Money: Origins to Modern Monetary Theory
There have been quite a few books written on this topic. They all have great stories and lots of interesting details. And, they all suffer from the bane of every historian and scientist, which is that the discovery of new data or insights is a constant threat which may render their work in need of revision. But even so, each tends to be still a valuable step in our collective learning process. I usually do not get too upset about bad history, provided the author was doing the best that they could given the data that was available at the time they were writing. However it was the recent book by Jacob Goldstein that nudged me to finally say something on this topic. It just struck too many nerves related to my training as a CPA, and historian. Let's just say that it has more than a couple serious errors in it.
Jacob's book really isn't a book in the sense of something it being something which he sat down and wrote in a structured way. Rather, it is very clear from the informality of the language and the needless mistakes, that it is almost certainly a collection of transcriptions excerpted from his Planet Money segments, podcasts, and other talks. The language is grammatically awful, and it has some mistakes in it that it just shouldn't, given how recent it is.
My friends will tell you that I'm sometimes a bit like James Michener in that it feels like I start many stories with the dinosaurs. This effort will be no different. I strongly believe that in order to understand the way money works today, one has to start with the basics or how and why it was invented, how it soon became something else, and how very recent it has been that most people started using money. This latter point is what I think most people will find the most startling. The notion of money being used by most people to facilitate buying things is only a couple centuries old at the very most. Prior to that, it was this rather peculiar thing that only involved a very tiny percentage of humanity.
Having started with a harsh critique of one book, let me now praise another, which I think in many ways should be read or heard before digging into the history of money and monetary systems. That is the 1998 "Guns, Germs, and Steel: The Fates of Human Societies" by Jared Diamond. Normally I would provide a link to the first hardcover edition here, but they are all super expensive collectors items. It's available in an unabridged audio edition on CDs, as well as paperback, a revised and illustrated hard cover edition, and Kindle. I give this book a super rave review even though some new insights have been gained in the 35 years since its first publication. His dates for the first population of the Americas have proven to be too conservative. Also, his history of the development of writing all but misses the economic aspects, but even today, it comes closer than anything else I have found in print.
Diamond wrote his book with a mega-trends view of our history, and it is in that spirit that I am attempting to add the economic and monetary part of the story of how we got to where we are, and explain a bit about exactly where it is that we are at the moment. And where we are is standing on the threshold of one of those major periods of transition in the human adventure.
As I said above, until quite recently, money for everyone was not the way economics worked anyplace on the planet. But, that is not because there weren't some valiant efforts to change that. There were in fact a few brief and very interesting exceptions to the absence of money from the lives of the ordinary person. One was during the Five Dynasties period in China, and pretty much confined to the city of Hongzhou (aka Xifu). Also, during the period of Roman domination of Europe and the Mediterranean, because the legions were paid in what evolved into coinage, money tended to be used wherever the legions had a significant presence. But other than that, the idea of "money for everyone" really didn't start to take root until the great urbanization shift that began with the Industrial Revolution.
Then there is all of the nonsense going around these days about Modern Monetary Theory (MMT). Sorry - no links here, as I can't find a short description out there worth referencing - but there are some good books, if not good reads on bits and pieces of the topic.
MMT has to be the most misunderstood and misrepresented topic I've heard many people talk about recently. It is at least as misunderstood as such hot topics as global warming (sorry - that's what passes for my sense of humor). Both conservative detractors and progressive advocates of MMT seen to totally miss what MMT is, confusing theory with proposed policy applications of some of the ideas that come out of it. This is particularly sad because humanity is facing some serious challenges which can become a little less daunting if we collectively develop a better understand money, economics, and how to apply them. The reality is neither liberal nor conservative. It's just money and opportunity.
I strongly believe that to really understand this stuff we need to go all the way back to the time of hunter-gatherer societies and dig into how and why they evolved into people with markets and a blend of the three basic types of economies: tribal, barter, and monetized.
Oh, you thought I was going to say something like communist, capitalist, and slavery or some such? No, but we'll touch on those too, as that whole business of communism and capitalism as being at odds with each other is actually kind of funny when one digs into the details. As we'll see, modern conservatives are some of the biggest proponents of some of the things Marx got so terribly wrong, and many progressives don't seem to understand how markets work. I'm showing my age a bit here, but Art Linkletter would have had a lot of fun filming some episodes for his show "People are Funny" with some of the nonsense one hears these days about money, taxes, MMT, and long odds gambling that is presented as though it is an investment strategy.
The history of money is filled with human foibles and silliness, and some not so pleasant things as well. It's also filled with some amazing brilliancies and is arguably the single greatest invention in the history of humanity. Money enables us to store our productive output for future use, and the nature of that use and exactly what it looks like is totally without shape or substance until we tap into it. Money is as close to magic as anything there is. We are the only creature on this planet that can store our work as something very tangible, such as a cache of food for the winter.
The study of history is not quite a science, but when done well, it uses scientific thinking and is dependent on the sciences to gather new data and improve our understanding of things past that got us to where we are. It is the hope of historians, beyond their insatiable curiosity about how we got to where we are, that by improving our understanding of our journey thus far, that we will gain some insights that enable us to create a better future for ourselves.
Science has three main pillars: theory, testing, and skepticism. Theory, or the construction of a model that seems to best account for all available data, and doing so in the simplest manner possible (Occam's Razor, aka the KISS principle) is our starting point. History shares this with science, although human bias tends to push Occam around a bit, and be too generous or harsh depending on our biases of perspective. Skepticism is also a key part of the work of the historian. We must always allowing for new data and insights to require an adjustment of our understanding of things past. And if we are studious and open minded, we will discover new things which require us to modify what we think we already know. It is good to be less than perfectly certain about most things.
This business of bias is forever a problem with history and its interpretation. This is especially true when new data and insights require a significant modification to how we have understood the past. People tend to grow strong attachments to the stories of history as they were understood decades earlier. Letting go of stories and interpretations that need to be revised can be hard. This too is something historians and all of us share with the sciences. The insights into the workings of these biases in the sciences is the subject of Thomas Kuhn's seminal work "The Structure of Scientific Revolutions." For anyone who has not read this work, I cannot recommend it strongly enough. There is a reason why it is the single most cited scientific study of the 20th century.
For a more general understanding of how our brains work with respect to biases and other issues with how we perceive and interpret the world, both past and present, I strongly recommend Daniel Kahneman's "Thinking, Fast and Slow." These two books I would easily rate as being among the top five that I've read in my life. Understanding how our brains work is helpful when trying to get a handle on any topic, especially one that is as intertwined in our culture and foibles as is money.
History falls short of being a real science because of the experimentation problem. The need for rigorous and targeted testing or experimentation that the sciences require is where historical work necessarily falls short. In science, Occam's Razor and skepticism guide the selection of tests and experiments to see if the current model or theory holds up under scrutiny. Does it accurately predict the unknown. Unfortunately, historians lack time machines and are dependent upon gaining access to evidence that happened to survive the ages. New data does come to light occasionally, and our understanding of things past does improve over time, provided we are able to set aside our egos and self certainty and learn from the new data. New scientific methods sometimes allow us to extract more data from surviving literature, artifacts and monuments. Alas, this is something which we are often quite resistant to do, especially when the flow of modern money gets in the way, as is currently the case with the study of pharaonic period dates in Egypt.
As we will see, resistance to learn from new data and insights has gotten in the way of improving our understanding of how money is created and what options might exist for changing the way it is distributed (i.e. modern monetary theory or MMT). And even though the ideas presented here are hopefully a step forward from where we have been, the data supporting them is always subject to new discoveries and insights.
We cannot actually go back and attend a market day in the city of Uruk 9,500 years ago and observe first hand what we think the fragments of their records and artifacts suggest. Also, historians, much like all humans, often fall into the trap of inferring the motives behind various actions and statements by other people. Such inferences are truly dangerous ground, but we do it anyway. Again, bias creeps into our thinking. The simple fact is that we can seldom accurately differentiate between intention and is absence in the actions and words of others. So some caution is always necessary when we say they did thus and so, and for what purpose. What we are really saying is that our best interpretation of the evidence indicates that they did thus and so, and leave it at that for now. As Robert McClusky is usually attributed as having observed: "I know you think you understand what you thought I said, but I'm not sure you realize that what you heard is not what I meant." As an aside, the professionals at quote attribution have not been able to identify the true origins of this bit of wisdom about our perceptual biases.
With that as a caution, let's begin our exploration of this thing we call money by looking at what I like to call the value problem.