Roots of Money

Timothy My Dear Son,

I have been trying to compile these concepts for your advancement and prosperity. These are not steps to a rich life, but an understanding of wealth in its many faucets. Know that money is a means to transact, preserve and track value. For a minute do not view money as coins and paper but a concept. After understanding the concepts then you can go back to identifying money with coins and papers. 'Offer something then you get something in return', I declare! Transact your Skills, Knowledge and/or Time in return for money. Understanding this simple concept shall set you at an advantage indeed. The rest is for your concrete understanding.

My dear son, according to an Economist called Keynes, the origin of money is lost in the mists of time and therefore we will never be certain about the origins of money. Money predates writing because the earliest examples of writing are records of monetary debts. Also, it is difficult to know what to identify as money because of how complex its nature can be. Value can be bestowed in many things and perceived through the lenses of social constructions. Some economist view money as an origination of a cost minimisation procedure in transactions (a deviation from Barter Trading which is costly both in ascertaining value and matching transactions). In that case, they identify the Medium of exchange (money as just a pricing mechanism) and store of value as the originating anchors while other economists focus on the unit of account in credit and debit relations (pricing of credits and debits). Note that credit and debit can exist without markets and without a medium of exchange. This means that a debt can be incurred not because of an economic transaction but because of Marriage, killings, coming of age, joining a secret society etc. This can also be in the form of a wergild which can be passed down generations.

An economist named Hudson reports that in most languages’ debt is synonymous with sin or guilt reflecting these early reparations as wergilds. The conversion of wergild fines (debts) into payments could not have happed in Egalitarian societies, so had to at least await the rise of some ruling class (Religious Leaders, Conquerors, and kings) who demanded tithes and tributes to conquerors. Tithes and Tributes must have replaced wergild fines. It was only later that Taxes would then replace most fees, tithes, and tributes which are self-imposed through democracies replacing Authoritarian regime’s interactive view of money. The key innovation here was the transformation from a debt to the victim (wergild) to a tax obligation payable to the authority, and this needed to be standardised in terms of a unit of account as money. Although at first, they might have levied these taxes using varied types of goods, standardisation was inevitable to correctly measure the debts and credits of these payments. If the debt was denominated in a specific kind of good, it could be difficult to pay using the good if individuals do not have it unless markets existed already. Also, another problem that comes with this is that the authority might find itself in overabundance of a particular good and lack other goods. There was also an incentive for taxpayers to pay using low quality goods and the payment will still hold. Therefore, denomination would solve a lot of problems. It is difficult to come up with a measure of a unit of account and would be easier to use size, length, and weight scales to standardise payments. It is difficult to conclude that a single numeraire evolved from individuals maximising their utilities because that required markets to reach equilibrium prices through a high degree of specialisation which does not seem possible given the risk associated with that. It has been speculated that monetary units were based on number of grains of wheat or barley as the fundamental weight standards like pounds, shekel etc sounds to have a link to that. Internal admins in temples, palaces and public institutions created their own monetary pivot like a shekel weight of silver (equal to a certain weight of grains) so then rather than an intrinsic value of the metal commodity this gives rise to a numeraire. A standard could have not evolved without an authority and other complex structure; In all this the assumption is that there is a connection between ‘the State’ and the Unit of Account, or currency.

What is Money? Conceptual ideas:

One should first identify the essential characteristics of a monetary system:

·   The existence of a method of recording the transactions, ie a unit of account and tools to record the transaction

·   The unit of account must be socially recognised.

·   The tools are monetary instruments/debt instruments. They can take any plausible form, from book entries to coins etc. Should be denominated in a unit of account.

Must be transferable (ability to circulate). Debt should still be valid if the instrument is circulated. Circulated at no cost or low discount.

We can later get into more messier issues aligned with Endogenous Money Theories, where money is viewed from the Lense of Pure Credit. For now, build up the barns to transact; Build up the Skills to Transact; Build up a demeanor to Transact; Build up a Character to Transact.....

With Love, 

Your Dear Guardian