12 ms·

The Invention of Money

209 points by Elof 7y ago

ciphershot 7y ago
"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 7y ago
  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.
quibbler 7y ago
The NYT advocating death penalty for bankers? I thought it was an entertaining article until that bombshell at the end. I guess they simply can't shake their murderous socialist attitude.
cstuder 7y ago
For a huge (huge!) fictionalized (but very entertaining) account of the invention of money & modern markets, read the Baroque Cycle by Neal Stephenson.
- arethuza 7y ago
  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 7y ago
    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.
digitalengineer 7y ago
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?
- tunesmith 7y ago
  I think outside of all the political talk about fiat currencies, gold, and other commodities are valued as diversification instruments just because they tend to move separately from stocks and bonds. There are environments when stocks and bonds both behave poorly.
- H8crilA 7y ago
  I'd say about the same as what the inverted yield curves say (i.e. the rally on long term, high quality bonds). That the market expects growth to tighten: The Economist | Curveball https://www.economist.com/node/21767839 https://www.economist.com/node/21767839 Gold is not "the only real money", though. There is no such thing as "real money": > Law thought that the important thing about money wasn’t its inherent value; he didn’t believe it had any. “Money is not the value for which goods are exchanged, but the value by which they are exchanged,” he wrote.
  - atq2119 7y ago
    Even beyond that, there's an argument to be made that money (and debt) are at their core quantified and malleable representations of social relations.
    - zeotroph 7y ago
      Isn't that stretching "social"? The money I hold is not tied to the yet unknown individual or group with with whom I will exchange it for goods or services, the person might not even be born yet.
      - pjmorris 7y ago
        I'm willing to bet a US dollar that at least some of the money you hold is tied to some national group, a government.
ews 7y ago
Along the same vein, I can't recommend The Bitcoin Standard (https://www.goodreads.com/book/show/36448501-the-bitcoin-standard https://www.goodreads.com/book/show/36448501-the-bitcoin-sta...) 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 7y ago
  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.
benkarst 7y ago
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 7y ago
  See footnote 83: https://books.google.com/books?id=iN9Tdfdap5MC&lpg=PP1&pg=PA463#v=onepage&q&f=false https://books.google.com/books?id=iN9Tdfdap5MC&lpg=PP1&pg=PA... It would seem there is no consensus. Clearly some scholars think he went there.
  - et2o 7y ago
    Great reference, thanks. Possibly he went there but also fabricated and exaggerated.
    - wazoox 7y ago
      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.
ceosuite 7y ago
Look cool
contingencies 7y ago
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...
- JackFr 7y ago
  "Debt: The First 5,000 Years" is a book length op-ed. It's not useful with respect to economic history.
  - vishnugupta 7y ago
    I for one quite enjoyed reading, and learned from, that book. Could you please suggest good books about economic history. I'm looking to expand my knowledge in that domain.
    - JackFr 7y ago
      More popular history: https://www.amazon.com/Ascent-Money-Financial-History-World/dp/0143116177 https://www.amazon.com/Ascent-Money-Financial-History-World/... https://www.amazon.com/Splendid-Exchange-Trade-Shaped-World/dp/0802144160/ https://www.amazon.com/Splendid-Exchange-Trade-Shaped-World/... https://www.amazon.com/Cash-Nexus-Money-Modern-1700-2000/dp/0465023266 https://www.amazon.com/Cash-Nexus-Money-Modern-1700-2000/dp/... https://www.amazon.com/Devil-Take-Hindmost-Financial-Speculation/dp/0452281806/ https://www.amazon.com/Devil-Take-Hindmost-Financial-Specula... Academic but readable: https://www.amazon.com/Manias-Panics-Crashes-History-Financial/dp/1137525754/ https://www.amazon.com/Manias-Panics-Crashes-History-Financi... https://www.amazon.com/Rise-Financial-Capitalism-International-Monetary/dp/0521457386/ https://www.amazon.com/Rise-Financial-Capitalism-Internation...
  - pradn 7y ago
    I don't think that's fair. The majority of the book is a straightforward history of money that doesn't accept received wisdom. Near the end, the author's more anarchist leanings color the narrative. The last two chapters are not as informative, but that doesn't mean one should discount the majority of the book. A few takeaways I have from that book: 1) In rural/traditional societies, debt (measured and stored in people's heads) and other reciprocal social obligations were enough to run an economy. Simple example: you give your neighbor some grain when the harvest comes, and you neighbor repairs your tools the whole year long. The classic economy-textbook idea that we invented currency so we don't have to barter with the goods we produce has never been observed in history. 2) Governments induce the creation of currency. Any government can change the currency by requiring the repayment of taxes in that new currency. Often this is for the purposes of paying armies. 3) Traveling merchants need to use currency because they can't rely on social obligations at each place along where they travel. Money allows anonymity.
deleted 7y ago
[deleted]
jaza 7y ago
I did a somewhat similar bit of historical story-telling a few years ago: https://greenash.net.au/thoughts/2013/04/money-the-ongoing-evolution/ https://greenash.net.au/thoughts/2013/04/money-the-ongoing-e... And came to pretty similar conclusions, in particular, that modern fiat money is quite worthless!
- joosters 7y ago
  Send me your money then, thanks!
runeks 7y ago
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.pdf http://professorfekete.com/articles/AEFMonEcon101Lecture5.pd... 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 7y ago
  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 7y ago
    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.
bawana 7y ago
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.
kenneth 7y ago
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 7y ago
  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.
vmurthy 7y ago
I’d add “The ascent of money” by Niall Ferguson to a list of books to read to understand invention of money.
electriclove 7y ago
The Money as Debt videos by Paul Grignon are a fantastic watch: https://www.youtube.com/watch?v=2nBPN-MKefA&list=PLmpODdsfprYH4Fhsso8PVPQBNxVDQSgb_ https://www.youtube.com/watch?v=2nBPN-MKefA&list=PLmpODdsfpr...
- kiliantics 7y ago
  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 7y ago
    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)
LoSboccacc 7y ago
https://www.ancient.eu/article/974/banking-in-the-roman-world/ https://www.ancient.eu/article/974/banking-in-the-roman-worl... 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.
Proven 7y ago
Money (gold) wasn't invented but discovered. It's frightening to see that many "learned" their economics and finance from "Debt: The First 5,000 Years" and similar books!

209 points by Elof 7y ago

"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 7y ago
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.

quibbler 7y ago

The NYT advocating death penalty for bankers? I thought it was an entertaining article until that bombshell at the end. I guess they simply can't shake their murderous socialist attitude.

cstuder 7y ago

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

arethuza 7y ago
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 7y ago
  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.

digitalengineer 7y ago

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?

tunesmith 7y ago
I think outside of all the political talk about fiat currencies, gold, and other commodities are valued as diversification instruments just because they tend to move separately from stocks and bonds. There are environments when stocks and bonds both behave poorly.
H8crilA 7y ago
I'd say about the same as what the inverted yield curves say (i.e. the rally on long term, high quality bonds). That the market expects growth to tighten: The Economist | Curveball https://www.economist.com/node/21767839 https://www.economist.com/node/21767839 Gold is not "the only real money", though. There is no such thing as "real money": > Law thought that the important thing about money wasn’t its inherent value; he didn’t believe it had any. “Money is not the value for which goods are exchanged, but the value by which they are exchanged,” he wrote.
- atq2119 7y ago
  Even beyond that, there's an argument to be made that money (and debt) are at their core quantified and malleable representations of social relations.
  - zeotroph 7y ago
    Isn't that stretching "social"? The money I hold is not tied to the yet unknown individual or group with with whom I will exchange it for goods or services, the person might not even be born yet.
    - pjmorris 7y ago
      I'm willing to bet a US dollar that at least some of the money you hold is tied to some national group, a government.

ews 7y ago

Along the same vein, I can't recommend The Bitcoin Standard (https://www.goodreads.com/book/show/36448501-the-bitcoin-standard https://www.goodreads.com/book/show/36448501-the-bitcoin-sta...) 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 7y ago
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.

benkarst 7y ago

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 7y ago
See footnote 83: https://books.google.com/books?id=iN9Tdfdap5MC&lpg=PP1&pg=PA463#v=onepage&q&f=false https://books.google.com/books?id=iN9Tdfdap5MC&lpg=PP1&pg=PA... It would seem there is no consensus. Clearly some scholars think he went there.
- et2o 7y ago
  Great reference, thanks. Possibly he went there but also fabricated and exaggerated.
  - wazoox 7y ago
    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.

ceosuite 7y ago

Look cool

contingencies 7y ago

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...

JackFr 7y ago
"Debt: The First 5,000 Years" is a book length op-ed. It's not useful with respect to economic history.
- vishnugupta 7y ago
  I for one quite enjoyed reading, and learned from, that book. Could you please suggest good books about economic history. I'm looking to expand my knowledge in that domain.
  - JackFr 7y ago
    More popular history: https://www.amazon.com/Ascent-Money-Financial-History-World/dp/0143116177 https://www.amazon.com/Ascent-Money-Financial-History-World/... https://www.amazon.com/Splendid-Exchange-Trade-Shaped-World/dp/0802144160/ https://www.amazon.com/Splendid-Exchange-Trade-Shaped-World/... https://www.amazon.com/Cash-Nexus-Money-Modern-1700-2000/dp/0465023266 https://www.amazon.com/Cash-Nexus-Money-Modern-1700-2000/dp/... https://www.amazon.com/Devil-Take-Hindmost-Financial-Speculation/dp/0452281806/ https://www.amazon.com/Devil-Take-Hindmost-Financial-Specula... Academic but readable: https://www.amazon.com/Manias-Panics-Crashes-History-Financial/dp/1137525754/ https://www.amazon.com/Manias-Panics-Crashes-History-Financi... https://www.amazon.com/Rise-Financial-Capitalism-International-Monetary/dp/0521457386/ https://www.amazon.com/Rise-Financial-Capitalism-Internation...
- pradn 7y ago
  I don't think that's fair. The majority of the book is a straightforward history of money that doesn't accept received wisdom. Near the end, the author's more anarchist leanings color the narrative. The last two chapters are not as informative, but that doesn't mean one should discount the majority of the book. A few takeaways I have from that book: 1) In rural/traditional societies, debt (measured and stored in people's heads) and other reciprocal social obligations were enough to run an economy. Simple example: you give your neighbor some grain when the harvest comes, and you neighbor repairs your tools the whole year long. The classic economy-textbook idea that we invented currency so we don't have to barter with the goods we produce has never been observed in history. 2) Governments induce the creation of currency. Any government can change the currency by requiring the repayment of taxes in that new currency. Often this is for the purposes of paying armies. 3) Traveling merchants need to use currency because they can't rely on social obligations at each place along where they travel. Money allows anonymity.

deleted 7y ago

[deleted]

jaza 7y ago

I did a somewhat similar bit of historical story-telling a few years ago: https://greenash.net.au/thoughts/2013/04/money-the-ongoing-evolution/ https://greenash.net.au/thoughts/2013/04/money-the-ongoing-e... And came to pretty similar conclusions, in particular, that modern fiat money is quite worthless!

joosters 7y ago
Send me your money then, thanks!

runeks 7y ago

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.pdf http://professorfekete.com/articles/AEFMonEcon101Lecture5.pd... 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 7y ago
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 7y ago
  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.

bawana 7y ago

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.

kenneth 7y ago

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 7y ago
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.

vmurthy 7y ago

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

electriclove 7y ago

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

kiliantics 7y ago
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 7y ago
  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)

LoSboccacc 7y ago

https://www.ancient.eu/article/974/banking-in-the-roman-world/ https://www.ancient.eu/article/974/banking-in-the-roman-worl... 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.

Proven 7y ago

Money (gold) wasn't invented but discovered. It's frightening to see that many "learned" their economics and finance from "Debt: The First 5,000 Years" and similar books!