
The Invention of Money - Elof
https://www.newyorker.com/magazine/2019/08/05/the-invention-of-money
======
runeks
These “evolution of money”-type stories always miss the financial instrument
that enabled the gold standard to function in the first place: the Bill of
Exchange.

A Hungarian math professor by the name of Antal Fekete offers a much more
convincing explanation of the journey from gold to paper money:
[http://professorfekete.com/articles/AEFMonEcon101Lecture5.pd...](http://professorfekete.com/articles/AEFMonEcon101Lecture5.pdf)

In essence, the Bill of Exchange was required for gold to work as money by it
acting as a means of payment between producers. If one producer in the line of
production of steel, say the producer who digs up iron ore, requires payment
in gold when delivering iron ore to the steel producer, the gold standard does
not scale as the division of labor increases, as more gold would be required
(for payment of semi-finished goods) for each additional step added. The Bill
of Exchange solves this by acting as a means of payment between producers of
increasingly finished consumer goods.

~~~
lonelappde
Bill of Exchange is a form of paper money, and the article mentions Genghis
Khan's grandson's paper money in the 13th Century.

~~~
runeks
The paper money of Genghis Khan has little to do with the Bill of Exchange.
Most notably, bills are issued by private entities, and their acceptance as a
means of payment is voluntary.

------
contingencies
_Debt: The First 5,000 Years_ is my preferred introduction. Critically this
New Yorker account is missing the word 'usury' which was largely agreed to be
evil by early religions and societies that experienced its effects...

~~~
Symmetry
I read that book and mostly enjoyed it than I got to the last chapter and
found it was riddled with errors I could easily spot like the in following
sentence:

 _Apple Computers is a famous example: it was founded by (mostly Republican)
computer engineers who broke from IBM in Silicon Valley in the 1980s, forming
little democratic circles of twenty to forty people with their laptops in each
other’s garages._

Reading around, it seems like the rest of the book is similarly accurate.

~~~
epistasis
That's a shocking amount of inaccuracy to pack into a single sentence!

~~~
ci5er
It is!

I've been trying to think of a more compact/dense incorrect sentence for a bit
now, and I can't really think of an alternative. (Although some of the
political screeds from the election of 1800 might have been close, and I have
yet to go mine twitter for examples)

~~~
yellowstuff
This is a close competitor:

> For those who don't know how the Fed works: technically, there are a series
> of stages. Generally the Treasury puts out bonds to the public, and the Fed
> buys them back. The Fed then loans the money thus created to other banks at
> a special low rate of interest ('the prime rate')...

Also from "Debt, The First 5000 Years".

------
ews
Along the same vein, I can't recommend The Bitcoin Standard
([https://www.goodreads.com/book/show/36448501-the-bitcoin-
sta...](https://www.goodreads.com/book/show/36448501-the-bitcoin-standard))
enough. The first 60% of the book deals with the creation and characteristics
of fiat money and its effect in the World's economy.

~~~
TheodolphusRose
The portion of the book on the history of money has very few references for
its claims and makes numerous factual errors. If you’re looking for a well
referenced book on the history of money, this is not the book.

------
cstuder
For a huge (huge!) fictionalized (but very entertaining) account of the
invention of money & modern markets, read the Baroque Cycle by Neal
Stephenson.

~~~
arethuza
Doesn't the Baroque Cycle have two approaches to banking in England - the Whig
Bank of England and the competing Tory Land Bank (which used land rather than
gold as the underlying asset)?

~~~
pjc50
I thought (via "Extraordinary Popular Delusions and the Madness of Crowds")
that it was actually tied into the South Sea Bubble, and that the Bank's role
was that of a central bank in a crisis: provision of unlimited liquidity,
regardless of whether or not it's "backed" by anything.

------
kenneth
If you liked this story, I also highly recommend the YouTube Extra History
miniseries on the South Sea Bubble, which is a very similar contemporary
scheme in the U.K.
[https://www.youtube.com/watch?v=k1kndKWJKB8](https://www.youtube.com/watch?v=k1kndKWJKB8)

~~~
kartan
Another video, this is about Marco Polo writings:
[https://www.youtube.com/watch?v=6UiIpiV0P0M](https://www.youtube.com/watch?v=6UiIpiV0P0M)

And it mentions also the invention of Money.

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vmurthy
I’d add “The ascent of money” by Niall Ferguson to a list of books to read to
understand invention of money.

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benkarst
Marco Polo's stories are not regarded by scholars as authentic because in in
his chronicles, he failed to mention tea, the Great Wall, the writing system,
and other notable things about China at the time.

I'm surprised the New Yorker would use him as a reference.

~~~
gattilorenz
See footnote 83:

[https://books.google.com/books?id=iN9Tdfdap5MC&lpg=PP1&pg=PA...](https://books.google.com/books?id=iN9Tdfdap5MC&lpg=PP1&pg=PA463#v=onepage&q&f=false)

It would seem there is no consensus. Clearly some scholars think he went
there.

~~~
et2o
Great reference, thanks. Possibly he went there but also fabricated and
exaggerated.

~~~
wazoox
Plus the book was actually laid down two decades later, by recounting memories
to a jail mate who took note of it. Plus there were actually several
retellings and rewritings of the book, so much that we're not even sure of the
language it was first written in (French? Franco-Italian? Some Italian
dialect?) So exaggeration, misremembering and lies are not only probable, but
almost certain.

------
LoSboccacc
[https://www.ancient.eu/article/974/banking-in-the-roman-
worl...](https://www.ancient.eu/article/974/banking-in-the-roman-world/)

paper titles by themselves are quite old. the real innovation is to split them
in smaller, standardized denominations to be composed into the desired amount,
which came with the first travel cheques. the only jump from there to bills is
that one come from and it's backed by private entities and the other come
backed by a state, but in the case of the argentarii and mensiarii the line is
blurred since those were state sanctioned.

------
digitalengineer
So if gold is the only real money (and everything else is just debt)... What
does gold’s year-long rally this year tell us?

~~~
TheOtherHobbes
Faith is the only real money. The only thing money measures is optimism about
the future - both micro ("I am optimistic that you can repay this loan") macro
("I am optimistic this country's military spending and worker-hostile
environment guarantees my investment will be protected"), corporate ("I am
optimistic about the contents of this earnings call"), and specific ("I have
more faith in this asset class than in other asset classes.")

Crashes are a manic-depressive devotional cycle. Collective optimism becomes
stretched to delusional levels. Then it snaps, pessimism and debt paranoia
take over, the central government has to make reassuring noises which reassure
the right people, and the hype cycle can begin again.

Gold is a faith-token - valued because it's heavy and shiny and because
there's a long tradition of valuing it when investors become pessimistic about
more evanescent asset classes, not because of its relatively limited practical
utility.

Fiat money is just faith-token money without a tangible base. The process by
which it gains/loses trust is the same.

The tangible items that aren't primarily faith-based are land and housing, so
they do well as reliable investments. But even they're not faith-free, because
they will still lose value in an area if no one believes it has a future.

~~~
AnimalMuppet
_Functionally_ , gold serves as a lack of faith in fiat currency - almost as a
short. When you expect inflation in your local fiat currency, you start
looking at gold as a way of preserving your value.

~~~
count
But that requires faith that someone will accept that gold in the future in
exchange for goods/services. So, again, it's just faith at the root of it.

------
jaza
I did a somewhat similar bit of historical story-telling a few years ago:
[https://greenash.net.au/thoughts/2013/04/money-the-
ongoing-e...](https://greenash.net.au/thoughts/2013/04/money-the-ongoing-
evolution/)

And came to pretty similar conclusions, in particular, that modern fiat money
is quite worthless!

~~~
joosters
Send me your money then, thanks!

------
ciphershot
"Before long, the banknotes were trading at more than their value in silver,
and Law was made Controller General of Finances, in charge of the entire
French economy."

This is super interesting. Does anyone familiar with the subject matter have
an idea why?

~~~
tim333
I'm guessing here but the price of currencies or anything else tends to get
set by supply and demand. According to Wikipedia at the time:

>The wars waged by Louis XIV left the country completely wasted, both
economically and financially. The resultant shortage of precious metals led to
a shortage of coins in circulation, which in turn limited the production of
new coins.

So there may have been a short supply of money especially the metal variety.
Someone selling say grain may have taken paper money representing not much
silver because there were no alternative buyers with bags of silver available.

Bitcoin also trades for a lot despite not having much value because some
people want them and there aren't many available.

------
electriclove
The Money as Debt videos by Paul Grignon are a fantastic watch:
[https://www.youtube.com/watch?v=2nBPN-
MKefA&list=PLmpODdsfpr...](https://www.youtube.com/watch?v=2nBPN-
MKefA&list=PLmpODdsfprYH4Fhsso8PVPQBNxVDQSgb_)

~~~
kiliantics
Except that they are not based on real facts. A much better explanation of how
money is related to debt, which actually relies on established facts from the
historical record, is "Debt: The First 5000 Years" by David Graeber.

~~~
bliss
David Graeber also did an excellent BBC Radio Series on the same subject -
Promises, Promises: A History of Debt:
[https://www.bbc.co.uk/programmes/b054zdp6/episodes/player](https://www.bbc.co.uk/programmes/b054zdp6/episodes/player)
\- (registration required / geo limited)

------
bawana
Money is not solving our problems any more. Adam smith argues that the optimal
decision making structure consists of the entities executing the transaction.
They have ‘perfect’ information on value and utility for themselves. This was
clearly shown by the ‘failure’ of communism and central administration in an
attempt to add ‘fairness’ across all members of the economic community who are
not involved in the transaction. Today we are exploring the illusion of
fairness with taxation and entitlements on an increasingly granular level with
the help of deep learning, large databases and subscriptions. Still no one has
addressed the elephant in the room - economic inertia. Even with perfect
information and frictionless transactions there is a strong disincentive to
‘improved’ products and services. The profit centers are intent on maintaining
the transaction patterns even tho they are destroying the infrastructure that
they require - examples include the irreversible change of the climate through
Using the short term decisions without modeling long term consequences as well
as the homogenization and ‘dumbing down’of our civilization through lowest
common denominator strategies.

Even with perfect information and perfect short term utility, we are not
mentally equipped to sense, evaluate and act on long term effects of our
choices. Although this shortcoming has little impact in the ‘linear’ regime
where we are a trivial component of the ecology, at current size and growth
rate, humanity significantly destabilizes capitalism’s ability to succeed.

