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The widely accepted account of the origin of money (see, e.g., Menger 1892) is that it grew out of the inefficiency of barter. This efficiency view of the origin of money, however, does not square well with historical and anthropological evidence that money often grew out of the destruction of some fairly sophisticated credit arrangements, and that its introduction was not necessarily associated with an increase in prosperity. In this paper, we develop a model of the origin of money that is consistent with the facts that trade can flourish without money and its use need not trigger prosperity. We show that the introduction of money can be explained by the fact that governments may be able to better tax agents if trade is conducted through money instead of credit even if credit trade is more efficient than the monetary trade. Our paper thus provide support for a fiscal theory of the origin of money
