Money

1. Money is a fundamental social technology that enabled human cooperation and civilization.

Money is an ingenious technology that humans invented to help us negotiate an increasingly complex and interrelated world.

Beyond physical tools. While we often focus on physical technologies like fire or the wheel, money is a crucial social technology that organized humans, especially after the advent of agriculture led to larger, settled communities of strangers. It provided an alternative to conflict, enabling peaceful trade and cooperation between different groups.

Organizing complexity. As societies grew from small nomadic bands to larger urban settlements, the human brain needed tools to manage increased social complexity. Money, alongside language, law, and religion, served as a coping mechanism, helping to organize collective energy towards common goals and facilitating interactions among non-kin.

Foundation of progress. Early civilizations that adopted money gained a competitive advantage, leading to innovations in areas like writing, numeracy, and law. Money underpinned and animated human flourishing, propelling humanity from a world shaped by nature towards one driven by human invention.

2. Money evolved from tangible commodities to abstract concepts like credit and the value of time.

Imagining Kushim’s sleepless nights and his financial troubles makes him feel like one of us.

Early abstract value. The Ishango Bone suggests early forms of accounting for trade, but in Mesopotamia, money evolved further. Grain served as a base unit (like the shekel), but debts and credits were recorded abstractly on tablets, settled periodically with assets like slaves or cereals.

The price of time. The Sumerians introduced interest rates, turning money into a commodity with its own price, completely divorced from anything real. This transformative concept allowed connecting present reality to imagined future scenarios, enabling investment and income flow between borrowers and lenders.

Financial sophistication. Sumerians used not just simple but compound interest, demonstrating a surprising level of financial sophistication thousands of years ago. This abstract thinking about risk, reward, and probability in an uncertain world laid the groundwork for future financial innovations.

3. The invention of coins revolutionized trade, enabling bottom-up economies and new social structures.

Coinage is quite the abstraction.

From contract to coin. The Lydians invented coins by smelting electrum (white gold), transforming virtual money based on contracts into physical, portable tokens. This required a leap of faith, accepting that a piece of metal, validated by a stamp, represented universal value beyond its intrinsic worth.

Nudging bottom-up. Coins, especially smaller denominations, nudged economies towards a 'bottom-up' system organized by markets and prices, rather than solely by top-down command. This universal value, where a coin held the same worth regardless of the holder's status, subtly loosened the grip of ruling classes and offered a tiny possibility of social mobility.

Standardization and networks. The Lydians standardized coins with a state monopoly and royal stamp, creating an official language of commerce. This reduced friction, integrated markets, and facilitated trade networks across vast distances, connecting strangers and enabling the growth of vibrant urban centers like the Greek agora.

4. Financial innovation, particularly credit, fueled empires but also introduced inherent fragility and crises.

Money does not smell.

Empire of credit. The Romans turbocharged their empire by innovating with credit, turning conquest into financial assets. The right to tax conquered provinces was auctioned to private corporations (publicani), who sold shares to Roman investors, linking citizens' wealth to military prowess and creating a web of credit.

Privatized power. Rome was a highly privatized empire, with investment societies and clubs allowing broad participation in the credit and shareholding game. This system, while fueling expansion and a basic welfare state for some, also created a rentier class reliant on political connections and regional exploitation.

Credit cycle fragility. The extensive use of credit made Rome susceptible to boom-bust cycles. The Tiberian credit crunch in 33 CE, triggered by a political move against senators involved in land speculation, showed how interconnected the system was and how quickly a liquidity crisis could morph into a bankruptcy crisis, requiring state intervention as a 'lender of last resort'.

5. The re-emergence of money in medieval Europe spurred urbanization, trade, and intellectual revolutions.

Stadluft macht frei.

Post-Roman decline. After the fall of the Western Roman Empire, northwestern Europe experienced economic regression, with coins disappearing and a return to barter in many areas. Progress stalled as trade routes dwindled and collective intelligence slowed.

Plough and silver. Around 1000 CE, the introduction of the heavy metal plough dramatically increased agricultural productivity in northern Europe. Simultaneously, new silver discoveries, particularly in Germany, led to widespread minting of coins. These two technologies fueled population growth, agricultural surpluses, and the emergence of disposable income.

Urbanization and guilds. Freed from the land, people migrated to new market towns, specializing in trades. Money facilitated this, enabling a rudimentary market economy. Artisans formed guilds, pooling resources, sharing skills, and fostering innovation (like eyeglasses), challenging the old feudal order and laying the groundwork for a new urban, bourgeois society.

6. Paper money and financial markets enabled global empires, new forms of speculation, and shifted power.

Money was invisible.

Beyond metal. The printing press increased the demand for paper, paving the way for paper money. Unlike earlier forms tied to commodities or specific contracts, paper money issued by a central bank represented value based solely on the state's credibility, requiring deep trust among strangers.

Dutch financial prowess. Holland, a small trading nation, became a financial powerhouse by standardizing currency (Wisselbank), issuing long-term and perpetual bonds, and creating the first shareholding society (VOC). Amsterdam's stock market introduced modern financial instruments like futures and options, enabling speculation on future events.

Speculation and bubbles. This sophisticated financial system, while fueling global trade and empire (often brutally), also led to speculative manias like Tulipmania. It revealed the psychological aspect of money, where rising prices are driven by gossip and fear of missing out, demonstrating that financial patterns are deeply social and prone to boom-bust cycles.

7. Money is deeply intertwined with political power, revolutionary change, and national identity.

Revolutions usually centre on the questions of who has the money, why don’t we have more of it, and how do we get our hands on all of it?

Taxation and rebellion. The French Revolution, at its core, was about money and unfair taxation. The primitive French financial system, which hadn't innovated like Britain's, relied on taxing the poor, leading to widespread discontent.

Financing revolution. Revolutionaries needed money but couldn't rely on old taxes or borrowing. Talleyrand, the 'Bishop of Money', devised the assignat, a new currency backed by confiscated Church lands. This instrument initially managed debt but later mutated into inflationary paper money printed to fund the state and civil war.

Currency as identity. In America, Alexander Hamilton, learning from French mistakes, established the US dollar, tying it to a credible standard (the Spanish dollar) and creating a federal financial architecture. The dollar became a symbol of the new republic, unifying competing states and fueling American economic expansion, demonstrating how money can forge national identity and power.

8. The Gold Standard era brought monetary stability but also inequality, leading to its eventual demise.

You shall not crucify mankind upon a cross of gold.

Return to metal. After the monetary chaos of revolutionary times, the 19th century saw a return to commodity-backed money, primarily the Gold Standard (c. 1850-1914). This system, while providing stability for international trade, inherently limited the money supply to the amount of gold available.

Deflationary pressure. Tying currency to gold is deflationary in a growing economy; as output increases, prices must fall relative to the fixed gold supply. This benefits those with savings (the wealthy) and penalizes debtors and wage earners, exacerbating inequality and creating social tension.

Political conflict. In the US, the debate over gold versus silver (bimetallism) became a major political issue, pitting the financial elite against farmers and workers. The Populist movement, advocating for silver to increase the money supply and ease debt burdens, challenged the Gold Standard, culminating in the heated 1896 election.

9. Fiat money, backed by state credibility, unleashed unprecedented global prosperity but also new forms of instability.

Fiat money is the most significant innovation in money since the Lydians minted their first coin.

Abandoning gold. The Gold Standard was abandoned during WWI and finally in the 1930s (by Roosevelt) and 1970s (by Nixon) as it constrained governments' ability to finance wars and manage economic crises like the Great Depression. The world shifted to fiat money, backed solely by the state's authority and credibility.

Flexibility and growth. Fiat money, being flexible and not tied to a fixed commodity, allows central banks to manage the money supply in response to economic conditions. This flexibility has coincided with unprecedented global economic expansion, poverty reduction, and improvements in health and education since the 1970s.

New instabilities. However, fiat money introduces new forms of instability. Central banks control the price of money (interest rates) but struggle to control the quantity and deployment of credit created by commercial banks. This leads to recurrent credit cycles, asset bubbles, and crises, often exacerbated by offshore markets like the Eurodollar system.

10. The battle for control of money continues between public institutions and private interests.

A major battle in the years to come will be between private money issued by private entities and public money issued by the organs of the state in the name of the citizen.

Public vs. Private. Throughout history, there's been a tension between public control of money (emperors, states, central banks) and private creation of money (merchants, bankers, speculators). Fiat money represents a synthesis, with states issuing currency and regulating private banks that create credit.

Crypto's challenge. New technologies like cryptocurrency challenge this synthesis, proposing private, decentralized money. While proponents claim liberation from corrupt states, crypto often functions as a speculative asset (like Bitcoin's fixed supply) or unregulated private tokens (like FTX), benefiting early adopters and exchanges rather than serving as stable, widely usable currency.

Evolutionary test. Money evolves by solving real problems and adapting to its environment, becoming more useful and widely adopted (like M-Pesa in Africa). Crypto, despite hype and investment, has struggled to prove its utility beyond speculation and niche applications, facing challenges of volatility, scalability, and regulation, suggesting it may remain on the fringes while the fundamental battle for monetary control continues between state power and private interests.

Last updated: May 11, 2025