Monetary history part 1

Monetary history Ancient times.
Just the facts about what is money exactly?
Before a medium of exchange was invented, people traded, using a barter
system. They exchanged goods and services of equal value. There was no
unit of account in the exchange, the medium of exchange was just exchange.
But bartering could be inconvenient. For the system to work, each party had
to desire the goods that the other was offering. This is called a coincidence of
wants. In addition, traders had to carry or care for cumbersome trade items
like animals or bags of grain.
Incidentally barter can still work well on an occasional individual basis. I
happen to be good with electronic gadget's and phones/small computers. But
not very good at fixing cars now they all seem to be computer controlled. So I
swapped an hour unlocking and improving then setting up a garage owner
friends new smartphone with a new operating system. He spent an hour
servicing my car. Nothing formal, nothing in writing just a favour for a favour.
Of course governments do not like barter because there is no tax to pay.
My wife is a highly qualified experienced beautician. But there are many
beauty treatments that can't be done to yourself. For example eyelash extensions, she tried doing hers herself but you really need to close your
eyes. So now she regularly meets up with other beauticians and has an
exchange of services. No currency needed, no tax to pay. She spends an hour
or so treating them and they then do her nails or hair or something. Everyone
saves money and you are paying less tax than if you charged for your
services then went and paid for another service.
But it’s surprising how many skills you and your friends have. If someone
works in one field and can get you something for free that you normally have
to pay for, can you provide something for free in return? Swapping skills or
even goods you've made rather than fiat currency cash is efficient so long as
both parties feel they have had value. You just have to get over the
coincidence of wants, this can be done through good reasonable negotiation.
So what really is Money?
Today, we're accustomed to thinking of small paper rectangles or digits on
our on line banking account as the definition of money, and we think of the
governments of the world as the only source of money. To honestly discuss
sound money, we need to realise where our current money customs came
from.
At first, it was every man for himself. You ate or wore what you could pick or
catch. Barter as we said was the first advance. If you had some extra meat,
and your neighbour had an extra fur, you might make a direct exchange. If
food, water, clothing, and simple tools are the only goods on the market,
barter is fine - you can always find someone who has what you want and
wants what you have.
But as soon as there's basic manufacturing and prosperity begins increasing,
barter becomes inadequate. Say you're a hunter and you want a bed, but the
only bedmaker in town is a vegetarian. What do you do then? You would have
to figure out what the bedmaker wanted (maybe tofu), and then find
someone who had tofu and wanted meat. If you couldn't find that person, you
would have to find a fourth person (someone who wanted meat, and had the
hats that the tofu maker wanted), or try to convince the vegetarian bedmaker
to take the meat and trade it for something else. Meat, however, spoils, and
so the bedmaker would have to unload it pretty quickly. So, unable to get
your hands on anything the bedmaker wants to consume, you trade your
meat for some salt and approach the bedmaker.
"Look, I know you don't want salt, but think of all the people who do. They
use it to preserve their meat and flavour their soup. And this stuff is non-
perishable, so you can hold it quite a long time. And if, when the tofu dealer
comes through town, he doesn't want salt, you can explain to him what I've
explained to you - he can use it to buy something he wants." If you and thebedmaker agree, you've just created currency. Organically, more people in
your community begin taking salt for payment, even if they have no intention
to use it, because they know others will accept it.
But - and this is important - the value of salt currency is not entirely
dependent on other people accepting it as payment. If, for some reason, folks
stopped taking salt as payment, you could use it as, well, salt. In the same
way silver today is has over 10,000 applications as, well, silver, as well as a
monetary precious metal. The value of paper currency today is entirely
dependant on people accepting it as payment.
Salt was a pretty good currency, especially before refrigeration, because it
was widely demanded, divisible down to the grain, very portable, easy to
weigh, and could easily be tested for counterfeit by tasting it. Salt was used
as a medium of exchange in ancient Egypt and through all dominant world
powers many times right up to the Romans who used salt for currency as a
medium of exchange.
But just because salt served as a medium of exchange didn't mean there
would be no other form of currency in circulation. Tobacco leaves might be
widely accepted as payment. Salt will not last generations passing on
generational wealth and it is not that durable, if it got wet you could lose your
entire life savings. Imagine your life savings were kept in salt in what you
thought was a safe place then there was a flood? Which is why people prefer
to save up over time gold and silver which are money in and of themselves.
But to really answer the question what is money you first need to understand
the difference between money and currency. The official definitions of
currency and money are:
Currency must be a medium of exchange so we have to be able to buy and
sell things with it. It has to be a unit of account, so one gram or unit is equal
to one gram or unit. It has to be portable so not to large or heavy. It has to be
divisible which means you can make change. Durable which means it has to
last and not dissolve in water or evaporate or degrade in near extreme
temperatures. And then something called fungible. Fungible means that each
unit is interchangeable so the unit in your pocket buys the same as the unit in
my pocket.
Money has to be all these things plus it has to be a store of value over long
periods of time. So if you only remember one thing today remember that lots
of things have been currency but only two things have ever been money.
Nothing else meets ALL of these requirements and is a long term store of
value only gold and silver are money in and of themselves. Currency doesn't
have to meet all these requirements, but to be money it has to meet all of
them especially a long term store of value. There are many things that are along term store of value (like land for instance) but they do not meet the
other requirements land is not portable. Diamonds some say are a good long
term store of value and very portable but not fungible because no two grams
or units of diamonds are worth exactly the same. But diamonds are used as
currency a lot mostly for the sale of arms. Another reason I do not like
diamonds as a long term store of value because they are not nearly as rare
as people have been led to believe. I go into rarity of different physical stores
of value later in the book.
Salt and tobacco as we have said meet most of the requirements of currency
but are not durable even if they arguably do hold their value over long
periods of time like money does, gold and silver. Things like this do hold their
value over long periods of time but what good is this if they are not durable.
Just because the value of something lasts the thing itself may not. Even
modern digital currencies like Bit coin may well meet all or many of the
requirements of currency but can not be a long term store of value because it
is dependent on many things like electricity and Internet being reliable and
not being hacked or messed with. Bit coins can not have any intrinsic value in
themselves because they do not exist, they are virtual currencies. They come
and go. Bit coins may be limited in quantity but they are not limited in
competing digital competitors so the number of bit coin lookalikes could be
infinite. Bit coins and suchlike are only a medium of exchange they don't
have any use in themselves other than a virtual currency, so can not be a
long term store of value. They can not be money in and of themselves like for
example gold and silver coins because Bit coins and other virtual currencies
are digital and not tangible they are not backed by anything just like fiat
currencies from governments.
Currency Money
medium of exchange medium of exchange
unit of account unit of account
portable portable
divisible divisible
durable durable
fungible fungible
slowly becomes worth less STORE OF VALUE over long periods Mike Maloney brings out this point very well in his free video series. It is
worth repeating, Many things have been used as currency but nothing has
met all these requirements and been a lasting store of value over long
periods of time (thousands of years) only gold and silver are money. The key
point to remember as we go through monetary history in the next chapter is -
Only gold and silver are money, EVERYTHING else that has been used as a
medium of exchange is just currency.
Monetary history the very start.
Genesis 2:11-12 in the Bible is the first and earliest place anywhere, where
you will find that Gold is being talked about for the first time. According to
these Bible verses, in the land of Havilah, Gold is endorsed as being “good”.
This was just after the first ever man Adam was created and just before God
created the first woman Eve, around 6000 years ago. They were then
commanded to have children and fill the Earth and become many. Some say
the first mention of gold and it being endorsed as being good even before the
first Woman was created suggests that God had in mind monetary precious
metals as a monetary system for when they filled the Earth and became
many. I am not so sure but it is very interesting that the Bible talks about gold
being good so early on, just after the first man was created.
Now I would like to start at the very beginning of monetary history. So when
do you think was the earliest ever recorded financial transaction where the
unit of account and the means of exchange was recorded? And what was the
first ever unit of account mentioned?
Egypt
Interestingly it is silver that is first mentioned not gold, it is in Gen 13:2
Where Abraham was leaving Egypt heavily stocked with silver and gold. This
was not really a financial transaction as such but a good indication of what
was being used as money. There is no clear mention of any money earlier
than this time anywhere in historical records ANYWHERE. A few chapters laterin 17:13, 23 mentions purchasing with money, what was being used as
money here was not specifically mentioned, what do you think it was? What
was being used as money at this time? The accounts say purchasing with
money, so this had most definitely moved on from barter at this time over
4000 yrs ago. Chapter 20:16 tells us the answer it talks about 1000 silver
pieces of money. v16 is arguably the earliest ever financial transaction in
recorded history " And to Sarah he said: "Here I give you 1000 pieces of silver
to your brother" This is not a clear financial transaction but the unit of
account was clear, it was 1000 pieces of silver being used as money.
Then Abraham in chapter 23 first of all in v9 asks someone to sell him a piece
of land for the full amount of silver, so that he may own the property. He got
silver ready for a burial place for his wife. Then in v13- 16 he weighed out the
required amount of silver which was 400 silver shekels to bury his beloved
wife Sarah. He paid for her funeral with 400 silver shekels, and bought this
field as a burial place, this was the first earliest ever clear recorded financial
transaction. There are no other really clear records of financial transactions
earlier than this time. This was different from Chapter 20:16 because this
transaction is clear we can see what was being bought and how much it cost.
We dont know how much land exactly but it was a field that had a cave and
all the trees within the boundaries were part of what Abraham purchased for
400 silver shekels. A silver shekel at this time was 11.4grams or 0.367ozT. So
400 shekels was 4.56Kg or 146.8 troy ounces. This has varied a little but not
much through all of history. Depending on where it was obviously and how
much land was included in the transaction about 4 or 5KG of silver was what
a large plot of land was valued at. This is the true value of silver at all times.
Now most of this book is based on solid facts that can be verified. Like the
very first mention of money/silver in recorded history. Some of it will be my
opinion based on sound reasoning which is this next bit, I am going to say
that silver was most probably being used as money long before this first ever
recorded example. Even though there are no clear examples of financial
transactions before this first one. There are several accounts of carrying on in
business, and most importantly accounts saying they were buying and selling
long before Abraham's first recorded financial transaction. But the first ever
record of the unit of account is later as already mentioned, when Abraham
paid for his wife's funeral with silver. The account's from before did not say
bartering as means of exchange it said buying and selling so there must have
been a unit of account, even if it wasn't recorded. This is not proof alone of
my theory that silver was being used as money but further sound reasoning
to support my theory comes from Genesis 4:22 where they were mining
copper and iron and other metals to make tools. Why is this so interesting?
Well silver has a lower melting point than iron and some of these other
metals they were refining. Also silver is many times a by-product of mining copper and iron and other metals. So there was a good chance they did have
silver at these times over a 1000yrs before the first ever recorded financial
transaction I mentioned, and the point I am making in this book is that silver
is nearly always the money of last resort but also the money of first resort as
well. Silver was often mentioned being used as money at this time, but
copper has no record of being used as money until a long time, thousands of
years after.
The earliest known financial artefact's are actually 4100 years old
records of civil law which refer to the amount of compensation an aggrieved
plaintiff is to be awarded for various offences.
The code of Ur Nammu, written between 2100 and 2050 B.C. and similar to
the more familiar code of Hammurabi, which pre-dates by as much as three
centuries, announces the standardisation of units of measurement, and
among other things is followed by list of fines to be paid in standardised units
of silver. These non Biblical lines of evidence authenticate the Genesis
account which used silver as money around the same time period.
So that was the very beginning of monetary history, we are not sure the
exact time but my theory is long before Abraham's first ever earliest recorded
financial transaction silver was what was being used as money. But human
history did not start that long before Abraham because he was born only 2
years after Noah died and Noah was born not long after the first man ever
Adam, died. So we are talking about very early on right at the start of
humans being on the Earth. No doubt about it silver was money when we get
up to Abraham's time period, and who was the dominant world power at this
time? The first ever major dominant world power on the scene was Ancient
Egypt at the time when the earliest financial transaction using silver was
recorded. There is much other evidence that silver was being used as money
for a long time during Egypt's dominance on the Earth. For example Joseph who was Abraham's great great grandson. Joseph who was sold by his jealous
brothers as a slave to Egypt just a few generations after Abraham. Joseph
was sold for 20 pieces of silver, most probably these were silver shekels. A
silver shekel at this time was 11.4grams or 0.367ozT so 20 shekels was
228grams or 7.34 troy ounces of silver. This has varied but through most of
human history a slave for life would be valued at around 200grams of silver.
When his brothers years later came to Egypt to buy food during the famine
they paid with silver. But towards the end of the reign of the Pharaoh's the
monetary cycle that has repeated throughout all known history began to
make its presence. The people were deceived and convinced to use
something other than gold and silver as a means of exchange and a unit of
account. At first the imported gold and silver pieces were used by the
Egyptians as precious metal of standardised weight in ingots rather than
coins. Then other things were introduced as a promise to pay with silver. To
start with in the monetary cycle when some form of currency is introduced a
temporary prosperity or false boom happens. To understand this false boom
part of the monetary cycle, think of a business who is borrowing twice as
much as they have profit every month. For as long as the bank foolishly
keeps lending them funds every month they will look like they are booming
but it is a false boom and can not last. This happened in ancient Egypt they
became by far the wealthiest nation ever to exist on Earth up until this time,
all because of expanding their currency supply and people believing it is
worth the same as gold and silver. Remember anything other than money
gold and silver used as a medium of exchange is just currency and currency
becomes worth less over time but money holds its value over time.
The people had confidence in the currency for some time in ancient Egypt,
even as the supply was expanded more and more, it is a con game. It's all
about confidence. But the monetary cycle is very consistent and after the
false boom which can vary in length, come the feeling that something is
wrong with the expanding currency supply and then the slowly losing
confidence in the currency that has replaced gold and silver. Maybe you arefeeling that way about the expanding currency supply in the world right now
in the 21st century.
According to wikipedia Currency evolved from two basic innovations, both of
which had occurred thousands of years BC at the time of ancient Egypt.
Originally money was gold and silver ingots. Then a form of receipt,
representing gold and silver in storage in Ancient Egypt replaced the ingots,
this was the first known currency ever.
This first stage of currency, where something other than monetary precious
metals were used to represent stored value, eventually formed the basis of
trade in Ancient Egypt. After gold and silver were replaced with currency
though it is not known everything that functioned as a currency to facilitate
exchanges, but before Egypt went over to currency it is thought that ox-hide
shaped ingots of silver, functioned as the medium of exchange. Then grain,
salt as already stated and other things functioned as currency. Remember
anything at all other than gold and silver used as a medium of exchange is
currency only gold and silver are at all times money in and of themselves.
Mike Maloney did an excellent free video series called the hidden secrets of
money. I highly recommend you watch it all, its extremely educational. Where
he traveled to Egypt and talked about how this monetary cycle started there,
he puts it a different way to me he says in this cycle they go from quality
money (gold and silver) over to quantity currency (anything else used as a
medium of exchange) then back again.
This is the same monetary cycle that has repeated through history and
continues to repeat in our time. Some argue that the cycle will no longer
repeat but that has been said many times in the past just before money does
an accounting for the expanding currency supply as the cycle does indeed
repeat over and over again. I am convinced the cycle will repeat again in our
lifetimes early in the 21st century. My prediction is it will repeat in about the
first quarter of this century, so I am looking towards the year 2025 at the
latest for the cycle to have completely repeated. But it could be well before then, it could be very soon.