Final Thought: Fictional Currency

Back in China, so the story goes, people used to use iron coins as a form of currency.

But iron? Wasn’t worth an awful lot. You would need a pound and a half of coins to buy a point of salt. And don’t ask how much iron you’d have to shell out (side note: other societies have actually used shells as a form of currency, which presented similar problems as iron coins, but for now, let’s focus on China) to buy a cow. You’d need a literal wheelbarrow to cart the coinage around.

It became prohibitive to use these coins as currency, other than if you wanted to exercise.

One day, a smart business owner said he would hold onto the iron coins, and give people a piece of paper that said, basically “I owe you 1000 coins.”

And people could come back and show him that paper, and buy something, and he’d issue a new receipt saying “I owe you 900 coins.”

Well, some of the other businesses in the area thought this was a great idea, and started doing the same thing, and it wasn’t long before people who were storing their coin at the fish mongers would go to the spice merchant and say “hey, I have the coin stored with the fish monger. Will you take this IOU instead?”

But you might notice that these pieces of paper? Weren’t what they represented. They weren’t the iron coins, they were just representations of these coins. And as time went on, what they represented got abstracted away, and so instead of representing coins, the IOU became the money itself.

In Canada a similar thing happened. Paper money was originally based on the gold standard, but in 1932, the government uncoupled the dollar from the gold standard.

It was supposed to be a short-term measure, as it had been in the past, but Canada never went back to the gold standard. Instead a dollar is worth…well, a dollar. What is a dollar? It’s a dollar.

Over time what a dollar represented (this much gold) had been abstracted away. It no longer represents anything but itself and the faith we have in it and in the institutions (the Bank of Canada and the Canadian Government) backing it.

While some people continue to use actual cash for transactions, most people use debit cards and credit cards and e-transfers, and the idea of what a dollar is becomes even more abstracted.

Historian and philosopher Yuval Noah Hurari says that the thing that allows us as humans to live and work together is our ability to create fictional stories, and one of the biggest fictions man has ever created is the idea of money.

Money itself has no intrinsic worth. Offer a pig an apple in one hand and a million dollar cheque with the other, Hurari says, and the pig is going to choose the apple. (And if by chance it does choose the cheque, it’s gonna eat it.)

The value of money doesn’t come from the paper, or even from the data. The value comes from this story that we tell about it, as individuals, as a society. It has power over us because we give it that power over us. If we wanted to, we could move to a massage-based system of transactions, where you traded stuff for a relaxing back rub. But we don’t want to.

In the last few years, cryptocurrencies have become popular. One Bitcoin, for instance, has been valued at over $65,000. Why? It’s not because of any inherent value. Sure, you have to solve some mathematical equation to create new Bitcoin, and there is a cost involved in electricity but you can burn the same amount of electricity watching cat videos on the internet and not get any electronic bits that are assigned a value.

No, it’s because money is a story. It’s a way of answering the question “why?” It’s a way of solving certain social problems that people were faced with.

But by creating a solution to this set of problems, we’ve created entirely new problems. As we discussed last issue, we have created a system that rewards efficiency, to a point where we, the humans who created the system, are less efficient than machines, and are at risk of no longer being able to take part in this system.

We have created this story of money. It becomes a form of institutionalized trust. If I ask you to fix my roof, and I promise to give you three chickens and a bushel of wheat, you have to trust that I will actually give you those chickens and wheat, and I have to trust that you will fix my roof.

There have been other stories told in the past. Previous to capitalism, feudalism was the prevailing economic system. In that system, land owners would subdivide their land amongst a working class. Each person had a plot of land to work that was big enough to provide for their families and a bit (or a lot) extra to give to the owner of the land. Each of these was a self-contained unit.

But in the fourteenth century, things changed. The black death wiped out large chunks of the populous, both serfs and lords. But this meant the lords didn’t have enough people to work the land and keep them in the lifestyle they were accustomed to. This put a degree of power into the hands of the people working the land. They discovered they didn’t have to work for this lord, when the lord down the metaphorical street was offering more. Was starting to pay his workers. And then there was all the land that nobody owned, that a new class of farmers began to work and sell their product to a newly formed middle class who now had enough wealth to buy goods.

And, while money had existed in Europe beforehand, it was during this time that it became the prevailing story.

Which doesn’t much help us figure out the next step after capitalism; it just shows us how we got to where we are.

Or maybe it does. Those who don’t know history, the saying goes, are doomed to repeat it. If we look back and see what has come before, we can possibly start to see the direction we are heading and the possible variations as we move into the future.

Maybe.