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RE: First Principles: The Secret to Understanding Money & Cryptocurrencies [Techonomics]
Great post. The idea of money as a "productivity point system" reminds me of the idea of "labor-notes" in Josiah Warren and Mikhail Bakunin, and the mutual banking ideas of Pierre-Joseph Proudhon and Lysander Spooner.
I'd recommend the book "Debt: The First 5,000 Years" by David Graeber, as a corrective to some of the Austrian influence I perceive in your analysis. The Austrians had good stuff, but there's some points where I think they err. Graeber looks at archaeology and historical references to money in literature and demonstrates that the notion that money "emerged" rather than being intentionally created is actually false. His analysis is correct, although I don't agree with the communistic/anti-market conclusions he draws from it.
Thanks for the recommendations! It would be awesome if you shared an example of a form of money that disproved one of my points so that I could have a better idea of exactly what I should read to correct my mistake. Many forms of money do have a level of conscious development, but most of these are referred to as "currency." Currencies themselves however are usually derived from forms of money (including other currencies) that existed prior to their formation. So while the people who "created" them might have deluded themselves into thinking they were making something incredibly original, very few components of their creation were their own. In fact, in order for populations to accept money they have to be familiar and so introducing a currency that was significantly different than preexisting currencies would defeat the purpose. Even those currencies, literally up until 1971 were themselves backed primarily by other forms of money, gold and silver, which are difficult to describe as "consciously created." Thanks for the comment, but I think this is a semantic disagreement and not a substantive one.
So, David Graeber points out that the use of precious metals as money actually originated with war and the State. Precious metals are precious because they are rare. The average person in a primitive village would not have access to such things. So, primitive societies, at the earliest stages, tended to value things in terms of livestock or people. Your proto-money or unit of measuring value would be sheep, or cows, or people (this ties in with pawns, bridewealth, et al.). These weren’t used as money because they couldn’t really serve as a medium of exchange, so primitive societies developed tabs, keeping tabs of what people owed each other, measured in units corresponding to livestock or crops. The first money developed out of this, as this became more standard and a system of credit developed.
The use of gold and precious metals as money originated with primitive States. When two countries went to war with each other, the one would plunder the other and take all the precious metals. The governments started melting down the precious metals into coins and issuing the coins to the soldiers as payment. At the same time, they established taxes (payable only in government issued coin) in order to force the general populace to need the government money, thereby creating demand for the government money and fostering a market for the soldiers to spend their money in. The book (“Debt”) really does a good job of demonstrating the evidence to prove that this is how money really developed.
So, according to anthropologists and archaeologists, money originated as a system of credit and debt, not as a commodity used as a medium of exchange. The picture painted by Carl Menger in “On the Origins of Money,” and basically echoed by all other economists, is that money emerged from barter economies as a commodity-currency on the market and then was turned into credit-money, and ultimately co-opted by the State. Graeber points out that the reality is the opposite. Barter doesn't actually occur until after money is developed. People didn't originally barter; they just kept tabs of what each person owed...a system of debt/credit. Money originated as credit/debt, later became commodity-money under government influence, and then is now going in a different direction again.
I think that commodity-money is actually bad money and that a more credit-based system (or “productivity point system” as you put it) would be better. I was just thinking that you could probably make a better case for crypto-currencies and “productivity point systems” with a good grasp of the anthropological research on the subject of the origin of money. My background was in the Austrian School; I’ve just come to realize that their analyses aren’t always on point. Personally, I find it impossible to understand crypto-currency in terms of the outdated Austrian theories on money. And the old Austrian theory of money is actually inconsistent with their own thought. I mean, they thought that a tangible thing like gold was needed to give money value, but that kind of misses the subjective value aspect. But when you take into consideration alternative theories of money, like the “credit theory of money,” Bitcoin et al. make a lot of sense.
I've tried to read "Debt: The First 5,000 Years," but I had trouble keeping track of what his points were in the book. Thanks for this great summary!
Oh I see, thanks that's actually very interesting. I was not aware of that work and I sincerely appreciate you bringing that to my attention. I assume you watched my other First Principles of Money video, because in that video I discuss barter which I do not in this video. You are right that there is a good argument that what I say in that video is not maximally accurate, though it does appear that Graeber's point is also theory and not fact, but I agree it is a compelling argument. At the same time, I also think it might still be a heavily semantic argument. It is assuming a very narrow definition of barter that, now that I think about it, of course never happens in the real world. Of course people don't go, "You want a banana? GIVE ME SHOES NOW!" That being said, that may very well have been what I thought before your comment! Crazy how that works! I would agree, it is unlikely that people traded like that. However, it is fact that people naturally do favors for one another and there are societal mechanisms for punishing people who do not properly return favors. If I give you food, materials, clothing, and you never give back to me, tribes punish that kind of behavior. But that's just temporally asymmetric barter. I'm keeping track of the "stuff" you've given me, and I try to make sure I give you back stuff that is approximately equal in value to the stuff you gave me. If I fail I will be punished by my tribe. The reason for this is because it would be punishing the most productive members of the tribe (those who create and distribute the most valuable stuff).
All of that being said, this does not actually conflict with my core pre-existing beliefs especially with respect to the theory of money as a productivity point system. This is because in your own example you point out that "livestock and people" were used to keep track of value. In other words, people used "livestock and people" as money ... as a productivity point system. As you go on to point out, "The first money developed out of this." In other words, first we monetized livestock and people (we used them as a productivity point system) and that evolved into a more abstract but efficient mechanism for solving the same problem. This supports the arguments I made in this video, but agreed could be seen as conflicting with points I made in my previous video. I think this is actually a great example of how powerful first principles can be because in that video I got bogged down in specifics and technical details which increase the likelihood that I will be discussing something I do not have a strong grasp of (like the theories behind barter) and so are more likely to be inaccurate. I was never really happy with that video, which is why I did this one. I think you put this one to the test for sure, and I think it still holds up (you seem not to disagree with the conclusion after all). Thanks a lot for the info and the test!
The thing about the classical economic and Austrian theory of money originating from barter is that they do assume it emerged from a sort of barter that never really occurs. And once you realize that that sort of barter never really occurs (except after currency collapses), it no longer makes sense as a narrative to explain the origin of money. The interesting thing about Graeber is that he’s an anthropologist rather than an economist, so his “theory” isn’t purely speculative like a lot of economic theories. The earliest writings that we have are basically receipts and records of debts. So, he approaches it more from a perspective of analyzing historical facts and data (ancient texts, ancient coins, how modern primitive societies are developing primitive economies, etc.), and then constructing a theory based on the data. Economists, on the other hand, often tend to deal more with abstract speculation. Having read Adam Smith, Carl Menger (as well as Keynes, Rothbard, Hayek, Friedman, and others), I definitely think that Graeber’s book has a more scientific basis than purely philosophical basis, which gives it a bit more credibility in my view.
Btw, I wasn’t really disagreeing with this video. Mostly, I was pointing out research that I thought corroborated your point. The other video would have been better if you had approached it from this other perspective, but I mostly agree with the conclusion you’ve reached.