Shelling Out: The Origins of Money (2002)
fermatslibrary.com
fermatslibrary.com
Most economics "schools" start from a standard Smithian narrative for the invention of money. Spot traded goods, durable goods as values stores and eventually some sort of money.
The money supply narrative is completely separate. It's explained via the "money multiplier" effect, which turns 1X amount of money into nX via lending. Generally, it's taught via the lens of central bank policies, monetarism and macroeconomics.
Graeber merges these narratives. Debt predates money, and is the primordial money. All through history nearly all money has been debt and actual money (eg gold) just got used to quantify debt. Gold rarely exchanged hands or even made it to the hands of most people.
Once you start with debt instead of money, the picture changes. Familial, religious or cultural obligations form the basis of well obligations, debt. That's the origin of money.
Graeber is also politically eccentric and that appeals to people with sympathies to his views, but for an average reader... It's not revolutionary unless you already know/care about the mainstream ideas.
I suspect that most people would repeat the claim that the chain of events was barter leading to coinage of some sort. Debunking that on its own is interesting.
Other interesting ideas are: * that in order to manage debt there needs to be (as there was historically) regular corrections to whatever debt system is in operation (the jubilee being his historical example). * once debt is quantized and mensurable the emotional, social origins of debt are destroyed
Regardless of the validity of his thesis I found the comparitive anthropology, history and literature interesting.
I find your last statement confusing. It seems to suggest simultaneously that there might be an average reader who is educated in mainstream ideas and will find the book revolutionary, and also average readers who are undeducated and will not find it revolutionary and finally anarchists (which is what Graeber is) who will also find it revolutionary.
I did not like the writing style, but I thought the content highly stimulating. It is definitely worth a read.
It's not just educated, but also interested. For two reasons.. the first is that a nuanced change to the origin of money narrative is not really interesting in itself, without the context.
2nd, because the really interesting implications (imo) come from merging the barter and debt narratives. He doesn't get into it very explicitly.
A lot of modern economics (eg much of Friedman's work) orbits the money multiplication concept.
(1)Savers deposit money. (2)Banks lend the money. (3) borrowers buy a house with it. (4/1)The money gets redoposited by by the seller (5/2) banks lend the money....
Each time they lend the money, the total amount of money in existence (in people's bank account) multiplies. This process controls the supply of money, and its inflation implications. It's how (most) money gets created. It relates to banking stability. Business cycles. Stimulus. A lot of the complicated implications of money stem from here.
Graebers story is more elegant, with a single mechanism. It's all debt. The banking money multiplier predates money, and is the real way money came to be.
I immediately thought of bitcoin. My current thinking is that bitcoin will be real money when people start borrowing it, not when they start buying stuff with it. Or else, maybe bitcoin is not really significant since it's just a way of denominating money.
Anarchists will be interested for the anthropology, the history of debt rebellions and such. Not a lot of anarchists out there, so I assume modern writing from anarchist perspectives is generally interesting to them.
I think classical economics starts with barter because its psychology and anthropology is one of humans being basically autonomous creatures who at some point voluntarily come together to engage in social relations.
However, what the science actually shows is that human beings have always been members of complex societies, and human psychology includes many social motives and mechanisms.
He has a real knack for putting everything into context and explores the sub-prime crisis without pointing fingers.
Highly informative.
All that said, I'd be curious to hear you expand on your original comment. How are you defining each of these things? What are you trying to say by noting that they're not equal? What are the implications?
Money is great because it lets individuals manage their own selves, but I'm still a little worried about how fraud, abuse and mismanagement can wreak havoc in society when money is abused.
Regulating money and everything involved around money seems to be a hard thing, and at some point moving away from money or finding other ways to do things could make sense... Although I'm curious.
Don't economists write some philosophy about those things?
https://en.wikipedia.org/wiki/Wildcat_banking
https://en.wikipedia.org/wiki/Private_currency
https://en.wikipedia.org/wiki/Liberty_Reserve
Even given the Cryptocurrency ecosystem, there's threats of fraud like Tether (theory: https://hackernoon.com/the-curious-tale-of-tethers-6b0031eea...), or the inherent history and math behind Bitcoin and many proof of work cryptocurrencies distributing the supply to only a small group of users and cutting off the ease of producing more coins as easily to later users who use the software.
Deflationary systems (or systems which skew how labor is rewarded, i.e. PoW with changing rewards for work) run the risk of creating a class of slaves from new generations, or users who simply arrive days too late:
Best estimates are that there are about one million
holders of Bitcoin; 47 individuals hold about 30 percent,
another 900 hold a further 20 percent, the next 10,000
about 25% and another million about 20%, with 5% being
lost. So 1/10th of one percent represent about half the
holdings of Bitcoin and 1 percent close to 80 percent
(http://www.businessinsider.com/927-people-own-half-
of-the-bitcoins-2013-12). The concentration of Litecoin
ownership is similar
(http://litecoin-rich-list.blogspot.com).
Most of the big wallets have been in place from early on,
so sitting back and watching your capital grow has been a
very successful strategy.Keep in mind that the value of money derives from the net utility it provides in all of the trades it is used in throughout its lifetime. By implication, the only scenario where a new currency would displace old ones through market mechanisms like competition (as opposed to political ones like state mandates) is one where the value added by swapping out the old money with the new one in trades exceeds the cost for the economy to purchase the new money from those that minted it.
In other words, it's a net gain for society for a new money to displace the old one through market competition, regardless of the initial distribution of the new money.
The effect of the initial distribution on long-standing wealth distribution also diminishes over time, given a particular holding of currency can only be spent once. For long-run wealth distribution, what matters most is avenues to extract economic rent on a recurring basis, like regulatory capture, political privileges, etc, and new forms of money like cryptocurrency could alleviate these.
For all we know the executives at the Goldman Sachs spent a few million dollars slowly purchasing BTC any any of the other altcoins since day 1.
Money only has value if someone is willing to accept it. Existing capital merely transfers into whatever other forex, seashell, or feather trading system there might be.
For long-run wealth distribution, what matters most is
avenues to extract economic rent on a recurring basis
regulatory capture, political privileges, etc, and new
forms of money like cryptocurrency could alleviate these.
There's certainly the possibility it could make all of those issues 1000x's worse.
That is still a net gain for society.
Look at it this way: cryptocurrency could potentially replace high rent-extracting institutions, and it would only be able to do so if it provided its owners with much lower levels of economic rent than the institutions it replaced (that's where it derives its efficiency advantage). Just to clarify: economic rent is defined as income that is not derived from productive activity. It is unearned, from a broader economic perspective.
So now imagine the wealthy shareholders of Goldman Sachs sell their shares, and buy up all of the cryptocurrency. They're still very wealthy, but the assets they own don't hold the same unfair advantage that the GS shares that they once owned held.
That is what it means to be in a fairer world. Eliminating opportunities for exploitation (which can roughly be mapped to rent seeking) is how you durably reduce income unequality.
>>That's oddly simplistic. No mention of wages, education, and tax policy?
It's simplistic because it's a very broad analysis that only distinguishes rent-seeking from none-rent-seeking activity.
In this case I think it's appropriate given cryptocurrency has the potential to have a very fundamental impact on the macroeconomic picture. Moreover, speculating about the finer details of its impact might not be all that useful, given how hard it is to anticipate exactly what those more specific effects will be. The broader effects are easier to predict and thus a more appropriate object of speculation in my opinion.
Adam Smith's Wealth of Nations was the first, I guess. It specifically challenges mercantilism, which is the British policy described in the intro to this article.
So we need an alternative to money because of problems that we know about and manage rather well? (And yes, we do manage them rather well. You might be traumatized by the 2008 crisis and think "omg money is evil", but you'd be missing the big picture of all of the improvement in standard of living across the board and around the world since the Renaissance that has been made possible chiefly by having money and credit.)
Anyways, there are no alternatives to money (and credit). The only alternative is barter, and that's extremely inefficient.
If you want efficient trade in services and products then you need a money-like measure of value that stores value in itself for at least the short-term, meaning: for long enough that people are willing to use that money-like measure for trade. Such a thing is money.
Not having money and credit means reverting to a state we were in centuries ago because without it there is no way to leverage barter into the kinds of trades we do today on a daily basis.
Money without credit is not that good either. That's basically what we had in, say, the Roman empire days -- not exactly fantastic.
https://en.wikipedia.org/wiki/Nick_Szabo
Was there a reason this comment was flagged? It seemed very relevant given the topic and recent trends in cryptocurrencies.
Please discuss if there's critique; the comment:
The Origins of Cryptocurrencies, with Bitcoin or Ethereum in particular are really important for people to be aware of.
These "coins" were produced simply by running some software. If you look at the math under the hood, you'll notice the algorithm distributed most of the coins essentially for free to a very very small group of people.
Best estimates are that there are about one million
holders of Bitcoin; 47 individuals hold about 30 percent,
another 900 hold a further 20 percent, the next 10,000
about 25% and another million about 20%, with 5% being
lost. So 1/10th of one percent represent about half the
holdings of Bitcoin and 1 percent close to 80 percent
(http://www.businessinsider.com/927-people-own-half-
of-the-bitcoins-2013-12). The concentration of Litecoin
ownership is similar
(http://litecoin-rich-list.blogspot.com).
Most of the big wallets have been in place from early on,
so sitting back and watching your capital grow has been a
very successful strategy.
The distribution of Bitcoin holdings looks much like the
distribution of wealth in North Korea and makes the
China’s and even the US’ wealth distribution look like
that of a workers’ paradise
It's essentially a penny stock deception, where the early users who generated the coins for low cost, or free, control the majority of the supply to manipulate the market spot price and than launch marketing campaigns and propaganda in an attempt to convince the uninformed public to buy their software coins.
While there may be issues with fiat systems, it's far better than purchasing any of these crypto beanie baby schemes.
Case study in cryptocoin market manipulation:
While I welcome a debate on the public welfare effects of cryptocurrencies vs fiat, and disagree with your broad brushing of it as a "deception", this is really off-topic.
The math behind Bitcoin or altcoins reveals a system that grants production of the supply to a minority which worsens with time. New users aware of the game theory behind the math know it's not worth buying or mining. Of course, one can gamble on an irrational market or the other users who lack understanding of the mechanics.
If the OP has an axe to grind against it and those with the foresight to start mining early, maybe they can wait for a more relevant story to emerge. As it is, the comment is guaranteed to rapidly divert attention away from the main topic of the submission into yet another debate over cryptocurrency.
While future iterations may change, we can examine existing implementations.
Upon investigation of the math/economics/game theory behind Bitcoin and most other existing altcoins it becomes evident that the longer a cryptocurrency has existed, incentive to opt in decreases due to the work economics baked into the code.
Old users expend low capital costs to produce a product (in this case an alternative money token), and then the rules change for new users who exert the same work energy to receive less payment. (early users were paid in larger block rewards for less effort, i.e. a user with a CPU on day 5 will be paid signifigantly more than a user with the exact same CPU on day 500, and by day 5000 the same work is worthless)
An economic model that pays some people more for the exact same work is exploitative.
If all users are paid a consistent amount for the same work, this particular disincentive for new users would not be a problem.
The question was never posed by the story submitted. It was asked as a segue into a missive against cryptocurrencies and the alleged unfairness of those with foresight to mine early getting rich as a result of the market value of what they mined rising.
>>and then the rules change for new users who exert the same work energy to receive less payment.
Like I said, not only is this inaccurate (e.g. the rules never change in mining), this is a major diversion from the topic of the story, and is going to turn this into another cryptocurrency debate, which you seem intent on having.
Like I said, not only is this inaccurate (e.g. the rules
never change in mining)
https://blockchain.info/charts/difficulty?timespan=all
https://bitcoin.stackexchange.com/questions/40411/can-a-smar...
The topic of the story covers the history of money.
The comment merely informs the history of crypto currencies like Bitcoin which is marketed as an alternative money ( "Bitcoin, an Electronic Cash System" ). The minting, economics, and game theory of said crypto currencies is the highlight of the comment in regards to money/value/exchange systems.
The author of the paper, Nick Szabo, is a direct contributor to the concepts behind the current trend of crypto exchange systems.
See:
>>The author of the paper, Nick Szabo, is a direct contributor to the concepts behind the current trend of crypto exchange systems.
That only tangentially connects this to cryptocurrency. The topic of the paper is the origins of money, with a heavy emphasis on early human prehistory. Like I said, if you have an axe to grind against cryptocurrency and those who had the foresight to mine it early, save it for another thread and don't turn this one into yet another debate about it.