The failure of money, chapter one.
General introduction to the series
I’m a digital marketer by profession and a revolutionist by heart. I’ve been fascinated by money since a very young age. I spent countless hours reading and initiating projects to get a grasp of the concept and the possibilities of different types of currencies. In my last year of college I wrote a thesis about complementary currencies, which lead me to discover blockchain, which I immediately knew was the future.
After being active in the crypto scene for several years, it dawned on me that to understand the idea and the potential power of cryptocurrencies it’s necessary to have a foundational knowledge of how money works. By becoming a Crypwalker you will understand the power of different currencies, the problem they can solve and how you can do your bit in the upcoming financial revolution. I hope to infect you with my passion and ignite motivation to solve one of the biggest problems in the world today: the monetary system.
To keep it interesting and hold your attention I will keep the first three parts concise. However, after the series I will dedicate a blog post to each point separately and touch it in more detail. Let’s do this!
Something smells fishy
Money is to humans, what water is to fish. Like the fish sometimes take their filthy natural environment for granted, so do we. By swimming through dirty water, we chase the wrong things and eventually suffocate in our miserable existence. Our daily troubles have blinded and silenced us. We’re too tame, distracted and conditioned to step up and face the facts. Because the truth is, we’re all participating in a rigged game where the majority of the players are dealt a bad hand. The monetary system is severely off course and slowly dwindling into the abyss. In all of the recent history, this is the first time when the younger generation of people will be poorer and less educated than their parents. This is my attempt to educate my fellow humans about the current global financial problems and the possible solutions.
It’s time to cleanse the waters.
How and where it all began
Money is not a product of nature and, unfortunately for many, it doesn’t grow on trees. Rather, modern money is a human construct that was conceived back in the 1700s in Europe (England) to become the backbone of the Industrial Revolution. Of course, the history of money has known different milestones, so let’s go over them in a linear fashion.
The original pioneer of the science of money is generally acknowledged as the philosopher Aristotle who claimed that money exists not by nature but by law. On this principle, the money has always been in the power of kings and illegal to counterfeit, a crime that was punishable by death. Some of the earliest records of money date back to ancient Sumer, currently located near Iran and Iraq. Dating from as far back as 7500 BCE, the Sumerians are credited with the development of writing. Contrary to many other civilizations that wrote poetry or dramatizations of their battles, Sumerians were known to write and keep records of accounts using shape writing in form of clay tokens. Each represented a specific quantity of a specific commodity. For example, a cone stood for a small measure of grain and a sphere for a large measure of grain. Further, gold coinage was first seen in Lydia during the 7th century BC, where currently Turkey lies. This is also where the bezant was created, a gold coin of 98% purity and 4.55 grams. The bezant existed for 700 years and the word itself comes from the Greek Byzantion, the ancient name of Constantinople, the capital of the Byzantine Empire.
Paper money in the Western world emerged during the 13th century in Venice, which later expanded to Florence and in the hands of the Medici family. It was designed for safekeeping of money with goldsmiths who then created a receipt for the coins and charged a small fee. When money was needed, people would hand over their receipt to goldsmiths and received their gold coins in return. Soon, people realized that they could exchange their receipt which was more convenient than taking daily trips to the goldsmiths. This was the origin of modern- day paper money and banking. Goldsmiths soon realized that their clients never retrieved the full amount of coins and began lending out money without having the actual reserves to increase their income. In other words, they began to issue more money than they actually held in coins. This is a process that still exists today and is now called the fractional reserve system. It’s a banking and monetary standard that was largely put in place and became standard practice in Europe by the mid- the 1600s.
This system was taken to the next level by the 17th century when a special relationship started to emerge between the banks and governments to finance wars. The oldest agreement between these two parties can be traced back to 1668 when Sweden needed money to fund their war against Denmark. The first central bank Sveriges Riksbank emerged but didn’t survive long and collapsed as a result of the issuing of too many notes without collateral. A new “successful” attempt took place a generation later in the establishment of the Bank of England in 1688. King William of Orange needed 1.2 million pounds to win the war against the French. In return, the bank was given exclusive access to the possessions of the government’s treasury and was the only corporation allowed to issue banknotes.
From here on this practice spread around the globe and in the U.S. the same deal was part of the Federal Reserve Act of 1913. The gold standard was eventually removed by President Nixon in August 1971 and stopped any links between the U.S. dollar and gold.
In conclusion, the monetary system has evolved into an unsustainable financial structure that prints money out of thin air. This results in harmful consequences like short-termism, compulsory growth pressure, cyclical recessions, unrelenting concentration of wealth, and erosion of social and natural capital.
In the next chapter, I will dive deeper into the current financial system and explain how taxes, debt and money creation works in detail. Stay tuned!
Fun fact:
“Fiat money” takes its origin in the Latin version of Genesis: Fiat lux (“let light be”). It implies the godlike ability to create something out of nothing (“ex nihilo”) through the power of the word or, in these times, a stroke of a computer key.
