Although I don’t make nearly enough of it, I have a theory about money. Its history is long and convoluted and I never tire of telling a condensed version. These days, I am careful not to emphasis my imaginative bits which bridge the gaps between the islands of facts. Well, here it goes.
Every school boy knows that barter was the early means of commercial exchanges. You know, the “I-trade-you-a-piece-of-lamb-chops-for-some-tubers-of-yam” business. With the obvious limitations of divisibility or a standard of what value represents what or difficulty in moving cumbersome inventory for exchange at the market or the risk of spoilage of perishable item etc, it fell to other representations to be veritable carriers of value. Modern man toyed around with a few standards and then settled on gold. It was the perfect candidate: precious metal, scare, inanimate and definitely not perishable. He even took upon himself to fragment it into smaller standardized pieces for ease of carriage. And for a while, things were peachy in the world of commercial exchanges. At least up until, certain individuals began to dope gold with lesser metals after heating them at very high temperatures. This was in order to increase the quantity and hence the size of the “gold” coins after they had cooled in the melting pots. In this way, these individuals were able to literally increase their wealth. To curb this, the ruling government began to brand gold with a special seal on one side, attesting to the authenticity of every coin and then perhaps later began to imprint the value of specific gold coins on the flip side. The apparent progenitor of the coins we use today.
Another interesting occurrence was the increasing popularity of gold smiths in the community. Together with merchants, these artisans began to keep gold for members in the community in their safes (the gold smith worked on gold items and as such had to develop strong safes against robbery and theft – duuuuh!). You see, the fear of being dispossessed of their valuables led people to begin to pay a fee to the gold smith in the community in order to have their money kept in his safe. He in return would issue a receipt which may have read something like “this receipt backs such and such number of gold coins which have been deposited on this day [state date] in my vault, signed: Goldsmith”. With time, the gold smith would even begin to issue receipts to individuals as loans even when there was no gold to back it up. And they even did this with interest!
Lets take a scenario in which a man wants to return the money he owes or wants to make a purchase at the market but doesn’t have his gold with him but he has his receipt from the gold smith. Now the gold smith is known and respected in his community. He is practically an institution. So its not a problem if this man simply hands over his receipt in payment. This was to become the precursor of the paper money we use today. Hence, that old idea that money was backed with gold. Unwittingly, these “bankers” had established a new financial system in which the essence of money which is value was now travelling in paper form in place of gold itself.
So we leap, say, another century. Then comes fiat money. Perhaps, some genius in government decides that the best way to go was to remove the backing of gold from money as we know it. Bank notes could then be printed at the discretion of the authorities irrespective of the quantity of gold in their vaults. Thus the government was putting out its reputation that these notes (or currency as they would now be known) represented their said value. In other words, the brand of the government was money’s new backing. And then the story goes on….
What I think is obvious from this lengthy tale is that the essence of Money is value but if we take a closer look, we notice something else - the entire financial system is credit driven. From the time when vault receipts were like glorified IOUs claiming that there was some money somewhere which you could access when you wanted. Or that in issuing a bank note out to someone today, what you are saying is that some government or bank somewhere is promising the recipient that they are good for it. All of this rests on the concept of trust.
From value to credit to trust. Quite the leap, I admit. But it all comes down to trust. The very basis of all commerce – “I trust that this product am buying would deliver” or that “the TV repair man possesses the skill to do my work”. It is one of the earliest feelings we learn, psychologist tell us, in the oral stage of psychosexual development.
Perhaps that is the reason why Money is the ultimate brand document. A bank note even encodes some of the most important concepts on trust. Maybe more on that next time.
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