History of Money

Before what we call money today, money was simply a medium of exchange. Seashells, livestock, and land were all mediums of exchange before a widely accepted currency. The characteristics of money are durability, divisibility, portability, accountability, uniformity, acceptance, and scarcity. Due to these characteristics, it makes sense why societies have gravitated away from means of exchange to a widely accepted currency.

The first known currency is the Mesopotamian shekel emerging 5000 years ago. Mesopotamia is the first known society. The adoption of the sheckle as a currency propelled a coin movement throughout the first Millenium. Gold, copper, silver, and lead were currencies throughout Asia, Europe, and Africa. As you might know, gold is the most valuable metal of those currencies and is utilized as currency most frequently. Gold currency-stamped societies as the richest in history. The first known example of gold as currency was in prehistoric Asia Minor in 600 BC. Although gold is a precious metal, it is not easily divisible or portable; transitioning to paper money quickly ensued.

 700 BC is the rough estimate for when China became the first nation to transition from coins to paper currency. At the time, paper currency addressed the characteristics of money. The adoption of paper currency and modern banking dates back to the 4th Century BC in Ancient Greece. The fall of Great Rome was due to a credit crisis associated with the banking system. Lending, a staple of the American Economy and Keynesian Economics, has played a pivotal role in the history of money.

The United States and its tumultuous relationship with money began as a paper currency backed by precious metals. There have been other national central banks in history, but given the status of the United States as the global central bank for the last 50-plus years, the bank of England is the most pivotal. If you remember, the Revolutionary War was one of the academics, "No taxation without representation" is one of the most documented quotes of the founding fathers. Thomas Jefferson was highly against private banks and feared inflation. Ironic that more than 400 years later, inflation and private banking are massive problems today, but we will get to why.

Fast forward to the end of the 19th century, President William McKinley signs the Gold Standard Act of 1900, establishing gold as the standard for redeeming paper currency. Gold was set at $20.67 an ounce. The turn of the 20th century marked a period of war or what you might term the military-industrial complex.

 Fourteen years into the 20th century, Franz Ferdinand's assassination marks the start of the First World War in 1914. Three years later, the US joined the war due to a mix of German aggression, and the enticement of the US to print money in response to the war was too strong. Two years later, the Treaty of Versailles was signed, and the war ended on June 28, 1919. The end of World War 1 propelled the US into a time termed "The Roaring 20s" the first example of the mass consumerism society we see today. The impact of the women's suffrage movement, prohibition, and culture associated with this period was a peril to the financial collapse in history that marked the decade.

The amalgamation of low wages, bank runs, high debt, mass consumerism, unemployment, and consumerism led to the infamous "Black Thursday" on October 24, 1929, resulting in the worst month of the Stock Market in history, wiping out millions. Bank runs ensued due to a gold standard at the beginning of the century driving the whole world into a panic. Banks closed doors, leading to a Keynesian Economics push toward using the government to create jobs and consumption, thus maintaining the economy. Some historians state that the Great Depression ended in 1933 from the New Deal's growing GDP. Others would say it was World War 2 six years later, although the US did not enter the Second World War until 1941. Two schools of thought stem from the recovery from the Great Depression. Mass government spending stimulated an economy and the military-industrial complex - serving as a means for how the US became a world power. After the war ended, the US quickly became a world power, asserting itself as the world bank.

The Bretton Woods conference ensued before the war ended, but its ramifications were two years later. The Bretton Woods Conference in July 1944 established the IMF and the US Dollar as the settlement layer of international disputes. This conference set the stage for the narrative that countries did not need the gold standard. Only a decade removed from the worst financial crisis in history, the US had supplanted itself as the global financial epicenter of the world, in part because of its involvement in the Two World Wars. While African Americans were fighting for civil rights in this country, the US entered yet another war, the Cold War.

This is not about war, nor a breakdown of the happenings of the Cold War. It is, however, a breakdown of how the American ideologies of mass consumerism and the military-industrial complex drove the US to leave the Gold Standard in 1971. Only five years after World War 2, the US entered the Korean War to stall Communism and thwart the South Korean invasion. Two years after the end of the Korean War in 1955, the US entered the Vietnam War the same year. A conflict that had no real winner tanked the Vietnamese economy. Lost the lives of millions of Americans was just another example of how the military-industrial complex will cement a nation as superior.

The space race was the victory the US needed to value itself over the Gold Standard. On August 15, 1971, President Richard Nixon removed gold as the standard, marking the IMF and US central banks as the safety net for the world and birthing irredeemable money. The history of wars in America illustrates that war, debt, and consumerism stapled the American economy in the 20th century. The birth of irredeemable money marked a massive domino effect that devalued the currencies of several nations throughout the world.

A year later(1972), Mexico experienced a decade-long debt crisis that devalued the peso and forced an IMF bailout after billions in debt(1982). A decade later, the Cold War ended in 1991, and the US took another victory. Five years later(1997), the continent of Asia faced a debt crisis, and several nations had their currencies devalued. Thailand, the first to experience high debt, required billions of dollars in payouts from the IMF. Indonesia, the Philippines, South Korea, and Malaysia(image above) experienced extreme devaluation of their currencies with the US Dollar. Four years later(2001), another continent experienced a financial crisis, with several African nations experiencing collapse and requiring assistance.

Less than a hundred years after a massive stock market crash, bank run, and depression. The US experienced another financial collapse with the Recession of 2008. The Recession of 2008 resulted in the birth of digital trustless cash, Bitcoin. This time the investment bankers had to bail out - hundreds of billions, causing a domino effect that caused a financial crisis in Europe and Africa. In 1999, Europe established the Euro as its currency, enabling countries to borrow at will. The Euro, the central currency of Europe, makes countries reliant on each other. The Recession served as a monkey wrench in this system. Greece, Portugal, Ireland, Spain, and Italy were all on the brink of collapse because countries halted lending.

Following the Recession of 2008 came another symptom of the fleeing Gold Standard, hyperinflation. Hyperinflation is rapid and unrestrained price increases in an economy exceeding 50%. The fall of Venezuela, like most other nations, resulted from mass consumerism, hyperinflation, and reliance on the US. In 2014, Venezuela, an oil-dependent nation, was hit with hyperinflation when oil prices fell. Mass consumerism did not subside. When new leader Nicolas Maduro rose to power, he rigged the exchange rates and made the currency worthless. Venezuela experienced the highest inflation in the world and dropped GDP by 35% in 2017. Unfortunately, that was not the only South American country afflicted by hyperinflation.

In 2018, to fight against hyperinflation, Argentina received a large loan from the IMF. As a result, the Argentine currency devalued its currency and forced an IMF settlement of billions. The result was bank runs and interest rates skyrocketing. Three years later, the US printed roughly 80% of US circulation in 2021 and 2020. The results are to be determined, but the value of the dollar's purchasing power has drastically fallen. The value of digital cash has gone up in its short history.

The price of Bitcoin over the last decade is as follows (chart above). The price of Bitcoin before the pandemic started was under $7000. The price is now hovering around the $40,000 mark. The history of money is volatile at first, so the price will need to be stable to establish itself as money for the long term. However, the properties of Bitcoin, being inflation resistant via a set supply and scarce make it a valuable alternative to the centralized irredeemable money of today.