Money. Where did it come from? Before gold coins stamped with the likeness of kings, before fiat currency, there was barter. But barter economies still depended on agreed prices for commodities and services. And those prices fluctuated, and not entirely randomly. Scarcity in one village or region, or surplus in another, had effects on prices.
Impossible under a strictly barter economy, however, was hoarding of a specific commodity, like precious metals or, later, currency. Savings were unknown in a barter system. Savings required standardization on one abstract numeric “monetizer.” Kings and emperors could force all trade within their realms to use only one such standard. However, precious metals, especially gold, enabled international trade, another land’s king embossed on a coin could be valued based on the weight of the gold in the coin. Hence, a “gold standard” emerged.
Hoarding began. Kings built treasuries of gold, the symbol of their power. As feudalism collapsed, replaced by mercantilism, banks became the new treasuries – a diminishment of the king’s arbitrary power. Other sources of “capital” would now compete with the royal treasury.
As capitalism developed, kings became actual vassals of the banks. They needed to create a bank of their own, a “central bank.” These soon created elaborate rules for how much money could be released into the economy, how much money would cost. Lending and borrowing became the medium of economic exchange, with financial activity no longer primarily about setting a fair price for goods and services.
Here is where money acquired a new definition. It became the end, not a means to that end. Greed became the foundation of political power. And a king’s standing in the world depended on control over the most capital. Competition among the “great powers” morphed into imperialism – subordination of all assets either to the crown or the central bank.
What causes greed? Lust for power? Or is it merely manifestation of the endless search for security? While domination may be fun for some, it is a perversion. No, most greed in the world – including all of us inhabitants – is about insecurity. Savings are about hedging against uncertainty. Investment is not driven by desire to do good for others. It is driven by that quest for security, growing our economic “independence.” Our social status is our perceived power to influence. Money is the tool.
In the end, influence over our environment is determined by how much we can pay. That, in turn, depends on how much we have taken from others. And, how much we discount the future with our debts. In a sense, money protects us even from death. We can pass a legacy to our children, hence ensuring a kind of immortality. That’s only sad because legacies ought to be far more than those arbitrary numeric tokens!
The science of economics, as far as I can tell, depends greatly upon the ability to measure costs and benefits. It is very mathematical. Data can be produced to adequately measure costs (“true costs”), but benefits usually, in my reckoning, are much harder to project. The “long tail” of macroeconomic policy seems to drift into the realm of moral philosophy. Measurement of future returns on investment is always highly speculative. This is where gamblers dominate the discourse. They are the ones who truly understand.
Ever since banking became the chief means of engineering economic growth (the 17th century?), gambling began its rise in the marketplace. Today, speculation in cryptocurrencies is fast becoming a factor in the history of money. Bitcoin mining is entirely digital – using large quantities of scarce energy resources for sure, but otherwise very abstract. Crypto’s future value is entirely in the realm of a gamble. Yet, criticisms of crypto are based mostly on a moral philosophy that holds “value” to some real-world outcome measurable via data collection methods. Costs should lead to social benefits. Most moral philosophies in the world do not place high value on a few people getting rich from gambling, while others become poorer from the same gamble. Additionally, we should expect central banks to enter the same crypto game – in effect, creating a fiat digital currency – thus lowering the prospects for “freedom from the system” many crypto defenders have cited as fostering their own moral philosophy.
But if more equitable distribution of wealth, measured primarily by money, is the goal, rather than personal power gained from hoarding resources, how best to accomplish that? Ordinarily, the answer lies with the political structure and its influencers. There are shortcomings, however, in reliance on attacking the greed of others. If justice is the imperative, we need humility to recognize our own greed as well.
Since the advent of capitalism (18th century), there has emerged a dichotomy between wealth and capital. Wealth is always acquired, either from our own actions or inheritance. But capital is always spent. It is invested in anticipation of future growth or exchanged for something perceived to be of equal value. That value, of course, is determined by many forces beyond our control. We still bargain over prices, but our leverage with vendors is limited by the social milieu we find ourselves in. And we gamble on future returns, which depends on many non-material factors, like confidence in our knowledge.
Both wealth and capital vary over time. There is a today, a tomorrow, and a yesterday. Wealth can be enjoyed today (even perceived wealth), but capital always depends on anticipated benefit tomorrow. It is always an investment of some sort. And our measurement of that benefit may need revision as time passes – we often get bored with things we buy, or choose to buy more if their benefit unexpectedly increases. It is too late for yesterday. Yesterday’s wealth is gone, having been converted into capital which was spent. And past decisions about capital spending can’t be undone — except as restitution for mistakes!
— William Sundwick