The history of economy
Posted by Fredsvenn on March 23, 2015
Detailed account of raw materials and workdays for a basketry workshop.
Clay, ca. 2040 BC (Ur III)
Among many other things,
the Code of Hammurabi recorded interest-bearing loans.
Throughout the Paleolithic Era the primary socio-economic unit was the band (small kin group). Communication between bands occurred for the purposes of trading tools, foods, skins and other commodities, and for the exchange of mates.
Economic resources were constrained by typical ecosystem factors: density and replacement rates of edible flora and fauna, competition from other consumers (organisms) and climate.
Throughout the Upper Paleolithic, humans both dispersed and adapted to a greater variety of environments, and also developed their technologies and behaviors to increase productivity in existing environments taking the global population to between 1 and 15 million.
It has been estimated that throughout prehistory, the world average GDP per capita was about $158 per annum (adjusted to 2013 dollars), and did not rise much until the Industrial Revolution. This age was from 500,000- 10,000 BC.
This period began with the end of the last glacial period over 10,000 years ago involving the gradual domestication of plants and animals and the formation of settled communities at various times and places.
Within each tribe the activity of individuals was differentiated to specific activities, and the characteristic of some of these activities were limited by the resources naturally present and available from within each tribes territory, creating specializations of skill.
By the “… division of labour and evolution of new crafts … (Cameron p.25)” tribal units became naturally isolated through time from the over-all developments in skill and technique present within their neighbouring environment. To utilize artifacts made by tribes specializing in areas of production not present to other tribes, exchange and trade became necessary.
The first object or physical thing specifically used in a way similar enough to the modern definition of money, i.e. in exchange, was (probably) cattle. Trading in red ochre is attested in Swaziland, shell jewellery in the form of strung beads also dates back to this period, and had the basic attributes needed of commodity money.
To organize production and to distribute goods and services among their populations, before market economies existed, people relied on tradition, top-down command, or community cooperation.
In Politics Book 1:9 (c.350 B.C.) the Greek philosopher Aristotle contemplated on the nature of money. He considered that every object has two uses, the first being the original purpose for which the object was designed and the second possibility is to conceive of the object as an item to sell or barter.
The assignment of monetary value to an otherwise insignificant object such as a coin or promissory note arises as people and their trading associate evolve a psychological capacity to place trust in each other and in external authority within barter exchange.
With barter, an individual possessing any surplus of value, such as a measure of grain or a quantity of livestock could directly exchange that for something perceived to have similar or greater value or utility, such as a clay pot or a tool.
The capacity to carry out barter transactions is limited in that it depends on a coincidence of wants. The seller of food grain has to find the buyer who wants to buy grain and who also could offer in return something the seller wants to buy.
There is no agreed standard measure into which both seller and buyer could exchange commodities according to their relative value of all the various goods and services offered by other potential barter partners.
David Kinley considers the theory of Aristotle to be flawed because the philosopher probably lacked sufficient understanding of the ways and practices of primitive communities, and so may have formed his opinion from personal experience and conjecture.
In his book Debt: The First 5000 Years, anthropologist David Graeber argues against the suggestion that money was invented to replace barter. The problem with this version of history, he suggests, is the lack of any supporting evidence. His research indicates that “gift economies” were common, at least at the beginnings of the first agrarian societies, when humans used elaborate credit systems.
Graeber proposes that money as a unit of account was invented the moment when the unquantifiable obligation “I owe you one” transformed into the quantifiable notion of “I owe you one unit of something”. In this view, money emerged first as credit and only later acquired the functions of a medium of exchange and a store of value.
In a gift economy, valuable goods and services are regularly given without any explicit agreement for immediate or future rewards (i.e. there is no formal quid pro quo). Ideally, simultaneous or recurring giving serves to circulate and redistribute valuables within the community.
There are various social theories concerning gift economies. Some consider the gifts to be a form of reciprocal altruism. Another interpretation is that implicit “I owe you” debt and social status are awarded in return for the “gifts”.
Consider for example, the sharing of food in some hunter-gatherer societies, where food-sharing is a safeguard against the failure of any individual’s daily foraging. This custom may reflect altruism, it may be a form of informal insurance, or may bring with it social status or other benefits.
Bartering has several problems most notably that it requires a “coincidence of wants”. For example, if a wheat farmer needs what a fruit farmer produces, a direct swap is impossible as seasonal fruit would spoil before the grain harvest.
A solution is to trade fruit for wheat indirectly through a third, “intermediate”, commodity: the fruit is exchanged for the intermediate commodity when the fruit ripens. If this intermediate commodity doesn’t perish and is reliably in demand throughout the year (e.g. copper, gold, or wine) then it can be exchanged for wheat after the harvest.
The function of the intermediate commodity as a store-of-value can be standardized into a widespread commodity money, reducing the coincidence of wants problem. By overcoming the limitations of simple barter a commodity-money makes the market in all other commodities more liquid.
Many cultures around the world eventually developed the use of commodity-money. Ancient China, Africa, and India used cowry shells. Trade in Japan’s feudal system was based on the koku – a unit of rice.
The shekel was an ancient unit of weight and currency. The first usage of the term came from Mesopotamia circa 3000 BC and referred to a specific weight of barley, which related other values in a metric such as silver, bronze, copper etc. A barley/shekel was originally both a unit of currency and a unit of weight.
Wherever trade is common, barter systems usually lead quite rapidly to several key goods being imbued with monetary properties. In the early British colony of New South Wales, rum emerged quite soon after settlement as the most monetary of goods.
When a nation is without a currency it commonly adopts a foreign currency. In prisons where conventional money is prohibited, it is quite common for cigarettes to take on a monetary quality. Contrary to popular belief, precious metals have rarely been used outside of large societies. Gold, in particular, is sufficiently scarce that it has only been used as a currency for a few relatively brief periods in history.
Anatolian obsidian as a raw material for stone-age tools was distributed as early as 12,000 B.C., with organized trade occurring in the 9th millennium.(Cauvin;Chataigner 1998). In Sardinia, one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean, trade in this was replaced in the 3rd millennium by trade in copper and silver.
As early as 9000 BC both grain and cattle were used as money or as barter (Davies) (the first grain remains found, considered to be evidence of pre-agricultural practice date to 17,000 BC).
In the earliest instances of trade with money, the things with the greatest utility and reliability in terms of re-use and re-trading of these things (their marketability), determined the nature of the object or thing chosen to exchange.
So as in agricultural societies things needed for efficient and comfortable employment of energies for the production of cereals and the like were the most easy to transfer to monetary significance for direct exchange.
As more of the basic conditions of the human existence were met to the satisfaction of human needs, so the division of labor increased to create new activities for the use of time to solve more advanced concerns.
As people’s needs became more refined so indirect exchange became more likely as the physical separation of skilled laborers (suppliers) from their prospective clients (demand) required the use of a medium common to all communities to facilitate a wider market.
Aristotle’s opinion of the creation of money as a new thing in society is: When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use.
The worship of Moneta is recorded by Livy with the temple built in the time of Rome 413 (123); a temple consecrated to the same god was built in the earlier part of the fourth century (perhaps the same temple). The temple contained the mint of Rome for a period of four centuries.
The earliest places of storage were thought to be money-boxes containments made similar to the construction of a bee-hive, as of the Mycenae tombs of 1550–1500 BC.
An early type of money was cattle, which were used as such from between 9000 to 6000 BCE onwards. Both the animal and the manure produced were valuable; animals are recorded as being used as payment as in Roman law where fines were paid in oxen and sheep and within the Iliad and Odyssey, attesting to a value c.850–800 BCE.
It has long been assumed that metals, where available, were favored for use as proto-money over such commodities as cattle, cowry shells, or salt, because metals are at once durable, portable, and easily divisible.
The use of gold as proto-money has been traced back to the fourth millennium BC when the Egyptians used gold bars of a set weight as a medium of exchange, as had been done earlier in Mesopotamia with silver bars.
The first mention of the use of money within the Bible is within the book “Genesis” in reference to criteria of the circumcision of a bought slave. Later, the Cave of Machpelah is purchased (with silver) by Abraham, during a period dated as being the beginning of the twentieth century B.C.E., some-time recent to 1900 BC. The currency was also in use amongst the Philistine people of the same time-period.
The shekel was an ancient unit used in Mesopotamia around 3000 BC to define both a specific weight of barley and equivalent amounts of materials such as silver, bronze and copper. The use of a single unit to define both mass and currency was a similar concept to the British pound, which was originally defined as a one-pound mass of silver.
A description of how trade proceeded includes for sales the dividing (clipping) of an amount from a weight of something corresponding to the perceived value of the purchase. From this one might understand the development of how coinage was imagined from the small metallic clippings (of silver) resulting from trade exchanges.
The word used in Thucydides writings History for money is chremata, translated in some contexts as “goods” or “property”, although with a wider ranging possible applicable usage, having a definite meaning “valuable things”.
According to Herodotus, and most modern scholars, the Lydians were the first people to introduce the use of gold and silver coin. The talent in use during the periods of Grecian history both before and during the time of the life of Homer weighed between 8.42 and 8.75 grammes.
It is thought that these first stamped coins were minted around 650-600 BC. A stater coin was made in the stater (trite) denomination. To complement the stater, fractions were made: the trite (third), the hekte (sixth), and so forth in lower denominations.
Later during the Achaemenid Empire (c. 550–330 BC), also called the First Persian Empire or Medo-Persian Empire, an empire based in Western Asia in Iran, founded in the 6th century BCE by Cyrus the Great, further evidence is found of banking practices in the Mesopotamia region.
The first economist (at least from within opinion generated by the evidence of extant writings) is considered to be Hesiod, by the fact of his having written on the fundamental subject of the scarcity of resources, in Works and Days.
Greek and Roman thinkers made various economic observations, especially Aristotle and Xenophon. Many other Greek writings show understanding of sophisticated economic concepts. For instance, a form of Gresham’s Law is presented in Aristophanes’ Frogs. Bryson of Heraclea was a neo-platonic who is cited as having heavily influenced early Muslim economic scholarship.
The history of banking
The history of banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia.
Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money. Archaeology from this period in ancient China and India also shows evidence of money lending activity.
Banking, in the modern sense of the word, can be traced to medieval and early Renaissance Italy, to the rich cities in the north such as Florence, Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe.
Perhaps the most famous Italian bank was the Medici bank, established by Giovanni Medici in 1397. The oldest bank still in existence is Monte dei Paschi di Siena, headquartered in Siena, Italy, which has been operating continuously since 1472.
The development of banking spread from northern Italy throughout the Holy Roman Empire, and in the 15th and 16th century to northern Europe. This was followed by a number of important innovations that took place in Amsterdam during the Dutch Republic in the 17th century, and in London in the 18th century.
During the 20th century, developments in telecommunications and computing caused major changes to banks’ operations and let banks dramatically increase in size and geographic spread. The financial crisis of 2007–2008 caused many bank failures, including some of the world’s largest banks, and provoked much debate about bank regulation.
More stable economic relations were brought about with a change in socio-economic conditions from a reliance on hunting and gathering of foods to instead agricultural practice, during periods beginning sometime after 12,000 BC, at approximately 10,000 years ago in the Fertile Crescent, in northern China about 9,500 years ago, about 5,500 years ago in Mexico and approximately 4,500 in the eastern parts of the United States.
The history of banking depends on the history of money—and on grain-money and food cattle-money used from at least 9000 BC, two of the earliest things understood as available to barter (Davies), Anatolian obsidian as a raw material for stone-age tools being distributed as early as 12,500 B.C., with organized trade occurring in the 9th millennium.(Cauvin;Chataigner 1989).
By the 5th millennium BC. the settlements of Sumer, such as Eridu, were formed around a central temple. In the fifth millennium, people began to build and live in the civilization of cities, providing a structure for the construction of institutions and establishments. Tell Brak and Uruk were two early urban settlements.
Wealth was usually deposited in temples (thêsaurus “treasure houses”) and treasuries. The earliest banks were used exclusively by rulers to fund the more important and larger festivals and for building expenses.
Banking as an archaic activity (or quasi-banking), is thought to have begun at various times; during a period as early as the latter part of the 4th millennia, to within the 4th to 3rd millennia.
Prior to the reign of Sargon I of Akkad (2335-2280) the occurrence of trade was limited to the internal boundaries of each city-state of Babylon and the temple located at the centre of economic activity there-in; trade at the time for citizens external to the city was forbidden.
In Sardinia one of the four main sites for sourcing the material deposits of obsidian within the Mediterranean, trade of this were replaced in the 3rd millennia by trade in copper and silver. The society adapted from relating from one fixed material as valued deposits available for trade to another.
Objects used for record keeping, “bulla” and tokens, have been recovered from within Near East excavations, dated to a period beginning 8000 B.C.E and ending 1500 B.C.E., as records of the counting of agricultural produce.
Commencing the late fourth millennia mnemonic symbols were in use by members of temples and palaces to serve to record stocks of produce. Types of records accounting for trade exchanges of payments were being made firstly about 3200.
A very early writing on clay tablet called the Code of Hammurabi, the best preserved ancient law code, created ca. 1760 BC (middle chronology) in ancient Babylon, refers to the regulation of a banking activity of sorts within the civilization (Armstrong), during the era, dating to ca. 1700 BCE, banking was well enough developed to justify laws governing banking operations.
The Code of Hammurabi was enacted by the sixth Babylonian king, Hammurabi. Earlier collections of laws include the code of Ur-Nammu, king of Ur (ca. 2050 BC), the Code of Eshnunna (ca. 1930 BC) and the code of Lipit-Ishtar of Isin (ca. 1870 BC).
These law codes formalized the role of money in civil society. They set amounts of interest on debt… fines for ‘wrongdoing’… and compensation in money for various infractions of formalized law.
Economic organization in the earliest civilizations of the fertile crescent was driven by the need to efficiently grow crops in river basins. The Euphrates and Nile valleys were homes to earliest examples of codified measurements written in base 60 and Egyptian fractions.
Egyptian keepers of royal granaries, and absentee Egyptian landowners reported in the Heqanakht papyri. Historians of this period note that the major tool of accounting for agrarian societies, the scales used to measure grain inventory, reflected dual religious and ethical symbolic meanings.
The Erlenmeyer tablets give a picture of Sumerian production in the Euphrates Valley around 2200-2100 BC, and show an understanding of the relationship between grain and labor inputs (valued in “female labor days”) and outputs and an emphasis on efficiency. Egyptians measured work output in man-days.
The development of sophisticated economic administration continued in the Euphrates and Nile valleys during the Babylonian Empire and Egyptian Empires when trading units spread through the Near East within monetary systems.
Egyptian fraction and base 60 monetary units were extended in use and diversity to Greek, early Islamic culture and medieval cultures. By 1202, Fibonacci’s use of zero and Vedic-Islamic numerals motivated Europeans to apply zero as an exponent, birthing modern decimals 350 years later.
The city-states of Sumer developed a trade and market economy based originally on the commodity money of the Shekel which was a certain weight measure of barley, while the Babylonians and their city-state neighbors later developed the earliest system of economics using a metric of various commodities that was fixed in a legal code.
The early law codes from Sumer could be considered the first (written) economic formula, and had many attributes still in use in the current price system today: codified amounts of money for business deals (interest rates), fines in money for ‘wrongdoing’, inheritance rules, laws concerning how private property is to be taxed or divided, etc. For a summary of the laws, see Babylonian law.
Earlier collections of (written) laws, just prior to Hammurabi, that could also be considered rules and regulations as to economic law for their cities include the codex of Ur-Nammu, king of Ur (c. 2050 BC), the Codex of Eshnunna (c. 1930 BC) and the codex of Lipit-Ishtar of Isin (c. 1870 BC).
The Mesopotamian civilization developed a large scale economy based on commodity money. The Babylonians and their neighboring city states later developed the earliest system of economics as we think of it today, in terms of rules on debt, legal contracts and law codes relating to business practices and private property. Money was not only an emergence, it was a necessity.
In Babylonia of 2000, people depositing gold were required to pay amounts as much as one sixtieth of the total deposited. Both the palaces and temple are known to have provided lending and issuing from the wealth they held—the palaces to a lesser extent.
Such loans typically involved issuing seed-grain, with re-payment from the harvest. These basic social agreements were documented in clay tablets, with an agreement on interest accrual. The habit of depositing and storing of wealth in temples continued at least until 209 BC., as evidenced by Antioch having ransacked or pillaged the temple of Aine in Ecbatana (Media) of gold and silver.
Cuneiform records of the house of Egibi of Babylonia describe the families financial activities dated as having occurred sometime after 1000 BC and ending sometime during the reign of Darius I, show according to one source a “lending house” (Silver 2002),a family engaging in “professional banking…” (Dandamaev et al 2004) and economic activities similar to a degree to modern deposit banking, although another states the families activities better described as entrepreneuship rather than banking (Wunsch 2007).
The Ubaid period (ca. 6500 to 3800 BC) is a prehistoric period of Mesopotamia. The name derives from Tell al-Ubaid where the earliest large excavation of Ubaid period material was conducted initially by Henry Hall and later by Leonard Woolley.
In South Mesopotamia the period is the earliest known period on the alluvium although it is likely earlier periods exist obscured under the alluvium. In the south it has a very long duration between about 6500 and 3800 BC when it is replaced by the Uruk period.
In North Mesopotamia the period runs only between about 5300 and 4300 BC. It is preceded by the Halaf period and the Halaf-Ubaid Transitional period and succeeded by the Late Chalcolithic period.
Ubaid culture originated in the south, but still has clear connections to earlier cultures in the region of middle Iraq, Samarra culture to the north. This phase saw the establishment of the first permanent settlement south of the 5 inch rainfall isohyet. These people pioneered the growing of grains in the extreme conditions of aridity, thanks to the high water tables of Southern Iraq.
The appearance of the Ubaid folk has sometimes been linked to the so-called Sumerian problem, related to the origins of Sumerian civilisation. Whatever the ethnic origins of this group this culture saw for the first time a clear tripartite social division between intensive subsistence peasant farmers, with crops and animals coming from the north, tent-dwelling nomadic pastoralists dependent upon their herds, and hunter-fisher folk of the Arabian littoral, living in reed huts.
The Ubaid period as a whole, based upon the analysis of grave goods, was one of increasingly polarised social stratification and decreasing egalitarianism. Bogucki describes this as a phase of “Trans-egalitarian” competitive households, in which some fall behind as a result of downward social mobility.
Morton Fried and Elman Service have hypothesised that Ubaid culture saw the rise of an elite class of hereditary chieftains, perhaps heads of kin groups linked in some way to the administration of the temple shrines and their granaries, responsible for mediating intra-group conflict and maintaining social order.
It would seem that various collective methods, perhaps instances of what Thorkild Jacobsen called primitive democracy, in which disputes were previously resolved through a council of one’s peers, were no longer sufficient for the needs of the local community.
Stein and Özbal describe the Near East oikumene that resulted from Ubaid expansion, contrasting it to the colonial expansionism of the later Uruk period. “A contextual analysis comparing different regions shows that the Ubaid expansion took place largely through the peaceful spread of an ideology, leading to the formation of numerous new indigenous identities that appropriated and transformed superficial elements of Ubaid material culture into locally distinct expressions”.
The archaeological record shows that Arabian Bifacial/Ubaid period came to an abrupt end in eastern Arabia and the Oman peninsula at 3800 BC, just after the phase of lake lowering and onset of dune reactivation.
At this time, increased aridity led to an end in semi-desert nomadism, and there is no evidence of human presence in the area for approximately 1000 years, the so-called “Dark Millennium”. This might be due to the 5.9 kiloyear event at the end of the Older Peron.