Understanding Money: Before the Fiat
A new Utrust original series on the history of money and where we’re headed.
We have always traded. It’s a common misconception that the idea of markets and trade are a relatively recent concept, born out of civilization and large groups of people. This isn’t true of course, and economic interactions have existed since people exist.
A lot of what we know about them, however, isn’t true. There’s a lot of myth and misinformation regarding the origins of money and how we have brought it into existence. Sometimes, researching the history of this most important of human endeavors can seem like a huge ordeal, because there’s just
Most people just aren’t interested in the competing economic arguments about what constitutes reciprocal altruism.
This is why we have decided to produce this series. We are going to go through the whole shebang, from the seashells to the blockchain, and we are going to try our darndest to make it not boring.
In the beginning, there were gifts
No, we didn’t really barter.
We just gave people stuff.
Yes, the “barter economy” was never really a thing. It’s a widespread myth about the origins of economic practices that people used to barter as the main form of trade in the very beginning of our history. There’s just no evidence of this. Evidently, absence of proof is not proof of absence. It’s very hard to prove a negative, especially when we’re talking about a period of prehistory with no records, no data, no writing.
The historical consensus, however, points to a communitarian gift system, where the spoils of fishery, hunting, gathering, etc. were freely distributed amongst small communities evenly. This allowed for the whole group to thrive, and every individual to be protected when they couldn’t contribute for some reason.
And we used bones to keep track
Because of course we kept track. We’re not that nice. When agriculture developed, a little more sophistication became necessary. Not everyone planted the same things, so not everyone needed the same things. And, more importantly, they didn’t need them at the same time.
A system was necessary to keep track, and… lo and behold… credit appeared.
This happened 8 to 10.000 years ago, way before any kind of actual currency existed. And we may have been doing this for longer. Credit is way older than money. Debt too, for that matter. Artifacts as old as the Ishango bone, which may be 25.000 years old, hint at some kind of bookkeeping as far in the past as the Paleolithic.
But what about MONEY?
That came later.
And, devoid of a central controlling entity, it developed in many different forms (fans of digital currencies are going to enjoy this part, I feel). Before we start telling this story, let’s see what a couple of things mean:
- Representative money is something that has no value in and of itself, like a piece of paper, backed by an asset of some sort, such as livestock or grain.
- Commodity money is something that holds value in and of itself, like a precious metal, jewel or cowry shell.
- Standardized coinage is something that is specifically made, in a standardized shape and weight, to serve as a means of exchange.
All right, got it? Which one is crypto? Aha, therein lies the beauty. We’ll get to that, I promise.
Different societies came to money in different ways
The oldest examples we have of something that can fairly be considered money is in Mesopotamia (c. 3000 BCE). Barley was the staple grain in ancient Mesopotamia, and it was quite precious. Barley farmers, who had plenty to go around, could be considered wealthy men. But they couldn’t very well carry their barley with them around town to barter with every single other tradesman, now could they?
So here’s what they came up with: They took their barley to the temple, which was the most trusted institution of the time, for safekeeping. The scribe there annotated how many measures of barley they received on a clay tablet, and proceeded to give the farmer a clay token to represent every shekel (the word is the Semitic verbal root for “weighing”) of barley.
And, as simply as that, representative money was born.
This isn’t, however, how all societies first arrived at money. There are examples from Africa to India and Asia of commodity money, specifically cowry shells, being used to trade between communities where a mediator (such as the temple) wouldn’t have been practical. Cattle and salt were also used, but metal was the favourite, especially silver and gold.
There are plenty of theories, but the prevailing wisdom is that metal is durable, portable, and relatively easy to divide. Egypt used gold, Babylon preferred silver, and Bronze was widely used in China.
The code of Hammurabi is the first set of economic rules we have
This is when things start to get a teensy bit complicated. Once you have actual money in play, you start to need rules to manage how it’s treated. On the next chapter, we are going to tell you a little bit about how the code of Hammurabi set the ball rolling for what would become the fiat.
(We’re also going to tell you about coins. We know y’all like coins.)
In the meantime, if you are interested in the money of the future as well as the money of the past, we are extremely good at that too. Head over to our website and join us in the greatest financial revolution since people were trading shells.