A Brief History of Money: Value, Trust and Power Over the Ages - Part 1

Money is everywhere. From buying a bottle of water to investing in stock portfolios. We may not always have it, but we know it’s out there, so often we take it for granted. Though, where did money as we know it come from? And where is it going next?

Born from barley to improve upon barter, solidified into metal discs, thinned down into paper, and uploaded into the internet. Money has gone through many changes over the centuries, and these have had a profound impact on money’s relationship with value, trust, and power.

So, before diving into history, what do we mean by value, trust, and power? We will explore money through those 3 dimensions (value comes with 2 parts):

  1. Where does money’s true value reside? Some hold value physically (intrinsic), and some represent value (extrinsic). Intrinsic value can be either biological or cultural (food vs. jewels for example). Extrinsic value can be a representation of something with intrinsic value, of an institution, or even of an abstract system.
  2. How does value respond to the passage of time? Time itself causes change and disorder. We’ll look at money through the lenses of decay, appreciation/depreciation, and inflation/deflation.
  3. Which kind of trust does it need to function? You wouldn’t use money you don’t trust. But what is trust in money exactly? In whom, or what do you need to trust to use it? We’ll use two categories:
    1. Trust in the counterparty’s payment instrument: In a financial transaction, you interact with a counterparty. This trust is directed at the physical instrument that they are giving you. Trust goes as far as your capacity to evaluate if they are truly giving you what they say. E.g.: you can easily validate if you’re being given rotten meat by smelling it, but it’s much harder to validate by yourself if a gold coin is truly gold.
    2. Systemic Trust: It’s the trust that you place in the system for it to validate things for you and give you guarantees. If you can’t validate some form of money by yourself, a King or government can put a stamp on it and say, ‘I give you my word this is valid’. You can stop relying on your capacity to validate the instrument and trust the system will do it for you.
  4. Who holds power over the system? This represents how concentrated power is within the monetary system. While centralization is not intrinsically bad, it usually holds true that absolute power corrupts absolutely, so it comes with dangers.


Simple exchange of goods is as old as hunter-gatherer communities, which were mostly self-sufficient but enjoyed the eventual trinket or seashell from faraway lands in exchange for local goods. The agricultural revolution brought forth towns and cities, and with them specialization emerged. Each person focused mostly on the trade at which they were proficient. Thus, farmers, carpenters and other tradespeople appeared. They exchanged goods with one another and lived happily. That is, until cities grew. Barter has 3 shortcomings that become unbearable in big communities:

  1. Slippery standards of exchange: Imagine I, a carpenter, exchanged a table for a cow last year. This year I want to do the same, but this time the farmer’s cow weighs 50kg less and is older. On the other hand, my table is bigger. 1 cow = 1 table? Not anymore, right? Standards of exchange would have to be agreed upon for every single transaction. This gets tedious fast.
  2. Poor long-term storage: If the farmer has a great year and triples his egg production, he may get an extra table from the carpenter. But the carpenter can only eat so many eggs, so eventually he won’t barter anymore for them. It is likely that most eggs will eventually rot, so saving after good periods is hard.
  3. Differing trade interests: Everything works if the carpenter wants cows/eggs, and the farmer wants tables. Now, if the trade interests of the farmer shift to shoes, and the shoemaker wants honey from the beekeeper, and he in turn wants fish from the fisherman, who wants chairs from the carpenter… things get messy. A deal can be worked by these 5 people, but what if the city has 100 different products? How many connections do we need? The table below highlights an idea of the problem and the solution (spoiler: its money).

Source: “What’s wrong with money?: The biggest bubble of all” (page 20), Ashton, M. (2016)

Some societies tried to solve this via a centralized barter system. The Incas kind of worked it out before their empire was conquered by the Spanish, and more recently, the Soviet Union failed massively. Luckily, other civilizations worked out the solution millennia ago: money.

About our Dimensions of Analysis:

  1. Where does value reside? Inside the traded goods, so it’s intrinsic. Some, like food, cover biological needs. Others, like gems, cover social/cultural needs.
  2. How does value respond to time? It depends. Some things, like food, decay. Others, like houses, depreciate (lose value as they age). Finally, a smaller group, like wine, appreciates (gains value over time). Though, eventually most things decay.
  3. Which trust does it require? Total trust in the physical instrument exchanged with the counterparty. You either trust your ability to evaluate the goods you’re given, or you don’t barter.
  4. Who holds power? Everyone. The people in each independent transaction hold power over it while it lasts. There is no centralization.

Barley Money

Large scale barter had issues, and Sumerians, being the first civilization, needed a solution urgently as their population and economy grew. Around 3000 BCE they came up with the first recorded money: Barley. Now, back then, the concept of money didn’t exist, so trust in it evidently didn’t either. Money needed tangible, universal value. With or without society and civilization, you can eat barley, so you can trust it and accept it. Simple but clever. The system worked by standardizing measures using mass-produced bowls, or Silas (~1 Liter of Barley), and setting prices with respect to them.

Thus, money was created. Now, money as we know it has 3 properties:

  1. Medium of Exchange: it can convert basically anything into something else.
  2. Store of Value: it can store value in a reasonable space for a reasonable time.
  3. Unit of Account: it can be divided into standardized units with specific value

Additionally, most money is easily transportable. There are exceptions though, like the islanders of Yap, who transferred ownership of gigantic Rai Stones, but didn’t move them.

Barley was great as a medium of exchange and unit of account, but it failed as a store of value (being organic, it decays) and as easily transportable (too heavy in large volumes). Still, it was a great first system. Eventually, variations would appear, like cowry shells and cigarettes in prison.

About our Dimensions of Analysis:

  1. Where does value reside? Barley can be eaten, so its value is intrinsic, and it satisfies a biological need.
  2. How does value respond to time? Poorly. Decay takes care of barley within a year, so accumulating savings is impossible.
  3. Which trust does it require? Both, but more in the counterparty’s instrument than systemic. People had to trust 3 things: First, their evaluation that the counterparty gave them true barley, not a mix of grains. Second, that it was fresh/edible. Third, that the volume was correct. Composition and quality required trusting the received barley (payment instrument), but quantity required trusting the guarantees provided by the system through mass-produced measuring bowls.
  4. Who holds power? Landowners decided how much they cultivated (money supply), and the weather had some impact on the harvest. The population decided at which rate they ate barley, hence destroying monetary mass. So, influx of money was scattered among landowners/farmers, and outflux among the population. Still, there was an administrative institution that supervised activities, so there was some centralization.

Weighted Metal

Barley was a great improvement, but still lacked in transportability and storage. By 2500 BCE, a solution emerged in Mesopotamia: The Silver Shekel. It followed the same transactional logic of barley, but instead with 8.33 grams of silver per Shekel. Silver requires little space to store, lasts for centuries, and is easily transported. It was a breakthrough in the monetary system: All properties of money were present. Of course, silver was the beginning, and over time many civilizations used other metals. Eventually gold gained dominance.

About our Dimensions of Analysis:

  1. Where does value reside? Its value is intrinsic, but not biological. Instead, society grants it value through luxury craftsmanship and hierarchical status. It is therefore intrinsic cultural.
  2. How does value respond to time? Most metal doesn’t decay, nor does it appreciate/depreciate, as its inherent qualities remain constant over time. Thus, its value can only change through the variation of its supply relative to economic growth. If it is mined faster than the economy grows, inflation is generated (due to excess silver, a fixed amount of silver today would buy less goods than last year). If mining goes slower, it leads to deflation (lack of silver, increased value). Balance is possible, but anomalies happen: if a king’s treasure sinks at sea, years’ worth of gold may be lost, leading to deflation. A notable episode is that of Mansa Musa, ruler of the Mali Empire and stupendously rich. His pilgrimage to Mecca took him through Cairo, where he spent so much gold that he single-handedly caused in 3 days a 10-year-long inflation.
  3. Which trust does it require? Trust in the counterparty’s instrument is needed for content: people had to trust themselves to evaluate/assay if they were being given silver or some alloy. Systemic trust remains for quantity: no one can infer weight, and standardized weights often come from centralized institutions, so you had to trust them. Interestingly, systemic trust gains a new front: the value of metal is social, society as a collective is usually represented by its monarchy/authority, so trusting metal’s value means trusting the system.
  4. Who holds power? Supply isn’t constrained. Anyone can find a silver/gold mine. Despite this, long-term storage is now possible, and there’s a tendency for the asset rich (kings/emperors) to accumulate wealth at increased rates compared to the asset poor. So, centralization of power increased as authorities accumulated metal over generations, but anyone could still ‘create’ money.

To be continued in Part 2… 

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