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METHODICAL_INSTRUCTIONS_ON_writing

SETTING THE PREMISES

Some hints of Paleoanthropology - As currently accepted by Paleoanthropologists, our species, the Homo Sapiens, originated in Africa about 160.000 years ago and started to migrate “Out of Africa” about sixty thousand years ago, eventually colonizing all continents except for Antarctica and in the process displacing other Homo species (Science Daily, May, 2007). About ten thousand years BCE (before common era), the end of the last Glacial Era coincided with the end of the Paleolithic and found human beings living in bands scantily sprawled all over the world. Those bands, probably organized in clans (no more than the extended family), practiced hunting and gathering in order to survive. Some males, females and their offspring composed those clans, but it was already an evolution in comparison with the apelike bands, centered in an Alfa male, committed to expel from the group or kill any young grown-up male; which was the Homo genus prevailing kind of social group for millions of years2.

At the beginning, the individuals inside the bands performed the same activities, with no function specialization among them. As time went by, the labor specialization benefits were perceived and the individuals began to organize their groups in order to implement more and more labor specialization. As stated by Mises (Mises, 2007, page 160):

“The factor that brought about primitive society and daily works toward its progressive

intensification is human action that is animated by the insight into the higher productivity of labor achieved under the division of labor”.

Some became hunters (the males), others became gatherers (the women and children) and others became the repository of the accumulated knowledge of the group (the very few surviving seniors at a time when life expectancy, on average, was lower than thirty years). Indicia of a certain division of labor at the time of the Upper Paleolithic (from 30.000 to 10.000 BCE) were found among the Cro-Magnon to attest to this (Burns, 1975, Vol.I, page 12).

Coerced as it may have been, the division of labor increased in social importance with the growing gains of productivity derived from agriculture and the labor specialization itself, since it is a self- generating and self-improving phenomenon.

From the bands of hunters we can skip few thousand years going to the beginning of the Neolithic, the introduction of agriculture and the first pre-urban societies about 5.000 BCE in Europe3, 7.000 BCE in Egypt and probably earlier than that in the Middle East (Burns, 1975, Vol. I, page 15). The people were then living in small villages, surviving mainly on the domesticated animals and plants. At that time, they were probably organized in tribes, those tribes were composed by the existing clans amalgamated and each tribe numbered maybe hundreds of individuals; and the labor specialization was a fact dictated by custom and,it is reasonable to assume, enforced by brute force in most places.

The individuals in those societies were entitled to the product of others basically by customary rules and a barter system. The Witch Doctors probably received their maintenance from the group because the other members of the group were customarily obliged to pay them. The Artisans, who specialized in the production of weaponry, probably resorted to barter to acquire food; and the women most likely performed the provision of shelter and clothes also in customary form, regardless of the level of coercion involved4.



The introduction of a unit of account – Even at the most primitive stages of society, human exchanges require some sort of commensuration. Even for bartering, criteria of proportionality must be generated, since barter is already a complex form of human interaction under the division of labor. As stated by Mises (Mises, 2007, page 229):

“Monetary calculation is the guiding star of action under the social system of division of labor. It is the compass of the man embarking upon production”.

What makes, at a given place and time, two oranges for an apple and, at other times, two apples for an orange a fair (voluntarily accepted) deal? Many other human interactions require a commonly accepted standard of value. You need to compare incommensurables in order to pay a corvée, tithes, taxes, gift exchanges, and etcetera. And the logical necessity for a unit of account derives from there.

It seems reasonable to presume, however, that that necessity was fulfilled by the introduction of some

medium of exchange and not by the creation of some abstract unit of account. As explained by Mises (Mises, 2007, page 229):

“The system of economic calculation in monetary terms is conditioned by certain social institutions. It can operate only in an institutional setting of the division of labor and private ownership of the means of production in which goods and services of all orders are bought and sold against a generally used medium of exchange, i.e., money”.

It seems acceptable to suppose that, for millennia, all those proportionalities among different goods, services and obligations in the primitive societies were established quite arbitrarily, with only vague proportionality. That was so because in the absence of a unit of account, rational calculation was not possible and there are no known references in history to abstract units of account before recent times. So, for the purposes of this paper, although it is conceded that the necessity for a unit of account is different than the necessity for a medium of exchange, since that necessity was only satisfied by the introduction of some medium of exchange (being it tallies, bills of exchange, or any other merchandize with monetary characteristics), in dealing with the introduction of the latter in society, this paper also deals with the introduction of the former5.

The introduction of media of exchange - At this point of our schematic timeline, the conditions for the introduction of money in human society had arisen, but it took several thousand years more of experimentation and evolution to a medium of exchange take the form of coined rare metals.

In those pre-urban tribes, each individual or group of individuals started to specialize in the production of some desirable good in order to barter with the others. Those tribesmen must have had great difficulty finding counterparts for their barters. For example, a wheat producer willing to exchange his production for cattle had to find a cattle grower wanting wheat; they needed to match their reciprocal necessities otherwise no barter would occur.

Aside from the daily exchanges inside the tribes, we can imagine the occasional meetings with people of other tribes; we can imagine that if no evident martial advantage had been present in favor of one group, they would prefer to practice commerce to war or, at least one can assume, only the descendants of those who more consistently adopted that behavior prospered. To engage in commerce with foreigners (tribe “B”) who presumably were not interested in the goods produced by local people (tribe “A”), a third merchandize could be used as means of exchange.

For example, suppose that both tribes “A” (farmers) and “B” (farmers and ranchers) needed salt, but only tribe “A” would have access to tribe “C” dwelling on the sea shore and salt producers. So, tribe “A” in contact with tribe “C” on the beach could exchange some of their farm products for salt. And on their turn they would be able to acquire ranch goods from tribe “B” using not their own products but salt in their barter.

That salt performed the function of “medium of exchange”. In our example, salt became a suitable commodity to perform that role due to the following attributes: It is divisible in small amounts; it is easily attested or tasted if you wish; and it maintains its properties for a long time. The main drawbacks to the use of salt as a medium of exchange are its small intrinsic value (you need to carry a load of salt to have a reasonable value) and the fact that it is perishable.

With time and the introduction of metallurgy, the precious metals or any metal for that matter were identified by the people as ideal media of exchange. Metals were then used as proxy to the barters, fulfilling the role of salt in our example as medium of exchange, not in the coined form of later but by their weight. And all the costs of scaling and assessing the metals’ quantity and purity involved in a transaction were tradeoffs assumed by the participants in that transaction.

We were then at the beginning of civilization, the Neolithic faded out, the Bronze Age started about 5.500 BCE and the Iron Age started about 5.300 BCE. The establishment of civitas, cities, was contemporary with the invention of writing, of metallurgy and the use of metals in bullion as medium of exchange. Living in cities, the tribes became dissolved in the proto-states of those times. By then human societies numbered thousands of individuals and the labor specialization was already assumed as a given feature of society at that time. New classes of individuals such as warriors, scribes, priests, artisans, peasants arose at those times and human societies became increasingly complex.

The problem of social coordination - The social coordination of individual effort became an extremely relevant issue. As societies evolved, it is reasonable to assume that customary practices alone were no longer enough, and other rules were required. Some rules of social behavior were then imposed by religion and might as well. The rulers were entitled to sizable amounts of peasants’ and artisans’ production through the enforcement of those rules and the control of coercive means, like armed guards. The first agro-urban societies were basically societies of command, like an army or a religious order today. An important part of the social interaction was not voluntary6.

In sum, they were coordinated spontaneously. There are some emotional responses among human beings that repeatedly generate some patterns of behavior under similar conditions. Human beings are always trying to change from a situation of less pleasure to a more pleasurable one, maximizing their utility, satisfying their hedonism, or trying to accomplish their eudemonia, if you wish.

However, another important part of individuals’ activities was voluntary (not coerced), creating new practices that with time became customary and tolerated or even sanctioned by the powers to be. How did they come into being, how were these voluntary activities coordinated? We need to go no further than to one of the most quoted passages of Adam Smith’s Wealth of Nations (Adam Smith, WN, 1981, I.ii, page 27) to find out:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest”.

Or as Adam Smith clarifies few lines below this passage:

“As it is by treaty, by barter, and by purchase, that we obtain form one another the greater part of those mutual good offices which we stand in need of, so it is this same trucking disposition which originally gives occasion to the division of labor. In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity that any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison, than if he himself went to the field to catch them. From a regard to this own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armourer”.

Human action - As Ludwig Von Mises wrote quoting Locke and Leibniz: The incentive that impels a man to act is always some uneasiness (Mises, 2007, Vol. I, page 13). This desire to better their condition, this egoistic motivation is human beings’ prime motivation. You can argue whether Madre Teresa in pursuing her altruism was actually doing what she liked most and

whether or not it was an egoistic motivation, but even if we recognize (something really easy to do) that human beings have other motivations besides their material betterment, we can count on that prime motivation to build on it a pattern for social interaction, that is: the spontaneous order generated by the market. At the introduction of “Human Action” while criticizing Historicism, Marxism, Statism and Irrationalism in general, Ludwig Von Mises argued that all scientific inquiry is based on the assumption of: ... the uniformity and immutability of the logical structure of human mind as an unquestionable fact (Mises, 2007, Vol. I, page 2). In the same way, and as a consequence of this uniformity in human nature, we can identify a regularity and uniformity in laws of social cooperation.

The spontaneous order will be a benign one if the institutional arrangements are such that the road for self-betterment is serving well the others, or it will be a malign one, like the Hobbes’ “state or war”, if selfish desires can be satisfied in other ways rather than serving well the others. But, again, regardless of the moral quality of the interactions, the recurrent emotional responses of human beings have spontaneously generated a pattern of behavior in their social dealings as history has shown us time and again.

Kosmos and Taxis - Along the evolution of our hypothetical time line of social organization (from the clan to the state), of technology (from gathering to metallurgy), which clearly happened during thousands of years with different beginnings in different places in a process of attempt and failure, other pure spontaneous social institutions arose; languages as we know them today, for instance; and there is no better example of spontaneously generated social institution as language to draw an analogy with markets. Languages were created many tens of thousands of years before the first states; they appeared to supply a human necessity, no one commanded their use, it was not required. The ability to speak is so intrinsically a human attribute that some perceive it as the distinctive human attribute. This link between human nature and a spontaneous generated social institution can be perceived in the markets as well.

Now we are able to differentiate two kinds of social orders, in Hayek’s denomination: orders by command (taxis) like an army, and spontaneous orders (kosmos) like languages. Both orders are human creations, ordering some social interaction. It is important to note that the main distinction between them does not rely on the presence of coercion in each kind of order. For instance, a spontaneous order can be quite coercive (a hierarchy of caste or sex) and freedom can be achieved through an order of command where markets and the rule of law are established by deliberate designing an imposition, such as in the United States. Their main distinctions need to be found elsewhere7. One may find among the distinguishing properties of spontaneous orders that (a) their degree of complexity is not limited to what a human mind can master, (b) their existence can be based on purely abstract relations and (c) because they are not consciously created, they cannot be said to have a purpose, and that is a key factor to keep in mind when analyzing the role of money in society.

When human beings need to coordinate efforts to reach the same goal, command orders are usually preferred, but when the individuals need to coordinate their efforts in order to allow themselves to pursue their own individual goals, spontaneous orders usually suit better.

The life of a peasant or an artisan at the dawn of human history was not easy with all those warriors and priests giving orders and seizing the output. The first states were political societies in which, generally speaking, the subjects were not allowed to have individual goals, and the entire group was coerced into pursuing the social goals revealed by the deities as traditionally proclaimed by the priests and enforced by the kings.

But the archeological evidence from the “Hydraulic societies” in Mesopotamia, from ancient Egypt

and India, of many small shops and small farms attests that even at those dark times when the light of civilization was rare in a world almost entirely dominated by brute force, individuality thrived. The autocrats of that time, and of all times for that matter, fundamentally lacking capacity, regardless of their will or even interest in organizing the entire social life in command format, left some space for individual initiative. Granting differences in time and place are evidence that portions of the economic activities inside the cities were not commanded; it may be inferred as well from the historical records that most of the intercity trade was also not stated owned although it may have been monopolized, and for sure it was regulated and taxed. It was the beginning of the markets. There were markets for farm products inside the cities, markets for foreign goods, etcetera. Most of those markets were organized on certain days in some venues where buyers and sellers met to trade. At that time, markets were not an abstract concept but an actual place in which buyers and sellers could meet.

At that stage of human evolution, about five thousand years ago, the resource to metallic medium of exchange was widespread. Rare metals like gold and silver were perceived as the ideal medium of exchange among traders. An Egyptian trader could acquire timber in Tyro paying in gold, after he could travel to Crete to sell the timber in exchange for copper, he could then acquire olive oil in Israel paying with the copper and travel back to Luxor to sell the oil and receive gold bullion (mined in Ethiopia) once more. Persons, regions, countries could then specialize in the production of certain goods and services and trade them using metals both bare and rare as medium of exchange; but a further step was still necessary for the Fertile Crescent and Mediterranean ancient civilizations to have something recognizable as money; that is, coinage.

Coined money – According to George Winder (Winder, 1959, page 20), the Chinese were the first to manufacture gold coins (in the shape of knives and spades). Quoting Sir George Macdonald, the same author attributes the invention of coins in Europe to Greek merchants to facilitate the circulation of their stocks of metals. He also says that the first European rulers to strike coins were the Kings of Lydia, a fact well established8.

About 600 BCE, the first known gold and silver coins (the Lydian Lion as it is known is made of a gold and silver alloy called electrum and known as white gold in ancient times) were minted in the Lydian Kingdom, located in part of where Turkey is today, at the time that Croesus was their king. According to Herodotus in his Histories (Herodotus, 2007, 1.94.1, page 55):

“[The Lydians] were the first of all people we know of to use coinage struck from gold and silver, and the first to become retailers of goods they did not themselves produce”.

They managed to do that; and by spreading the concept to the neighboring countries they helped the establishment of the first monetary societies (Figure 1).

Coinage should be understood as a certification of the weight and purity of that specific piece of metal with a seal stamped on it for this purpose given by someone credible to the community. From then on, metallic money became available; the prices in the markets could be no longer referred to their equivalent in some weight of metal but in pieces of metal, in coins. The premises for all further monetary developments were settled.


Date: 2015-02-03; view: 759


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