27 Apr 2021 · 5 min read
Money and it's wonders(Part-1)
History and evolution of money
From the time, humans have come on the face of the earth(Basically, we have evolved from apes. We were having same traits- eat sleep repeat. )
for eating, we were dependent on other animals and plants. Even for clothes, we use the same things - animal fur and bark from trees.
p.s - I am taking the brain as a different entity from us.
After this, we evolved and start moving in groups but we still were hunter-gatherers. So, our smart evolved brain told us if we all will hunt animals who will make weapons or take care of children. So, we divided our task into groups- this group will make weapons and that group will take care of children, etc.
With this started the system of exchange, With one of the human asking another human the service of taking care of their child, I will give you some meat.
Agriculture
Fun Fact - Agriculture just started in last 10000 years
Conversation between the brain and early humans-
brain- how long will you hunt animals and move like nomads. why don't you settle(our brain was thinking like what our society is thinking today😁)
Note - Was agriculture good or not for us? Is some other question. Read Sapiens by Yuval Noah Harari to know more about this.
Humans- Yeah, the brain is saying right but what will we eat?
Brain - Idiot! everything only I have to tell you
Human- Please tell!
Brain -okay! you can do agriculture
Human - Cool! let's do agriculture
So, one of the humans was like " Humans Assemble"
Agriculture was a major change to human civilization – we could finally start settling down at one place and grow our food. We even learned to domesticate animals, so we were not starving if someday we couldn't find meat.
Over time as we settled, we didn't just stop at food. We looked for other things like doctors, soldiers, barbers, etc. Domesticated animals also gave us fur, milk, etc(There is more useful to us when we not kill them and take milk which is there for their babies)
Fun Fact - dogs were the first artificial selection done by the humans
Basically, we moved from generalization to specialization. Everyone started being good at their profession. This was all good at the beginning. As it increased productivity among people and increased the quality of goods produced. Fishermen became extremely good at fishing as they spent most of their days fishing, carpenters became very good at crafting furniture, potters made great pots, etc.
But then one day fisherman was like " I am bored after eating all these fishes". It would be great if I can taste goat meat(See need is turning into greed keeping aside the nutrient required) but that was a problem.
The problem was – how does the farmer get fish, how does the fisherman get pots, and how does the potter get furniture for his house?
So, again they went to the brain-
Farmer - I want to eat fish.
Carpenter - I want the rice to eat.
Fisherman - I want furniture for my house.
Brain - Why don't you exchange your good and services with each other.
Here is the simple solution: they exchange their goods and services with each other directly (remember, the currency still hasn’t been invented yet). This is called the barter system.
Problem with the Barter system
How many fish for furniture? How much rice for fish?
Limitation of barter systems-
1) No Common measure of value- Each item was connected to other items for their value ex - 1 piece of furniture is equal to 15 apples but what if someone wants just 1 apple, we can't break the furniture.
Today we have solved this problem at the country level. Each county has there currency which we can use to buy the product
Can Bitcoin be the next thing that can solve this problem globally(More on this later)
2) Contradictory wants- For a seller who wants to sell his product, there should be a buyer who wants to buy the product. ex-Fisherman want an apple but farmer doesn't need a fish
3) Certain items are not divisible :
5 apple = 1 kg fish
15 apple = 1 furniture
If you want 1 apple, you can give 200 gm fish but not 1/15 piece of furniture
4) No standard points - For item transfer, there can be disputes regarding the quality and value of goods.
let's say you got the carpenter who will give you 1 piece of furniture for 15 apples but he will give you a small piece or he wants crimson red apples, not green ones.
5) Storage Scarcity - A farmer who just harvested has crop as the money. Don't know where to store it and exchange it to get another product because it's going to stale in 3 months.
Commodity Money
Yes, you guess it right. Again, brain to the rescue
Most of the problems of the barter system can be solved by a commodity that is quite common and consumable. So, different commodities came from different regions
Let's take ex - barley
1) easily divisible - you can buy an apple for 200 gm barley and even 2 apples for 400 gm
2) A common measure of value - you can buy an apple for 200 gm barley and a piece of furniture with 5 kg of barley
3) Contradictory wants - carpenter can buy an apple with barley and farmer can use same barley to buy furniture
4) Standard Points - the price of the item can be decided according to conditions ex - 200 gm barley for red apple and 100 gm barley for green apple
Problems with commodity money
1) Storage - you need a large place to store quintals of barley
2) Transport problem - you cannot keep it with yourself over long distance
3) globally not accepted - Some items which are valuable in one country may not be in another country and they even are perishable according to weather
ex - Salt was valuable in Rome (where it was scarce) but useless when trading with India because India is a salt-rich country.
Butter made good commodity money in cold countries but was useless when trading with hot countries.
4) Durability - Some sort of commodity money ex - cattle, barley deteriorate over time and lose their value
Metallic Money
Humans found metals around 5000 BC. Metals were used in making shields, swords, utensils, and tools.
Eventually, they were even used to make coins. They were solving all the above problems even the durability one.
Nuggets of gold were often the easiest to find and use. Naturally found mixed with sediment in river beds across the globe, Gold was easy to collect and relatively easy to shape. Silver was the same and to this day, both Gold and Silver are still prized and used as decorative metals for jewelry, etc.
Metals were distributed all around the globe in limited quantity and also not climate-dependent. So, they had universal acceptability.
Still, transportation was a problem.
Can you tell what is difference between money and currency?