How the euro illustrates an important point on the origins of “money”

The initial value of a currency unit—usually lost in the mists of time—must, at the outset, be based on either a commodity or (less likely but mentioned because technically possible) a unit of labor. (It can be based on a pre-existing currency, which in turn will initially be based on these). 

This simple fact in no way contradicts chartalism nor credit-concepts of money. It augments them (the only other possibility is a de novo unit/measure/word by decree; why this is unlikely to characterize the earliest origins of units-of-account is discussed in the link).

Once a legal structure of liabilities forms in the new unit,* all redeemability can be abandoned (the liabilities now give value to the unit). The unit becomes a tax credit (and legal tender extinguishing other debts). This reality, however, took about six thousand years to be fully understood. Until 1971, to be precise. (In practice; not fully understood by the public and some economists to this day).

[That’s why we have a muddled, insanely complex “money” history (Boyer-Xambeu et al. 1994, for example, demonstrates some of the complexity). No one knew what the heck was going on as it happened. Myth and misunderstanding reigned for 6000 years and to some extent still do. Combined with the fact that huge swathes of history are marked by a breakdown/lack of bureaucratic states capable of imposing the liabilities that form the basis of chartal money.]

The euro (despite, along with the ECB, being an otherwise horrific setup, due to the neoclassical myths underlying its creation) illustrates the process—usually lost to ancient history—in a few well documented decades. 

Whether a State (tax) or a private credit transaction, if one says “you owe me ten,” then “ten what?” has to first be answered. And the “what” cannot initially be ten “castar,” ten “knut,” nor ten “grotznit” (nor ten shekel) if these are not already accepted units of measure. This most likely occurs (see same link as above) first through ancient practices of commodity exchange (two-way exchange with a time component that effectively creates a system of equivalenaces and what is effectively three-way exchange over time, because the commodity is held, with an expected value [equivalence] for a third trade after the initial exchange) and already existing systems of equivalences and (potential) liabilities. (As mentioned, a state/ancient temple could in theory invent both a new unit/word de novo; however, ancient measures are generally understood to arise from customary measures). Even in cases where ritual and religion are invoked (as with the obol of Greece) the initial measure is a real unit desirable in its own right (e.g., for obol, essentially portions of cattle, themselves an ancient customary measure).

The euro

The euro became, by decree, the official accounting measure of the eurozone on Jan. 1, 1999 (existing eurozone currencies assumed fixed rates to each other and locked into non-decimal subdivisions of the euro on the way to complete phase-out) and on Jan. 1, 2002 the euro became the only (again, a transition phase allowed, varying by country) legal tender and came into physical use. (remember—this overnight change could happen only because there was already a well-established structure of legal liabilities; this would not be the case for a new polity or proto-banking system in the beginning).

So on January 1, 1999, what would 1 of these brand new things—1 “€” (one could ask the same for the first shekel)—actually exchange for?

A slice of bread or an entire bakery? Would 2000 buy a large country house (as 2000 “£”s could in 1740s England)—or scarcely a cup of coffee, as 2000 “L”s bought in 1990s Italy?

Le Big Mac

The official measure of value of a “€” at the start of 1 January 1999 was declared to be: 1 € equaled 1 .

The is the ECU (European Currency Unit). That was equal to US$1.1686 on Jan. 1 1999.

So now we have a real “value” for a “€”: For example, 1-2 of them would exchange for a cup of coffee in much of the world in 1999. Or to use the famous Big Mac Index, 2-3 of them would exchange for 1 Big Mac throughout Europe (A Big Mac cost 17.5 French franc in 1999, or US $2.87).

But…where did the US$1.1686 measure come from?

The (ECU) had drifted, being a basket of European Community currencies, to that precise value on Dec. 31st of 1998.

So: what was the original value of an based on?

The ₠ (ECU) was first set on March 13, 1979 to be equal to one EUA (European Unit of Account, about US $1.35**), the value the EUA had drifted to by then.

So…what was the original value of an EUA?

The EUA was first set to be equal to one XDR (aka “SDR,” IMF Special Drawing Right) equal to US$1.20635 in mid 1974.

The XDR had drifted to that value by mid 1974.

So…what was the original value of an XDR?

The XDR was first set, in 1969, at US$1 / 0.888671 g of gold.

The short history of the euro shows clearly in 3 well-documented recent decades what would have been the case with all currencies, but obscured by complexity and time. When new, they would have to have some customarily accepted value attached to them, or else initially declared to have a value in a pre-existing currency. This only pushes the chain back a step. Ultimately to an origin as a customary measure of something with real value, usually a commodity-volume or weight of grain. This in no way means chartalism is false (once a structure of liabilities forms, the tax-credit can float freely), nor does it undermine the fact that tax/tax-credit systems are by far the most important aspect of the evolution of “money,” and understanding state money (and the banking systems that build out from state money) is arguably the single most important understanding in economics, the science of social provisioning.

If one prefers to focus on the “dollar” decree for the XDR/pre-euro in 1969 (rather than the commodity “0.888671 g of gold” decree), the US $ was decreed in 1792 to “to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.” This measure, in turn, traces to the Spanish peso, which traces to the Guldengroschen, which emerged from the complex world of coinage preceding and during the Holy Roman Empire.

The widespread acceptance of the standard of the peso and “trade dollar” stem from the period of inter-group (international) exchange (see, for example, the emphasis on this in Frank 1998). This was likely how standardization of all initial commodity measures occurred; subsequently they would be adopted, as in the US case, as the standard for the tax/tax-credit currency systems. Similarly the pound traces back either simply to a pound of silver, or more complexly to pennies, pennies to denarius, denarius to as, as to Roman aes rude (copper ingots). (One might want to trace the Roman to the Greek: possibly to Greek obol, themselves representative of a real good valued in ancient times, heads of cattle and portions of meat).


Note that Henry (2004), regarding one of the earliest measures (deben, in ancient Egypt), concludes

“The fact that the deben bore no relation to any specific object, but referred to an arbitrary unit of weight only, is a certain indication that Egyptian money was decidedly not based on some ‘intrinsic value.’ What was true for Egypt remains true for all money” (p. 11).

This conclusion is entirely unwarranted—in the previous paragraph he himself notes  “The deben was a unit of weight, initially equated to 92 (or 91) grams of wheat.” (p. 11) 
Just because it floated from that early customary value, as all units that cease to be redeemed/pegged will, doesn’t change the (acknowledged by Henry himself) fact that the original unit was a commodity measure of a real, valued good, specifically, grain.

Henry is correct: What was true for Egypt remains true for all money. But not with the meaning he thought.


*For an already existing system of currency, changing to a different measurement unit (as the eurozone countries did) can occur essentially overnight, and the new currency will still be “valued.” Why? Because all of the same liabilities that made the old units have “value” are equally present in the new system (all taxes owed, contracts and rents owed, fines owed, private loans owed, etc). The liabilities are what make the unit valued; they still exist, merely measured in a new unit. 
Note that this ability to impose a new unit in a hypothetical new society would not work. There would be no existing structure of liabilities. 

**on March 30, 1979 the basket of currencies for the new ECU was was $1.3517 per ECU. Grossmann et al 2017 p.11 of pre-print pdf


Boyer-Xambeu, Marie-Thérèse, Ghislain Deleplace, and Lucien Gillard. 1994. Private Money & Public Currencies: The 16th Century Challenge. M.E. Sharpe.

Frank, Andre Gunder. 1998. ReORIENT: Global Economy in the Asian Age. University of California Press.

Graeber, David, 2011. Debt: The First 5,000 Years. Melville House.

Grossmann, Axel, Chris Paul & Marc W. Simpson. 2017. An evaluation of the equilibrium value of the euro, its predecessors and their constituent currencies based on economic fundamentals. Applied Economics 49:33, 3280-3312.

Henry, John F. 2004. The social origins of money: The case of Egypt. In Credit and state theories of money: The contributions of A.Mitchell Innes, ed. L. Randall Wray.. Cheltenham, UK; Northampton MA, USA: Edward Elgar.

Wilson, R. G. and A. L. Mackley. 1999. How Much did the English Country House Cost to Build, 1660-1880? The Economic History Review 52:3, pp. 436-468.

See also: 

Ingham, Geoffrey.  2006Further reflections on the ontology of money: responses to Lapavitsas and DoddEconomy and Society, 35:2, 259-278

Peacock, Mark S. 2013. Accounting for money: The legal presuppositions of money and accounting in ancient Greece. Business History, 55:2, 280-301.

Semenova, Alla. 2011. The Origins Of Money: Evaluating Chartalist And Metallist Theories In The Context Of Ancient Greece And Mesopotamia. Dissertation, University of Missouri-Kansas City.

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