The answer was gold, variously said to have been chosen for its rarity, or its divisibility, or its shininess, or the ease of working such a soft metal. Whatever the reason, these anonymous prehistoric traders all agreed that gold would be our medium of exchange, our store of value and our unit of account.
This story was handed down to generations of economics students, despite the fact that there is no evidence for it. The basis for this story was pure reasoning: "What circumstances could have given us money?"
But as far as anyone can tell, this is not where money came from. Rather – as David Graeber wrote in his seminal "Debt: The First 5,000 Years" – the origin of coin money is in the need of conquering states to provision themselves. To feed soldiers garrisoned in imperial territories, emperors imposed a tax on farmers, that had to be remitted in the coins that soldiers received in pay. Farmers who didn't pay their taxes faced terrifying, violent consequences and were therefore willing to sell their produce to soldiers in exchange for those coins.
Money, therefore, arose out of liability: farmers valued coins because they had a nondiscretionary liability that could only be settled with those coins (their taxes). People who weren't farmers would also accept coins, because they knew that the farmers needed them, and since they needed to trade with farmers, anything the farmers would accept was therefore valuable to all.
This money story is a lot more morally fraught than the story of gold arising spontaneously out of the need to give back change for a cow. It involves gross acts of coercion. It's kind of nice to think that money arose spontaneously out of free trading, but it didn't.
Over and over in history, we see examples of money emerging through the need to settle a nondiscretionary liability. If there's something you need and you can only get it by acquiring a certain token, that token becomes money to you. You will do work for that token. If lots of people need that token, it becomes money for them. If enough people need a token, almost anyone will accept it in payment for almost anything, because someone else will accept it from them. (...)
The idea that money comes from liabilities was popularized by Warren Mosler, the progenitor of Modern Monetary Theory. In Mosler's lectures, he illustrates the point by asking, "Who will stay after the lecture to stack chairs and mop the floor, in exchange for one of my business-cards?" When no one raises their hand, he adds, "What if I told you that there was an armed guard at the door and if you don't give him a business-card, he won't let you leave?" Of course, every hand shoots up.
Mosler's door-tax turns his cards into money.
By showing us where money comes from, Mosler answers lots of seemingly imponderable questions, like "Why do I spend so much time chasing meaningless pieces of paper?" (because if you don't have the paper, something bad will happen to you).
He also answers the question, "How do they always seem to find $778b for the military? Where did the $3.4T in covid relief payments come from? Won't we all have to pay a lot of taxes to repay those debts?"
The "debt" of money-issuers is nothing like the debt of money-users. If Mosler owed an audience member a thousand business cards, he could just order them from the printer. He doesn't have to stack chairs and mop the floors to earn his own cards. He's the source of the cards. No matter how many cards he owes, he can always pay.
Which is not to say that the number of cards Mosler hands out doesn't matter. If there are too many cards, he'll end up stacking his own chairs – because there will be so many cards in circulation that tonight's audience will be able to get them surplus from last night's. If there are too few cards, he'll end up with all his chair stacked but he'll still have a room full of people who don't have business cards and can't leave without getting shot by the armed guard (this is also called "unemployment").
This is what people mean when they say "government budgets aren't like household budgets." Governments don't have to "balance their checkbooks." They do have to balance their economies, lest they create inflation (by attempting to buy more than is for sale) or unemployment (by spending so little that no everyone is able to find work). Governments can't make things on demand, but they can make money whenever they need to.
Governments can impose nondiscretionary liabilities on the people who live in their borders – they can tax them. It is this tax – this liability that you can only pay in the government's money – that makes money into money.
Now, obviously, governments aren't the only entity that produce a token that acquires moneylike properties because there's something some needs – or just badly desires – that can only be acquired using the token. If you went to a county fair this summer and bought tickets for the midways rides, you experienced a moneylike token. It's possible that the kids in your company were willing to trade labor for these tokens ("I'll do your chores if you give me five tickets"). You will also have doubtless seen that as the day drew to a close and the desirability of getting on a ride declined, so did the moneyness of the midway tickets.
The midway owners don't mind. They don't need to you return your midway tickets so they can sell them anew the next day. When you hand a carny five tickets to ride a wild mouse coaster, they tear them in half and throw them in the garbage (this is also what the federal government does with our taxes – just zeroes out that amount on a spreadsheet – governments don't spend our tax dollars, they make new dollars, just like midways hand out new tickets).
Which brings me to cryptocurrency.
by Cory Doctorow, Pluralistic | Read more:
Image: Corey Coyle, CC BY 3.0)
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