Crash - A Brief History of Economics

The Strange Inception of Money

MONEY IS AN INGENIOUS TOOL: IT LETS A MANICURIST BUY HALF A DOZEN DANISHES WITHOUT HAVING TO GIVE HER BAKER A PEDICURE. AND ITS ESSENCE CAN BE SUMMED UP IN ONE WORD: FAITH. BASICALLY, IT'S THE FAITH THAT YOU'LL BE ABLE TO EXCHANGE THE PAPER IN YOUR WALLET, OR THE NUMBERS THAT APPEAR ON YOUR ONLINE BANK ACCOUNT, FOR SOMETHING TO EAT, WEAR, OR LIVE IN.

But this notion is incomplete.

Money only deserves this name when it obeys two criteria:

1. It has to be something everybody wants.

2. It can't be something that is overly abundant. If it isn't scarce, it won't be worth anything. And if it's not worth anything, it's not money.

Think about something everybody always wants. Water, for instance. You can't live without it, so it fits criterion number 1 very well. Except it doesn't fit criterion number 2 – all you have to do is go to a riverbank, or to your kitchen sink, and get as much as you want. Way too abundant to serve as money.

Now think about food. That's different. Throughout much of the history of humanity, it fit both criteria perfectly. First of all, everybody enjoys food, of course. Second, it's never been easy to make it sprout out of the ground. And hunting for it – even tougher. Food has always been relatively scarce.

That's precisely why it was the first thing to be used as money. And not only before currency had been invented but even before the appearance of human beings. The chimpanzees are here to prove it. The males give females meat in exchange for sex. Well, it's not exactly a direct trade-off, a straightforward give and take. Sharing the results of the hunt with female monkeys is one of the ways that the males of the species try to win over their lady friends. This is a case of money, the oldest currency in the world, paying for the oldest service in the world.

And when humans appeared on earth, things didn't change much. What we call humanity began two million years ago. That was when a biped animal with a big brain, capable of wielding weapons and using fire, multiplied over the earth. This was Homo erectus, a human with monkey-like features that was to leave two descendants behind before disappearing into extinction. Some of the Homo erectus who left Africa – their native land – and went to live in the European cold evolved into Neanderthals. The ones who stayed in their birth place engendered the other species of big monkey: us, Homo sapiens.

This was 200,000 years ago. The fact that we're still around today is no big deal compared to the two million years that Homo erectus survived or even to the 400,000 years that the Neanderthal hung around. Even so, getting here wasn't easy. And it only happened for a reason: we learned to survive one of the biggest financial crises of all times. It occurred about 12,000 years back, well before money itself existed. That's right: money doesn't have to be involved for there to be an economic crisis. There are a number of ways of defining an economic crisis, but let's focus on the essential: a crisis happens when we can no longer produce everything we need to maintain our life style.

Shortly before this crisis got underway, we were in the midst of global warming. And that was awesome. It was the end of the last Ice Age, which had left half the world living at below-freezing temperatures for 100,000 years. Glaciers became rivers, white landscapes turned green, the number of animals grew... It was a paradise for large predators. And this was precisely our case: armed to our teeth with spears, slingshots, ivory knives, and a giant brain, we, Homo sapiens, took our place as the greatest predator that had ever lived. With things to hunt, we grew and multiplied freely. And now there were a lot more prey than during the Ice Age.

The abundance of plantlife helped too. Before, we had gathered any fruit and grain that we might stumble across every so often, and that was that. Now, with more fertile soil, human beings began to realize that they could plant something and eat it later, when game was sparse. Not that it was easy. We were still condemned to the same nomadic life as during the days of the glaciers. We would set up camp, hang around until the animals started thinning out, and then move on to try our luck elsewhere. But of course it wasn't pleasant to live under the constant threat of scarcity. We tried to use our heads to change things so we could put down roots in one place.