$$$ – (sigh) When I think about money and the role it has played in human history, and continues to play in our lives today, I can only shake my head. Debt, poverty, and inequality are all directly linked to economics, and together, paint a dire picture of the current status of the world.
One concept I struggle with in particular is the application of “interest” to loans. Is it really ethical to place such a requirement on exchanges? What’s wrong with calling things even? Notwithstanding that ethical dilemma, what about the impact its application has had on human society? Its existence ensures that debt is never-ending, thus, becoming an essential part of life … Uhhh, no thanks.
So why are things the way they are? Do they have to be?
My mom once told me, “if it doesn’t make sense, then it makes perfect sense,” insinuating that despite my wildest imaginations, there are actually reasons for why things appear nonsensical. In more cases than not, it’s usually because someone, somewhere, is making a profit.
The global monetary system is a clear example of this. There are most definitely people out there, “elites,” who are making ridiculous sums of money at the expense of others. Hence, the widespread adoption of the 99% vs. 1% slogan.
The good news is that things don’t have to be this way, and in fact, there are signs of “awakenings” happening all over the world. The desire for change and revolt are bubbling underneath the surface, and have already started to emerge through the cracks. This post is my contribution to the struggle ✊
As a history major, I value the historical analysis of issues, because it provides context. With collective knowledge comes collective action. The following excerpts are from a variety of anthropologists, economists, and historians, who write about the history of money and economics, providing important context to why things are the way they are.
First, the common understanding of the evolution of money needs to be put in context. Anarchist anthropologist, David Graeber provides clarity in his book Debt: The First 5,000 Years:
In fact, 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 byproduct 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.
With that in mind, follow along, as the Hipcrime Vocab provides some additional historical analysis:
David Andolfatto gives a good summary of the conditions where money takes over from the reciprocally-based gift economy:
As anthropologists have pointed out for a long time, there is really little evidence of trade taking this form in primitive communities … Instead, these societies operated as “gift giving” economies, or informal credit systems.
What then, explains monetary exchange (really, the coexistence of money and credit)? According to Kiyotaki and Moore, Evil is the Root of All Money. “Evil” here is interpreted as the existence of untrustworthy (noncooperative) people. Untrustworthy individuals readily accept gifts from the community, but cannot be trusted to fulfill their implicit obligation to reciprocate in-kind when an opportunity to do so arises. However, we know from game theory that a system of “cooperative” exchange might still be sustained if untrustworthy people can be compelled to behave properly, say, by the threat of punishment for noncompliant behavior (e.g., ostracism from the community).
The punishment/reward system that implicitly exists in gift-giving societies requires … a communal monitoring of individual behavior. In small communities, “everybody knows everything about everyone” and so this is arguably why “communistic” societies can be sustained in small groups. It also suggests why the arrangement breaks down for larger groups. The virtual communal data bank — a distributed network of computer brains — is simply not capable of recording all the information necessary to support an informal credit system in a large population. In a large population, people can remain anonymous. We necessarily become strangers to most people. And its tough to trust a stranger (a person you are not likely ever to meet again).
Nevertheless, multilateral gains to trade may still exist even among strangers. And if credit is difficult, or impossible, then the solution is money (see: The Technological Role of Fiat Money, by Narayana Kocherlakota). According to this theory, money serves as a substitute for the missing communal memory. Contributions to society are now measured not by virtual credits in the collective mind of the community; instead, they are recorded by money balances (this assumes, of course, that money, like virtual credit, is difficult to counterfeit/steal).
So, in a nutshell, economic theory suggests that we use informal credit arrangements to govern exchange among people we know (family, friends, colleagues, etc.) and we use money to facilitate exchange with “strangers.” The emergence of money then seems tied to the emergence of strangers. An obvious explanation for this is population growth (and the associated rise of large urban areas). Debt: The First 5000 Years (MacroMania)
As societies grew larger and more complex, the debit/credit system of the ancient temples transformed into tokens, and these tokens became the beginning of what we know as money. In fact, it is these tokens which probably led to the invention of writing.
The “Axial Age” was a time when great empires formed once again – the Roman Empire, the Parthians, the Mauryan Empire, the Han Dynasty. Millions of unrelated people began coming into contact for the first time. This profoundly changed religion, from essentially ‘tribal” gods designed to enforce ethnic solidarity to systems of thought designed to make sense of a changing, confusing world. It is thought this is when gods began to enforce morality, as in “god is always watching you,” and ideas of being punished or rewarded in the next life were developed to keep people in line in places where the old social ties could no longer regulate behavior.
We are usually taught that things got worse for everyone in the Middle Ages and that the Church mainly clung to the vestiges of Roman power and prestige. We are used to, for example, hearing a lot of criticism of extravagance in Church architecture. But one thing that the Church was doing was removing bullion from the market to guard against usury. Gold in Cathedrals is gold that is not circulating and building interest. When people donated precious metals to the Church they were, in part, attempting to live out the command to store up wealth in heaven, rather than on earth. In return, the Church ensured that usury and debt-bondage remained strictly forbidden. A serf may have owed their fealty to their lord, but they were not their lord’s property. The lord couldn’t sink them into debt and then sell them to a neighboring lord. Debt: The Middle Ages (Two Friars and a Fool)
Grain-based Local Currency refers both to a form of monetary unit, and to one of the earliest economic systems to supplant pure barter. In such a system, money is minted/printed to correspond with the harvest – essentially each dollar (or whatever your monetary units are called) is a share of the recent local harvest. You actually have the option of redeeming your money for wheat or rice or whatever the local crop is.
Unlike gold, the grain could rot, be eaten by rats, etc. The result was that you’d have huge influx of money into the system around harvest time, and then a rush to spend the money and get as much done with it as possible before it went bad. Hoarding cash wasn’t a possibility – money you hoarded would devalue fairly quickly. So, money would be spent just as quickly, wages tended to be pretty good, and the harvest would be followed by a flurry of improvements to property and similar investments that would retain their value longer than the grain did. Money would change hands many times over a short span of days – last week I was a harvester, but this week I’m on the team that’s building the new church.
It’s this economy that made most of the great Cathedrals of Europe – they weren’t built by Royalty or the Vatican, they were built by seasonal windfalls within the local communities.
Within a given community, the gaps between the rich and the poor were significantly smaller than we see today. Eventually, however, this system was undermined by the actions of Kings and Banks. National currencies supplanted local currencies, and the money became concentrated in the hands of the few. Grain-based Local Currency (Arcana Wiki)