The Origins of Money

Sadly, the origins of money are lost somewhere in the pre-historical period. But there is some we can infer from how money works and is used in society. Let’s dig in.

You might have been taught that money sprung from the barter system. This is seductively appealing on its face but doesn’t seem the most likely course of events given closer scrutiny.

Let’s consider a fictitious origin story.

Alice and Bob are members of a hunter gatherer society. Alice is great at hunting buffalo and Bob is very skilled at gathering grain and making bread. But while Bob can make several loaves of bread per day, Alice only tends to kill one buffalo a week.

As you might imagine, both Alice and Bob have a perpetual desire to eat.

Alice might trade some buffalo meat for some of Bob’s bread in a barter arrangement. This makes a lot of intuitive sense so the discussion usually moves on to other topics.

But hold on a second, let’s first address a major problem. Both Alice and Bob regularly get hungry but bread takes some time to make and (more importantly) buffalos take a lot of time to hunt. There is not a high chance that Bob will get hungry for buffalo at the same time Alice makes a kill. Nor is it likely that Bob will just give Alice bread out of the goodness of his heart over the days between her…