Unlearning: History of money & is bitcoin money?
History of money
Contextual Overview: Last week I rejoined the student world. I am not now reading my MSc in Digital Currency at the University of Nicosia. Writing helps me put my thoughts together, so here is a small digest about what money is and how bitcoin can me considered as money.
Side note: A lot of this week has been about unlearning. A good friend of mine Mihai share Reid Hoffman’s — Master of Scale podcast, episode with Barry Diller https://mastersofscale.com/barry-diller-learn-to-unlearn/
This podcast has truly helped me transition my mind into absorbing this week’s course material.
Misconceptions of how money evolved
Money came from bartering (FALSE)
Many people think that money evolved from bartering. This is actually not true. It was actually Adam Smith’s book called Wealth of Nations (1776) often known as the Bible of Capitalism that bought this untruth forward. More on this point here.
Debt is actually the start of money.
Bartering requires the ‘double coincidence of wants’ for it to work. Which means that two individuals want to partake in the cross exchange of goods. However if I have a cow and you have a chicken, your chicken is not equal to my cow…. hello debt.
Bartering assumes the ‘transaction’ of physical goods being exchanged, this is not money. Money is not tangible.
By buying we become debitors. According to Innes we ‘pay’, ‘satisfy’ and ‘redeem’.
Money is completely different to barter as the burden of trust is removed and the accountability is moved to a 3rd party or ‘social organisation’
Money is valued from gold (FALSE)
People also think that Money is valued in accordance to Gold. At one point in history (early 20th century) there was a notion of gold standard. That said gold setting the value of money not technically true. Historically, gold was not used a a medium of exchange.
It is of the utmost importance to note that the value of precious metals derives, in the first place from their use as symbols of power and prestige. Even when coinage was eventually introduced in the 17th century BC, pure gold coins were primarily status symbols and stores of value for the elite, rather than means of payment and media of exchange. The Historical Origins of Money and its Pre- capitalist Forms. Ingham (Chapter 4, P.94)
What is Money?
Money isn’t really what mainstream society thinks it is.
Money has definite social and political conditions of existence. It’s an institution of fact with constitutive rules. Searle (1995)
He goes on further to say, and I paraphrase; that forms of money does not need to be tangible and can exist materially. This is backed up by According to Keyes 1930; Grierson 1977; Hicks 1989;Hoover 1996, who say that ‘’money is abstract’’ (a measure of abstract value).
It is Knapp (1973)who defines the purpose of money as:
a means of storing and transporting the abstract value for means of final payment or settling debt. Knapp (1973)
The power of money is independant to that of goods and money is highly subjective to the social and political environment that it exists in.
It’s Napolean (1806) who highlights;
The banque does not solely belong to it’s shareholders; it also belongs to the the state which granted it the privilege of creating money
It’s the Polygni (1957)school of thought who identifies that money is embedded in society and looks to establish and facilitate three things:
- Reciporcity
- redistribution
- market price
Money needs the coexistence of debt. It is in fact debt that creates the value of money. There is credit for a user because debt is a liability for an issuer. Worth noting here that according to Minty Bell (2000), ‘’all money is credit but not all credit is money’’
Money has 3 principle functions:
- Medium of Exchange
- Store Value (repository of purchasing power over time.. from time it’s received til the time it’s spent)
- Unit of Account (lowers transaction costs, avoids having one million different kinds of reference as to what the item ‘costs’ in comparison to)
It is from these three functions that our course definition of money is as follows:
Money is something uniquely specified as a measure of abstract value and as a means of storing and transporting this abstract value.
For something to be considered money, it:
- must have value
- must be widely accepted
- must be divisible
- must be durable
- mustn’t deteriorate.
Bitcoin an Asset
Whilst bitcoin might not qualify as money, it is certainly an asset. Follow Bitcoin Price activity here to see if you think it’s a worth investment to sit in your portfolio of assets.
IMP note: These are my study note, I’m learning. Things here might not be 100% correct. Please correct me if Im wrong!
