The History of Moneyyyy

Once upon a time, there were 2 tribes, tribe ABC and tribe XYZ. ABC specialized in fishing, they had no cows but they loved to eat beef. XYZ specialized in breeding cows, in getting cows to make love with each other. They did not have a clue about fishing but they loved to eat fish. So what did these 2 tribes do? They bartered with each other. 20 fish for 1 cow. Now the ABC tribe ate the cow, without realizing it had STD. Many died. ABC had 80% of its original population left. From then on, ABC only needs 4/5 of a cow from XYZ. How much is 4/5 of a cow? The head + 4 legs ? Or the belly + the tail? Or what?

Well, we can see that this system of bartering is inefficient. It is hard to measure the value of a product relative to another. Furthermore, what if ABC had wanted the cows, but XYZ did not want the fishes. The world needs a 'universal' currency that can measure the value of every goods. They tried seashells, coconuts, dog hairs, you name it, they've tried it.

Over many thousands of years, the FREE market finally hit upon the best money: GOLD (the second best money being silver). Gold was eventually chosen as the best money because it is rare, durable and cannot be replicated.

Around the 16th century (if I remember correctly), trade was prospering. Many merchants carry gold around as money. Some goldsmiths started to offer gold storage services for these merchants, for some fees. In return, the goldsmiths issued a paper receipt, which allowed the receipt holder to come back and redeem his gold anytime. That was when the concept of paper money was first born. The merchants started trading with each other using these paper receipts, as if they're the real money (remember gold is the real money). If any merchant wants to redeem his receipts for gold, he can go to the goldsmiths to do so.

The goldsmiths had some gold of their own too. They started to lend out their own gold to merchants, charging interest. Now, most of the major religions in the past forbid usury (i.e. interest). But as trade booms, merchants need more and more money to fund their business expansions. Eventually, moral grounds gave way, and interest is accepted as a form of compensation for the goldsmiths for lending out their gold to these merchants. Nowadays, only Islamic banking forbids interest.

Trade continues to prosper. Everything looks fine. Yeah! But soon, the goldsmiths realized a way to manipulate the market and the gold that they had. It was not the goldsmiths who first manipulated gold though. Governments and Kings had been doing it for a thousand years (I don't know exactly how many years but it's a lot).

Anyway, stay tuned to find out more in my next post. I'm gonna watch Burnley vs Man Utd. My favourite team is trailing 0-1. Rats!

Jin