Down The Rabbit Hole: Do Me A Favour

4년 전



If many sources are to be believed, the story of money's origins is pretty clear-cut. It evolved out of necessity, with pre-money societies relying on barter and inevitably needing a commodity that would serve as a widely accepted medium of exchange. Everyday experience may seem to confirm this version of events. We do indeed have widely-accepted commodities that we use to oil the wheels of trade (although, increasingly, we are using digital payments rather than cash) and when people have had to do without money they have resorted to barter. It seems safe to reason that we similarly bartered before money was discovered.


Look a little closer, though, and things are not so clear-cut. Many economics textbooks retell the story-traceable back to Aristotle- of how barter led to commodity money. But for some reason they tend to use fictional places in order to explain how the coincidence of wants makes money such a necessity. Their thought experiments may be based on communities we are familiar with (such as a village or a town) but they rarely draw on actual historical examples of a society based predominantly on the barter system.

Some scholars claim that there are no historical examples of money evolving from barter for the simple reason that it did not. It's just that economists couldn't imagine any other way in which money could have evolved. For example, the historian and economist Michael Hudson has traced money's origins back to 3500BC, to a time when Mesopotamian temple administrators began relying on units of account to organise society. According to Hudson, Ariostotle's mistake was the failure to see that specialisation was something that developed within tribally organised communities. Rather than being obliged to specialise and market one's output in exchange for necessities such as food and clothing, specialisation instead developed within large households of chieftains, and those households supported non-agricultural labour with rations. Who oversaw the allocation of such rations? The administrators mentioned earlier. In Hudson's words, they "allocated rations and raw material in keeping with what was deemed necessary for production and for ceremonial and other institutional functions rather than resorting to private-sector markets, which had not yet come into being".


(Mesopotamian society. Image from wikimedia commons)


The common view of money's evolution sees its origins in barter. This then leads to commodity money, and inevitably it is gold or silver coins that become the most widely-used medium of exchange, by virtue of properties such metals naturally possess such as divisibility, durability, and being in fixed supply. Over time, those gold standard monetary systems evolved into debt-based credit systems, partly out of convenience and partly because fraudsters are out to scam people into accepting fake money designed to rig markets, thereby favouring the scammers and their cronies at everyone else's expense.

But when historical and anthropological studies are brought to bare on money's origins, this version of events just doesn't quite fit the evidence. In fact, the evidence suggests that, when it comes to money's origins, we may have got things backwards.

If money did not evolve from barter, how did it evolve? Well, barter entails a simultaneous exchange between two parties. I have eggs but I want ham; you have ham but want eggs. If our paths happen to cross we can both give up what we have in exchange for what we prefer.

But, suppose I have eggs and I pass a fellow tribesperson who has nothing I want to barter with. Nevertheless, I may still hand over some of my eggs. Why would I do that? Because I have some vague sense that in being generous like this I am building up credit. If ever I am on hard times, those tribal members I lent a hand to will reciprocate the favour. In other words, I am operating in a gift economy, one in which people freely give away what they have and undertake services for others, with the caveat that person on the receiving end will later return the favour.


What if they don't? And when and how is a favour fully reciprocated? As to the first problem, there doubtlessly would be free-riders who would accept gifts and favours but never reciprocate. But such people would build up a bad credit history and anyone operating under a strategy game theorists call 'tit for tat' would punish continual non-reciprocation. In fact, it is not just people who punish free-riders. Vampire bats are known to share blood if another bat has had an unsuccessful hunt, but if that bat continually fails to reciprocate, the colony punishes it by no longer being charitable. This suggests that money's origins in vague systems of credit go back beyond the dawn of the human species.

As for the problem of determining when and how a favour is returned, this probably developed along with resolving the problem of determining when a person who has done wrong has absolved themselves of guilt. How interesting it is to note that many of the words we use in association with guilt come from money. We send people to prison where they 'pay' their 'debt' to society. If we feel guilt we hope to 'redeem' ourselves. We wish to pacify and appease those who were done wrong by us- and the word 'pay' is derived from words like 'appease' and 'pacify'.

The problem of determining when one has redeemed themselves and properly appeased an injured party led to our ancestors establishing more specific systems of fines, fees and penalties. Over time this lead to quantified obligations i.e debt. At the same time, such quantifications lead to ratios between various commodities becoming established in order to measure whether both a grievance and a gift had been adequately compensated. You can see how we go from here to the Mesopotamian temple administrators.

The anthropologist David Graeber summarised this version of events in the following way:

"Our standard account of monetary history is precisely backwards. We did not begin with barter, discover money, and then eventually develop credit systems. It happened precisely the other way around. What we now call virtual money came first. Coins came much later, and their use spread only unevenly, never completely replacing credit systems. Barter, in turn, appears to be largely a kind of accidental by-product of the use of coinage or paper money: historically, it has mainly been what people who are used to cash transactions do when for one reason or another they have no access to currency".


In an earlier essay ('Money Be Gold') I said that believers in the standard account of money's origins belong to the 'church of metallism', so named because its followers insist that real money has to be based on a fixed commodity, preferably gold. Followers of the alternative origin story told in this essay belong to the 'church of the Chartalists' (it comes from the Latin 'charta' meaning 'token'). Their beliefs regarding money evolving from vague systems of credit leads to chartalists also disagreeing with metallists over such things as the role of governments in markets and what 'real money' is.


(Image from wikimedia commons)

From the Metallist perspective, markets came into being first and governments came later, playing an endorsement role through authenticating the quality and quantity of metal coins. But to the chartalists, markets and governments are inseparable, because "the state evolved to become the clearinghouse for debts and credits through its monopoly power over taxes" (in the words of Paul Vigna and Michael J Casey in their book on cryptocurrency).


As for what 'real money' is, the chartalist does not see it in terms of any kind of commodity. Rather, money is that network of credits and debts, meaning it is a social contract like marriage. More specifically, it is a means of measuring when a debt has been repaid, how much credit one has, how work should be allocated, how best to turn resources into products. In short, money is a measuring aid that helps us calculate relative costs, and good money is simply whatever system is most successful in reducing waste and getting resources to wherever they need to be in order to raise productivity in the most socially beneficial way.

Thus, the most valuable resource of all is not gold but rather trust. In a previous essay ('money be gold') I suggested a chestful of gold would be worthless to somebody alone on an island, whereas a chestful of survival gear would have near infinite value. But only if you could trust that the food rations were edible and that the survival gear met certain standards. Trust is the closest we can get to an intrinsically valuable thing.


(Trust is always valuable. Image from wikimedia commons)


Given the intrinsically valuable nature of trust and the fact that both historians and anthropologists have found evidence for the existence of societies predominantly organised around gift economies, I would say that the chartalists' view of money evolving from networks of credit and debt is the most plausible origin story. But it would be wrong to dismiss the metallists' version as entirely wrong. It cannot be denied that coinage did come to represent money. The challenge, then, is to figure out how to unify these two alternative accounts of money's development.


"The Zeitgeist Movement Defined"

"Modernising Money" by Andrew Jackson and Ben Dyson

"Cryptocurrency: The Future Of Money?" By Paul Vigna and Michael J Casey

"Rethinking Money" by Bernard Lietaer and Jacqui Dunne

"Debt: The First 5000 Years" by David Graeber

Authors get paid when people like you upvote their post.
If you enjoyed what you read here, create your account today and start earning FREE STEEM!
Sort Order:  trending

Nice info. Thanks


This post received a 3.6% upvote from @randowhale thanks to @leejin-33! For more information, click here!

Nice coincidence this article of yours. I was just thinking about the concept of money. It seems to me that the purest definition of money is "anything that works as a medium of exchange". Both metal money and a shared ledger fill that definition. Some observations:

  • Metal money is more difficult to counterfeit than a ledger, as long as it is rare metal. That was probably the strongest argument for metal money. The "intrinsic" value isn't the important thing.
  • A ledger could only be in one place at a time. Metal money could be used in complete disconnection from everything.
  • Metal money or cash is actually just real-time bookkeeping without a trace. DAG-based cryptocurrencies resemble cash in this regard.
  • A ledger would allow more divisible units of account compared to metal money.
  • Cryptocurrencies combine the best parts of both a ledger and metal money: It can't be counterfeited, it's divisible, the ledger is replicated everywhere.

Popular definitions of money tend to include "store of value" and "unit of account". I think they are just beneficial side-effects, but not entirely necessary. Of course a money that has the best properties becomes the most popular, which is why money tends to have these attributes also.


Wow, really thought provoking!

I'm glad you mentioned trust, because I fully agree. Trust is the ultimate currency. Anything else is just a substitute. The currency that most closely emulates trust will be the most efficient one, because it will suffer the least from fraudulent actors, the cost of fraud will not be collective, and it will allocate resources in the most effective possible way.

Reputation is a good proxy measure for trust, and serves well to demonstrate why trust is the ultimate currency. Many of us participate in ICO's. Basically we trust the receiving party to act honestly and deliver, not run with the money. A person with a good reputation can get lots of investments, but an anonymous person with no reputation is unlikely to get anything significant.

Reputation makes it easier to trust. I can invest in someone I trust, or lend him money. I can extend some credit to him. The more trust there is in a society, the more it can produce. The less bureaucracy and violence is needed. The more smoothly everything operates.

The opposite can also be seen with the 2008 crisis in the USA. The government backed the loans of people which the banks themselves didn't trust. The government bypassed the thing the whole society is built upon - trust. What happened?

I was really, really excited about Ripple before it decided to concentrate on banks. The reason was that it had a concept that could turn trust directly into capital. Basically anyone could freely establish trust lines between themselves and anyone. For instance I could "trust you with 100€", which would mean that you can pay me with an IOU backed by my trust in you - that you would pay me that 100€ in cash at my will. In effect credit. In addition anyone who in turn trusts me with 100€ could receive a 100€ payment directly from you. The network would grow and everyone would have the sum of all trust credited to them at their disposal, minus anything they already have used and plus anything they have received. In this way I could immediately give you 100€ to use as you wish, without consulting any third party or authority. The implications would have been immense. Just think about the third world with it's capital problems. People are just locked out of the system, even though others have trust in them. I'm hoping Stellar gets this right...

In the case of Ripple/Stellar the currency would be trust, but the unit of account could be whatever you choose.


The ripple version of trust you mention is one way to go but i think it's no surprise that it's being adopted by banks. It's basically the same idea of how they operate today just with a few more bells and whistles.

Steem on the other hand has created a value token that has trust linked in a different way. It has digitised the concept of trust and reputation and built a system of decentralised governance around it. This in one of the reasons why steem sands out among the cryptocurrencies for me.

You raise some good arguments, might have to dig into this a bit deeper :)

The beginning of society with a gifting economy was something I was familiar with before, but hadn't reevaluated how that affected the origin of money with tokens. But even though trust and reputation was used to reflect a ledger of debt or credit, something at that time before coinage could also be traded in barter instead of applying a gifting deficit or surplus. Great post. Resteemed and 100% vote. Very good info.

I like shiny things, but I also like the concept of a vague token, where some goods are more scarce than others, so they might be worth more, but not so much more that I'd want to carefully slice off a tiny sliver of gold from my chunk.

Some people have been known to trade non-essential goods as money, such as cannabis.

A strange concept, but cured cannabis doesn't go bad very quickly, and to a non-puritan community, it's a fine thing to partake in, and because it can't kill you, having more just means you get more high if you want to burn it, like when we cast SBD into @null.

This is basically lunatic fringe theory stuff, so don't take it too seriously.

Your article was interesting though, so I wanted to reply. =p

Nice post. I just Followed you. Please follow me.

I saw the Sumerian tablet and the rabbit hole and thought this would go slightly differently. But since You went back that far, I would be curious to hear other people's thoughts about money as it regards the connection to Humanity's Origins as told by the Sumerians themselves and the role gold mining played in society between 'god kings' and the people. Won't go too 'out there' in this comment, but perhaps Zecharia Sitchen's research and David Hudson's research on ORMUS might add other elements to the conversation. That was the rabbit hole I was expecting, but I just put it out there. Still, I really liked the article and I think it is a worthy meditation on the nature, origins and definition of, money and value as we see it. Nice one, @extie-dasilva !

great informative
ok i vote you my friend

great informative and historical

Thanks for likinf my post, please follow me also.

Nice post my best friend


Very Nice Post; Voted and followed you and kindly see my posts and vote me and follow me, As we can see our future posts and give vote to each other. Thank you @extie-dasilva

  ·  4년 전

hey ..nice post...
check out my new post any please give me your valuable feedback. If you like it then please upvote it and i will return your kindness with kindness....