In this article, Marc Bachs Castan explores the concept, function, and future of money.
This is the lesson I wish I had been taught on my first day at university. I studied Economics and, ironically, we never discussed what money is. Instead, we just assumed for everything we did for the next 4 years that money was simply Euros (or US Dollars) and that rational individuals would always accept using them.
Fortunately, I have continued self-learning Economics since then and after a recent debate about “money” with a friend, I decided to write down what I learnt to both put my thoughts in order and share the knowledge so others can benefit too.
Before money was invented
Let’s go back to the very basics to understand what money is. Let’s say you are a hunter-gatherer 70,000 years ago and you just managed to hunt a deer. Deer is great because it provides you with the food you need to survive, but you also need clothing, hunting weapons, etc. What do you do? Initially, humans resorted to bartering, which essentially means you exchanged the meat of the deer you hunted for other things you needed with other humans.
However, bartering has some limitations, such as the “coincidence of wants” (e.g. you have deer meat to offer but the guy that sells the clothes you want may be vegetarian and therefore not interested in your meat), the lack of a standard measure of value (are all deer meat pieces worth the same?) and indivisibility of certain goods (let’s say you captured a deer alive and you want to buy only 4 apples; you can’t divide the deer without killing it, and it may be more valuable alive).
The invention of money: one of humans’ most powerful stories
Humans’ amazing ability to create stories and rally behind them enabled the invention of MONEY. Money is this amazing thing that Wikipedia defines as:
“any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context.”
Basically, anything that a community is willing to recurrently use in exchange for what they want to buy and sell.
When we say that money is any item or verifiable record, that means anything from shells, rai stones, gold, USD bills or digital currencies. Things like poker chips and Fortnite V-Bucks are also forms of money, accepted in particular games.
Key points include:
- Commodity money
- Representative money
- Fiat money
Read the full article, ECONOMICS 101: What no one ever told you about what money really is, on Medium.com.