This isn’t much of a discussion. Might be time to let the thread drop?
I’m open for ideas for how to make things more lively. We could maybe begin a new thread on modern economics – closer to current political discussions, and therefore more likely to engender conversation and rancorous debate.
We trade our output with each other.
Some people produce tons of pins.
Other people make wheat, or shoes, or houses, or lines of code stored as electrons on a server warehoused hundreds of miles from where they do their typing. The broader the market, the more we can divide our labor and specialize. We focus on one thing, so that our productivity in creating that one small thing is large. We’re better at making pins, and we’re better at making houses. Instead of a maker of pins selling just a few crudely machined pins with primitive industrial processes in order to trade the output of those pins and procure a small, crudely constructed domicile, the modern maker of pins sells large numbers of high-quality pins from a superior production process in order to procure a much nicer, safer, and better constructed domicile from another person whose specialization in the creation of housing has also allowed them to produce bigger and higher quality houses more efficiently.
We create more of everything, and so are able to trade more of our output for more of other people’s output. However, we do not trade our output directly with the output of other people. The pin maker does not trade fifty-thousand pins to their landlord in exchange for this month’s rent. The pin maker gathers up little tokens of value from a large number of people, one small sale of pins at a time, and then trades these tokens for rent.
So yeah. Today we’re going to start talking about money.
Money
There was, according to the anthropologists, a complex process that led to the development of money as we know it and use it today. Hunter-gatherers did not have the same notions of property that we had. They exchanged favors. My limited understanding of the process is that it went something like this:
“Hey, that’s a nice spear.”
“Oh, do you like it? I will give it to you!”
“Oh no no, I was just admiring your craftsmanship.”
“I insist! Please take it.”
“Well okay. Thank you for this marvelous spear.”
In everyone’s heads, a tally has shifted. People kept track internally of the people who gave the most compared to the people who took the most. It was, from what I gather in my limited readings of the subject, a complex series of inter-relationships. These relationships were an early system of obligations, which might be considered an early form of “debt”.
This sort of “debt”-based system is necessary, because barter is an absolute disaster.
Barter requires not just a single coincidence that the person in front of me has a particular item that I need in exactly the quantity that I would like to acquire it. It requires, too, a second ridiculous coincidence that I happen to have in my own possession an item that the other person also needs in exactly the quantity that they would like to acquire it. What’s more, we must both believe that the relative value of the one item matches sufficiently well with the value of the other that neither person feels that they have lost in the trade. And even on top of that, it requires at least some rudimentary notion of property, where a person feels fully justified and comfortable in refusing any particular trade and maintaining possession of their own property, to the exclusion of the other person who might want to make use of it.
In violently egalitarian hunter-gatherer societies, this last point in particular was not the case. People shared. A person might work long hours on building beautiful and useful objects, but to build up an inventory of belongings that was one’s own personal property, not freely available to others, seems to have problematic for group cohesion. Status was acquired from gifting, not from accumulating.
After the domestication of animals and the eventual development of agricultural, there developed a more natural sense of personal property, and therefore a toleration for inequality that a violently egalitarian hunter-gatherer group would not have abided. This development of the notion of property in a modern modern sense is important for exchange as we know it today,
But even after cultural norms shifted, barter is still a disaster. It can’t work. The ridiculous double-coincidence necessary for a pure barter transaction is too rare to make it the foundation of any system of exchange.
What happened, then, was the development of a “key good”. Say one set of people creates clothing, and another set of people wheat. In order to trade one for the other, it helps to have a common unit of measure for the value of each. One of the earliest recorded key goods is cattle. If they observe in the markets that a certain amount of clothing normally trades at around one and a half head of cattle, whereas such-and-such weight of wheat trades at nearly the same amount of cattle, then the price between the two is equivalent. 1.5 head of cattle worth of each item can fairly be exchanged.
You don’t even necessarily need to use cattle as an intermediate good in order to price your wares in how many heads of cattle it’s worth. This is a benefit, too, since if you measure everything with its value priced in living, mooing creatures, then you’re going to have use discrete numbers. It’s no good trading 1.6 heads of cattle when you possess only three healthy adult specimens. You’re going to have to buy more, or less, of the item that you wanted if you’re trading full animals.
A large number of alternative key goods have been used to facilitate exchange in history. In addition to cattle, we have clearly recorded salt, dried cod, tobacco, cowrie shells, sugar, hides, and Adam Smith even mentions one village in Scotland where a person could take nails to the butcher in exchanged for meat. Prisoner-of-war camps often used cigarettes as their key good, readily and happily accepted in payment by people who didn’t smoke because they knew the cigarettes would purchase anything else in the camp. Cigarettes can be “liquid” – easily convertible into other items through trade – in a place where no banknotes exist.
Our metaphors for money are based on this easy and free movement. We speak of money as the most liquid asset. Currency – from the current or flow of money – is the name we give to different denominations that are used in different countries.
The ancient world was figuring out this stuff for the first time. It wasn’t even necessarily a conscious process by which many countries tended to gravitate toward certain goods over others. But if there is to be some common medium of exchange, through which people can most easily trade their output today without having to go through the near impossibility of barter, there is a certain kind of good that historically lent itself most readily to the business at hand.
The desired properties of this good were, first, its great density of value. You want to have a lot of purchasing power in a very small space. Cattle are nice and all, but if you want to trade internationally, carrying the cows over the sea isn’t the nicest piece of business. Better something small and easy to carry that still packs a punch in markets. Small things that are worth a lot are high value density.
A second desirable property is the ability to subdivide this good as many times as is needed, in any arbitrary fraction that is needed. This is another criterion in which which cattle fall well short. If you have cows to sell, then you can sell one, or you can sell two, but selling 1.75 is a more difficult proposition.
Related to this problem, a third desirable property is that the quality of the good is easily measured, and easily compared against other samples of the good. Maybe one good cow and one mediocre cow would add up to 1.75 cows. It’s possible. But how do you manage to fairly measure the quality of one cow vs another in a consistent fashion? Two heads of cattle that are used in trade might not actually be worth, well, two heads of cattle. A robust and healthy specimen might trade somewhat above the value of “one head of cattle”, and sickly old example might trade well below the rate for a standard head of cattle. A more ideal good would be more easily comparable, which is to say fungible, so that one specimen would be just as good as any other specimen.
A final desirable property of early money is the ability to avoid spoilage, which is to say, the key good should ideally maintain its quality even over long voyages or extended periods of storage. Close a cow in a sealed vault for a few months, and what remains when you look again later will not be nearly as valuable as what originally walked in. (Ewwww…)
What was originally a matter of exchange becomes, in essence, a matter of chemistry.
Particular elements of the periodic table actually do have the properties above, and some elements in particular meet each and every individual criterion quite successfully. Many metals are able to resist spoilage over time compared to other kinds of elements, and some metals are more dense in value than the others owing directly to their relative rarity in the earth’s crust, or the relative difficulty in finding them and excavating them out of the earth.
The earliest coins seem to been a variety of electrum, a naturally occurring alloy of gold and silver. The most common denominations of Roman currency were copper. The original English pound was a specified weight of silver, which is why it was a pound sterling. Even after they shifted to an official gold standard, their money still carried the historical appellation of sterling, and of course it remains the pound sterling today, though their currency is now fiat and their monetary authority will not give you any amount of any precious metal if you take the banknotes to their monetary authority. The etymology is silver, but the reality today is computer and paper.
In the Ore Mountains of then-Germany (now part of the Czech Republic), there was the valley of Saint Joachim, Joachimsthal, where there existed a silver mine. The coins minted out of this silver mine were given a nice -er ending after the name of their valley of origin, Joachimsthaler, a word that was thankfully shortened to the more convenient Thaler. But language change is a continual process, and these thalers came to be pronounced in English in a slightly different way. People started calling a coin of this kind a dollar. The Spanish pieces of eight dug out of the mines of the new world were struck at a very similar weight to those old German coins, a weight that had become a sort of international standard, and so were sometimes called Spanish dollars.
The early American colonies were not blessed with mines of great fertility, and so relied on whatever forms of money were most readily available. Spanish dollars were present, and therefore useful, and therefore used.
These Spanish silver coins were legal tender in the United States until 1857.