Nature and Functions

Nature, Functions, and Development of Money

by Paul J. Dejillas

Professor of Anthropology

1. Over the millennia, all sorts of things have been used as money at different times in different places. Examples of these are (G. Davies, 1996:27): amber, beads, cowries, drums, eggs, feathers, gongs, hoes, jade kettles, leather, mats, nails, oxen, pigs, quartz, rice, salt, thimbles, vodka, umiacs, wampum, yarns, and zappozats (decorated axes).

2. Today, we are into another stage in the development of money. As the world goes into a more dynamic network economy more forms of money are emerging as medium of exchange: e-cash, new kinds of coupons, and smartcard-based stored value (Java, 1998:1). These forms of money are a result of today's rapidly increasing science and technology that is giving birth to more powerful means of communications, data processing, information, and technology.

3.An article in the Economist - Electronic Money: So Much for the Cashless Society - makes the observation that "the transformation of the Internet from a huge virtual community into a huge virtual economy may herald the age of electronic money---with it, headaches for traditional banks and regulators" (26 November 1994, 25-30, and also quoted by Davies, 1996). Eventually, the creation of money will no longer be a monopoly of the government, as various forms of electronic money and e-cash are now emerging inside the cyberspace.

4. Electronic banking is also spawning new forms and modes of payments offering a variety of competing currencies. But while electronic money and electronic banking are threatening government control over the creation and movements of money, they can also herald the democratization in the creation of money.

5. How shall we define money then in such a way that it encompasses anything or forms of value?

6. The general definition given by Davies can be acceptable. Davies (1996:28) defines money as "anything that is widely used for making payments and accounting for debts and credits." A more practical view defines money "as any financial instrument that is widely accepted as payment in a transaction on a same-day basis."

7. According to Ross (1998a:1), what makes a "commodity" or "paper," including "coins" money is "not what they are, but what they are used for." They can have value in them or they may not, like "credit" money or bank notes and bank deposits. Ross further explains that the value of money is "the value people attribute to what they want to exchange."

Functions of Money

1. The general functions of money are mostly macro-economic and abstract, a concern more of the economists than to us. These include liquid asset, framework of the market allocative system, a causative factor in the economy, and controller of the economy.

2. In micro-economics, the specific functions of money are as follows:

(a) Medium of exchange, where people accept money in trade for goods and services. Another specific function is as means of payment, money can be used to pay debts and settle obligations.

(b) Store of value, that is, money can be saved and used in the future. The value of a good or service can also be measured with money.

(c) Unit of account

(d) Common measure of value

(e) Standard for deferred payments.

3. But not everything used as money has all the functions listed above.

4. Furthermore, the functions of any particular form of money may change over time. As Glynn Davies points out (1996:28):

What is now the prime or main function in a particular community or country may not have been the first or original function in time, while what may well have been a secondary or derived function in one place may have been in some other region the original which gave rise to a related secondary function.

The Development of Money

1. There are several factors contributing to the development of money. One factor is economic, where money is mainly viewed as medium of exchange. To the extent that the disadvantages of barter provided an impetus for the development money that impetus is purely economic. But this is only the beginning of the story. There are deeper stories behind the use and origin of money.

(a) Archaeological, literary, and linguistic evidences of the ancient world demonstrate several other factors that contribute to the origin and earliest development of money. Hamilton (1994:03) argues that "economic activity in traditional societies was submerged in non-economic relations." In his preface, Davies likewise observes that "money originated very largely from non-economic causes" (1996:xvii). 

(c) Based on the findings of several anthropological and linguistics studies, it could be advanced that the greater bulk of the factors that contributed to the development of money is deeply social, cultural, and religious. Let me in brief present these findings.

2. Social Character of Money. Traditional and ancient societies emphasize the social character and setting in the use of money. Its origin, according to Davies, can be traced back from tribute, trade, blood-money and bride-money as well as from ceremonial rites and ostentatious ornamentation. In many ancient societies, there is a requirement for a means of payment for offenses committed by individuals and for legal obligation (tax or tribute) to the government. These social obligations and practices provide the impetus to the spread of money.

(a) In fact, there are laws requiring compensation for crimes of violence, or blood-money. Also, rulers levy taxes on or extract tribute from their subjects. The custom of paying the family of the bride in order to compensate for the loss of a daughter's services, or bride-money, has also been widespread.  Even, religious obligations also entail payment of tribute or sacrifices of some kind, like tithing and offerings of doves. Moreover, the potlatch ceremony, which is a form of competitive gift exchange prevalent among Native Americans, is a form of barter that had social and ceremonial functions. This social practice, according to Davies, is an extravagant ostentation, an attempt to outdo each other in the splendor of the exchanges, and above all, the obligations of reciprocity.

(b) Put into today's contemporary setting, Zelizer (1997), in her book, The Social Meaning of Money, shows that people continue to constantly create different kinds of money---gift certificates, savings accounts, food stamps, casino chips, etc.---incorporating funds into webs of friendship and family relations. In fact, people, says Zelizer, segregate, differentiate, label, decorate, and particularize money to meet their complex social needs.

(c) Indeed, money is a social convention. We accept it as payment because we expect others to accept it from us. We feel secure and confident if we have cash money because we can reuse it for future transactions.

3. Religious Dimension of Money. The use of money also evolves from deeply rooted religious beliefs. Cattle are used for offerings. This religious use of cattle for sacrifices precedes their adoption as medium of exchange. For sacrifice, quality (without spot or blemish) is important. The commodity itself is held for their high value, that to some it is even worshipped. We learn from history how the people of Israel minted a golden cow and worship it as their god when Moses was far out in the desert. Later, the practice of tithing emerges, in addition to the offerings of doves or first-born sons. In this respect, Ernest Becker (1975:104) tells us the following about money (as quoted by Hamilton, 1994:104):

Money is … sacred, … a magical object on which we rely for our entrance into immortality … Gold became the new immortality symbol … the cosmic powers could be the property of everyman …

(a) Becker espouses this view after observing that the primitive man created an economic surplus so that he would have something to give to the gods. In other cultures, appeasing the gods is conducted by way of rituals and all of their life's activities are liturgical.

(b)  According to Weatherford (1997:3), the first major banking institution emerges not from the merchant community but from an old and seemingly unlikely order of religious knights known as Templars. Founded in Jerusalem around 1118 by the Crusaders, the Military Order of the Knights of the Temple of Solomon dedicate their lives to serving the church and, specifically, to the task of liberating the Holy Land from the Infidels. The Templars later were transformed into businessmen who ran the world's greatest international banking corporation, which they operated for nearly two hundred years.

(c)  The great variety of coinages originally in use in the Hellenic world indicates that money changing is the earliest and most common form of Greek banking. Usually the money-changers would carry out their business in or around temples setting up their tables, which usually carry a series of lines and squares for assisting calculations (Davies, 1996:85-56).

(d)  The first coin mints are set up in the temples of the gods. Forgery is considered sacrilege because the coins embody the powers of the gods and only the priests could handle such powers … (Becker, 1959:79; Hamilton, 1994:105). Brown in fact notes that today's monetary economy is a "metamorphosis of the sacred" (1959:248).

(e)  The close association between money, banking, and temples is best known to us from the episode of Christ's overturning the tables in the Temple of Jerusalem (Matthew 21:12). In those times, temples and the marketplace (or the agora) are the public life's hub, where monetary transactions take place. Weatherford (1997) even accounts for the spread of Christianity in places where money transactions and public discussions take place, i.e., marketplaces. Since these were centers for discussion, it was easy to disseminate the teachings of Jesus.

(f)   Today, we speak of "a universal church of money with its own curia" (Connor, n.d.).

(g)  Because of the religious origin in the use money, modern authors are now beginning to realize the importance of viewing money from this perspective. James Buchan (1997), by seeking to explore the meanings of money, compares the dichotomous teachings of Jesus with those of Muslim prophets, who viewed the religious and socioeconomic spheres as an indivisible whole.

4. Cultural Dimension of Money. Equally important is that the origin and use of money are deeply rooted in the people's culture. This can be shown from the study of primitive forms of money used in many cultures, which Davies presented in his monumental work on the history of money. In West Africa, manilas are ornamental metallic objects worn as jewelry and used as money as recently as 1949. Their social value (ostentatious form of ornamentation) is the prime reason for their acceptability as money.

(a)  In North America, wampums are used also as money as an extension of its desirability for ornamentation. In Fiji, gifts of whale's teeth are a significant feature of certain ceremonies, used as bride-money, with a symbolic meaning similar to that of the engagement ring in Western society. Whales teeth possess religious significance, or "tambua" (from which the word "taboo" comes).

(b)  Cattle are described as mankind's "first working capital asset" (Davies, 1996:41). Davies shows linguistic evidence to show how ancient and widespread the association between cattle and money is. Capital, chattels, and cattle have a common root. Pecuniary comes from the Latin word for cattle pecus. The Kirghiz of the Russian steppes, until into the present 20th century, use horses as their main monetary unit with sheep as a subsidiary unit. Small change is given in lambskins.

(c)  Precious metals and shells are also forms of primitive money. Cowrie shells, obtained in the Indian Ocean, are still used in Nigeria within living memory. Cowrie is used in ancient China and adopted in their language for "money." Among the earliest countable metallic money or "coins" are "cowries" made of bronze or copper in China.

(d)  In addition, the Chinese also produce "coins" in the form of other objects that had long been accepted as money, e.g., spades, hoes, and knives. These Chinese tool currencies are in general use at about the same time as the earliest European coins.

(e)  Since these quasi-coins are all easy to counterfeit, true coinage develops in Asia Minor as a result of stamping small round pieces of precious metals as guarantee of their purity. Then, it spreads to Ionia, Greece, and Persia.

(f) Money, whether commodity or paper, is used as a mode for payment. The word "pay" is derived from the Latin word "placare" meaning to pacify, appease, please, or make peace with. It evolves out of rituals, exchanges, ceremonies, and festivities. The etymology of the word salary comes from the salt which Roman soldiers were paid. The words "spend" and "expenditure" come from the Latin word expendere meaning "to weigh or measure." The word "money" comes from the name of the Roman Goddess, Juno Moneta, in whose temple in the Capitol Hill in Rome, money is coined.

(g)  The form of money used in circulation then reflects or brings with it a distinct orientation and culture. The findings on the study of the various forms of money leads Weatherford (1997:1) to stretch this argument further by maintaining that "money constitutes the focal point of modern world culture." He believes that "money defines relationships among people, not just between customer and merchant in the marketplace or employer and laborer in the workplace … (but) between parent and child, among friends, between politicians and constituents, among neighbors, and between clergy and parishioners."

(h)  The influence of money on the relationships among the members of the family and the people can be tremendous. Money forces not only economic exchanges, but also human behavior and relationships to quantitative measures. Money impels individuals to assign number to their relationship with people, and to measure and reduce their differences in numerical terms and order. Money quantifies and quantification becomes the standard of relationships. A monetary economy tends to weigh, measure, and calculate human behavior and relationships in terms of numbers, statistics, and money. This could be the reason behind the economists' view of man as homo economicus.

(i)   Speaking of its impact on social life, Zelizer (1997) opines that money is a single, impersonal instrument that impoverishes social life by reducing social relations to cold, hard cash. Brown also observes the same thing when he said that money reflects and promotes a style of thinking which is abstract, impersonal, objective, and quantitative … (as quoted by Clive, 1994:110).

5. Political Character of Money. I would like to add another dimension in the development of money and this concerns the political aspect. Money influences the balance of power not only between nations, but also between classes of society. Several authors have already examined the politics of money in history.

(a) Armand van Dormael, in his book The Power of Money, introduces us to the players, the abuses, and the behind-the-scenes machinations for control of the global economy. He delineates how interbank lending in the 1960s led to what we now term global banking. R. Davies (1999:1), in his "Democracy and Government Control of the Money Supply," observes that "revolutions in the form of money inevitably have political consequences." In particular, he notes that "the development of modern banking and the concomitant erosion of the government's control and monopoly of money creation played a significant role in the development of democracy."

(b) I refer to this as the "democratizing role of money," to mean not only diffusion of power in money creation, but also in empowering the individual and family who are benefited in the creation and circulation of money. Milton Friedman alludes to this political dimension of money in his powerful, popular, and influential book in economics, Free to Choose. There is a close connection between money and liberty. Dostoevsky says "money is coined liberty." Money gives us greater freedom to choose one good over the other, to travel to places and go wherever we want, to pursue our education abroad, to choose one work or employment over the other. In other words, money frees man from the drudgery and slavery of life.

(c) But I am referring also, and even more importantly, to the big transnational corporations who because of their growing monetary and financial strength have acquired the power to control and dominate not only the economic, social, and cultural lives of the people, but also the running of their governments. These corporations are not only dictating what goods to produce and consume, but also what laws to pass, how unions ought to behave in the corporate world, what courses to offer in educational institutions, what goods to advertise, in the end what lifestyle to adopt and culture to promote. The political impact of money in turn reinforces the accumulation, acquisition, and utilization of money in the hands of a few. And this is how the powerful get more empowered and the weak get weaker and impoverished.

Reflections

What is the relevance of all these historical excursus? Let us pause and reflect.

1.    First, money is anything that can be used as medium of exchange. In this sense, it is an economic instrument. It can be broadly categorized into "paper or coin money" and "commodity money." Thus, fixation on "paper" or "coin" money limits the optimal use and value of money, eventually underestimating the broader role and influence that money plays in society. Real monetary or financial transactions must not only focus on the circulation and exchange of "paper" money, but also on real goods and services.

Furthermore, money did not originate solely as "medium of exchange," and this is my second point. The use of money evolved out of deeply rooted social customs, traditions, culture, and religious beliefs and practices. In fact, we have seen that the only economic impetus that contributed to its origin is the clumsiness and inconvenience of barter. If we view money as an academic issue, then, its treatment has to go beyond the realms of economics. Money as mediator and facilitator influences a broader spectrum of exchange and relationships that include non-economic issues.