In the Beginning Was the Ledger

The usual history of money runs from barter to coins, from coins to banknotes, and eventually to bank accounts and bank credit. Money begins as a physical thing and gradually becomes an entry in a set of books. The oldest surviving human records concerning money and payments make the story rather less tidy. There are two basic ways of paying someone: you can give him something which carries its value with it, or you can alter a record of what one person owns or owes. This distinction between bearer and ledger money runs through the history of payments.

The oddity is that the written story begins with the ledger, ostensibly the more modern and sophisticated form of payment and record-keeping. Coins don't feature in the oldest accounts of money because there weren't any. Coinage is traditionally associated with Lydia and neighbouring Ionia in western Anatolia, where the first electrum coins appear in the second half of the seventh century BC, whereas the Mesopotamian records begin around 3200 BC, roughly two and a half thousand years earlier.

Those earliest records are accounts rather than descriptions of an economy in which blobs of silver routinely pass from buyer to seller. Grain is measured, rations are calculated, goods enter or leave a store and a scribe records what has happened. Some of the Uruk tablets, from the late fourth millennium BC, are complicated enough to distinguish different grain products and calculate the grain needed to make them. Writing, at least in the form in which it first survives in Mesopotamia, was already being used to keep the books.

There is an important survivorship problem, and it cuts directly against the claim that the existence of these records proves that temples or states invented money. Large institutions had stores to administer and workers to feed, so they employed scribes and produced clay tablets in enormous quantities, whereas private exchanges which nobody bothered to record disappeared with the people who made them. We cannot infer from the survival of institutional ledgers that ledger payment historically preceded payment by commodity. What we can say is that by the time human beings begin leaving written evidence of payments, the ledger already exists and is capable of recording fairly complicated economic relationships.

Why does anyone exchange anything? Carl Menger's answer in 1871 begins with value belonging to the person doing the valuing rather than residing in the object itself. Exchange becomes possible because two people can put the same goods in opposite order. A brewer with more beer than he wants may prefer one of a herdsman's animals to another barrel in his store, while the herdsman, with animals to spare, may prefer the beer. If they exchange, each has given up something he values less for something he values more. There is no contradiction to explain and no objective quantity of value which has somehow increased during the trade. The two men simply wanted different things, and the exchange leaves each of them better able to satisfy his own wants. Menger built his theory of exchange on this difference in individual valuations.

The difficulty is finding the right person at the right time. Our brewer may want an animal, but the herdsman who has it may already have enough beer, or may want beer next month rather than today. One answer is to find something the herdsman will accept because he knows other people are likely to take it from him. Menger called this quality saleability: some goods are much easier to pass on than others, and a sufficiently saleable commodity can be accepted by somebody who has no intention of consuming it himself. The other answer is to leave the exchange unfinished. The herdsman hands over the animal today and records that the brewer owes him something which can be delivered later. The first solution puts an intermediate commodity between the two men; the second puts time between them and requires somebody to remember the debt. This is where money and credit begin to meet.

By the Third Dynasty of Ur, conventionally dated to roughly 2112–2004 BC, the evidence is enormous. Around 120,000 tablets and fragments from the period are known, although the precise total changes as collections are catalogued, and the surviving material is dominated by administration. Private documents survive as well, and among them are loans, which bring us much closer to the mechanics of an actual payment.

The books were kept by the great households. At Uruk most of the early tablets come from the temple complex of the goddess Inanna. Under the Third Dynasty of Ur the largest archives come from provincial centres such as Umma and Girsu, and from a royal depot that handled livestock. The writing was done by scribes, a trained profession that often ran in families. The official in charge of a temple's accounts is usually called a priest, but his work was closer to a steward's. The method was simple. Each delivery or loan was pressed into a small clay tablet, with the word šu ba-ti, "received", the name of the person responsible, often his seal, and sometimes the names of witnesses. Scribes then gathered these receipts into longer accounts. The most elaborate charged a foreman with the work his gang owed, credited him with what it produced and struck a balance at the year's end. A shortfall was carried into the next year, and could be pursued even after the foreman died. It was not double-entry bookkeeping, but the record, not the goods, said who owed what.

A man takes barley, the quantity is written on a tablet and he is expected to return it after the harvest; another receives silver and promises repayment later. If the barley goes out in the spring and is not due back until harvest, somebody needs a durable record of how much was advanced and who is responsible for returning it.

Interest was normal. The rates commonly encountered in Ur III lending were 33⅓ per cent on barley and 20 per cent on silver. Ur III loan documents attest both rates, and several centuries later the Old Babylonian law collections codify them: the Laws of Eshnunna §18A prescribe the same one-third rate for barley and one-fifth for silver, while the Laws of Hammurabi preserve the same customary rates. Hammurabi §111 also deals with beer supplied on credit by a tavern-keeper, with payment in barley due at harvest.

The difference between the barley and silver rates is revealing. Barley before harvest and barley after harvest are not economically quite the same good. A borrower wants grain when his own stocks are running down and the new crop is not yet available; the creditor gets his grain back after harvest, when barley is more plentiful. Garfinkle argues that the one-third rate can be understood partly against this seasonal movement in the value of barley relative to silver. A man who gives up scarce grain now in return for more abundant grain later has lost something even before the possibility of default enters the calculation.

Present goods and future goods are not interchangeable merely because their physical description is the same, and credit begins when somebody gives up command of something today for a claim on something later. The clay tablets show the problem in literal form: the barley has gone, while what remains with the creditor is an obligation.

Silver introduces another feature because a shekel was not yet a coin. It was a weight. To owe somebody ten shekels of silver was to owe him a specified quantity of metal rather than ten identical pieces stamped by a mint, yet silver could also be used to state what was owed when the eventual payment was going to be made in something else.

Eric Cripps examined twenty-five Ur III texts in which silver was lent with repayment in barley. One loan of four and a half shekels, made around the end of the ploughing season, was to be repaid at the beginning of harvest with barley at 360 sila to the shekel. Another loan of fifteen shekels required thirty gur of barley after harvest, equivalent to 600 sila for each shekel. Across these harvest loans, apart from an exceptional text which Cripps sets aside, the ratios run from 360 to 600 sila of barley for each shekel of silver.

The thing used to measure a debt and the thing used to pay it were therefore not necessarily the same. If I borrowed silver and you subsequently accepted the agreed amount of barley, the barley discharged my silver debt. Silver had provided the measure of what I owed, while barley was what I eventually gave you to settle it.

Suppose an institution gives a man grain in the spring and expects it back after harvest. During the intervening months there is nothing physical in the creditor's possession corresponding to the missing barley; what it has instead is a claim against the man who received it, supported by the tablet and by the people and rules which give that tablet force. When the debtor finally brings the barley back, the delivery must also extinguish the recorded claim against him.

The surviving Mesopotamian material consists of receipts, loan documents and administrative accounts made for different purposes rather than anything resembling a modern bank ledger, but they perform the work required of a system based upon recorded claims. They identify what has been received or remains due and connect it with the people responsible for it. Clay is doing work that the barley itself cannot do.

Handing over silver in immediate payment works differently. The metal moves from my possession into yours and, once you have accepted its weight and quality, you have the asset and need know nothing about me tomorrow. There is no need for a scribe to maintain an account recording that I used to own the silver and now you do, because possession does that work. The ledger has to remember more: it must know that I owed you something before payment and that I owe you less afterwards, until eventually I owe you nothing at all.

The distinction survives even where the two forms blur. Bitcoin records ownership on a public ledger, yet whoever holds the private key controls what that ledger will allow, which gives it something of the character of bearer possession. Lose the key and the ledger still shows the balance, but nobody can spend it, much like a hoard buried and never recovered.

Default exposed the weakness of the arrangement because a tablet could preserve a claim but could not make a debtor able to pay it. Some contracts imposed heavier repayment after a missed date. Cripps discusses Ur III loans in which default could double the value of repayment when made in barley and notes that imprisonment was available for non-payment, citing NRVN 1, 49. Once payment is postponed, the creditor has given up an asset in return for a promise which may not be honoured.

When debts accumulated badly enough, Mesopotamian rulers sometimes proclaimed what are now commonly called clean slates or debt jubilees. The clearest evidence comes from the Old Babylonian period, when mīšarum and andurārum edicts could remit specified debts and release people who had fallen into debt dependence; these were not indiscriminate cancellations of every commercial obligation. The later biblical Sabbatical and Jubilee laws provide an obvious parallel, although the precise historical relationship between them belongs to a different argument.

The tablets have caused a great deal of trouble for the traditional story of how money began. David Graeber made much of them in Debt: The First 5,000 Years, and Michael Hudson has worked extensively on the same Mesopotamian material, because the familiar sequence in which people begin with barter, discover money because barter is inconvenient and only afterwards invent credit fits badly with a written record in which accounting appears so early. Graeber's objection to treating the hypothetical barter economy as though it were an observed historical stage is a strong one.

Menger's account still has something important to say about the position acquired by silver. Credit alone does not explain why one commodity becomes widely acceptable or starts to measure obligations which may eventually be settled in something else, while Menger's argument about differences in saleability provides a possible explanation for silver's monetary role without requiring a king to have invented it.

The two accounts are less opposed than they first appear if we stop insisting that money must be either an object or a debt. Mesopotamia already knew both ways of paying: a man could settle by handing over an accepted commodity, or he could receive something now and leave behind a recorded obligation which would be settled later, while silver could serve as the measure connecting the two.

Long before the first coin was struck, the ledger was already firmly established.