Michael Hudson: Some Myths Regarding the Genesis of Enterprise

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Yves here. This topic, on the origins of enterprise, is more important than it might seem. One of the ways neoliberals justify their policy positions is through various “just so” stories, that commerce and the use of money arose naturally though interactions with individual. They insinuate that this purported evolution means that unfettered transactions are therefore virtuous. This post show that in fact the governments in ancient societies, the palace sector, created money and private property rights.

By Michael Hudson, an American economist, a professor of economics at the University of Missouri–Kansas City, and a researcher at the Levy Economics Institute at Bard College. He is a former Wall Street analyst, political consultant, commentator, and journalist. You can read more of Hudson’s economic history on the Observatory. Produced by Human Bridges

If a colloquium on early entrepreneurs had been convened in the early 20th century, most participants would have viewed traders as operating on their own, bartering at prices that settled at a market equilibrium established spontaneously in response to fluctuating supply and demand. According to the Austrian economist Carl Menger, money emerged as individuals and merchants involved in barter came to prefer silver and copper as convenient means of payment, stores of value, and standards by which to measure other prices. History does not support this individualistic scenario for how commercial practices developed in the spheres of trade, money and credit, interest, and pricing. Rather than emerging spontaneously among individuals “trucking and bartering,” money, credit, pricing, and investment for the purpose of creating profits, charging interest, creating a property market and even a proto-bond market (for temple prebends) first emerged in the temples and palaces of Sumer and Babylonia.

The First Mints Were Temples

From third-millennium Mesopotamia through classical antiquity the minting of precious metal of specified purity was carried out by temples, not private suppliers. The word money derives from Rome’s temple of Juno Moneta, where the city’s coinage was minted in early times. Monetized silver was part of the Near Eastern pricing system developed by large institutions to establish stable ratios for their fiscal account-keeping and forward planning. Major price ratios (including the rate of interest) were administered in round numbers for ease of calculation[1].

The Palace Forgave Excessive Debt

Instead of deterring enterprise, these administered prices provided a stable context for it to flourish. The palace estimated a normal return for the fields and other properties it leased out, and left managers to make a profit—or to suffer a loss when the weather was bad or other risks materialized. In such cases shortfalls became debts. However, when the losses became so great as to threaten this system, the palace let the agrarian arrears go, enabling entrepreneurial contractors with the palatial economy (including ale women) to start again with a clean slate. The aim was to keep them in business, not to destroy them.

Flexible Pricing Beyond the Palace

Rather than a conflict existing between the large public institutions administering prices and mercantile enterprise, there was a symbiotic relationship. Mario Liverani[2] points out that administered pricing by the temples and palaces vis-à-vis tamkarum merchants engaged in foreign trade “was limited to the starting move and the closing move: trade agents got silver and/or processed materials (that is, mainly metals and textiles) from the central agency and had to bring back after six months or a year the equivalent in exotic products or raw materials. The economic balance between central agency and trade agents could not but be regulated by fixed exchange values. But the merchants’ activity once they left the palace was completely different: They could freely trade, playing on the different prices of the various items in various countries, even using their money in financial activities (such as loans) in the time at their disposal, and making the maximum possible personal profit.”

Mesopotamian Institutions Boosted the Commercial Takeoff

A century ago it was assumed that the state’s economic role could only have taken the form of oppressive taxation and overregulation of markets, and hence would have thwarted commercial enterprise. That is how Michael Rostovtzeff[3] depicted the imperial Roman economy stifling the middle class. But A.H.M. Jones[4] pointed out that this was how antiquity ended, not how it began. Merchants and entrepreneurs first emerged in conjunction with the temples and palaces of Mesopotamia. Rather than being despotic and economically oppressive, Mesopotamian institutions and religious values sanctioned the commercial takeoff that ended up being thwarted in Greece and Rome. Archaeology has confirmed that “modern” elements of enterprise were present and even dominant already in Mesopotamia in the third millennium BC, and that the institutional context was conducive to long-term growth. Commerce expanded and fortunes were made as populations grew and the material conditions of life rose. But what has surprised many observers is how much more successful, fluid, and more stable economic organization was as we move back in time.

Ex Oriente Lux

Growing awareness that the character of gain-seeking became economically predatory has prompted a more sociological view of exchange and property in Greece and Rome (e.g., the French structuralists, Leslie Kurke[5] and Sitta von Reden,[6] and also a more “economic” post-Polanyian view of earlier Mesopotamia and its Near Eastern neighbors. Morris and Manning[7] survey how the approach that long segregated Near Eastern from Mediterranean development has been replaced by a more integrated view[8] [9] in tandem with a pan-regional approach to myth,  religion,[10],[11] and art works.[12] The motto ex oriente lux now is seen to apply to commercial practices as well as to art, culture, and religion.

Individualism Was a Symptom of Westward Decline

For a century, Near Eastern development was deemed to lie outside the Western continuum, which was defined as starting with classical Greece circa 750 BC. But the origins of commercial practices are now seen to date from Mesopotamia’s takeoff two thousand years before classical antiquity. However, what was indeed novel and “fresh” in the Mediterranean lands arose mainly from the fact that the Bronze Age world fell apart in the devastation that occurred circa 1200 BC. The commercial and debt practices that Syrian and Phoenician traders brought to the Aegean and southern Italy around the eighth century BC were adopted in smaller local contexts that lacked the public institutions found throughout the Near East. Trade and usury enriched chieftains much more than occurred in the Near East where temples or other public authority were set corporately apart to mediate the economic surplus, and especially to provide credit. Because the societies of classical antiquity emerged in this non-public and indeed oligarchic context, the idea of Western became synonymous with the private sector and individualism.


[1] “Das Palastgeschäft in der altbabylonischen Zeit.” In Interdependency of Institutions and Private Entrepreneurs: Proceedings of the Second MOS Symposium (Leiden 1998), ed. A.C.V.M. Bongenaar, 1998, pp.153–83; “Royal Edicts of the Babylonian Period—Structural Background.” In Debt and Economic Renewal in the Ancient Near East, ed. Michael Hudson and Marc Van De Mieroop, 2002, pp. 139–62.

[2] “The Near East: The Bronze Age,” The Ancient Economy: Evidence and Models, ed. J. G. Manning and Ian Morris, 2005, pp. 53-54.

[3] The Social and Economic History of the Roman Empire, 1926.

[4] The Later Roman Empire, 284–610: A Social, Economic, and Administrative Survey, 1964.

[5] Coins, Bodies, Games, and Gold: The Politics of Meaning in Archaic Greece, 1999.

[6] Exchange in Ancient Greece, 1995.

[7]  The Ancient Economy: Evidence and Models, ed. J. G. Manning and Ian Morris, 2005.

[8] The Mediterranean and the Mediterranean world in the age of Philip II by Fernand Braudel (author) Sian Reynolds (translator), 1972.

[9] “Did the Phoenicians Introduce the Idea of Interest to Greece and Italy—and If So, When?”, Greece between East and West, ed. Gunter Kopcke and I. Tokumaru, pp. 128–143.

[10] Die orientalisierende Epoche in der griechischen Religion und Literatur by Walter Burkert, 1984.

[11] The East Face of Helicon: West Asiatic Elements in Greek Poetry and Myth by M.L. West, 1997.

[12] Greece between East and West: 10th-8th centuries BC by (G.) Kopcke and (I.) Tokumaru, ed., 1992.

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  1. .Tom

    Thank you Michael and Yves. A good and concise article.

    I have been thinking about the standard neoclassical origin story of money on and off for years: There once was an economy of entrepreneurs and traders who came to find barter so inconvenient that they decided to invent money. It’s quite funny how daft it is when you think about a bit more carefully. At the beginning of that horrible film The Big Short the heroic narrators presented that story as fact and we knew we were in good hands, haha.

    I first read an account like the one here in Graeber’s Debt and then later I got more detail from Randall Wray, who added the question: What drives demand for a given currency? Taxes, fees and fines.

  2. GlassHammer

    “the governments in ancient societies, the palace sector, created money and private property rights.”

    Beyond the fact that this made for a much more stable tribe/society, it also made it possible to build a larger fighting force.

    To put it another way there is a reason nomads with no government structure for money/resources regularly got crushed and absorbed by those that had those government structures.

    1. NotThePilot

      That’s a really fruitful point, GlassHammer, and yields a lot of interesting analogies.
      * The Chinese Legalist program with its motto of “rich country, large army”
      * The famous French centralizers: Richelieu, Mazarin, Colbert, etc.
      * The paradoxical strength of Byzantine Rome, despite the chaotic, factional politics
      * I’m weaker on the history, but several institutions in Pre-Columbian America come to mind

      There’s definitely a pattern, across time and space, where a strong, economically active, and rationalized (which often means centralized) state that suppresses oligarchs benefits both its people and its own hard power.

  3. tony

    It’s worth reading Mariana Mazzucato on innovation.

    She points out that the i-phone was not invented by Apple, but assembled from state funded (DARPA etc.,) R&D component developments largely undertaken in or through public institutions – So….GPS, touch screen etc.
    It could never have been developed without this foundation of publicly funded innovation.

    The same applies to big Pharma, where the ‘blue sky’ stage of R&D is mostly public research, with venture and development capital only getting involved close to the later product development stage.

  4. juliania

    But still, doesn’t even governmental control need individuals to be virtuous in their operations? I’m a bit nonplussed by the comparison of smaller, chieftain societies having obtained the potentially manipulative knowledge passed on by phoenician traders and such, thereby becoming tyrants. Certainly that happened, but didn’t some of the larger groups also fall to the temptations of excessive greed? I mean, that’s what happened in the US. I’m not willing to say that’s the effect of individualism, unless you define the latter very narrowly.

    I’ve just been reading the comments of the new Russian defence minister, Andrey Belousov. He comes to that position from an economics background, but perhaps a different one – I’m not really competent to say. Here’s how he describes ‘the ideology of a multipolar world’: [It] “…is about developing a certain self-dependence, similar to Carl Jung’s concept of The Self. It is different from the ‘persona’, or ‘mask’ that one wears. All sovereign countries should possess this concept…”

    I realize that he is talking about something different, but also in order of priorities he does put economics second, and the development of a cultural code first, much as an individual might be encouraged in his/her development to do. (A very interesting choice as new Russian minister of defence.)

    1. CA

      Please, if possible, give a further sense of what this means:

      ‘the ideology of a multipolar world’: [It] “…is about developing a certain self-dependence, similar to Carl Jung’s concept of The Self. It is different from the ‘persona’, or ‘mask’ that one wears. All sovereign countries should possess this concept…”

      1. juliania

        Sorry to be late to answer. I have been watching the latest Duran show, which is very long but very good (I watched it twice.) Here is that, while I go find a link for you to the set of quotations from which I extracted the upper fragment.


        [I like the term “interregnum”]

        1. juliania

          I didn’t find a postable link – the site for it is strategic-culture.su/category/editorial/
          Here is a bit more of the quote:

          “There is no other option for Russia but to acquire or rediscover this Self. Some say that we have huge resources, we have talented people. That is true. But the most important prerequisite for forming a Russian Self is great culture. We have our own cultural code, our own cultural identity, which most countries and people do not have. Dostoievski felt it very well, and especially in works such as ‘A Writer’s Diary’ expressed it 100% precisely. And many other writers of the 19th and 20th century spoke about this too. That is our most important resource, which we must use. We need people to understand that they carry within themselves this cultural code…”

          I hope that helps.

      1. juliania

        Thanks for the link. This quote from wikipedia would pertain I think:

        “Jung considered that from birth every individual has an original sense of wholeness—of the Self—but that with development a separate ego-consciousness crystallizes out of the original feeling of unity.”

        And continuing the posted Belousov quote above gives clarification of the usage:

        “… This should be done [Self awareness in the larger context] through various mechanisms – through patriotism, through education, through the experiences of their fathers and grandfathers. If we solve this problem, economic tasks will be secondary…”

        This is the best I can do. If it still isn’t understandable, my apologies.

        1. CA

          Wow, what a perfect answer. What General Kutuzov might have explained to Prince Andrei about what it was to be Russian before the battle of Borodino. Tolstoy was explaining why Russia prevailed.

          The point is you have explained perfectly and taken me back to “War and Peace,” which I never quite understood before but was captured by nonetheless because of the revealed psychology of the characters.

          If I am being obscure, just remember my thanks.

        2. CA


          A foolish obscure response by me, but you answered perfectly and I understood and am entirely grateful.

          1. juliania

            The feeling is mutual! And I am also grateful for Prof. Hudson’s piece. We are very fortunate to have such men among us.

    2. Larry Motuz

      The thing about an equivalence system within a culture is that established equivalency ratios between all goods and services, in their effect, bar most forms of imbalanced trade within that culture. Thus, securing an advantage over a seller due to his or her circumstances is effectively outlawed.

      But when trade between cultures — or even city states — exists, different equivalency systems can be taken advantage of by trader operating between these diverse cultures or city states.

      Coinage came about accidentally. Due to the high equivalency rank of precious metals — gold, silver, copper — it proved useful to have coins of the same weights to bar cheating on weights and measures. But as lower denominations were coined, their usefulness led to them equivalently substituting for other goods and services … which eventually led to the breakdown of the equivalency systems … matters which, in fact, took many centuries.

      That’s my view, but I think Michael Hudson would agree with it.

  5. Ranger Rick

    It’s an interesting perspective for sure. The earliest Sumerian clay tablets I know about concern the brewing of beer and the sale thereof, a religious activity done by temples. The other tablets I know about are a bit of an internet meme for how contemporary the situation described is.
    There are numerous examples of debt forgiveness as policy in antiquity, to the point where it makes you wonder if what you’re looking at is loans as subsidies, welfare or economic stimulus: public interest loans, in other words, which may never get repaid, but ensure the continued health of a society.

  6. Susan the other

    Interesting how those Wiley Phoenicians who took to the sea actually created the first pawn shops by convincing foreign artisans to take money in exchange for their prized goods and then the Phoenicians returned on their next trip with their own prized goods to redeem their money! A pawn shop where logically the value being traded was intrinsic in the various goods and money was just a mechanism that created an easement of time which was thereby extended to complete the transaction. The goods themselves contained the value. But sadly they were not readily fungible. Logically if the goods could have accrued value, interest, for the time extended and if that value had been achieved by creating compounded goods, the market would have been flooded with those goods and they would have become less valuable. What a magic trick money is. The holy place holder. But in the end there is lotsa money causing havoc. If time is the valuable thing being bought, it’s no problem because time quickly disappears into the past. So that’s one good reason to have a limit to debt – it should disappear like the passing of time so as not to imbalance the future. Or over-consume the future. Never mind, just dreaming.

  7. Gulag

    My own limited research in this area indicates that by the second millennium BC, Babylonia possessed thriving markets not only for output but also for land purchases, land rentals, and labor. Temples leased out their land for a share of the crop or a fixed amount of sliver (around this time lease contracts also began to appear). In addition, there were loans with interest rates as high as 50% per year. Wage labor also seemed to have become important by 2000 BC in Babylonia. (see Jursa in “Aspects of the economic history of Babylonia in the first millennium BC” (2010).

    I agree with your sentiment that it is indeed surprising to see quite dynamic market economies flourishing as we move back in historical time.

    But how and why did this all go so wrong, where (way back then) growing factor markets (land, labor and capital) first
    led to economic growth and then eventually to extreme social polarization, financialization and markets skewed toward only the interests of market elites?

    Why are studies analyzing the decline of market economies relatively rare?
    What exactly takes place in the underlying structure of market economies that leads to decline, decay and decadence?
    Do you know of any high quality Income inequality studies under socialism?

    1. CA

      “Why are studies analyzing the decline of market economies relatively rare?
      What exactly takes place in the underlying structure of market economies that leads to decline, decay and decadence?
      Do you know of any high quality income inequality studies under socialism?”

      Excellent questions.if the term “market” is replaced by “capitalist.” As for studies of income inequality, I am going to look to Branko Milanovic to try to answer the question. China offers a perfect study of socialism and income inequality by way of making sure growth prospects continually are focused on poorer communities while general growth is sought.

  8. samm

    “But how and why did this all go so wrong […] Why are studies analyzing the decline of market economies relatively rare?”

    Hudson mentioned that there was a sudden collapse of societies in the Eastern Mediterranean about 1200 BC. Of course it wasn’t universal — the Egyptians and Assyrians were able to hold on, but the thing is nobody can figure out exactly what caused such widespread social disintegration. And it’s not due to lack of studying the issue, it’s simply a lack of solid evidence.

    1. juliania

      I am remembering a statement Prof. Hudson has given many times: “Debts that can’t be paid won’t be paid.” I think it answers the questions raised. Eventually what was provided by wise rulers comes about of its own staggering volition.

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