Anthropology Professor Robert Rosenswig says archaeology offers a very different explanation for why ancient societies began using money. His findings put him at odds with many mainstream economists and have potentially significant implications for modern economic policy. The debate is also an example of how scholars from different disciplines can approach the same question from different directions.
Our conversation with Robert Rosenswig was prompted by an article he published last year in the Journal of Economic Issues, “Ancient Tally Sticks Explain the Nature of Modern Government Money.”
The journal prioritizes “contributions that examine the political economy of food, healthcare, energy, telecommunications, transportation, education, or recreation provisioning.”
One of the fascinating things about Robert’s work is how it connects his professional contributions as a respected scholar of Mesoamerican cultures (the Maya being one of the tally stick examples his article explores) to political and economic questions that feel very relevant today.
In that spirit, we had to ask him how his argument for the origins of money — that its value is intrinsically tied to demand created by government tax debts — intersects with the rise in the last 15 years of cryptocurrencies, which are often celebrated as means of private exchange free from government intervention.
The answer, he said, has a lot to do with what gives people trust that money has any value at all. Here is what he had to say.
OK, you're invited to explain your findings at a crypto conference. Is that ending with standing ovation or are you getting heckled off the stage? Folks who have adopted the ethos of crypto, of how and why it came to be, do you think they would be excited about your argument or…?
RR: Carl Menger, who is the father of Austrian economics, has quite a famous paper where he basically says money is a big Ponzi scheme, essentially, and that everyone's just passing off the money until someone figures it out.
Crypto is money in the sense that frequent flyer miles are money. I mean, if you take your frequent flyer mile catalog, you probably wouldn't have a very healthy diet, but you probably could live from everything in that catalog and get clothing and food and everything. But you probably wouldn't want your retirement to be denominated in frequent flyer miles, right?
I’d get heckled off the stage at the crypto conference because their idea of money is the Carl Menger view: It's all a big Ponzi scheme and the only reason it has value is because people keep using it.
And if they stop, it'd be like a game of musical chairs, and some people are going to be out lots of money. So they would argue, I think, that government money is the same. And what I'm saying is that private money like crypto is very different than government money. Government money is backed by taxation, which creates a demand for it. Private money is not.
In the ancient world, many of the trading organizations were based on religious and ethnic groups, partly because there was an internal trust within those groups of people and a social ramification for violating that kind of trust. Now blockchain in the crypto case is a good accounting measure, an independent accounting measure, and blockchain technology is quite impressive. But there's no inherent value to cryptocurrencies. And so it is an alternative source or an alternative means of exchange or creation of value that is not based on anything. It's based on aspiration or on hope that it will be worthwhile or it will be valuable in the future. So crypto folks wouldn't like this.
Read more about Robert’s work as an anthropologist, including the Soconusco Archaeological Project, which examines the development of agriculture and social stratification in Mexico’s Chiapas state and neighboring Guatemala.
Also check out UAlbany’s Institute for Mesoamerican Studies.
Research and writing by Michael Parker
Audio editing and production by Scott Freedman
Photos by Patrick Dodson
Written and hosted by Jordan Carleo-Evangelist
[0:01] Host: Welcome to The Short Version, the UAlbany podcast that tackles big ideas, big questions and big news in less time than it takes to cross the Academic Podium. I'm Jordan Carleo-Evangelist in UAlbany's Office of Communications and Marketing.
Just right off the bat, as an anthropologist, on a scale of 1-10, how annoying is it when people ask you if you've ever found dinosaur bones?
[0:28] Robert Rosenswig: [Laughter] It is understandable. I've even had undergrads in intro to archeology ask that question and I kind of turn it into a bit of a joke.
[0:37] Host: For the record, it's paleontologists who study dinosaurs, and this week's episode is not about dinosaurs. But it's about one of the few things almost as universally interesting: money.
What is money? Why does it exist?
On their face, these questions seem to have obvious answers — so obvious that most of us have probably never thought much about it. We need money to buy things, and buying things with money is a lot simpler than trading your neighbor a dozen eggs for some firewood. Trading for everything is inefficient. But what if this widely accepted explanation for why we started using money is wrong? And what if the archeological record suggests a different answer with potentially big implications for modern economic policy?
Let's be more direct. Does the federal government really need to balance its budget? Is austerity ever truly necessary? What about the risk of inflation?
Robert Rosenzweig is a professor of anthropology here at UAlbany. His research explores how complex societies emerged in Mesoamerica, how power was organized and how record keeping shaped civilization. Recently he's been studying one of the oldest accounting tools in human history: the tally stick. Robert's research likens these tally sticks to the first government spreadsheets — a record of tax debts owed to and from some medieval version of the IRS.
After studying three civilizations separated by thousands of miles and many centuries, Robert concluded that those sticks and the government's need to track debts are the true origin of money as we know it, not inefficiencies in the barter economy. His argument and its implications for how we think about money today put him at odds with many mainstream economists.
We asked him why all this matters, what his findings mean for how governments respond to economic crises, and why so few mainstream economists agree with him.
Here's our conversation.
[2:37] Host: What were tally sticks, what did you look at and what did you learn from them?
[2:44] Robert Rosenswig: Cultural anthropology studies living peoples. Theoretically, or in principle, archeology studies the same range of issues but through the material remains of people that are no longer alive. And so the contribution that archeology and studying of the past can produce for society generally is that the nature of money is different than mainstream economists are portraying it to be. What the Maya, medieval Europe and ancient China have in common in the way that each of these societies, each these civilizations, used tally sticks was they were records of government debt. British tally sticks are the basis of the British pound and of British money. That British money and the accounting and financial knowledge is the basis of the American monetary system. When the King of England wanted a hundred sheep, let's just say, for he is going to have a big feast or he just needed to feed his household, he would send his sheriff out. The sheriff would take a piece of hazelwood, notch into it the amount of money in terms of scratches and notches, split it in half, give half to the farmer and keep half. That would go back to the excelsior, and that split piece of wood, that little notched twig or half a notched twig, would be worth whatever those a hundred sheep were worth. And all that the farmer had for his hundred sheep was a little split piece of wood, but that piece of wood had value because when it came time to pay taxes, you could bring that back and present it to the Excelsior. They would then find the other half, match it up and say, “Ah, this is not a forgery. This is the actual real split tally stick that was issued by the sheriff. Your tax debts are now cleared.” This piece of wood was money, and so there would always be a demand for the things that you could use to clear tax debt.
You could then give it to your neighbor in order to buy something or to settle a debt with the neighbor because the neighbor could then do the same thing — bring that to the Excelsior. Money today is not tally sticks, it's not pieces of wood. It's even less substantial. They're just electronic impulses in a computer system. Now, sometimes taxes were paid by sheep, by gold, by various other commodities, but these were recorded in terms of a currency. And what was that currency? The currency was whatever the government said it was, right? So the power of ancient governments, like the power of modern governments, is that they use their political authority and, if necessary, their coercive power to force people to pay taxes. And if you don't pay taxes, the repercussions are quite serious.
[6:01] Host: Why does it matter if we understand why civilizations were using money 1300 years ago, or longer? What's the relevance in today's society?
[6:12] Robert Rosenswig: We have assumptions about how money operates that are to a large degree very presentist, right? You can't get to imagine a world where you don't have all kinds of electronic payment systems, the old credit card machines where you had to physically push the embossing up in your credit — you go back just a little bit further than that and people would travel with traveler's checks, right? It's unbelievable for folks today. You go back a century, and if you're going to go from Europe, take a boat over to Europe, you would have to get one of a very limited number of banks and have some long piece of paper to bring with you to show to a related bank for them to give you some of the local currency. One thing that these all have in common, though, is that they are recordings of debts and credits that then can be expressed in terms of local currencies, but essentially this debt aspect of the money is what my argument comes down to — that money is not a commodity that has inherent value.
[7:26] Host: I feel like this is an explanation of the origins of money that would drive some people nuts — that the origins of money are tax debts to the government.
[7:35] Robert Rosenswig: In the case of the British pound, the Bank of England was established when a group of businessmen who opened this bank lent 1.4 million pounds to the king, and that debt was recorded in an eight-foot-long tally stick that is still in existence — you could still see it — that recorded that debt. And it was based on that debt that the citizenry of Britain had faith in the paper bills that those bankers issued. And, just as a historically interesting fact, that debt has never been paid back.
[8:19] Host: So how does this understanding of the origins of money differ from what many economists might argue are the reasons we started using money?
[8:29] Robert Rosenswig: So the standard, orthodox economic theory is that you had people bartering goods. You have somebody who grows potatoes and somebody who makes shoes. Well, maybe the shoemaker can't trade his wares with the potato farmer to get some potatoes. And so this is hugely inefficient, and the creation of money was a technical innovation to make trade more efficient. Now, of course, this is historically incorrect.
[9:03] Host: We're talking about the difference between free markets being the origins of money versus government tax obligations being the origins of money.
[9:12] Robert Rosenswig: This heterodox perspective, it says that governments issue money, they then tax it back from the citizenry, and what gives money value is the knowledge that there will be a demand for it, a consistent demand for it, in order to pay taxes. But where does government money come from? Well, the main source are U.S. Treasury bills and bonds and such. That's the government putting that money into the economy. Where does that money come from? Nowhere.
[9:45] Host: So what do the lessons that are in the historical record tell us about what might be wiser or less wise economic policy today?
[9:56] Robert Rosenswig: Bottom line, what you hear in every political election or where the economy is an issue is the government needs to balance its checkbook like they were an individual. You have to balance your checkbook. I have to balance my checkbook. The government has to balance their checkbook as well. So there's a certain intuitive logic to that. But if you're the federal government and you could issue your own money, you could never run out of that money. So there's no limit, in certain times, to printing lots more money. The second world war, the COVID pandemic, the financial collapse, any of these examples, what did government do? They just created, out of nowhere, all the money that was necessary to solve the problems that they were faced with. So why couldn't you use the same principle to do something like getting rid of childhood hunger or poverty or various other things that would actually help people in some very fundamental ways? The orthodox economists will say that the reason that you can't print too much money is because that causes inflation. Inflation is a problem, but it's not created by governments issuing Treasury bills. It's if the government were to spend money on things that the private sector is trying to also acquire, you could bid up the prices, and that could cause inflation, and inflation is bad. There's negative effects of inflation. But it's not created by printing too much money.
[11:29] Host: So every political debate that we have about balancing the budget, about austerity, about deficits — manufactured?
[11:36] Robert Rosenswig: It is consistent with the orthodox theory of what money is. But as the paper that I just published and as the history of these tally sticks, I argue, shows, this is not historically accurate. It's an inaccurate depiction of what money is.
[11:57] Host: Okay, so you walk across the Podium to the Economics Department. You stride in there. You confidently lay out your theory. What do they say?
[12:08] Robert Rosenswig: They will say that I am naive. We need to balance budgets. If we don't balance budgets, the country is going to go bankrupt. Where does money come from? Money is created when banks make loans. And I'm saying that this is empirically not true. If you've taken an introductory accounting class, you know that a bank loan does not create any new money because there's an equal debit as a credit.
[12:34] Host: Do you think that there's a hesitancy to adapt this different way of thinking about it because the consequences of being wrong feel so scary?
[12:43] Robert Rosenswig: That is what I would say is the propaganda. If you want why in an ultimate sense, it’s that there are a certain group of very wealthy people that benefit from the way the system works, and they are the people that fund endowed economics professorships. Rockefeller established the University of Chicago and set up the law school and the economics department, and they say things that are in the economic interests of the Rockefellers, et cetera, of the world.
[13:16] Host: So you’re in the Department of Anthropology. You published in an economics journal. Some economists who don't agree with you might say, “Why is this anthropologist telling us about economic theory? Stay in your lane, Rob.” Why is it important, not just on this issue but in all issues that are sort of public concern, for other perspectives?
[13:38] Robert Rosenswig: Sure. Most of the disciplines are, to some degree, artificially divided out, and there's an administrative reason why that makes sense, and especially the more specialized you get, you specialized in different types of knowledge. I have gotten into history and theories on money, published a number of articles in anthropology journals, and now with this paper, I'm kind of trying to branch out and engage with like-minded economists. I don't have a realistic expectation that the mainstream is going to say, ‘Oh wow, look, this archeologist just explained money to us. There's no illusions of that. Specialized knowledge is important, mathematics are important, but if you start with a faulty premise of what money is, you can't help but get to a faulty conclusion.
[14:34] Host: And if those models are based on a faulty premise, then the conclusions those models lead you to —
[14:41] Robert Rosenswig: If money is a commodity and the commodity needs to be paid for, and so you have to balance your budget, that has certain implications. And what I'm saying is if it doesn't, then that removes the economic justification for these public policies. What you're left with then are political and perhaps class-interested or economically interested reasons for these policies. But you can't hide behind the economic necessity of them.
[15:17] Host: That was Professor Robert Rosenswig of UAlbany's Department of Anthropology. Robert and I discussed how, in his view, archeological evidence contradicts the widely accepted belief that money was invented to grease the skids of private commerce.
To learn more about the history of tally sticks, and how Robert thinks his argument might be received in a room full of crypto enthusiasts, be sure to check out The Longer Version in our show notes. We posted a link to Robert's full article in The Journal of Economic Issues.
If you're an economist, well, our email address is there too. We'd love to hear your thoughts on all this.
The Short Version would not be possible without contributions from many people. Scott Freedman and Brian Busher provided audio production and editing support from the UAlbany digital media studio, deep inside the Podium tunnels. My colleague Michael Parker contributed research and writing.
We'll be back next week with another short conversation about something interesting. I'm Jordan Carleo-Evangelist here at the University at Albany, and this has been The Short Version.