Money is a useful collaborative fiction to exchange and transfer value.
The 2020 book from former NPR Planet Money podcast co-host and economics reporter Jacob Goldstein is a fun and approachable social history of what we call money. It is light and breezy, full of familiar themes to those already interested in finance and economics while also a good starting point for someone who isn’t.
I captured notes for myself below. Go buy the book yourself.
Notes for my use in the future below:
- Money did not evolve from barter economies, despite that common assumption. We have no evidence of that despite consistent assumptions of it solving the “double coincidence” necessary in barter economies.
- “The Incas had rivers of golden mountains full of silver, and they used gold and silver for art and for worship. But they never invented money because it was a fiction they had no use for.” (8)
- Greek coins transferred from Lydia developed the agora into a market and seasonal farm laborers (paid in food and clothing) in wage labor
- The paper money that Marco Polo saw in China evolved out of “receipts” for iron coins in Sichuan (16)
- The historian’s question about the English-founded Industrial Revolution has changed: not just “why did it start there” but also “why did China’s early success fail?” After the Khan mongols were chased out by the Ming Dynasty, they reverted to a more agrarian past and dumped the tool of money. (China also had low labor costs and fewer rivals to compete with, which are thought to have driven the English success)
- Fractional reserve banking evolves out of English goldsmiths responding to shortages of silver coins
- The word “banker” comes from Italian “banchieri,” or bench sitters to refer to the Venetian men who gave loans on the benches over the Grand Canal
- “The thing that makes money money is trust.” (31)
- Pascal and Fermat, and even John Law, were a part of elite gamblers who developed probability theory
- Governments sold annuities before taxes: Halley (of comet fame) used data to work out better predictions and pricing
- “The essence of finance is time travel” wrote journalist Matt Levine “saving is about moving resources from the present into the future; financing is about moving resources from the future back into the present.”
- The first equity market was the Dutch East India company’s offices where news of voyages came and people traded shares in their economy; to avoid a “thin market” the later official exchange was only open a few hours a day
- Amsterdam grew rich with a dependable bank and reliable money system
- Money “it’s the thing you pay taxes with”
- Mississippi Company bubble related to John law and French regent Orleans support
- “The Founding of a National Bank would be fatal in an absolute monarchy,” Saint Simon wrote “whereas in a free country it might be a wise and profitable undertaking.”
- We need tension to keep a king honest from printing too much money (73)
- Independent entrepreneurial English artisans in the early 1800s had a joke called Saint Monday, in which they’d get drunk on a Sunday and not work on Monday.
- 1811: Ned Ludd the anonymous and fictional luddite leader
- British government allowed new machines to flourish where other governments hadn’t
- Lord Byron in Parliament: “these men were willing to dig, but the spade was in other hands” (94)
- Luddite: collective bargaining by riot
- Hume: common course of nature
- Trying to stockpile gold in one country is like piling water on one side ie the ocean: “ all water wherever it communicates remains always at a level” 103
- David Hume influenced Adam Smith
- The Gold standard essentially begins in London in 1816 and as all countries joined it, it did make trade easier, but it’s essentially based on how much gold is being pulled out of the ground (110)
- William Jennings Bryan and his Cross of Gold speech is famous but he lost twice to William McKinley, who defended the gold standard (and rejected silver which would increase money supply and make prices rise with inflation)
- Fisher and The Money Illusion was an early work on the fixed mental model of dollars. (That is, we think in “nominal” dollars, or the face value of it, not the “real” value in terms of purchasing power.)
- Second Federal Bank (and Philadelphian) Nicholas Biddle was an influential figure disputing what entity should print money (private banks held this responsibility after the Continental Congress over-printed during the Revolutionary War, lacking tension against this inflationary pressure) (118)
- Biddle’s use of the Second Federal Bank to register state banks was novel and shaped central banks today: “he was unambiguously successful. People came to trust banks more, the United States finally had an integrated financial system in the area which both prosperous and stable.” (120)
- Yet, famously, in 1836, President Andrew Jackson vetoed the recharter of the Second Federal Bank, noting it has too much concentrated power (probably true, Biddle was a good public servant but his successor may not have been). But this gave more power to state banks without oversight (123) This ushered in the “free banking period.” (The U.S. Federal Reserve system isn’t chartered until 1913 in a radically different, distributed system)
- Before Civil War, a Chicago tribune reporter counted 8,370 different currencies in U.S. (125) This was true free market in money itself
- Lincoln finished state-by-state variable money by taxing it out of existence; six weeks before he was assassinated (also the period when we transitioned from saying “the United States are” to “the United States is”)
- Blaming crises on the greed of bankers is like blaming the wetness of water for a flood — something else must be involved (130)
- The Federal Reserve and its collection of regional banks was designed intentionally to not look like a central bank (Americans hating the idea of centralized banking) 132
- Various academics today argue that The Fed and gold standard made another recession into the Great Depression (increasing interest rates to reduce withdrawals of gold, when the economy needed lower interest rates to bolster spending)
- Roosevelt in 1933 essentially took us off gold standard even if didn’t happen formally Nixon in 1971 (148)
- Banks borrow short term and lend long term ; the Great Recession was a run on the “shadow banking” of money market accounts
- The Reserve Fund didn’t survive but the Fed backstopped other “shadow banking” entities, like money market funds that had essentially been creating money through loans (166)
- The Euro crisis of Great Recession reminds us of the difficulty of monetary union without political Union (ie wasteful Greeks but not wasteful Floridians)
- “One of the most important things central bankers do is make promises that people believe.” (184)
- An early example of attempts of electronic money was David Chaum of DigiCash; In November 1998, The Economist wrote: “electronic money has thus turned out to be a solution in search of a problem.” (191)
- Early foundations for distributed money started with radical communities rallying around examples like the Crypto Anarchist Manifesto (1988) and then the Cypherpunk Manifesto (1993)
- Jude Milholn is credited with the term cyperpunk
- Adam Back’s 1997 hashcash was more like gold than David Chaum’s fiat efforts at digital cash but the missing technology was the use of a distributed ledger (blockchain)
- In 1998, Wei Dei was credited with the idea of a distributed ledger
- In 2008, Bitcoin’s novelty (via “Satoshi”) was the addition of payment for all the computers maintaining the general ledger
- Ross Ulbricht‘s online marketplace Silk Road (which was used for illegal activities, in addition to ethical experiments) advanced Bitcoin with a clear purpose for transactions, though he is currently serving a life sentence since being identified in 2013 as supported major international trafficking.
- Modern Monetary Theory (MMT) is another wave of changes to money that will go on forever.
