When you think about it, money is kind of a weird thing.
I mean these fancy little pieces of cloth would be useless on a deserted island, and
we’re the only animals who use money in this way.
Yet, money is probably the most important piece of our modern society, even in non-capitalist
societies, for better or for worse.
So how did money develop and evolve alongside human society itself?
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Please note: this video has to do with economics, which… isn’t exactly my personal strong
suit.
Studies of the New York stock exchange over the 20th century, combined with local weather
patterns, have shown that the markets tend to perform ever-so slightly better on sunny
days than on cloudy days [1].
This seems weird at first, after all the weather does not affect the value of the stocks being
traded, but it does affect the moods of the investors trading them.
Not ludicrously enough to mean anything game-changing, but still measurable enough to be interesting
(although remember correlation does not equal causation).
Although the flow of money can be measured rationally, humans at our nature are irrational
and the economy, for all its automation, is still very much tied to human behavior, a
system evolved to seek out potential opportunities and avoid potential threats.
Now when I said that humans are the only species to use money, what that absolutely does not
mean is that animals don’t trade.
In nature, animals, and even plants, frequently team up with one another in mutually beneficial,
or symbiotic relationships.
These relationships have partners trading food for grooming, food for pollination, or
protection from larger threats for protection from smaller threats.
Every species occupies some sort of biological niche, essentially, the role they play in
the larger ecosystem, and different niches often complement each-other.
While a tick may latch onto larger animals like deer or antelopes to extract vital nutrients
from them-- in an arrangement known as parasitism, since it only benefits the parasite, often
at the detriment of the host-- birds like the oxpecker feed on these little parasites
in an arrangement beneficial to both itself and to the host, thus the bird gets a meal
and the host gets relief from the parasites.
Perhaps not surprisingly, given that we evolved in this ecosystem, human societies aren’t
exactly all that different.
Once humans were able to provide a surplus of calories to feed people-- meaning not everyone
needed to collect food for themselves-- our species itself started to split into different
niches, or specializations.
Some humans still worked in collecting food, but some could start making tools to help
the farmers and those who protected the group from outside threats, as well as for those
who did other things like building buildings, weaving clothes, or irrigating croplands.
It is often told (even by me) that money was invented as humanity “outgrew” the barter
system, the trading of one good for another good, and hoping both parties assign equal
value to them.
However, no evidence of a barter-only system has ever truly been found in commercial history,
at least not outside small groups [2].
While it might do for a small hunter-gatherer band, a city can’t realistically sustain
itself on a pure barter economy, after all if you make shoes but need a hammer for something,
tough luck if the only hammer maker in town is already happy with their current shoes.
These earliest of economies more likely relied on what’s called a “gift economy”, where
goods and services and essentials are given not with the expectation of an immediate return,
but in the hope that the recipient will return the favor in due time.
It isn’t known exactly when money as we know it first popped up, but almost universally
people figured out that trade works best when you use a medium of exchange that’s A) mutually
valuable, even if it has no intrinsic value, B) is easy to add or divide, C) can last for
a reasonably long time in storage, and D) can’t be replicated *too* easily.
Precious metals, cowry shells, beads, salt, livestock, animal pelts, even giant 4-meter
stones were all used as currency by different cultures all around the world.
[Hi, one piece of gum please] Interestingly, many early agricultural societies may have
used objects like these, particularly livestock, in things like tributes or arranging marriages,
not necessarily for trading for goods.
[Hi, one arranged marriage between my son and your daughter please | Weirdo] Among other
goods, grain and livestock were largely used for these such exchanges, though crops and
animals take time to grow to fruition, introducing the need for debt and credit, and the need
for something to catalog a person’s debts and credits… like a writing system, perhaps?
With the advent of the first cities in Mesopotamia, farmers would deposit grain to the local temple,
receiving in exchange a clay tablet with their deposit recorded on it for paying off debts
to the temple [3], in a sense birthing representative money, where something without any real intrinsic
value is used to represent something that does, as opposed to commodity money, which
is money that itself has intrinsic value.
Trade between cities however mandated the use of an agreed upon medium of exchange,
for which metals were most often used, as they were seen as mutually valuable (although
they can’t exactly be eaten if you got lost in the desert), were easy to add or divide,
can last a very long time (probably how we know about them today), and weren’t all
that easy to replicate outside the local silver mine (though people did still make counterfeits
with copper or zinc).
These metals though were just random pieces of metal at different weights.
The first uniform pieces of metal used for trade date back to the Zhou dynasty in Ancient
China, with so-called spade money invented around 1000 BC.
Coins as we know them today though first appeared in around the 7th century BC in the region
of Lydia, centered around what is now Turkey’s third largest city Izmir, and quickly spread
throughout the Greek city-states, at first as a kind of token for trading, but later
a form of standardized national currency in empires like Alexander’s Empire to the east,
and the Roman Empire to the west.
Coins are a great example of representative money, but there’s one problem that everyone
who’s ever been to Europe would know: if you’re transporting a lot of them, they
can be quite cumbersome.
In Tang dynasty China, around the 11th century AD, a type of promissory note called jiāozi
(交子) came into existence.
Promissory notes are essentially written promises stating that Person A will pay back Person
B whatever debts they may owe them, and as such these notes became the first real form
of paper money (at least the first form that caught on).
Europe got wind of this invention through travelers like Marco Polo and William of Rubruck,
and in the midst of the busy trade scene all across Europe, these notes started to be issued
for these purposes by the banks, i.e. *banknotes*.
They were essentially like the clay tablets used in Babylon for grain deposits, only instead
of a farmer’s harvest it’s someone’s personal stash of coins, and instead of clay
receipts it’s pieces of paper saying “I own this specific amount of a special metal”,
which you could then give to someone else so now they owned that specific amount of
a special metal.
By the mid-17th century, these banknotes morphed into being used for all debts and exchanges,
effectively becoming paper money as we use it today, or at least as we did when it was
still backed by gold or silver.
Banks at this point even began issuing more notes than they actually had in metal coins
as loans, under the assumption that they wouldn’t have to pay it all back at once, a practice
known as fractional reserve banking.
By the 18th and 19th centuries, banknotes had evolved into essentially a nation’s
representative currency, and so the responsibility of issuing banknotes was moved over to national
banks and mints.
Although some currencies were still printed by private banks, more and more currencies
were moved over to the gold standard (as opposed to silver), largely relying on the British
Pound or the US Dollar [4], with the latter becoming the dominant reserve currency of
the world, meaning that most currencies weren’t tied directly to gold prices, but were largely
dependent on the US Dollar, which was tied to gold prices.
This system of backing these bills with special metals however didn’t prove quite capable
of handling all the monetary highs and lows presented during the world wars, and would
be put to an end largely starting in 1971, with Richard Nixon separating the US Dollar
from the gold standard, turning it, and all the currencies that tagged along, into free-floating
fiat currencies.
So now 1 Dollar wasn’t worth a certain amount of gold, it was just worth…
1 Dollar.
One large motivation for this is that, in order to be able to back up all your country’s
money with gold, your country’s vaults need to actually have that much gold, which isn’t
exactly the best setup (at least in hindsight).
By the late 20th century, payment cards like credit and debit cards began to become more
commonplace, evolving from a special keychain token issued by a department store to a plastic
card issued by a bank.
With advancements like this, money has largely shifted to being digital, and not just in
all the cryptocurrencies popping up.
So essentially the entire history of money is us assigning something some form of value
for paying off debts, and then saying “nah it’s too unwieldy and cumbersome, let’s
invent something more convenient”.
Of course that’s not a bad thing at all, in fact that’s kind of the story of… all
our inventions, because if there’s one thing humans are good at, it’s working hard on
new ways to be lazy!
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Thanks as always for watching.
I’ve been wanting to make more videos in this sort of style, so let me know what you
think about these more general history videos!
Thanks to Artur from the channel Geo Perspective for that cool map animation earlier, and as
always, you can help out the channel by liking, sharing, pledging on Patreon or buying merch,
and subscribing to learn something new every other Sunday.