When did we start using money?

There are two big ideas of how we started using money. One: money started as a solution to problems with barter between people who had to trade. Two: money was created by governments to settle debts. Who’s right, and who cares?

Take the barter idea first. A long time ago, the story goes, people would swap goods for other goods (chickens for pigs, or blankets for pots) at a generally agreed upon rate (say ten chickens for a pig, or two blankets for a large pot). But because people couldn’t always find someone else to swap exactly what they needed, people would come up with a convenient thing that was rare, durable and easy to standardize—like beads, shells or metal coins—and prices for pigs, chickens, blankets and pots would be translated into a given number of this special thing.

Economists like the barter story, but some anthropologists see it differently. They say the earliest historical evidence of something similar to what we call money emerged around 5000 years ago in Mesopotamia (modern-day Iraq). The bureaucrats running the royal palace needed a unit of account to measure wages, calculate taxes or fines, and settle debts between traders and landowners. Money took the form of standardized weights of silver, whose value was determined not by the value of the metal itself, but by a government decree—not unlike the banknotes we use today.

These two versions of the story of money’s origins matter, because they imply different understandings of what money is and how the economy should be managed.  Can people manage things like trade on their own, or do we need the government to do really basic things like making money? In the barter version of events, money emerged spontaneously from transactions between individuals, without a need for government intervention. In the Mesopotamian example, money was developed by a public institution to help people settle their debts to each other.