Money: How its past predicts its future

The history of money goes way back. Over time the nature of money has changed radically. In the meantime a distinction must be made between currency and money in the classical sense. What is money, where does it come from, and above all, how will it develop in the future?

At first glance, it may seem inexplicable and bizarre that our governments and our rulers have managed to maintain their proverbial fortress in the monetary system for 2,000 years. Especially when one considers the countless frauds in the past, how they have abused this power and the associated compulsory monopoly to the detriment of their own citizens, or more precisely their subjects.

By deceiving the masses and exploiting their blind faith, it was possible to make people believe that this enormous power was being used in their interest — despite the old saying that “where the power is, the abuse is not far away”. Today, however, as mistrust of those in power rightly continues to grow, it is increasingly clear that only we as individuals can best protect our interests. Thus, it is only a matter of time before the entire uncovered system of compulsory paper money collapses.

To answer questions, we need to know the history

However, to answer all the questions about money, we must first understand its history – bearing in mind that those who do not know the history are doomed to repeat it.

The history of money began when mankind settled down. Until then, people lived a life as gatherers and hunters and lived on the supply of natural goods. Since they produced nothing themselves and consumed only the products of nature, nothing was added to this natural supply. However, when people settled down and began to cultivate the land, this was also the beginning of private property rights. They also began to realize that some among them could perform certain tasks more efficiently and better than others.

This gave rise to what we know today as the “division of labour”. This led to higher productivity and thus higher economic performance, which in turn led to a general increase in the level of prosperity. New types of goods and services were constantly being created, and bartering thus became more important. However, this also had its downsides, because it needed a so-called “double concordance of desires” in order to function. For example, in order to exchange a cow for three goats, someone must first be found who needs a cow, has at least three goats and is willing to exchange them for the cow.

Various things have served humanity as money

The concept of money freed all market participants from this burden. It now became possible to use a commodity, or more precisely a hard good of generally recognized and accepted exchange value, to fill this “gap of mismatched needs”. Throughout human history, many different things have served as money. From cattle and tobacco leaves to shells and trade beads. Even today we still use words that originate from this time, such as “salary”, which is derived from the Latin term “salarium” (salt ration). At that time in the Roman Empire, salt was a means of payment used by soldiers.

Over thousands of years, precious metals, especially gold and silver, have emerged as the best form of money. Why? Because people always valued gold and silver for their own sake, even before they became “money”. We learn from history that money did not come into existence as a result of restrictions or compulsion. We learn that people decided for themselves what they wanted to use as money, because it had to have some special qualities. Comparability – it had to be easy to recognize, durable and divisible (unit of account i.e. be liquid), easy to transport and it had to be rare/short so that the value retention function was also guaranteed. Gold and silver best met these requirements. They have an “intrinsic value” and are therefore without counterparty risk, as they are not dependent on the promise of payment by a third party.

Nowadays, people in the Western hemisphere in particular have forgotten that paper money was once a property right to a certain amount of gold or silver. Even in the past it was not considered advisable to walk around with too many gold or silver coins. Therefore, people began to deposit their gold with the goldsmith, who in return demanded a storage fee for safekeeping. The depositors were still the owners and the gold was not allowed to be borrowed. In return, they received a receipt for their deposits. Over time, these receipts themselves became a means of payment, as they were a title to physical gold and therefore “as good as gold”. This was thus the birth of today’s banking system, as well as the “dematerialization” (paper receipts) of gold.

Greed was dominant in the past as well

As today, however, greed was already high back then and goldsmiths were looking to increase their profits. The first documented case of fraud by a “banker” dates back to 393 BC. Isocrates’ legal speech describes Passio’s attempt to appropriate the deposits entrusted to his bank, for which he unscrupulously deceived, forged, stole and bribed. These fraudulent activities are still going on in history today. So does the fact that this practice was relatively safe as long as people kept their trust in the banks.

In the end, however, all these machinations ended in the bankruptcy of the bankers. The procedure was basically always the same. They lent gold that did not belong to them or put more receipts into circulation than there were actual gold reserves and charged interest on them. They received interest for making money out of nothing. This used to be a scam and today it is called a partial reserve system. Even then, this was already an extraordinarily good business and led to credit expansions that were not supported by real savings and resulted in an artificial and inflationary economic boom. The bottom line was always the same, the majority of depositors lost everything and the crisis and economic recession took its course, followed by the collapse of the banks.

Therefore, it is important to understand that paper money today is nothing more than a bond. It is just a promise to pay; the promise of the previous generation that the future generation will pay this debt through taxes and inflation. The money they earn loses purchasing power through inflation, as the central banks, together with the banks that enjoy the privilege of the “partial reserve system”, print more and more of it out of thin air, thus devaluing the currency.

Man is only free with a free monetary system

We should realize that man can only be free if he enjoys private property rights and a free monetary system. A system in which money – as the production of goods increases – gains purchasing power and is not devalued, as its value no longer depends on the will of a few “god players”. Without adherence to these basic principles, we are left with an unequal playing field on which a few people decide what money is, how much of it they print, who receives it first and how much interest they can charge.

The population is thus divided into a few winners and many losers. Let us recall the Irish economist Richard Cantillon, who described the effects of such an expansion of the money supply. Named after him, the Cantillon effect describes the fact that an increase in the “Giral” money supply (net lending) is not distributed evenly across all sectors of an economy, but in stages, with some (especially the banking sector, other state-affiliated firms, the entrepreneurial sector and politically favoured groups) benefiting from the money creation first, while the rest of the economy benefits from it later or not at all. The losers in the process of money creation are those where the money arrives last and who have to pay higher prices due to inflation caused by credit creation.

Already in the 1970s Friedrich August von Hayek explained in a fascinating interview

“We will never be able to prevent inflation unless we take away the government’s monopoly on spending money. Governments have never given us good money, indeed the justification for governments’ monopoly on money spending was not even that they would give us good money, but always that they needed it for financing purposes. The result was that for two thousand years we had a monopoly that nobody questioned. So, if we want to maintain a free society, we have to rebuild democracy and take away the government’s monopoly on spending money.

Today we are at the beginning of such a revolution. Similar to the paradigm shift and the enormous impact of the Internet in the 1990s, blockchain applications and crypto-currencies have the potential to overturn the existing system and build a new one. Decentralized communication, decentralized law, decentralized production and a decentralized financial system can enable us to regain control and put an end to the abuse of power by central institutions.

In a blockchain system, each person can decide for themselves what he uses as money

In such a “blockchain“-based, decentralized “non-system”, material assets can be digitized and each person can decide for himself what he wants to use as money. Property titles to physical gold, silver or other commodities, real estate or shares of companies operating in the real world will also be traded. Imagine the world as a global, networked, but completely decentralized and truly free marketplace. The allocation of resources will be optimized, human creative power will be fired up and used much better than is the case today. Innovation will flourish, while complete freedom to trade with whomever will be possible without barriers and in any form of currency. It will also reduce costs, as most intermediaries and brokers will become superfluous and burdens and restrictions on the state will be removed.

If you think that this is still in the distant future, think again. Fintech start-ups and block-chain companies are already working hard on this worldwide, especially in the major crypto-hubs such as Switzerland and Liechtenstein. Of course it would be presumptuous to believe that the transition to this new world will be completely smooth and without challenges. Ultimately, however, we have to decide whether we want to live in a system that does not take into account and limits our choices or whether we want to reclaim the right to make our own choices.

This article was originally published in English in the magazine: executive-global.

About the Author


The CVJ editorial team consists of crypto experts, active in different areas around the blockchain technology. In cooperation with selected authors, CVJ.CH provides a high-quality resource around the distributed ledger technology. Independent and up-to-date reporting according to journalistic standards as well as educational content around the topic blockchain, rounds off the offer. 

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