Money or the use thereof predates all documented human history. It was one of the earliest and most significant inventions we as humans created. It can also be argued that money was one of our first methods of communication, researchers have never found a civilisation where language or writing predates their money. Money, however, has changed over the course of human history and has assumed many different shapes and forms across the globe. No matter what format though, humans have long used money as a means of exchange, a store of wealth and a unit of account.
When humans lived in small, disparate communities across the globe it was easy to engage in a transaction, most people within the community had a specialised role and provided that to the village. This created a cohesive economy where everyone worked for one another. However, problems arose when the village got too big or started interacting with outside communities; one of the major problems is termed the ‘double coincidence of wants’.
When entering into a barter transaction you needed to find someone who wanted the specific good or service you were able to supply, obviously this creates a substantial amount of friction. If a blacksmith wanted a goat, he had to find someone who wanted a horseshoe and had a goat. More often than not this created a problem as individuals may have to search far and wide to find someone with that exact need, hence the ‘double coincidence of wants’. To solve this, they needed to find some form of value they could collectively agree upon.
As a result, early civilisations had a blend of money and barter systems. The money they used was agreed upon by the collective and therefore had value. The way money first emerged was as a collectible that had two distinct characteristics, it was rare, and it was symbolic.
Nick Szabo argued that the human desire for collectibles provided a distinct advantage over our closest ancestors, the Homo neanderthalensis from an evolutionary perspective. These collectibles allowed for trade to happen between distrusting parties and wealth to be transferred between generations. This was significant because it meant that humans could now pass on the fruits of their labour to their kids, this allowed cultures and people to flourish.
In our time is money article we argued that money is, for most people, stored time. They provided time and effort in exchange for money. The promise of money is to maintain the relationship between our present selves and our future selves. The effort we put in today should be redeemable for a similar amount of effort in the future. The introduction of money into society allowed us to transfer the result of our collective work, effort and sacrifice to the next generation.
However, almost all collectibles that were once used as money have now disappeared and are no longer used or circulated within society. So why has no collectible been the only form of money throughout history?
Debasement is the foremost reason that collectibles, whether it be stones, shells, metals, or beads have come to lose their monetary status. The cowrie shell was used as a form of currency in Africa for thousands of years due to their perceived rarity. Cowrie shells were a successful form of money; however, traders visiting the continent found a vast number of them in the Maldives and started using them to trade with Africa. Initially, it worked very well for both sides as the traders and locals were both receiving something they wanted. However, there was soon an oversupply of cowrie shells in Africa and they began to rapidly lose value, resulting in a reduction in what each unit could buy (i.e. loss of purchasing power). People just eventually stopped using them.
This exact pattern can be traced across the globe, the American wampum, which was still a legal tender in America only 359 years ago (1661) was debased quickly as new technology allowed for them to be produced on a mass scale by the European settlers.
Rai stones, circular limestone disks as large as a man, were a form of money on the island of Yap. Around 150 years ago the people of Yap received iron tools from a stranded sailor, this greatly increased the rate at which these stones could be made, and the arrival of new European ships helped simplify the transportation process. Consequently, they were mass-produced, inflation set in, and their value was reduced to nearly nothing.
These examples show how things we may consider rare or collectible can change over time, this can be due to discoveries of it somewhere else or how technological breakthroughs can make the creation of it easier.
A common theme across all these collectibles was the assumption that the item was scarce. When this assumption is challenged as we saw with Cowrie shells, the wampum and rai stones, the social construct of money begins to breakdown.
The form of money people used, whether it be shells, beads or stones, was vastly different 10 000 years ago than it is today. Two things are certain though, firstly, these types of money were all initially considered a collectible that people wanted to hoard for one reason or another. Secondly, they became money and had value because it was decided and agreed upon by the shared collective. What we use as money is therefore a social construct; it has value because we all agree that it has value. However, being a collectible is only the first step in the process of becoming a widely accepted form of money.
Whilst we all have the option to look, to seek to understand, it’s often easier not to. Bitcoin, Ethereum and distributed ledger technology are complex systems that require significant due diligence. At Etherbridge we aim to lower the barriers of understanding this fast-growing digital economy.
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This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments.