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If you took a college course in economics, you probably learned a simple history of money. First, people exchanged. But the exchange was difficult because you need a “double coincidence of desires”: I want what you want and you want what I have. So people used valuable metal parts to facilitate the exchange. Then the paper came to represent metal and the paper took on value. Yes! Money.
This history was selective and highly political. As the U.S. government continues to generate new dollars and compete faster in cryptocurrencies to find out which one is faster, we are seeing the renewal of an old argument in the history of money. Whoever controls what we use as money has great power. So there’s always been a strong incentive for the only true historical nature of money oh, wow, look! It’s the thing I have!
The phrase double coincidence of wishes originally came from Stanley Jevons in the 19th century in the United Kingdom. He is an economist of the century who published a detail history of money In 1890. He said that the United Kingdom was right, especially the Victorian conclusion: to bind money to gold, a valuable commodity that would naturally reach the place where it was naturally needed by trade.
Two decades later British diplomat Alfred Mitchell-Innes a history that financiers need to be reassuring. The credit didn’t follow the money, he argued. Credit came first. It was money. Archaeologists have found records of debts in ancient excavations. In Italy, 3,000-year-old iron discs were halved after forgery, half for the creditor, half for the debtor. In Germany, there were similar attached discs, made of silver alloy. On the fertile moon were the debt markers of the clay, anonymized inside the unmanipulated clay boxes. Coins were not the only way to overcome double chance.
I took Jevons and Mitchell-Innes again after reading this week Bitcoin Standard, Of Saifedean Ammous. It begins with the story of Jevons: money is a commodity that improves exchange. He then concludes that gold was the only good currency in the past and that bitcoin is its only successor. Each story is a simplification. As Ammous simplifies, he makes his concerns about the present clear.
When governments control money, he writes, they inflate its value to make war without paying a price. Inflation is only a monetary phenomenon: produce more money, get more inflation. People don’t have to be told to spend; they will do that on their own. But people should be encouraged to save, in a strange currency that continues to be appreciated. Under these assumptions, the only rational defense against the government’s tyranny of credit money is to buy rare money from bitcoin’s raw materials.
If you believe these, believe bitcoin. But it’s also easy to find examples that don’t hold up in history. Sometimes people would prudently collect their savings in hard coins. But sometimes the trade carried the coins elsewhere, and people found themselves without hard money, in a deflation they could not control. In those cases, people always did what they did: they found a way to create money that worked.
XVIII. In the twentieth century, the American colonies achieved only a small part of the global currency of their time, the flow of hard silver coins from the Andes to China. The merchants of these colonies did not patiently accumulate coins and sat in a deflation. They pushed for a change in local exchange rates to extract more silver, and eventually the colonial government pushed for the creation of paper credit money, colony by colony. Some of these paper notes fell out. Some inflated the value but continued to circulate. Some notes, such as those from Pennsylvania, held their value well. This paper does not seem to be a tyranny; it seems to be an adaptation to the circumstances.
There is no true nature of money. Everywhere you look today, the tide of protectionist sentiment is flowing. The Habsburg kings of Castile had silver from America, but the wars were financed with credit. Renaissance Florence and Venice had African gold, but were financed with trade credit. At the medieval wool fairs in Burgos, traders eliminated each other’s trade debts, then settled what was left with coins.
And last week, the texts of my childhood friends were not based on bitcoin, but dogecoin, an extension of the money supply created as a joke about the dog. It has ways to create the money that people want. There has never been a good way to stop.
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