Somewhere between 9,000 and 6,000 years ago, humans began domesticating cattle and cultivating crops, representing the birth of agriculture and by most scholars’ accounts, the beginning of the concept of money. That concept is essentially that we all agree to exchange a symbol of the thing valued, rather than the thing itself.
When money began, in the form of cattle and grain, the monetary units had inherent value as well. It was perishable, of course, but if the cow that you had which represented a horse that you wanted was refused at the market, you could still eat the cow. When inedible materials were first used for symbolic representation of value, around 3,000 to 2,000 years ago, the symbol lost its ability to do immediate good directly, if you don’t count ornamentation. Gold is pretty, but as a working metal, it has many limitations. It’s structurally weak, doesn’t form alloys well and doesn’t react with other elements. But maybe being pretty was all gold needed to be adopted quickly as a universal symbol of the things humans wanted. And if everyone agrees to the use of the symbol, things work pretty well.
It’s when the symbol becomes questionable that the many associated social agreements we make amongst ourselves begin to lose their perceived stability. Those social agreements include the acceptance by the public of the symbolic value that is “legal tender for all debts, public and private”, the paper money that we still use today and which was a form invented by the Chinese over 1,200 years ago when the Emperor ran out of copper to make the customary coinage. Gold is probably the most consistently used symbol for exchange of underlying valuables, having begun usage around 630 B.C. in an amalgam of gold and silver called electrum. And yet it is still a symbol. Apparently a powerful and enduring one, as we watch fears of devalued paper currency causing the price of gold to reach all-time highs lately. But we must remember that gold itself is still just a symbol, not the actual thing we want.
What we do want is a place to live, energy to run our tools and appliances, food to eat, clothes to wear, fun to have, trips to take, and futures to ensure. If we could get all these things without money, we would. But bartering is tough to do. We don’t have the storage space for the cattle and grain any longer. We’ve used our knowledge of creating leveraged work through machines and energy sources so successfully that we’ve increasingly become dependent on others for those things we would have provided ourselves centuries ago. In the late nineteenth century, 98% of the American population lived and worked on farms or ranches. Today, it’s less than 2%. We can’t make what we need, so we have to buy it with the symbols of value that we have accumulated through selling our largely intellectual abilities to others who want to apply our brains towards the goal of accumulating symbols of value themselves. Over 65% of the U.S. economy is based on services, not on creating products.
The further away we get from directly exchanging the things we value, by creating representative symbols for those valuable items, the more difficult it is to maintain the social fabric of monetary agreements that allow us to survive. Conflicts, even wars, have erupted over the control of or confidence in the money systems concerned for thousands of years. Sparta captured the Laurion Mines, freed 20,000 slaves and cut off silver supplies to Athens as part of their neighborly wars around 405 B.C. If money hadn’t been in use, Alexander the Great would have had no standing, professional army with which to conquer the known world. Early interventions into market forces which were intended to stabilize the agreed value of money were disastrous at times. During the reign of Aurelian in Rome, the emperor attempted to stabilize the currency inflation rate by arbitrarily raising its value 2.5 times. That act resulted in accelerating inflation, and a subsequent revolt of the mint workers cost Aurelian’s army 7,000 casualties.
Money is a fascinating, wonderful invention that, coupled with our ability to leverage our puny muscle energy with powered machines, has allowed people to accomplish amazing things, raising the standard of living region by region around the world. We’re not all living like the Jetsons just yet, but we’ve collectively advanced significantly in our ability to provide materially for ourselves and our families.
But we would do well to remember that money is really no more than an agreement we have among ourselves. It’s a symbol for the things we want to have and do. History has shown us that this agreement is stable only so long as we avoid tinkering too much with it. If the symbol can be changed too easily, or created independent of any connection to some underlying, truly valuable commodity (something we can eat, wear, use in some way), then the symbol is open to suspicion and lack of confidence.
This is why our government policies on the creation, circulation and cost of money are so critical to cautiously review. Precipitous decisions to “prevent a recession” might actually increase the chances of that recession happening, or worsening one that’s inevitable. The emperors and bankers of antiquity found this out when they tried shaving coins, changing too quickly to base metal money, printing obligations on leather and issuing strict edicts for interest rates. The more they tried to intervene in the market dynamics of money, the less confidence people had in the tacit agreements to exchange the symbol for the things they actually wanted.