Wednesday, May 17, 2017


Obligatory ABBA link:

Harari argues that money, because of its role in cooperative behavior, is probably the most important human invention since language.  The first money we know of, Mesopotamian barley money from 5000 years ago, is only a relatively small abstraction from pure barter, but it was a giant step in the promotion of commerce.  If you are a scythe maker and need a pair of boots, it can be a huge pain to find a bootmaker who needs a scythe, but once money exists, you only need find anyone with money who wants a scythe and then trade the money to someone who makes boots.  Not for the first time in human history, the symbol became more important than its realization.

Barley money had a number of disadvantages: it is bulky, it rots, and rats eat it.  Another major step to purely symbolic money was silver.  Silver, at least in the Mesopotamian world, had essentially no intrinsic value.  It's too soft to be useful in construction or weapons, so it is only decorative.  But it doesn't rot, rats don't eat it, and it is also somewhat rare.  Silver, gold and other metal coins were probably the first money that had purely symbolic value, and governments increasingly took charge of supervising it.

It's characteristic of the power of myth in human affairs that humans soon convinced themselves of the intrinsic value of gold and silver, and that wars and murders by the hundreds of millions followed.
Gold and silver are useful for money partly because their distinctive appearance, hardness, weight and rarity make them hard to counterfeit, but counterfeiting none the less occurred and rulers took to stamping their images on the genuine articles and visiting gruesome consequences on the perpetrators.

The next step in symbolization was the invention of credit money - agreements to pay between individuals, or between individuals and rulers, usually documented in writing, or today, in electronic records.  Nearly all the money today is credit money including currency, bank accounts, bonds and so forth.  Stocks in corporations are at once a slightly more concrete form of money (because they represent a claim on a specific entity) and a more abstract one (because the corporation itself is an abstraction).

The value of all this money rest entirely in our belief in it, and in the institutions that create it and preserve it's value.  The world still contains lots of nuts who consider this an abomination, and that many of our problems would disappear if we just went back to good old gold, but they are deluded.

The latest type of money is the cryptocurrency.  Like other money, its value depends on what people believe it is - faith in an algorithm, and scarcity based on that algorithm requiring a lot of computation.

I happen to consider the crypto-currencies the most meretricious addition to the monetary stock since shrunken head money.  Aside from giving cover to all sorts of criminal activity, they are very wasteful of resources.  Imagine a sort of Rumpelstiltskin world in which people could manufacture gold by endlessly playing Candy Crush - such that a skilled player could produce say 0.5 grams/hr, equivalent to $20/hr.  Soon the world would be full people playing Candy Crush and getting carpal tunnel syndrome.  Eventually the value of gold would decline due to increasing supply and  people would stop.  Would the world be any better off?

Bitcoin is like that.  Millions of hours of computer time and megawatt hours of electricity are being expended to manufacture this worthless crap.