Commodity and fiat money


Pounds sterling
Fiat money, is not quite the same as commodity money, but commodity money can be fiat money?

In my last two blogs I went into the beginnings, and what might be termed the invention of commodity and fiat money. As I pointed out, when the first exchanges would be made, there was probably no concept of the term money, certainly there was no word for it.

this is commodity money

Those first transactions probably came about through convenience of application. The new farmer had a surplus of some good, and exchanged it for another good he required, basically this is commodity money. The point being, that there was a medium used by all, in this case the commodity of food, but also an item that can be adaptable in quantity, so the ox is not viable. The upshot is that one person can receive in exchange, for work or goods an item that can be saved or used to exchange with someone else, and although many call this commodity money, it can also take the more abstract idea of fiat money. It is not beyond the possibility of reason, that arrow heads may have been used, the problem here is we have no way of knowing.

Let’s face it before writing, there is no way of distinguishing archaeological finds used for hunting, deposited in a living area, with those used for exchange of goods? All the evidence is, there were no bartering societies as such, so the concept of commodity and fiat money appears to be grasped, in one way or another.

It is clear that very early on, other more neutral items than grain started to be used for these transactions. The main problem we have is, not knowing what the order of events were, that led to the concept of commodity and fiat money, coming into being. Was there a term for buying or selling, before there was the neutral token? We do know that it wasn’t just metal in the form of copper, silver or gold that was used as commodity and fiat money, famously shells were, along with other novel items.
Also the people on the South Pacific Island of Yap used large stone rings as their commodity and fiat money, that was usually not moved. A blog on the subject of Yap currency.

adoption of abstract numbers

In the Sumerian kingdom where the first written records of commodity and fiat money have been found, it can be seen that there was a gradual adoption of abstract numbers. The first written records were on clay tablets. The Sumerians also kept records of transactions and ownership of goods, for traders who were leaving one City to travel to another, with clay pouches that were sealed so that the contents wouldn’t be tampered with.

tally man
Tally men in Kent hopfields, courtesy Arcturus publishing

The very first counting system was probably tallying, which doesn’t require any counting by numbers. One merely keeps track by having some stones or marks on a stick. With stones you put one in a pile for each of the animals you wish to count, then when you ‘tally’ them you just take a stone away for each animal. If you are left with a stone then you have an animal missing. A tally stick is simple and straight forward, you simply take two equal lengths of wood tied together. Then you make a notch or line across the width to represent each item. So if a herdsman has ten sheep, then there will be ten lines marked across it. Then you untie the sticks, this way two people can keep track of the items. No actual counting is required, you just need to tally the marks with the items.

independent way of keeping track

At some point people started identifying numbers, two, three items and so on. When the Sumerians started using the clay pouches, they worked like this. You were travelling from one city to another, and leaving so many items with a trusted person. The thing is, both sides wanted an independent way of keeping track. This is similar to the pile of tally stones, you put one tiny pebble in the clay pouch for each item, and then sealed it up, and when you returned you just broke open the clay and checked the pebbles against your items.

The reason for going into number history is, that money accounting in Sumer advanced at a similar pace. It wasn’t long before the clay pouches started to have the counting numbers, also symbols for different items, so writing was involved. But the big breakthrough appears to be the idea of abstract numbers and quantities.

The archaeologists found that in less than thirty years through the daily use of these clay pouches, abstraction of quantities, numbers and money becomes a concept. Money as a measure came about through the use of the measure of grain, the shekel. This soon transferred to the grain being equal to so much gold, silver, bronze or goats, oxen and the like. Once there was a measure of metal, this could be held without using any resources.

You didn’t need to feed it

While the exchange was in perishable form, like grain or goats, the medium of exchange used as money would deteriorate. As soon as metal, especially silver, gold, bronze was used, it didn’t deteriorate, you could have piece of silver sat around minding its own business, and it needed no looking after. This was counted as commodity money, but is actually fiat money. You didn’t need to store it away from rats, or in special conditions, like food. You didn’t need to feed it, like animals.

Assyrian Charioteer
This is an Assyrian charioteer, Assyria, Sumer, Babylon were all a similar area, just different times.

The other point about the Sumerians (they may have been the Babylonians by this time) is that because of these clay pouches, they soon became adept at thinking of things as abstract ideas. So number no longer had to tally, they could be divided, multiplied and more to the point, not exist. So why go to the hassle of counting so many of these tiny pebbles, when you were going to mark the outside with a number, in fact a complete invoice. One might as well just mark the outside, with items and the numbers they represented, and forget about tiny pebbles. After all they were just a collection of pebbles. On the outside of the pouch, some of those pebbles represented goats others an amphora of grain. The pebbles all looked alike, it was the inscription marked in the clay pouch that told you what they were.

This then passes from commodity money into fiat money, at this point the currency is unmarked metal that was weighed to find its value. Again, this concept is fairly abstract, but these transactions were happening on a daily basis, and we all have our specialities in work where we know something just by looking. The ancients were no different.

Author: John Ashtone

John Ashtone, aspiring author, on Politics, Economics and History, with a few dashes of humour thrown in for good measure. I currently live in Wakefield, just south of my Home City of Leeds, both are in West Yorkshire, England.

2 thoughts on “Commodity and fiat money”

  1. Nice telling of the story. Thanks for sharing this.

    I’m looking at the run up of Bitcoin right now and wondering just how long we will hold onto the illusion of currencies. Blockchain allows a better tracking of transactions and we have eliminated the need for a sovereign or resource to back the system of exchange.

    Money is portable and represents value for things that don’t fit in a wallet. Haven’t we eliminated all but the love of money for money’s sake?

    1. Hi Warren, thanks for taking the time to post, Bitcoin will have its place. But the problem is just the one you have mentioned, blockchain, and tracking of transactions. I have no interest in holding any of my money as a file for transaction tracking. It is a bit like gold, and may well develop in that way, held for reasons of security, and where you need to exchange against any other currency. But I rarely do, most of my transactions are purely sterling?

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