| abstract
| - With the rise of large commercial urban centers, the principle instrument for development shifted from physical matter to social institution -- from arable land to money. Money has been the single greatest organizational invention of the past five thousand years. The emergence of money as a preeminent social institution vividly illustrates the central role of organization in the process of social development. The creation of money was made possible and spurred by the generation of food surpluses. One of the earliest forms of money was the receipt issued for grain deposits at government warehouses in ancient Babylon, which gradually became transferable to third parties. The capacity of early farmers to produce more food than was required for consumption by the family naturally prompted them to trade their surplus for other goods or services. As long as these exchanges were conducted by means of barter, they were severely limited both in volume and speed. Barter exchange required the double coincidence of a buyer and seller both wanting what the other possessed in surplus. It also involved a very complicated form of valuation, since every type of commodity would have a different price depending on the goods or service for which it was to be exchanged. Direct barter involving 1000 different commodities would require 500,000 rates of exchange. Barter transactions worked best within a narrow geographical area due to the physical difficulties of transporting products over long distances. The perishable nature of many products also limited barter exchanges. Producers had no incentive to produce more than they were confident of either consuming or exchanging with other consumers during the period before a product deteriorated. The use of money spread gradually from one country to another by a process of imitation similar to the manner in which ideas, technologies and other social institutions are transmitted from one place to another and bear fruit wherever the soil is sufficiently prepared. The adoption of money in place of barter had a tremendously liberating and expansive impact on early society. As urbanization increased the number, size and speed of transactions by bringing many more people into proximity, money increased the number, size, speed, and efficiency of transactions even over long distances. The capacity to convert the fruits of one’s labor into money meant that those fruits could be stored indefinitely, overcoming the limitations of time and providing an incentive for people to exert themselves much harder and longer than if what they produced must be consumed immediately. The capacity to convert physical goods into portable money overcame the limitations imposed by space. Whereas products could be transported long distances only at considerable cost and difficulty, money could be moved quickly and inexpensively, making possible trade over much larger geographic areas. Money also provided a common standard for valuation of all products and services, thereby vastly reducing the complexity of exchange rates. By eliminating the necessity of the double coincidence required for barter trade, money made it possible for a much larger number of transactions to be completed. At the same time, its ease of movement and accounting enormously increased the speed of commercial transactions. The increasing volume and speed of transactions made possible by money combined with the increasing size and density of urban populations had an exponential impact on the development of society. Money had a transforming effect on society equivalent in magnitude to that brought about by the emergence of urban communities. It helped liberate society from the strict confines of the land and the retarding influences of tradition, spurring the evolution from the physical to the vital stage of social development. Before money, land was the principle productive resource and source of wealth. Those who controlled the land controlled the wealth of society. The hereditary transmission of property rights during the feudal period left little incentive for individual initiative and little room for individual advancement. During the Middle Ages, European society actually reverted for a time to barter before money returned and gained ascendance. The return of money and the rise of commerce in European society coincided with the demise of the agrarian based feudal system. Money gradually replaced heredity not only as a source of wealth, but as a source of social power and privilege as well. The moneyed commercial classes became increasingly influential, creating the backdrop for the emergence of democratic values and forms of government a few centuries later. Money freed the individual from servitude to the soil. A person could earn money and use it to purchase whatever was required for personal sustenance and also utilize it as capital to earn a living. It impersonalized and democratized transactions, empowering the possessor with economic voting power that drastically reduced discrimination based on class and status. Money increased the individual’s freedom of choice and gave greater scope for the development of individual talents and potentials. Social organizations that spur development at one stage tend to ossify and die out later on, as hunting tribes, guilds, East India companies and colonial empires, feudal and monarchical institutions have in the past. Some institutions exhibit the capacity to evolve along with society, adapting and changing to match the character of the times. Money has exhibited this capacity to evolve with the times. Sharing the characteristics of this physical stage of development, early money was itself a physical commodity, grain, gold or silver. Only gradually did representative forms of money appear, but these too were full-bodied commodity money, convertible at any time into the commodity that they represented. During the vital stage, more symbolic forms of money such as certificates of deposit, bank notes, checks, letters of credit, bonds and other forms of negotiable securities came into prominence. The complete separation of money from its physical roots came at a much later stage of social development with the appearance of fiat money that does not have a commodity value and cannot be redeemed for a commodity.
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