We all deal with it everyday, its an obsession for many either those who have too much or too little, but I don’t think a lot of people stop to think about what money actually is. Money is one of the greatest inventions of all time, it is mental leap that is one of the great signs that we are indeed different than animals, it stands up there with the wheel and fire as a tool for its impact on human civilization. Why you ask? Its just money… well lets think back to before money, to a place a long time a go and place far far away (probably Africa and the Middle East). Humans spent there time in small groups, who looked out for each other, and if you wanted something someone else had, you had to trade them for something you have. That could have taken the form of an object you had or maybe in a task that you could do for them. Now as you can image that works to some level, but think about the issues of doing anything more complicated in time or place than, “Hey Fred, can I have that loaf of bread if I give you these 6 chicken eggs?” Say Fred wants to build a house but doesn’t know how, he’s going to need the help of a ton of his fellow tribe’s members, and trying to keep track of what he actually owes them in favors, bread, and labor is ridiculous. Also you know that people are people and even back then there were the jerks who would keep asking for more, “Hey man come on Fred don’t you remember when I helped you build your house, you still owe me! Come help me plow my field again (for the 10th year in a row).” It was hard to organize things, it was hard to say what was worth what, because there was no standard, how many eggs is a piece of timber worth? Who knows! It may depend on the person and place!
Then someone had the brilliant idea to put a “thing” in the middle of these transactions, a medium of exchange. The idea was, what if everything we did we used a standard unit of measure, and didn’t trade directly for each item but instead traded for this middle ground, this medium, this unit of value. And so money was born!!! At first it had modest roots in sea shells, or beads, but later evolved with Gold and silver being the longest run and most widely used standard version of money (at least until pretty recently). Lets think about what this new unit of value, or medium exchange allows! It allows you to create a stinking civilization, that’s what it allows! Now people are not shackled by time when it comes to exchanging value. You have 6 eggs now, but don’t want any bread, no problem, sell those eggs to someone else and save the money for when you do need bread. You want to build that house, no problem you can ask everyone you need help from what it will cost to help you, you have some certainty, you now know how many eggs you need to sell to build your house, you can plan how many chickens you need, how much feed for those chickens. You can now calculate a timeline as to when you can build your house. It allows for planning on a massive scale. Did you just bring in a huge harvest and have more money than you need right now, great give it to a bank to protect it and they will lend it to someone who needs that money and can put it to use now. And the spiral of progress goes up and up, the level of complexity a society can handle becomes exponentially larger.
Given that money is an abstract concept, its not just tied to the US Dollar, or Euro, it can be anything that people accept as a common medium of exchange, gold and silver can still serve that purpose, but due to convenience most people don’t hassle with it. So what makes for good money, there are many definitions out there, but in general good money has a stable value (so you can measure things easily over time), it has to be commonly accepted (so it can operate as the economic lubricant), each unit needs to be interchangeable (so one unit doesn’t become more valuable than another), not easily forged or limited in availability by its nature (so inflation doesn’t explode a subject of part two of these posts), and easy to carry around or account for. In future posts I’ll go further into some of this things and how they effect our personal finance lives.
But next time you take out a 20 dollar bill and buy something think about the amazing ancient tech that you are using and all its done to make our lives SOOO much better than our ancestors. (but don’t obsess over it, its just another tool in the end )