Anthropological history of money
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Banking basics
A recap of a few things you’d think financial professionals ought to know
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Imagine an anthropological history of money that traces from outright arms-length barter to trade of goods against private promissory notes to the creation of bilateral indebtedness to the centralisation of promissory instruments through private intermediaries (i.e., banks) to the standardisation of promissory instruments against abstract units of value to the creation of currencies by central government agencies.
Not sure it really matters how historically accurate it is as long as it is plausible — each stage in the evolution must stand on its own two feet as a sustainable model of sociopolitical interaction — in biological terms, it must be a viable organism in the context of its given environment. But once we've done the exercise let’s map it against the record.
Key waypoints in that transition:
Zero trust
All exchanges for equivalent value, at arm’s length with no requirements for shared values, much less ongoing obligations between the parties (beyond letting each other retreat from the exchange place with their goods without violence) will necessary expectations of further trade.[1] This is “barter between aliens” more or less. It must be barter because any form promissory instrument or “currency” or abstract token of value implies consensus in a measurement or trust in the credit or performance of someone.
Features: no reputational component bilateral, discrete, delivery versus payment, payment in kind.
Simple community of interest
Transactions between persons known to each other in a community where there is an expectation or repeated trade and a memory of past trades, such that reputation is important. These premarket systems didn’t grow out of barter as such but were more in the nature of generalised reciprocal mutual contributions, relying on social memory. Participants “put in” and could “take out” according to their contribution. An important thing here is that these “social debts” were not exact, were not financialised and could never be exactly discharged. This was a key advantage: the residual unarticulated mutual indebtedness helped bind the community together. There was never a time where a participant could say “my debt is fully discharged; I owe you nothing”.[2]
Features: fundamental reputational component, largely bilateral, accretive, delivery on account, payment in kind, non-interest bearing, not financialised.
Units of account
As communities grew more complex and multilateral it became harder to track mutual obligations. This involved (i) writing them down, and (ii) articulating their value against a community-recognised standard. These would function as abstract articulations of value (not units of exchange as such).
Staple commodities were a pretty good first choice: heads of cattle, quantities of grain had a well understood, readily ascertainable value , but they were yet subject to value fluctuations as supply and demand varied — failed crops, bad winters, disease, war and so on.
Precious metals emerged as convenient measures and, as they had no intrinsic utility, their value was less susceptible to supply shocks like crop failure. This sense of tabulation was the first step in the financialisation of indebtedness: now debts could be exactly quantified and discharged. No longer delivery versus payment, but delivery on account so reputation management still important. The social indebtedness was replaced by the long term benefits of cooperation (iterated prisoners’ dilemma)
The physical marketplace where traders of all goods gathered in a single location formative of early forms of transferrable credit. It strikes me that the need to “monetise” abstract receivables of manufactured goods to acquire more materials to manufacture more goods for sale is a key driver of an economy in its early stages.
Even today the velocity at which we can recycle receivables (or promissory instruments not only reduces our reliance on (and cost of) debt funding, but maximises the return of our receivable assets by converting them into cash that can be invested in productive capital.
As such we can explain most bank activities as optimising the funding of their lending activities. Capital is stationary if held in cash — this is like being indebted to yourself, so you slowly lose value because your capital is not engaged — moves slowly if deployed against simple interest bearing instruments (or non interest bearing ones like trade receivables) and mines best if converted into cash and reinvested.
Two thoughts: first, the drag of physical cash is not really a problem of malign central/reserve banking creating inflation by printing money, but more a function of its disengagement from the productive economy (physical cash is an “anti asset”).
Second, the cryptocurrency maximalist view that you can therefore take capital out of the “capitalist strip-mine” in the form of bitcoin and not suffer this loss of value is mistaken.
- ↑ Game theory trade off works (is not a single round prisoners’ dilemma) because there is no possibility of defection: it is delivery versus payment.
- ↑ David Graeber illustrates the point by reference to a modern family: the children would never repay their debts to their parents, and say, “therefore I owe you nothing and need never see you again.”