Human history is rich and we have found artifacts of our ancestors that are thousands of years old. Flutes, made from bird bone and mommoth ivory, were found at the Geissenkloesterle Cave in Germany’s Swabian Jura, and researchers used carbon dating to estimate that the flutes are between 42,000 and 43,000 years old (Higham et al., 2012). Stone tools that are over 1 million years old have also been found spread across Africa, Asia, and Europe, with the oldest found in at archaeological site Kokiselei 4 in Kenya and are dated to about 1.76 million years ago (Lepre et al, 2011).
However, surprisingly the oldest coins that have been found dates to around 600 BC and have their origin in Lydia in Ancient Greek. This begs the question: what currency was used before the introduction of coinage?
Barter is most likely the first form of trading that took place before any financial technology was invented. For example, tribes met and exchanged goods. The problem with coincidence of wants is however, that in order for trade to happen each party need to have demand for something that the other party possesses. In smaller communities with trust, barter work better since credit can be built on trust and reputation. When communities grow, trust in no longer default and barter becomes increasingly inefficient.
A ledger is a documentation of transaction to keep track of who owns what. The oldest known written ledger is clay tablets to keep track of commodities from Mesopotamia that are over 5,000 years old (Alden, 2023). In fact, these tablets were written in Sumerian, which is the oldest known type of writing. These tablets showed pictures of different commodities with quantities represented by dots.
Surprisingly, the known ledgers found are only 5,000 years old, which does not seem very impressive since we have artifacts that are thousands and even millions years old. Nevertheless, before the written ledgers there were likely oral ledgers or other less formal ways to keep track of ownership and debt. In smaller tribes before cities and villages, we can imagine that it was not as necessary to keep a exact records since it was obvious anyways. When people started building larger societies trust became an issue and ledgers became necessary.
Proto-money denotes commodities universally accepted for trade in nascent societies, encompassing items like shells and rings that were readily available or could be easily produced in significant quantities. These monies have been used throughout history and the change from one system to another has followed when technology has made them obsolete. There are numerous examples of pre-industrial monetary systems collapsing because new technology makes the extraction process more easy and the commodity money becomes abundant.
Divisible, portable, durable, fungible, verifiable, and scare. Some also say that it should have utility.
Alden (2023) highlights that across different periods in history, a wide array of items including stones, beads, feathers, shells, salt, furs, fabrics, sugar, coconuts, livestock, coffee, silver, and gold have functioned as money. Each of these items exhibits varying degrees of effectiveness based on the key attributes of money.
A measure that has showed promise for modelling scarcity as a monetary characteristic is the “stock-to-flow” relationship of commodity money. The stock-to-flow ratio, dividing a commodity’s total supply by its annual production, measures scarcity. High ratios indicate limited production relative to existing supply, suggesting a commodity’s potential as a durable store of value, important for assessing commodity monies like gold. A high stock-to-flow ratio is good. This means that even very scarce commodities, like platinum, can have a low score due to the supply being low as it is consumed by the industry.
Shells is one of the earliest known forms of money-like assets (Alden, 2023). The shells were polished into jewelry and had some properties that is advantageous for trade and savings technology: small, scarce, and do not spoil. Shells served as a way for early humans to increase cooperation and efficiency (Szabo, 2002). The development of shells as money occurred contemporaneously in different parts of the world.
In North America, on the Pacific coast, tribes collected a shell called dentalium, which is the shell from the Scaphopoda also called “tusk shell”. These shells served the purpose of money, and with their natural tube-like hollow, they were collected on strings (Alden, 2023). These shells were used in jewelry and decoration. Interestingly, similar shells from the dentalium genus (there are several species), have been found in South Asia. For example, at the archaeological site Mehrgarh, situated in modern Pakistan, shells have been found that dates back around 7,000-5,500 BCE.
In parts of Asia and Africa corwie shells have been used as money, most notably the sea snail Monetaria moneta, the “money cowrie”. Cowrie refers to a group of sea snails from the Cypraeidae family. At South Africa’s Blombos Cave, small shells with holes in them have been found, that have likely been used as beads, and that dates to approximately 75,000 years ago (Alden, 2023).
The cowrie money has influenced language and culture. The Classical Chinese character for money constitutes a drawing of a cowrie. The modern “cedi” fiat currency of Ghana is inspired from cowrie, as the word cedi is the Akan (a major language in Ghana) word for cowrie shell. The term porcelain comes from an old Italian word that refers to the cowrie shell, porcellana, since they share a similar appearance.
The trend, in which ancients words for money are still used today, continues through out history. For example, the denomination denarius in the Roman Republic and later the Roman Empire has inspired many modern words for money: dinero (Spanish), diner, (currency of Andorra), dinheiro (Portuguese), and denaro (Italian).
Alden (2023) writes that tribes spent a lot of labor on producing proto-moneies, e.g., making shell beads and that this can seem strange to an outsider of that culture. Indeed, in this culture it was reasonable to spend time on making shell beads. It was a savings technology, to be able to convert labor into capital. This begs the questions: is this philosophically similar to proof-of-work?
I don’t think there is a straightforward answer to this question. In some sense, the shell beads were in demand in these old tribes, similarly, one could state that bitcoin is in demand in the modern society. On the other hand, the shell beads were beautiful and therefore had some form of intrinsic value. However, the inflation rate of bitcoin is fixed.
Of all commodities, gold has the best characteristics when it comes to being money. Its only flaw as commodity money, is perhaps that it is not divisible enough. Even a very small amount of gold is still too valuable for small transactions. Even though silver has the same divisibility as gold, it is less scarce, meaning that silver is less valuable and can be used for smaller transactions.
Higham et al., 2012, Τesting models for the beginnings of the Aurignacian and the advent of figurative art and music: The radiocarbon chronology of Geißenklösterle, Journal of Human Evolution.
Lepre et al., 2011, An earlier origin for the Acheulian, Nature.
Lyn, Alden, 2023, Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better, Timestamp Press.
Carl, Menger, 1892, On the Origin of Money, The Economic Journal.
Szabo, Nick, 2002, Shelling Out: The Origins of Money.