silver-money was used for long-distance trade and came to be used for domestic enterprise as well, while grain remained the monetary vehicle for denominating agrarian production, taxes, and debt service on the land, and for distribution to dependent labor in Mesopotamia’s temples and palaces.

Schurtz also questioned whether the dominance of metallic money emerged spontaneously in many places or whether there was a diffusion from a singular origin, that is, “whether a cultural institution has grown in situ or whether it has been transferred from other regions through migration and contact between societies.” The diffusion of Mesopotamian weights is associated with silver points to its diffusion from that region, as does the spread of the region’s practice of setting interest rates simply for ease of calculation in terms of the local fractional arithmetic system (60ths in Mesopotamia for a shekel per mina a month, 10ths or percentages in decimalized Greece, and 12ths in Rome for a troy ounce per pound each year).

Checks and Balances to Prevent the Selfish Concentration of Wealth

What does seem to have developed spontaneously were social attitudes and policies to prevent the concentration of wealth from injuring economic balance. Wealth concentration, especially when achieved by depriving cultivators of their means of livelihood, would have violated the ethic of mutual aid that low-surplus economies need as a condition for their resilience.

Viewing money as part of the overall social context, Schurtz described “the social transformation brought about by wealth” as a result of monetizing trade and its commercial pursuit of profit, or “acquisitiveness”:

“[E]veryone is now compelled to join in the competition for property or he will be pulled into the vortex created by one of the newly emerging centers of power and property, where he will need to work hard to be able to live at all. For the property owner, no temporal limit constrains his view on the perpetual increase of his wealth.”

Schurtz characterized the economic mentality as a drive for “the unlimited accumulation of movable property,” to be passed on to one’s children, leading to the creation of a wealthy hereditary class. If archaic societies had this ethic, could ancient civilizations have taken off? How did they prevent the growth of wealth from fostering an oligarchy seeking to increase its wealth at the expense of the community at large and its resilience?

Schurtz reviewed how Indigenous communities typically avoided that fate by shaping a social value system that would steer wealth away from being used to achieve predatory power over others. He cited numerous examples in which “immense treasures often accumulate without reentering the transactions of daily life.” One widespread way to do this was simply to bury wealth. “The primitive man,” he wrote, “believes that he will have access to all the goods given to him in the grave, even in the afterlife. Thus, he too knows no bounds to acquisition.”

Taking his greed and wealth with him to use in the hereafter prevents hoarded wealth from being inherited “and growing into a dangerous instrument of power” by becoming dynastic; ultimately operating “on the belief that the deceased does not give up his rights of ownership but jealously guards over his property to ensure that no heir makes use of it.” A less destructive removal of wealth from its owners was to create an ethic of peer pressure in which individuals gained status and popular acclaim by accumulating wealth to give away. Schurtz wrote:

“[R]emnants of the ancient communism remain alive enough for a long time to effectively block attempts to amass as many assets as possible in a single hand. And in places without an actual system of debt and interest, the powerful individual, into whose house the tributes of the people flow, has indeed little choice but to ‘represent’ by way of his wealth: in other words, to allow the people to participate in his indulgences.”

Such an individual achieves philanthropic renown by generously distributing his possessions to “his friends and followers, winning their hearts and thereby establishing real power based on loyal devotion.” One widespread practice was to celebrate marriages, funerals, and other rites of passage by providing great feasts. This “extraordinary… destruction and squandering of valuable property, particularly livestock and food, during those grand festivals of the dead that evolved out of sacrifices and are, among some peoples, not only an effective obstacle to the accumulation of wealth but have turned into economic calamities” when families feel obliged to take on debt to host such extravagant displays.

Religious officials and temples often played a role in such rituals. Noting that “money, trade, and religion had a good relationship with one another in antiquity,” Schurtz cited the practice of donating wealth to temples or their priesthoods. But he recognized that this might enable them to “gain dominance through the ownership of money” under their control.

“The communist countermeasures against wealth generally do not endure,” Schurtz wrote. “Certain kinds of property seem to favor greed directly, especially cattle farming, which can literally turn into a hoarding addiction.” He described communalistic values of mutual aid as tending to break down as economies polarized with the increase in commercial wealth.

Schurtz also noted that the social checks on personal wealth-seeking did not apply to economies that developed a “system of debt and interest.” Wealth in the form of monetary claims on debtors was not buried and could hardly be redistributed to the population at large, whose members typically were debtors to the rising creditor interest.

The only way to prevent such debts from polarizing society was to cancel them. That is what Near Eastern rulers did, but Schurtz’s generation had no way of knowing about their Clean Slate proclamations.

Michael Hudson is an American economist, a professor of economics at the University of Missouri–Kansas City, and a researcher at the Levy Economics Institute at Bard College. He is a former Wall Street analyst, political consultant, commentator, and journalist. You can read more of Hudson’s economic history on the Observatory. This text is adapted from Michael Hudson’s foreword to An Outline of the Origins of Money by Heinrich Schurtz, and this excerpt was produced by Human Bridges.

^[1] Menger, Carl, 1892. The barter theory has been refuted by modern research uncovering the Bronze Age Near Eastern institutional origins of money, which I discuss in chapters 1 and 3 of Temples of Enterprise (Hudson, 2024). My criticisms of this theory are in “Origins of Money and Interest: Palatial Credit, Not Barter” (Hudson, Michael, 2020).

^[2] See the papers collected in Wray, L. Randall, 2004.

^[3] Mauss, Marcel (1925), 2016; Laum, Bernard, 1924. Schurtz mentions spit-money in passing but finds trade in food relatively unimportant.

^[4] I discuss this in “From Sacred Enclave to Temple to City” (Hudson, Michael, 1999) and Chapter 10 of Temples of Enterprise (Hudson, Michael, 2024).

^[5] Schurtz cited as an example of how monetary authorities could substitute sign-money for metal-money the case of “Kublai Khan, the ruler of the Mongolian empire, [who] drove out metal-money with sign-money, specifically stamped pieces of paper, evidently following the Chinese example; Marco Polo’s accounts indicate that the endeavor must have temporarily succeeded only because of the tremendous power and authority of the ruler, with the result of a vast accumulation of gold and silver in the Khan’s residence.” But he made disparaging remarks about the French government’s paper money assignats and called John Law a “swindler,” dismissing government money creation.