The History of Currency: Differences Between Orthodox and Heterodox Views on Money's Origins

"How was money created?" This question has sparked debates among economic academics, and until recently, a solid answer remained elusive. Orthodox and heterodox views attempt to explain the origins of currency and the beginning of the modern financial system. In simple terms, orthodox economic schools argue that money was created as a medium of exchange for different goods, and thus, the history of money predates the invention of writing. However, heterodox schools criticize these views, arguing that the medium of exchange has its origins in the institutional relations between humans and nature, and that the economy is a cultural component in itself. It should be noted that this article is based on the information presented in L. Randall Wray's article, "Introduction to an Alternative History of Money."

The Orthodox History of Money

According to the orthodox history, at some point in human history, it was discovered that there was greater efficiency in exchanging objects if there was a unique object used in all transactions, with the value of goods being determined by this "money." This explanation also extends to the development of goldsmiths' receipts for commodities, as gold was never physically withdrawn, and governments began to control the issuance of money while allowing private banks to hold a share of that money. This history is widely spread as the accepted history of money. However, it fails to explain the institutionalization of private property, which is one of the critiques raised by heterodox schools.

Heterodox Critiques of the History of Money

Heterodox critiques begin with the premise that history is a linear descendant of the past, and they criticize the "hypothetical and logical" nature of the orthodox explanation of money's origins. They argue that if a society does not discover an object for exchange (such as paper money or coins), then the society does not discover money, even though the exchange of objects exists in any cultural society. Heterodox schools employ an analytical approach that values the cultural significance of peoples and suggests that universal and formalist analysis should be avoided, as it fails to provide a correct analytical view. Economic processes in society are primarily defined by local culture.

Conclusion: Private Property and Money

As mentioned earlier, the heterodox thesis argues that exchanges alone cannot give rise to market exchanges, as claimed by orthodox views, because they do not lead to the establishment of private property institutions, which are prerequisites for the development of money. The article argues that the development of private property, on an individual scale, assumes full responsibility for one's material needs, leading to the social division of labor. This theory can be observed in small-scale rural landlords who primarily produce agricultural goods for the local region, often within a family setting.