Skip to main content Accessibility help

Money and its institutional substitutes: the role of exchange institutions in human cooperation



This paper offers an increasing returns model of the evolution of exchange institutions building on Smith's dictum that ‘the division of labor is limited by the extent of the market’. Exchange institutions are characterized by a tradeoff between fixed and marginal costs: the effort necessary to execute an exchange may be economized by up-front ‘investment’ in strategies to facilitate the publication and accounting of trading histories. Increases in the size of the exchange network select for higher-fixed-cost exchange institutions, beginning with autarky, through various intermediate stages, and finally to mass monetary exchange. By identifying the relevant fixed costs of money and its institutional substitutes across time, the paper both accounts for the persistence of pre-monetary exchange institutions, despite the ‘inevitability’ of monetary exchange that seems to be a feature of traditional models of the origin of money, and illuminates the forces driving the transition from one to another.


Corresponding author


Hide All
Alchian, A. (1977), ‘Why money?’ Journal of Money, Credit and Banking, 9 (1): 133–40.
Armstrong, W. E. (1924), ‘Rossel Island money: a unique monetary system’, Economic Journal, 34 (135): 423–9.
Bandy, M. S. (2004), ‘Fissioning, scalar stress, and social evolution in early village societies’, American Anthropologist, 106 (2): 322–33.
Banerjee, A. and Maskin, E. S. (1996), ‘A Walrasian theory of money and barter’, Quarterly Journal of Economics, 111 (4): 9551005.
Bear, A and Rand, D. G. (2016), ‘Intuition, deliberation, and the evolution of cooperation’, Proceedings of the National Academy of Sciences, 113 (4): 936–41.
Bear, A, Kagan, A. and Rand, D. G. (2017), ‘Co-evolution of cooperation and cognition: the impact of imperfect deliberation and context-sensitive intuition’, Proceedings of the Royal Society B, 284 (2326).
Bloch, M. (1966), ‘The rise of dependent cultivation and seigniorial institutions’, in Postan, M. M. (ed.), The Cambridge Economic History of Europe, Vol. 1, Cambridge, UK: Cambridge University Press, pp. 235–90.
Bowles, S. and Gintis, H. (2004), ‘The evolution of strong reciprocity: cooperation in heterogeneous populations’, Theoretical Population Biology, 65 (1): 1728.
Bowles, S. and Gintis, H. (2008), ‘Cooperation’, in Blume, L. and Durlauf, S. (eds), The New Palgrave Dictionary of Economics. London: MacMillan. pp. 228–34.
Chagnon, N. ([1968]2009), Yąnomamö, Belmont, CA: Wadsworth Cengage.
Clark, A. and Chalmers, D. (1998), ‘The extended mind’, Analysis, 58 (1): 719.
Deheane, S. (1997), The Number Sense: How The Mind Creates Mathematics, New York: Oxford University Press.
Dittmar, J. E. and Meisenzahl, R. R. (2016), ‘State capacity and public goods: institutional change, human capital, and growth in early modern Germany’, Finance and Economics Discussion Series, 2016–028.
Dunbar, R. I. M. (1992), ‘Neocortex size as a constraint on group size in primates’, Journal of Human Evolution, 22 (6), 469–93.
Dunbar, R. I. M. (1995), ‘Neocortex size and group size in primates: a test of the hypothesis’, Journal of Human Evolution, 28 (3), 287–96.
Epps, P, Bowern, C., Hansen, C. A., Hill, J. H., and Zentz, J. (2012), ‘On numeral complexity in hunter–gatherer languages’, Linguistic Typology, 16 (1): 41109.
Everett, D. L. (2005), ‘Cultural constraints on grammar and cognition in Pirahã: another look at the design features of human language’, Current Anthropology, 46 (4): 621–46.
Frank, R. H. (1987), ‘If homo oeconomicus could choose his own utility function, would he want one with a conscience?’ American Economic Review, 77 (4): 593604.
Gangotena, S. (2016), ‘Subsistence or exchange: the emergence of money and specialization’, PhD Dissertation, George Mason University, Virginia.
Golla, V. (2011), California Indian languages, Berkeley: University of California Press.
Goodhart, C. A. E. (1998), ‘The two concepts of money: implications for the analysis of optimal currency areas’, European Journal of Political Economy, 14 (3): 407–32.
Greenberg, J. (1978), ‘Generalizations about numeral systems’, in Greenberg, J., Ferguson, C., and Moravcsik, E. (eds), Universals of Human Language, Vol. 3: Word Structure, Stanford: Stanford University Press.
Harwick, C. (2016), ‘Cryptocurrency and the problem of intermediation’, Independent Review, 20 (4): 569–88.
Hauser, M; Chomsky, N. and Fitch, W. T. (2002), ‘The faculty of language: what is it, who has it, and how did it evolve?’ Science, 298 (5598): 1569–79.
Haxby, J. V., Hoffman, E. A., and Gobbini, M. I. (2002), ‘Human neural systems for face recognition and social communication’, Biological Psychiatry, 51 (1): 5967.
Hayek, F. A. (1945), ‘The use of knowledge in society’, American Economic Review, 35 (4): 519–30.
Hayek, F. A. (1960), The Constitution of Liberty, Chicago: University of Chicago Press.
Hicks, J. R. (1935), ‘A suggestion for simplifying the theory of money’, Economica, 2 (5): 119.
Hoekman, B. (2015), ‘Trade and growth – the end of an era?’ in Hoekman, B. (ed.), The Global Trade Slowdown: A New Normal?, London: Centre for Economic Policy Research Press.
Hooper, P., Demps, K., Gurven, M., Gerney, D., and Kaplan, H. (2015), ‘Skills, division of labour, and economies of scale among Amazonian hunters and South Indian honey collectors’, Philosophical Transactions of the Royal Society B, 370 (0008).
Horwitz, S. (1992), ‘Monetary exchange as an extra-linguistic social communication process’, Review of Social Economy, 50 (2): 193214.
Hudson, M. (2003a), ‘The role of accounting in civilization's economic takeoff’, in Hudson, M. and Wunsch, C. (eds), Creating Economic Order: Record-Keeping, Standardization, and the Development of Accounting in the Ancient Near East, Bethesda: CDL Press, pp. 122.
Hudson, M. (2003b), ‘The development of money of account in Sumer's temples’, in Hudson, M. and Wunsch, C. (eds), Creating Economic Order: Record-Keeping, Standardization, and the Development of Accounting in the Ancient Near East, Bethesda: CDL Press, pp. 303–30.
Humphrey, C. (1985), ‘Barter and economic disintegration’, Man, 20 (1): 4872.
Johnson, N. and Koyama, M. (2016), ‘States and economic growth: capacity and constraints’, Explorations in Economic History, 64: 120.
Kaldor, N. (1972), ‘The irrelevance of equilibrium economics’, Economic Journal, 82 (328): 1237–55.
Kiyotaki, N. and Wright, R. (1993), ‘A search-theoretic approach to monetary economics’, American Economic Review, 83 (1): 6377.
Klein, B., Crawford, R., and Alchian, A. (1978), ‘Vertical integration, appropriable rents, and the competitive contracting process’, Journal of Law and Economics, 21 (1): 297326.
Kocherlakota, N. R. (1996), ‘Money is memory’, Federal Reserve Bank of Minneapolis Research Department Staff Report, 218.
Kohn, M. (1999), ‘Medieval and early modern coinage and its problems’, draft chapter of Origins Of Western Economic Success: Commerce, Finance, and Government in Preindustrial Europe, Preprint.
Koppl, R. (2002). Big Players and the Economic Theory of Expectations, New York: Palgrave Macmillan.
Lachmann, L. (1956), Capital and its Structure, Kansas City: Sheed Andrews and McMeel.
Lavoie, D. (1985), Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered, London: Cambridge University Press.
Leeson, P. and Suarez, P. (2015), ‘Superstition and self-governance’, Advances in Austrian Economics, 19: 4766.
Leijonhufvud, A. (1977), ‘Costs and consequences of inflation’, in Harcourt, G. C. (ed.), The Microeconomic Foundations of Macroeconomics. London: Macmillan, pp. 265312.
Malinowski, B. (1922), Argonauts of the Western Pacific: An Account of Native Enterprise and Adventure in the Archipelagos of Melanesian New Guinea, New York, E. P. Dutton.
Malinowski, B. (1926), Crime and Custom in Savage Society, New York: Harcourt Brace.
Marwick, B. (2003), ‘Pleistocene exchange networks as evidence for the evolution of language’, Cambridge Archaeological Journal, 13 (1): 6781.
Mederos, A. and Lamberg-Karlovsky, C. C. (2004), ‘Weight systems and trade networks in the Old World (2500–1000 BC)’, in Hudson, M. and Wunsch, C. (eds), Creating Economic Order: Record-Keeping, Standardization, and the Development of Accounting in the Ancient Near East, Bethesda: CDL Press, pp. 199214.
Menger, C. (1892), ‘On the origins of money’, Economic Journal, 2: 239–55, translated by Foley, C. A..
Mill, J. S. (1848), Principles of Political Economy with some of their Applications to Social Philosophy, London: John W. Parker.
Miller, G. (1992), Managerial Dilemmas: The Political Economy of Hierarchy, New York: Cambridge University Press.
Mises, L. v. ([1920]1935), ‘Economic calculation in the socialist commonwealth’, in Hayek, F. A. (ed.), Collectivist Economic Planning: Critical Studies on the Possibilities of Socialism, London: Routledge & Kegan Paul, pp. 87130.
Mises, L. v. (1966), Human Action: A Treatise on Economics, San Francisco: Fox and Wilkes.
Mitchell, W. C. (1944), ‘The role of money in economic history’, Journal of Economic History, 4: 61–7.
North, D. C. and Weingast, B. (1989), ‘Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England’, Journal of Economic History, 49 (4): 803–32.
North, D. C., Wallis, J., and Weingast, B. (2009), Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History, Cambridge, UK: Cambridge University Press.
Nye, J. V. (1991), ‘The myth of Free-Trade Britain and Fortress France: tariffs and trade in the nineteenth century’, Journal of Economic History, 51 (1): 2346.
Polanyi, K. (1944), The Great Transformation: The Political and Economic Origins of Our Time, Boston: Beacon Press.
Purzycki, B., Apicella, C., Atkinson, Q., Cohen, E., McNamara, R., Willard, A., Xygalatas, D., Norenzayan, A., and Heinrich, J. (2016), ‘Moralistic gods, supernatural punishment, and the expansion of human sociality’, Nature, 530: 327–30.
Quiggin, A. H. (1949), A Survey of Primitive Money: The Beginnings of Currency, London: Methuen.
Redish, A. (1990), ‘The evolution of the gold standard in England’, Journal of Economic History, 50 (4): 789805.
Ridgeway, W. (1892), The Origin of Metallic Currency and Weight Standards, London: Cambridge University Press.
Salter, A. W. and Luther, W. (2014), ‘Synthesizing state and spontaneous order theories of money’, Advances in Austrian Economics, 18: 161–78.
Schmandt-Besserat, D. (1992), Before Writing, Vol. 1: From Counting to Cuneiform, Austin: University of Texas Press.
Shariff, A. F. and Norenzayan, A. (2011), ‘Mean gods make good people: different views of God predict cheating behavior’, International Journal for the Psychology of Religion, 21 (2): 8596.
Simmel, G. ([1907]1978), The Philosophy of Money, London: Routledge and Kegan Paul.
Smith, A. (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, London: Strahan and Cadell.
Smith, D, Dyble, M., Thompson, J., Major, K., Page, A., Chaudhary, N., Salali, G., Vinicius, L., Migliano, A., and Mace, R. (2016), ‘Camp stability predicts patterns of hunter–gatherer cooperation’, Royal Society Open Science, 3 (160131).
Spufford, P. (1988), Money and its Use in Medieval Europe, London: Cambridge University Press.
Stewart, A. J., Parsons, T. L., and Plotkin, J. B. (2016), ‘Evolutionary consequences of behavioral diversity’, Proceedings of the National Academy of Sciences, 113 (45): E7003–E7009.
Szabo, N. (2002), ‘Shelling out: the origins of money’, Satoshi Nakamoto Institute.
Tomasello, M. (2009), Why We Cooperate, Cambridge, Mass: MIT Press.
Wiessner, P. (1977), Hxaro: A Regional System of Reciprocity for Reducing Risk among the !Kung San, Ann Arbor: University of Michigan.
Wilson, D. S. and Gowdy, J. M. (2015), ‘Human ultrasociality and the invisible hand: foundational developments in evolutionary science alter a foundational concept in economics’, Journal of Bioeconomics, 17: 3752.
Wilson, E. O. (1975), Sociobiology: The New Synthesis, Cambridge, MA: Belknap Press.
Wray, L. R. (2004), ‘The credit money, state money, and endogenous money approaches: a survey and attempted integration’, Working paper available at (accessed 10 July 2017).

Related content

Powered by UNSILO

Money and its institutional substitutes: the role of exchange institutions in human cooperation



Altmetric attention score

Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed.