The Big Idea: Money is made up. But as long as people believe in it, it’s as real as anything else. Money has evolved over time and will probably continue.
Money did not evolve from barter. The evolution of money, roughly: communal giving => informal credit systems => commodities and metal coins => paper IOUs => paper currency.
Writing was probably invented by accountants for accounting.
Metal coins evolved in ancient Greece, ancient Turkey, and ancient China.
Medieval Europe used gold and silver as money, although Marco Polo reported that paper currency was being used in China.
Kublai Khan, the Mongol emperor, created paper money in China, backed by nothing, centuries before it appeared in the west.
John Law, a professional gambler and convicted murderer, brought modern money to France (and destroyed the country’s economy).
The modern stock market started in Amsterdam by the Dutch for trading ownership notes in the Dutch East India Company.
Fractional reserve banking started when goldsmiths issued notes for gold stored. They then started making loans without the gold to back the notes.
When people lose belief in the current form of money, the world gets very ugly very fast.
The gold standard was the root of the problem during the Depression. Going off the gold standard obviously didn’t end the Depression, but it was the essential turning point.
“The only thing to fear is fear itself.” — FDR responding to loss of faith in the US dollar.
If you live in a country where the banks are unreliable, where your national currency is unreliable, you put $100 bills in your drawer. That is your savings.
Another thing pretty clearly people are doing with $100 bills is crime. There are more $100 bills in circulation than $1 bills.
Before the Federal Reserve, the United States had many different forms of currency, with variable levels of legitimacy.
Modern Monetary Theory, MMT, posits that the government should print money to accelerate the economy and tax the public to slow it down.
The cypherpunks, a group of radical libertarian computer programmers, paved the way for bitcoin. Bitcoin is currency with trust built into the currency.
Definition of money: it’s the thing you pay taxes with. Currency is given legitimacy purely because it’s the legal tender for paying taxes.
Government is so central to money in the modern world that it’s hard to imagine the government letting go of that power and allowing Bitcoin to become money.