From Clay to Gold to Paper to Crypto, the story of the single greatest unifier in human history!

Do you remember your very first memory of money? Your first realization of the magical power of an otherwise normal-looking paper that could buy you chocolates, food, and toys? When I was a kid, money just felt like some natural construct that was part of the world, something that was always out there in existence, just like trees, rocks, and rivers.

But as you grow older, you soon realize that money is a human construct. So, it is really fascinating to wonder how we humans ended up with these magical pieces of paper. In fact, it is not even a piece of paper now, as money has become virtual. About 98 percent of the transaction of money worldwide takes place without any paper involved. That way, it is even more fascinating to understand how we humans ended up with this virtual mystical ‘thing’ called Money.

But before going to its origin, let us first talk about the different roles of money. Money first acts as the medium of exchange. That is, for your 10 dollars note, you get a couple of notebooks. Money also acts as the unit of transaction. That is, for an extra 5 on top of 10, you get one more notebook. And finally, money acts as the medium for the storage of value. Be it houses, stocks, or even golds, we usually value things in terms of money, like a house worth 10 million dollars, and so on.

When we think about the origin of money, it is often easier to think of money as the evolution of the Barter System — a system that involved the exchange of goods. However, the origin and evolution of money long predate even the Barter System.

As we know from human history, sharing is an important trait that has helped us survive and prosper. While sharing can be altruistic in nature, most of the time it tags along with the concept of reciprocating — the de facto “if I share today, I will get something in return tomorrow”. And it is through this act of sharing and reciprocating — which is basically exchanging — transactions started between early humans within their small groups. But as the societies flourished, the circles got bigger, making it difficult to keep track of the transactions.

Thanks to the invention of writing along the way, humans could record the transaction and keep a strict account of who owes what to whom. The earliest proofs of record-keeping are the still present clay tablets from the time of Mesopotamia civilization, dating back as far as 3500 BC, where it was used to record the earliest writings of mankind. The clay tablets were the proof or the medium of trust showing that the transaction did happen, kind of like a modern-day contract.

The same concept of trust is what we find in our present financial transaction scenario as well. If you just take a look at a paper note, you will see the words along the line of “I promise to pay the bearer on demand”. So, basically, the clay tablets from the Mesopotamia days, and the physical form of money from our age are both a medium of trust. And in that sense alone, money evolved as a credit. In fact, the word credit itself comes from the Latin word credo which means “I trust”.

It was only later when societies got even bigger and people had to carry on transactions outside their societies, that the Barter System evolved. As people could not “trust” someone outside their circle to pay back for the goods lent, it was imperative to have ‘in the moment’ exchange of other goods in return, which gave birth to the Barter System. However, the Barter System suffered from one inherent problem, known as the problem of ‘double coincidence’. If a transaction were to take place, it was imperative to have two parties who wanted corresponding goods in return. That is, if I wanted to exchange my grains for a goat, I had to find someone who had a goat and wanted grains in exchange, and it was harder to find people who could meet both criteria. Thus, people felt a need for a medium that could bypass this problem of double coincidence.

Also, since the trust was still going to be an issue in transactions spanning multiple outside circles, the medium of exchange in itself had to have some value too. This reason saw the rise of the concept known as “Commodity Money”. For example, in a society where everyone valued goats, goats could act as commodity money. But the problem with a goat as money is, although it is valued, it is difficult to carry around (not portable) and the goat could get sick and die too (perishable). So, it was important to find something that was not only valued but also portable and non-perishable. And at the time, the precious metals — mostly gold and silver, ticked the requirement. This led to the rise of money in the form of Gold and Silver coins.

But wait a minute. Let us digress a bit here, and wonder about another question. Why are precious metals (like Gold, Silver) precious in the first place? Do Gold and Silver have intrinsic value in themselves?

The notion of intrinsic value is subjective in my opinion. While some people might associate value with the need only (in that sense Golds and Silvers do not have value in themselves as they are not needed), some people might associate value with aesthetics too (in that sense, they are valuable because of their shiny and lustrous aesthetics).

But the main reason why Gold and Silver are valuable has something to do with Economics and Chemistry. First, Gold and Silver are rare and their rarity gives them a higher value. Second, Gold and Silver are chemically very ‘uninteresting’ elements, as they are not as reactive with other elements and thus retain their quality even for a longer period of time. Therefore, because of its rarity and non-reactive nature (and the physics part, which ensures its lustrous nature and aesthetics), Gold and Silver have long been valued, by ancient societies and civilizations with no notion of money in the present days.

Coming back to our principal topic at hand, as Gold and Silver could be minted into coins, they ticked the boxes of portability along with durability and rarity. Hence, the first coin money was minted out of a gold and silver alloy, around 600 BC, in the kingdom of Lydia, modern-day Turkey.

However, the extraction and minting of these ores was not an easy task, so the task would be overseen and controlled by powerful entities of the state, mostly by the Kings or highly authoritative people. With time, money did not just remain as the means of running the state and collecting taxes from the public, but also as the weapon for the state to accumulate power and exert control over its public, and also its enemies during war. In fact, some historians and economists believe in “The State Theory of Money”, which basically argues that money originated more out of states’ attempts to direct economic activity and concentrate power.

Although states did have the authority over the money, it was the traders and merchants who actually revolutionized the concept of money. As the transactions got bigger, and trade flourished and spanned across diverse geographical and cultural regions, it was both infeasible and unsafe to carry heavy lumps of coins for long distances. Hence, the concept of paper money originated.

But these papers were more of like promissory notes mostly used by the merchants in exchange for other commodities like Gold and Silver as the bearer of the note would be able to exchange the equivalent commodity in return. Initially, the paper bills were supposed to be redeemable for fixed exchange rates in gold, silver, or other valuable products. It then led to the concept of Gold Pegged Currencies where the currency would be equivalent to a fixed amount of gold.

However, Gold is a rare element, and cannot just be created according to one’s need or please. But sometimes, the state might feel the need (or sometimes just greed) of creating more money. So, as the states got stronger, their confidence in ensuring that an otherwise normal-looking paper could act as money despite not being pegged with gold or any valuable commodity also got stronger. This gave rise to the concept of Fiat Money. Aptly named as ‘Fiat’, which in Latin means “Let it be done”, fiat money is valuable purely because of an order maintained by the state, and the trust people have in that order. Today, most of the commonly known currencies — Dollar, Pound, or Rupees — are all Fiat Money.

But as we have already discussed, money is not the mere paper that any country prints. Money is a concept, and the concept holds only because of the trust people have in the concept. A currency is worth only as much as people value it, and its worth is driven by the simple economics of “Supply and Demand”. Therefore, just printing truckloads of money will not lead to truckloads of wealth.

Many empires and states throughout history have at times failed to grasp this simple principle of economics. Be it out of necessity, or desperation, or greed, or pure miscalculation, many empires, and states throughout history have not only tanked their economy but have also sown the seeds of chaos and calamity. Money after all is one unique entity that interconnects and affects every cog in society. So, it is not a coincidence that the failure to understand the concept of money has led to many conflicts, revolutions, and the eventual fall of empires or governments.

As trust is something that can exist even without paper, it was only a matter of time before money was to become digitized. Thanks to the evolution of electronics and the internet, transactions have now turned online and money has transformed into something virtual, purely existing in computer bits, embedded in electronics chips.

Come to think about it, we have come full circle with money in a way. What started as something out of pure trust and no physical medium has again turned into something built out of pure trust, and almost no physical medium. The only difference is that the circle, which was small and among the known communities at the beginning, has expanded into the entire globe today. Of course, there are still issues related to trust if we delve deeper, with some currencies in the world gaining more trust than others, but overall, we have come a long way where we can just about trust the words written in a paper or numbers displayed in screens.

There is a new concept in the town now — the Cryptocurrencies (like Bitcoin, Ethereum, etc.), which promise to even break the long love-lust relation and control of the states over money, with the concept of decentralization. As cryptocurrencies like Bitcoin are not issued by any central authority, it makes them immune to government interference or manipulation, promising a future where the state could have no power over the world of money.

Overall, money has been the biggest driver in leading our world to where it is today — since without money, without that trust and guarantee, people would simply not cooperate on a large scale consistently. While concepts like culture and religion also connect people, it is money that prompts a person to cooperate with random people he is otherwise not related to, to do some random work that he probably doesn’t even care about that much. Money in that sense bypasses culture and geography like no other human invention.

Simply put, money has become the single greatest unifier in human history, a common language that everyone speaks.

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Source: https://medium.com/our-story-on-earth/the-origin-of-money-4fe43c660854?source=rss——-8—————–cryptocurrency