Chatting with my family last week while I was visiting Sydney made me realise how difficult it is to sum up what money is, it's brief history, and how it dramatically changed in the last 50 years.
So here's my shot at doing it in writing, in 40 seconds of course 🤷♂️:
Sheep for chickens
- In the very beginning, people just bartered goods-for-goods.
- I could trade 1 sheep for 10 chickens.
- Period: since like forever.
In comes the Money
- Bartering is difficult in small amounts.
- So tokens were created as a "proxy" for value.
- Originally shells, but then coins of precious metal.
- Scarcity of the underlying metal kept the value stable.
- This means I can buy something 1/50th of a sheep without cutting up my sheep.
- 🥩 ≈ 🐓
- Period: 1200BC → 1000AD
All about that paper 💸
- Then comes paper money, which is not really money.
- Paper money is an IOU from the bank for real money (gold and coins)
- If you have $5 note, the bank owes you 5 gold coins.
- This enables the creation of fractional-reserve banking (pretty important).
- Period: 1000AD → present
The original gold standard
- Paper money becomes controlled by the state (not banks).
- Each country's paper becomes a shorthand for an amount of "money" (gold).
- As globalisation picks up, this becomes problematic as governments can print as much money as they want (think Zimbabwe).
- Period: 1600 → 1944
Single source of truth
- Post-WWII there is economic depression and instability.
- Bretton-Woods Act makes USD the global currency.
- Meaning, every currency becomes a shorthand for a fixed amount of USD.
- And the USD remains a shorthand for gold ($35 USD = 1 ounce).
- Period: 1944 onwards
No source of truth
- This model relies on trust in the US (flakey at best) and global cooperation to maintain the price of gold (difficult)
- So President Nixon unpegs the USD from gold (called floating).
- Every currency is now only worth as much as someone wants to buy it.
- This really means, money becomes a representation of faith in a country.
- If nobody thinks the US will do well, the USD will fall in "value".
- Period: 1971 → today
The final frontier (maybe)
- Floating currencies are unstable and "faith-based".
- Crypto-currencies are invented as a finite resource, a new "gold standard"
- Money ledgers record wealth in a decentralised and instantly transferable way.
- Period: 2009 → today
There you have it, money in 40 seconds... or so. You're just a slow reader.