I came across this paper by A. Mitchell Innes that was written in 1917 on Warren Mosler’s web site. It is a rather lengthy explanation of what money really is. That money per se’ is not the coinage or paper we pass around but rather a system of credits and debts representing goods and services given and owed. And that it predates coinage by thousands of years. He begins by stating the old economic meme that people initially used barter and then precious metal coins.
The fundamental theories on which the modern science of political economy is based are these:
That under primitive conditions men lived and live by barter;
That as life becomes more complex barter no longer suffices as a method of exchanging commodities, and by common consent one particular commodity is fixed on which is generally acceptable and which therefore, everyone will take in exchange for the things he produces or the services he renders and which each in turn can equally pass on to others in exchange for whatever he may want;
That this commodity thus becomes a “medium of exchange and measure of value.”
That a sale is the exchange of a commodity for this intermediate commodity which is called “money;”
That many different commodities have at various times and places served as this medium of exchange—cattle, iron, salt, shells, dried cod, tobacco, sugar, nails, etc.;
That gradually the metals, gold, silver, copper, and more especially the first two, came to be regarded as being by their inherent qualities more suitable for this purpose than any other commodities and these metals early became by common consent the only medium of exchange;
That a certain fixed weight of one of these metals of a known fineness became a standard of value, and to guarantee this weight and quality it became incumbent on governments to issue pieces of metal stamped with their peculiar sign, the forging of which was punishable with severe penalties;
That Emperors, Kings, Princes and their advisers, vied with each other in the middle ages in swindling the people by debasing their coins, so that those who thought that they were obtaining a certain weight of gold or silver for their produce were, in reality, getting less, and that this situation produced serious evils among which were a depreciation of the value of money and a consequent rise of prices in proportion as the coinage became more and more debased in quality or light in weight;
That to economize the use of the metals and to prevent their constant transport a machinery called “credit” has grown up in modern days, by means of which, instead of handing over a certain weight of metal at each transaction, a promise to do so is given, which under favorable circumstances has the same value as the metal itself. Credit is called a substitute for gold.
So universal is the belief in these theories among economists that they have grown to be considered almost as axiom which hardly require proof, and nothing is more noticeable in economic works than the scant historical evidence on which they rest, and the absence of critical examination of their worth.
And then goes on to give – in quite a bit of detail – historical proof that this in deed is not the case. That in the very earliest time a system of credit/debt was used and that coinage followed.
The earliest known coins of the western world are those of ancient Greece, the oldest of which, belonging to the settlements on the coast of Asia Minor, date from the sixth or seventh centuries B. C. Some are of gold, some of silver, others are of bronze, while the oldest of all are of an alloy of the gold and silver, known as electrum. So numerous are the variations in size and weight of these coins that hardly any two are alike, and none bear any indication of value. Many learned writers, Barclay Head, Lenormant, Vazquez Queipo, Babelon, have essayed to classify these c6ins so as to discover the standard of value of the different Greek States; but the system adopted by each is different; the weights given by them are merely the mean weight calculated from a number of coins, the weights of which more or less approximate to that mean; and there are many coins which cannot be made to fit into any of the systems, while the weights of the supposed fractional coins do not correspond to those of the units in the system to which they are held to belong.
We are here fortunately on solid historical ground. From the earliest days of which we have historical records, we are in the presence of a law of debt, and when we shall find, as we surely shall, records of ages still earlier than that of the great king Hamurabi, who compiled his code of the laws of Babylonia 2000 years B. C., we shall, I doubt not, still find traces of the same law. The sanctity of an obligation is, indeed, the foundation of all societies not only in all times, but at all stages of civilization; and the idea that to those whom, we are accustomed to call savages, credit is unknown and only barter is used, is without foundation. From the merchant of China to the Redskin of America; from the Arab of the desert to the Hottentot of South Africa or the Maori of New Zealand, debts and credits are equally familiar to all, and the breaking of the pledged word, or the refusal to carry put an obligation is held equally disgraceful.
It is here necessary to explain the primitive and the only true commercial or economic meaning of the word “credit.” It is simply the correlative of debt. What A owes to B is A’s debt to B and B’s credit on A. A is B’s debtor and B is A’s creditor. The words “credit” and “debt” express a legal relationship between two parties, and they express the same legal relationship seen from two opposite sides. A will speak of this relationship as a debt, while B will speak of it as a credit. As I shall have frequent occasion to use these two words, it is necessary that the reader should familiarize himself with this conception which, though simple enough to the banker or financial expert, is apt to be confusing to the ordinary reader, owing to the many derivative meanings which are with the word “credit.” Whether, therefore, in the following pages, the word credit or debt is used, the thing spoken of is precisely the same in both cases, the one or the other word being used according as the situation is being looked at from the point of view of the creditor or of the debtor.
The paper also shows how coinage was actually used as a menthod to tax the populace by the Kings and Aristocracy by manipulating their value.
From the time of Hugues Capet down to that of Louis XIV (1638) almost the entire coinage was of base metal containing for the most part less than one-half of silver, and for at least two centuries previous to the accession of Saint Louis) in A. D. 1226, there was probably not a coin of good silver in the whole kingdom.
We now come to the most characteristic feature of the finance or feudal France and the one which has apparently given rise to the unfounded accusations of historians regarding the debasement of the coinage. The coins were not marked with a face value, and were known by various names, such as Gros Toumois, Blanc A. la Couronne, Petit Parisis, etc. They were issued at arbitrary values, and when the king was in want of money, he “mua sa monnaie,” as the phrase was, that is to say, he decreed a reduction of the nominal value of the coins. This was a perfectly well recognized method of taxation acquiesced in by the people, who only complained when the process was repeated too often, just as they complained of any other system of taxation which the king abused. How this system of taxation worked will be explained later on. The important thing to bear in mind for the present is the fact—abundantly proved by modern researches—that the alterations in the value of the coins did not affect prices.
That the use of currency was primarily to benefit the Kings and Rulers and that the populace really did not have any need of coinage or currency. All they needed was to keep track of the debts and credits which people had been doing for thousands of years.
I am not going to go into the whole paper here as it is quite long and pretty detailed. But even in the early 20th century it was known that the primary purpose of coinage and currency was to the benefit of the government and not the people as a whole. That currency (or gold or silver) has no intrinsic value itself but only as a matter of settling debts. Neither is useful for anything else. And these days it is computerized, networked financial transactions – almost an anachronism. That most everyday transactions are simply acquiring credits accounted for in a bank or satisfying a debt the same way. As is explained in Mosler’s book, “Seven Deadly Frauds of Economic Policy“. Both very good reads.