Human transactions have come a long way since the Stone Age. Eventually, the trading of commodities surrendered our ancestors to money, which in the last few thousand years has cycled through various forms, from wampum and metal beads to paper. In the 21st century, it often seems like incomparable electronic transfers and even cryptocurrencies.
Money is one of humanity’s most important inventions. For millennia, it has made the world go round, and that is no new feeling: As the Latin writer Publilius Sirus in the first century BC noted, “Money only sets the whole world in motion . ” But what is this changing source of prosperity, anyway? For Americans, the word calls to mind pennies, nickels, peels, quarters and dollars. Of course, these constitute the currency of one nation only, at one moment in time. The United Nations recognizes 179 other current currencies in the world, and hundreds or thousands more have gone the way of the shilling for a long time.
Furthermore, money is far more complicated than the bills and coins we carry in our purses and wallets. Formal definitions usually state that it serves several purposes: a convenient unit of exchange, a way to store wealth long-term and a standard value measure. This list only scratches the surface of silver materials.
The physicality of money may be its least important property. In fact, most economists even agree that it is not need physical form, especially in modern times. David Orrell and Roman Clpatý, in The Evolution of Money, write “The concept of currency has become increasingly abstract, to the point where actual coins and notes are only a small proportion of the currency that exists.” That, however, is the end of the story – at least, so far. Let us turn to the beginning.
Birth of Money
Most thinkers on the subject, from Aristotle to today’s mainstream economists, have speculated that money originated from a prehistoric barter economy, where people traded goods and services directly.
Such a system requires that both parties want what the other has to offer, and that they can settle on the relative value of each item. Is 30 bananas the same as one fishing net? Three ox nets? Money, on the other hand, is what everyone wants, and it is the unit through which everything else is measured. That means I can sell my bananas to someone else for money, the common economic denominator, and use it to buy your ox.
Money also frees us from lugging around our wealth in all its burdensome bulk. Imagine driving a bush of barley into the coffee shop to pay for your latte. How many goats could it take to rent a SoHo studio? Certainly more than you can keep in 800 square feet. Obviously ancient societies were not as complex as this, but as they grew, economist Glyn Davies writes in History of Money, “Trade requirements exceeded the scope of the barter.” Money came to the rescue.
Almost anything can serve as money, as long as it’s durable and sparse. Throughout much of Asia and Africa, starving shells – the spent homes of large and small sea snails – carried the work well into modern times. On the Yap island of Micrones, huge donut-shaped limestones played the role of currency, albeit immobile. In other cases, the best option was some form of “commodity currency,” such as cattle, salt or grain, which has an intrinsic value agreed upon by most everyone in a given society.
Lumps of precious metals, such as gold and silver, are also commodities, with the added benefit of malleability. The first uniform metal silver dates to China’s Zhou Dynasty, which formed small reproductions to represent cowards, along with knives, shovels and other tools. But the first coins we would recognize thus were mined in Lydia, a kingdom in present-day Turkey, during the 7th century BC His last king, with his legendary wealth, lives on in the phrase “rich as Croesus.”
Banking and the Gold Standard
Coins were much easier to transport and price – as opposed to weighing crude pieces of metal – and soon spread throughout the Greek city-states and beyond. In the meantime, though, back in China, an even more convenient approach was evolving.
Instead of constantly moving coins from place to place, the Chinese government kept all the coins in one place and issued pieces of paper instead. Here’s a start representative funds, where the money opposes themselves is not valuable. From his travels in the East, Marco Polo brought this concept back to Europe, where he led banking.
First in Italy, and later in England, people started depositing their bullion with goldsmiths and a notary, which in effect acted as what we now call banks. Those organizations gave receipts for the deposits, and over time the receipts became their own currency – although they could always be redeemed for real coins, people just as often circulated the banknotes as payments in their own right.
In this arrangement, the representative banknotes continue to be supplemented by commodity currency in the form of valuable materials. Centuries later, gold and silver remain the most universal symbols of wealth. To this day, the US government stores about 5,000 tons of gold at Fort Knox. A few hundred miles east, the Federal Bank of New York is guarding the world’s largest gold store – 6,190 tons, owned by clients worldwide, in 2019 – in an 80-foot vault beneath the streets of Manhattan.
The Gold Standard dominated international economics for centuries, tying currency value with that of rare yellow metal. But in the last hundred years, governments have disconnected the two. The norm now is fiat money, which has no intrinsic value and is not underpinned by anything that does it. You can’t walk to the bank, transfer a pile of one hundred dollar bills, and ask for a troy ounce of gold. These slips of paper are valuable just because the government says they are, and only as long as the citizens have faith in their government.
Wealth on the Web
Even hard money is becoming harder to come by. As Orrell and Clpatý write, we are now “in virtual order, where most money is created at the whim of private banks, simply by entering a number in a computer account.” Today, the incarnation of cash rarely needs to change hands. For decades, credit cards have allowed pieces and bytes to stand in for green bags, and over the past few years cryptocurrencies have fueled the next financial revolution.
Bitcoin – best known in a growing constellation of cryptocurrencies – is an increasingly popular virtual currency, created in 2009 by an unknown person or group known only as Satoshi Nakamoto. Even more abstract than digital dollars, it’s just a series of balances in a decentralized online ledger, called a blockchain. There are no physical bitcoins.
Using the so-called peer to peer technology, cryptocurrencies get rid of middle men like banks and the government, allowing for direct transactions between a vast community of consumers. Because so many people keep track of the transactions independently, it is impossible for anyone to cheat. This format eliminates the problem of trusting millions of people – you just need to trust the system.
Economists are still debating the extent to which cryptocurrencies will change the world, and whether it will be for the better or worse. But the digital transformation of currency generally is long overdue, with far-reaching implications. The migration of money into cyberspace means that it is “no longer tied to the fate of a single government or country,” as cultural anthropologist Jack Weatherford wrote in 1997. “The newly emerging system will change the exact meaning of money. ” Perhaps in a century, cash will seem as old as cowards.