Everything Everywhere Daily: History, Science, Geography & More - The History of Money

Episode Date: April 16, 2022

Subscribe to the podcast!  https://podfollow.com/everythingeverywhere/ Money is a very strange thing. All of us use it. We spend it, earn it, and save it. We know it when we see it. Yet, even some of the world’s best economists have a very hard time defining it.  It has been around for thousands of years, yet there is still innovation being made with it today. Learn more about the history of money, how it came about and how it developed over time, on this episode of Everything Everywhere Daily. -------------------------------- Associate Producers: Peter Bennett & Thor Thomsen   Become a supporter on Patreon: https://www.patreon.com/everythingeverywhere Update your podcast app at newpodcastapps.com Discord Server: https://discord.gg/UkRUJFh Instagram: https://www.instagram.com/everythingeverywhere/ Twitter: https://twitter.com/everywheretrip Website: https://everything-everywhere.com/everything-everywhere-daily-podcast/ Everything Everywhere is an Airwave Media podcast." or "Everything Everywhere is part of the Airwave Media podcast network Please contact [e-mail] to advertise on Everything Everywhere. Learn more about your ad choices. Visit megaphone.fm/adchoices

Money is a really strange thing. All of us use it. We spend it, earn it, and save it, and we all know it when we see it. Yet, some of the world's best economists have a very hard time defining it. It's been around for thousands of years, yet there is still innovation being made with it today. Learn more about the history of money, how it came about and how it developed over time on this episode of Everything Everywhere Daily. What if your perceptions about the past were wrong? ThruLine is a podcast that takes you back in time.

to uncover the parts of the story that may have gone unnoticed. It effectively turned day into night. And how it shaped the world now. Time travel with us every week on the Thuline podcast from NPR. The history of money goes back thousands of years. But before there was money, there was something else. Barter. Most economic historians are in agreement that bartering probably goes back as far as humanity does.

If there were wandering nomadic bands of people, some of them might have acquired goods from one location they visited like an obsidian knife. If they encounter another band of people, those people might have had things from some other place, like the seashore. They might have had shells or something that the first group didn't have. This form of exchange was simple, if inefficient, and there are multiple problems with bartering. Suppose, I don't want what you have, or I don't want as much of it as you have and you can't divide it. If you have a cow, you can't very well divide it into smaller units. goods can also be difficult to transport, and depending on what it is that's being traded, it also might be perishable.

There's another closely related concept of bartering, debt. I'm not going to go into too much detail because I've covered much of this in a previous episode on accounting, but the evidence of debt actually dates back much further than the history of money. Debt is nothing more than barter delayed by time. Instead of saying, I'll give you one of these for one of those, debt is just saying, give me one of these, and I'll owe you one. This form of exchange was probably more prevalent within communities than between them. This division between debt, perhaps just consisting of marks on a bone, versus barter,

was the start of money as a unit of account versus a unit of exchange, and more on this in a bit. None of this is money as we think of it today. The idea of something that we think of as a unit of exchange probably developed with the rise of agriculture in Mesopotamia. When farmers in a community placed their grain in a communal grain storage, they would be given a clay token. That token could then be used to withdraw the grain at some later date. Those clay tokens then had a value worth some set amount of grain, and it was a small step to then exchange those tokens for something else. The recipient would have been willing to accept the clay tokens, knowing that they could then be redeemed for some set amount of grain in

the future. This would have been the first sort of exchange where an object, the clay tokens, were representative of some other good. A trading token that could be redeemed for grain was much easier than trying to carry around a basket of grain. The system for this was a huge step forward, but there were still big problems. For starters, only someone locally could probably redeem the tokens for grain. No one far away would be willing to accept a grain token because it would be worthless to them. Also, clay is not a great medium for money. If you drop it, it could easily shatter.

And also, it was probably really easy to counterfeit. Now that we're at the point of history where tokens have been introduced, I should get into what actually would make for a theoretical great form of money. For starters, it should be durable. Harden clay that can crack and shatter isn't very durable, nor is anything organic that can rot or decay. It should be reasonably portable. Cattle and grain have been used as means of exchange, but they aren't very easy to carry

around. It should be fungible. One unit of money should be the same as another unit of money. That's why animal pelts were a horrible means of currency. one pelt might be of higher or lower quality than another. It should be verifiable. It should be difficult to counterfeit and easy to know if it's valid. Finally, it should be scarce.

If everyone had it and it was easy to acquire, then it wouldn't have any value and it wouldn't be a means of exchange. There was one thing that did meet most of the requirements I just listed, and it was adopted during the start of the Bronze Age. Metal. Metal is durable, it's fungible, it's relatively portable, and it's sort of scarce. The first metals used as exchange were literally just metal objects or tools, usually copper or bronze.

However, other metals proved even more useful as a means of exchange. In particular, silver and gold. Silver and gold were even more scarce, and they didn't really have any other practical use. They didn't make for good tools or weapons, and they were pretty, which meant that they were often used for jewelry and other adornments. However, just using metal in and of itself didn't solve the problem of verifiability. This was solved with the creation of coins. Coins are precious metals with a special imprint used by some centralized authority. The oldest coins which have been discovered are from around the year 600 BC.

Coins seem to have been independently evented around the same time in China, India, and Greece. It's entirely possible that there was some earlier coin that spurred their innovation in all these places, but if that's the case, we haven't yet found it. Now, you might be wondering what people used when they didn't have access to me. metal. There were all sorts of different things which served as money all around the world. One common thing which has been used as money was sea shells. Shells were portable, they were relatively rare, depending on the type you used, and were somewhat fungible and sort of durable. These shells would often be formed into beads and tied together on strings. In North America,

the shells of the Welk Sea Snail were used as beads. This was known as Wampum and it was used as a currency in addition to jewelry and belts. Similar beads were used. used in Africa. And in both places, the beads had a relative scarcity, which made them work as a form of money. And I should make a special point of talking about the currency which was used on the island of Yap in Micronesia. The money in Yap consisted of giant stone wheels. You might have seen photos of them because they were the largest coins in world history. The stone money was called Rye. You might be thinking that this would be a horrible form of currency. You can't carry it around and it isn't necessarily fungible. The reason why these

giant stone coins worked is that they were very rare on the island of Yap. The stones were made out of limestone, and there was no limestone to be found on Yap. To get the stones, they would have to travel 280 miles to Palau, quarry the stones, and then transport them back to Yap on outrigger canoes. Once they got back to Yap, the stones would be put in a prominent place on the island, and then everyone would know by public acclamation who owned it. Yapp was a small enough island that this form of social acknowledgement served as a form of money, which actually made the money incredibly portable. When the ownership of the Rye would change hands, it would simply be acknowledged publicly, and now everyone would know that it was owned by a different person,

and the stone never had to move. Rye were only used for major purchases, like a dowry or a canoe, and they could even increase in value if previous owners were virtuous. Coins made of silver and gold were the preeminent form of money throughout Europe, Asia, and North Africa for over a thousand years. Because silver and gold were universal, it facilitated international trade. Coins from some places might have been more trusted, but they could also be melted down if necessary. The minting of coins actually became a significant source of revenue for the issuing authority. Money made by minting coins is known as seniorage, and it's still a source of revenue for countries. Today, it would be the difference between the cost of printing or minting money

versus the face value of the money. Another source of revenue for countries would be currency debasement. I went through this on my episode on inflation, but basically by putting less precious metal into coins, they could pay off debts with less silver or gold. The downside is that it made the currency less valuable and it would cause prices to rise. The next big innovation in money occurred in the 8th century in China, and as you can probably guess, it was the introduction of paper money. There were regional paper currencies introduced during the Tang Dynasty, but it became really widespread during the 11th century in the Song Dynasty.

The benefits of paper currency were that. it was much lighter than metal and much cheaper to produce than mining silver or gold. Paper currency worked its way west over time. While it was adopted, it didn't necessarily replace precious metals. It was usually used as a proxy for hard money. Europeans adopted paper money into bank notes, where a person holding the note could exchange it for gold or silver at an issuing bank. Many of these early banks were just goldsmiths who held reserves of gold, which later evolved into full-blown financial institutions. The crusade. The crusade. The creators also established banks that allowed people to make deposits at one location

and then use a certificate to make a withdrawal in a completely different location. This was very similar to certificates that were issued by Islamic banks, and Islamic banking is an interesting enough subject to be worthy of an episode of its own in the future. These certificates were the first checks, written claims on deposits made in banks. As the world entered the modern era, a system of payments between countries developed, and it became far more elaborate. I'm going to go into these international monetary systems in greater depth in future episodes on the gold standard, the Bretton Wood system, and the petro dollar system. I wanted to do this episode first before I did those episodes, just so I could give a basic overview of money.

Before I end, however, I wanted to go back to something I said in the introduction, that economists have a hard time defining exactly what money is. Now, to be sure, currency is money. If you have dollars, pounds, euros, yen, or reals, you have money. But we use currency for purchases less and less. If you use a debit card, you are paying from your checking account, and there's no currency involved at all. There are other assets people have as well that can't quite as easily be used for purchases, but they could be if given a little bit more time. To solve this problem, most central banks have created a multi-layered definition of money. In the United States, this is the following definition of money.

The lowest level is called M-0, and M-0 is nothing more than the currency which is in circulation, and this is all of the paper notes and coins that are floating around. The next level is called M1. M1 consists of M0 plus checking accounts, most savings accounts, money orders, and travelers' checks. Not that anyone really uses travelers' checks anymore. M2 is the next level. That consists of M1, plus any short-term cash investments which include money market accounts, money market mutual funds, and certificates to deposit under $100,000. $M2 is usually the money supply level that most economists and central bankers pay the most attention to. However, there are even more ill-liquid definitions of money.

M-3 is everything in M-2 plus all larger certificates of deposit plus larger institutional money market funds. And finally, there's M-4, which is M-3 plus all short-term corporate paper plus short-term treasury bonds known as T-bills. Every country has slightly different definitions of money, but they're all pretty similar. Now you might be wondering how much money is there. In the world today, if you added up all the various forms of money in every country, it is estimated that there are the equivalent of $430 trillion worth of money in total on Earth. The total amount of currency in the world is about $90 trillion. If you search for the total amount of money in the world,

you're going to find widely varying estimates because there are so many different definitions. but the $430 trillion estimate just makes the most sense to me. And on top of all of this, gold still has a place in the international monetary system. Of course, innovation and money hasn't stopped. There's been a great deal of effort put into the development of digital currencies, stable coins, and cryptocurrencies. All of that will most definitely have to be left for a future episode. The topic of money, let alone banking and finance, is an enormous one.

However, it's also a really important one. The monetary and financial system, which might otherwise seem confusing and esoteric, play an extremely important part in the world economy today. Everything Everywhere Daily is an Airwave Media podcast. The associate producers are Thor Thompson and Peter Bennett. Today's review comes from listener Ian Juergens over at Podchaser. He writes, I have rated five stars for Everything Everywhere on Podcast Addict. I'm happy to do it again here on Podchaser for such a noble cause.

There's so much I've learned from Gary. either on things that I knew about, like the Holy D'Amour, but was glad to have learned more about, and on things I had no idea about, like Ignaz Semmelweis. That episode was fascinating, especially since my best friend has a degree in biology and immunology, and I had the opportunity to ask him about something that he wouldn't have thought I had learned about. I wonder if Gary takes requests. There are many wonderful things for people to learn about my home state of New Mexico, from White Sands, Carl Bad Caverns, and Chaco Canyon, to Billy the Kid, Coronado, and Kit Carson.

It would be wonderful if Gary would be willing to pick a topic about New Mexico to expound upon. I can't say enough how much I love this podcast and the work that Gary puts into it. I have binged to all 663 episodes since I started listening just a little over five months ago. Even the encores. Keep up the great work, Gary. Thanks, Ian. I have actually been to all of the places you've mentioned in New Mexico. I think there are a lot of New Mexico-themed episodes, including Werner von Braun and the Early Space Program,

early pre-Columbian civilizations in the southwest like the Chaco Culture, and of course the Manhattan Project. Remember, if you leave a review over at Podchaser until the end of April, they will make a donation to help feed Ukrainian refugees, which will be matched by several other podcasting companies.