2. The Origins of Money

CHAPTER TWO

THE ORIGINS OF MONEY

And the gold of that land [Havilah] is good. Bdellium and the onyx stone are there. (Genesis 2:12)

In the second chapter of the Book of Genesis, God, speaking through Moses, saw fit to mention this aspect of the land of Havilah. It was a place where valuable minerals of value were present. One of these minerals was gold.

We cannot legitimately build a case for a gold standard from this verse. We could as easily build a case for the onyx standard, or a bdellium standard (whatever it was: possibly a white mineral). What we can argue is that Moses knew that people would recognize the importance of the land of Havilah because they would recognize the value of these minerals. One of these minerals was gold.

Why do I stress gold? Historically, gold has served men as the longest-lived form of money on record. Silver, too, has been a popular money metal, but gold is historically king of the money metals. There is no doubt that Moses expected people to recognize the value of gold. We read his words 3,500 years later, and we recognize the importance of the land of Havilah. If we could locate it on a map, there would be as wild a gold rush today as there would have been in Moses’s day. No one thinks to himself, “I wonder what gold was?”

Money: Past, Present, and Future

You may remember from the previous chapter that money appears in a society when individuals begin to recognize that a particular commodity is becoming widely accepted in exchange. People want to be able to buy what they want tomorrow or next week or next year. They aren’t really sure which economic goods will be in demand then, so they seek out one good which will probably be in heavy demand. They can buy units of this good now, put them away, and then buy what other goods or services they want later on. In short, money is the most marketable commodity. It is marketable because people expect it to be valuable in the future.

This isn’t too difficult to understand. But it raises a problem. The unit we call money is valuable today. We have to sell goods or services in order to buy it. In other words, money has already established itself as the common unit of economic calculation. My labor is worth one-hundredth of a unit per hour. A brain surgeon’s hour of labor is worth a unit. A new car is worth twenty units. Money has exchange value today. If it didn’t, it wouldn’t be money. We have all learned about money’s value in our daily affairs. We are familiar with it.

How do we know what it’s worth today? We know what it was worth yesterday. We have a historical record of its purchasing power. If we didn’t know anything about money’s value in the past, we would not accept it as a unit of account today. If it has no history, why should anyone expect it to have a future? But if people don’t expect it to have a future, it can’t serve as money.

Here is the key question: How did money originate? If it has to have a history in order to have present value, how did it come into existence in the first place? Are we confronting a chicken-and-egg problem?

This was the intellectual problem faced by one of the greatest economists of all time, Ludwig von Mises, an Austrian scholar. In his book, The Theory of Money and Credit (1912), he offered a solution to this important question. Money, he argued, came into existence because in earlier times, it was valued for other properties. He thought that gold was probably one of the earliest forms of money—not a unique observation, certainly. Before it functioned as money, it must have served other purposes. Perhaps it was used as jewelry. Possibly it was used as ornamentation. We know that many religions have used gold as part of their ornaments. It is shining, lovely to look at, and widely recognized.

Gold in the Bible

Anyone familiar with the Bible would recognize the accuracy of Mises’s theory. Abraham’s servant gave Rebekah gifts in order to lure her into marriage with Isaac. These gifts included jewelry made of silver and gold (Genesis 24:53). When the Israelites fled Egypt, they were told by God to collect “spoils” as repayment for their long enslavement: jewels of gold and silver (Exodus 3:22).

God warned the Israelites not to make gods of gold or silver to worship (Exodus 20:23), indicating that this was a common form of idolatry in pagan lands. But his tabernacle was to be filled with gold ornaments (Exodus 25, 26, 28, 37, 39). So was the temple (I Kings 6, 7:48–51, 10). As a possible (though not conclusive) argument, we can compare the shining brilliance of gold with the glory cloud of God. It is not surprising that men adopted gold in religious worship, and then in ornamentation and jewelry.

Gold has the five characteristics of money: divisibility, durability, transportability, recognizability, and scarcity (in relation to weight and volume). It is uniquely divisible. It can be cut with an iron or steel knife in its pure form. It can be hammered incredibly fine. It is uniquely durable; only an acid, aqua regia, destroys it. It is easily transported and easily hidden. It is instantly recognizable. As for its scarcity, throughout history it has been exceedingly scarce in relation to other metals. Men have searched for it for as long as we have records.

We can understand how it was that gold came into common use as a form of money. People recognized its beauty, and its close connection with the gods. Men who are made in God’s image understandably desire to collect gold for themselves. If God wants gold in his places of worship, why shouldn’t people want gold to adorn themselves?

God described His love of Israel by describing figuratively what He had done for His people. Like a bride, Israel had been given ornaments, bracelets, chains around her neck, a jewel in her forehead and earrings. “Thus you were adorned with gold and silver, and your clothing was of fine linen, silk, and embroidered cloth. You ate pastry of fine flour, honey, and oil. You were exceedingly beautiful, and succeeded to royalty” (Ezekiel 16:13).

The Most Marketable Commodity

Gold has been the most marketable commodity for thousands of years. A seller of gold has not had to stand in the streets desperately begging people to consider buying his gold. If anything, he has needed bodyguards to keep people from stealing his gold.

Understand from the beginning that the State was not necessarily a part of the development of gold and silver as money. There is nothing in the Bible that indicates that gold and silver became money metals because Abraham, Moses, David, or any other political leader announced one afternoon: “From now on, gold is money!” The State only affirmed what the market had created. It collected taxes in gold and silver. It thereby acknowledged the value which market forces had imputed to gold and silver. But the State didn’t create money.

Notice also that if Mises’s argument is correct concerning the development of money, the original money units must have been commodity-based. If the unit of account (for example, gold) must have come into popular use because of its past value, at some point we must conclude that it was valuable as a commodity for some benefit that it brought besides serving as the most marketable commodity: money. Money had to start somewhere. It had to originate sometime. Before it was money, it must have been a commodity.

In short, money was not originally a piece of paper with a politician’s picture on it.

Money and Taxes

There is no doubt that the State can strongly influence the continuation of one or more metals as an acceptable unit of money. All the State has to do is to announce: “From now on, everyone will be required to pay his taxes in a particular unit of account.” After all, taxes are an expense. There is no escape from death and taxes. (But, fortunately, the death rate doesn’t go up every time Congress meets.) The State has power. If it says that people must pay their taxes in a particular unit of account, there will be strong incentives for people to store up this form of money.

Still, the State doesn’t have an absolutely free hand in selecting this unit of account. If it imposes on people a legal obligation to pay what the people cannot actually gain access to, there will be no revenues. In the Middle Ages, for example, there were no gold coins in circulation in Western Europe until the mid-1200s. There was no way that a king or emperor could compel people to pay gold in the year 1100 or 900 A.D., because his subjects couldn’t get any gold. They had nothing valued by the East (Byzantium, the Eastern Roman Empire) that could be exchanged for gold.

The Bible is clear: taxes to the State were paid both “in kind” (a tithe of actual agricultural production: 1 Samuel 8:14–15) and “in cash,” meaning silver. A head tax was required when the nation was numbered immediately before a military conflict (Exodus 30:12–14)—the only time that it was lawful for the State to conduct a census, as King David later learned (2 Samuel 24:1–17). Solomon collected 666 talents of gold (1 Kings 10:14), presumably from taxes, gifts from other nations, and from the sale of any agricultural produce he collected. (We aren’t told where he got this huge quantity of gold.)

Tribute in silver and gold was paid to a militarily victorious State. There were incidents when Israel had to pay such tribute (2 Kings 15:19; 23:33) and also when foreign nations paid tribute to Israel (2 Chronicles 27:5).

The State also hired military forces with gold (II Chronicles 25:6). Thus, taxes came into the treasury in the form of silver and gold, but then expenditures by the State came back out in the same form. There is no doubt that this process made silver and gold the familiar forms of money in the ancient Near East. There are plenty of examples in ancient records from other Near East societies that they asked for tribute in gold and silver. It was the common currency of the ancient world.

What must be fully understood is that there were no coins in this era. Coins didn’t appear in the world until about 600 years before Christ. This would have been about the time that Judah fell to the invading Babylonians, quite late in Hebrew history. So, there was no system of State money with the monarch’s picture or other symbols on the metal bars, or if there was, no examples of such markings have survived. It is reasonably certain that the State did not manufacture the metallic bars in ancient Israel.

This means that the State did not originate money. A theoretical model (“blueprint”) for the origin of money doesn’t need to include any reference to the State. The State’s decision about what to tax clearly had an influence on the kind of money people accepted, but that decision was tied to the existing kind of money that was already being used by the people. In short, “If it ain’t being used, you can’t tax it.”

This is very important to understand from the beginning. There are economists who rely heavily on the idea that the State was the source of money originally, and that whatever the State designates as money is money. This explanation is biblically incorrect, historically incorrect, and logically incorrect. Money is the product of individuals who make decisions to buy and sell. If individuals refuse to use what the State designates as money, it isn’t money. If the State refuses to use what the market has designated as money, it can’t collect taxes or buy people’s services and goods. The State can influence the value of a particular kind of money, or the popularity of that money, for the State is a big buyer and seller of goods and services. But the State cannot autonomously create money and impose it on the market if market participants don’t want to use it.

No Committee Needed

It is difficult for many people to understand that the free market operates rationally, even though there is no committee of expert planners or politicians to tell the market what to produce. People find it difficult to believe that God’s world is a world in which individual people, responsible before God and their fellow men, go about their daily affairs, making decisions, planning for the future, and focusing their attention on their own personal and family needs, and out of all this hustling and bustling, pushing and shoving, comes the most productive economy in the history of man.

Christians can believe that the world is orderly because it was created by God. The Bible teaches that God is sovereign, but men are fully responsible for their actions. As they interact with one another, they learn things. They find out what they have to offer other people in order to buy what they want. They also find out what other people are willing and able to offer them for the things that they presently own. Market competition is a form of exchanging information. Free market activity can be described as a process of discovery.

We don’t need a committee to tell us what we need to do to satisfy other buyers. In fact, a committee cannot possibly know all the things that we know as individuals, taken as a group. What we learn we can put to profitable use later on.

This spread of knowledge is made much easier by the existence of an agreed-upon currency unit. I don’t mean that we all sit down and agree to use it. I mean that people learn that other people will usually accept a particular currency in exchange for goods and services. As this learning process continues, certain currency units become familiar. It’s always easier for us to deal with each other if “the rules of the game” are known in advance. The currency unit is the most important single source of information concerning the state of the actual conditions of supply and demand.

Who decides which currency unit is acceptable? Originally, the people who entered into agreements with each other about buying and selling. They learned what was good for them, and the rest of us have continued to learn. A currency unit becomes familiar. We get into the habit of calculating the price of everything in terms of this familiar unit. It saves us time and effort when we can mentally estimate: “Let’s see, I can buy three of these, but only two of those, or five of yours, or eight of hers. Which do I want more?”

Do you want a committee to set prices? Do you think a committee can sit down and decide what everything should cost in relation to everything else? Will a committee be an intelligent, reliable economic representative of all of us? Most of us know the answer most of the time: no.

Why then would a committee do such a terrific job in deciding how much money to create or destroy? If the committee can’t set prices, why should it be allowed to control the supply of money in which all prices are quoted? Why should we trust a committee in money questions when the committee didn’t invent money, and when the committee can’t know enough to tell all of us what we really need or should really pay?

There’s another question. How do we know that the committee will act only in behalf of us citizens? How can we be sure that the committee won’t start fooling around with the money supply in order to feather its own economic nest? Monopolies are always dangerous. Why should some government committee have a legal monopoly over money? No committee invented money. No committee showed the rest of us how to use money. Why should any committee possess absolute control over money now that the rest of us have decided on what kind of money we want?

Conclusion

Money is a very important social institution. It was no more invented by a government than language was. True, the government can influence money in the same way that it can influence language, but it is not the source of money’s origins. It cannot impose its monetary decisions on the public unless people decide that the government is doing the right thing. If people change their minds later on, they can change the government or voluntarily, transaction by transaction, change over to a new form of money.

Historically, people have voluntarily selected gold as the common medium of exchange. Silver has also been widely acceptable, all over the world. No government legislated this; people simply came to use these two metals in their economic transactions.

Why do people select a particular form of money? Because they learn from experience that other people usually accept this monetary unit in exchange. We can make better predictions and plans about the future when we discover that other people generally have accepted a certain currency unit in the past. What people habitually do they tend to keep on doing. They have a right to change their minds, but it’s easier not to, at least most of the time. Thus, money allows us to gain access in the future to the goods and services we think we will want, or even to new ones that we haven’t thought about yet.

Thus, historically it was the free market which determined what was acceptable to people for their economic activities. It happened to be gold and silver, but other commodities have sometimes been used widely. The point is, people voluntarily selected what they wanted to use as money. They did not need a committee to make this decision for them.

Summary

The principles of the origins of money are therefore these:

1. The Bible doesn’t say that people should be required to use gold and silver as money.

2. The Bible does indicate that people in Biblical times came to use gold and silver as money.

3. Money will be selected because people expect others to use it in the future.

4. To establish what money is worth today, we need information about what it was worth yesterday.

5. Tracing this principle backward, we conclude that the money commodity must have been used for something else originally.

6. Gold and silver were used as jewelry and ornaments.

7. The beauty of gold and silver probably had something to do with their popularity.

8. The symbolic shining of gold may have been connected in people’s minds with God’s glory.

9. The metallurgical properties of gold make it highly suitable as money (the five characteristics).

10. Money is the most marketable commodity.

11. The State can influence the continued use of a monetary unit by taxing and spending in terms of that unit.

12. Some economists argue that money is what the State says it is.

13. The Biblical evidence points to the conclusion that money is what the market says it is.

14. A committee didn’t originate money.

15. A committee isn’t needed to maintain money.

16. A monopoly over money is a dangerous grant of power by the State.