Moneylike

My Locus Magazine column about what makes money money.

My latest column for Locus Magazine is “Moneylike,” about the relationship between money, liabilities and coercion:

https://locusmag.com/2022/09/cory-doctorow-moneylike/

For years, economics textbooks have included a “money story”: once upon a time, we bartered, trading chickens for cows. This was hard. If the going rate is 8 chickens for a cow and you only need 6 chickens, how could the chicken farmer make change?

The answer was gold, variously said to have been chosen for its rarity, or its divisibility, or its shininess, or the ease of working such a soft metal. Whatever the reason, these anonymous prehistoric traders all agreed that gold would be our medium of exchange, our store of value and our unit of account.

This story was handed down to generations of economics students, despite the fact that there is no evidence for it. The basis for this story was pure reasoning: “What circumstances could have given us money?”

This kind of thought-experimental reasoning is endemic to neoclassical economics, as Ely Devons joked: “If economists wished to study the horse, they wouldn’t go and look at horses. They’d sit in their studies and say to themselves, ‘what would I do if I were a horse?’”

But as far as anyone can tell, this is not where money came from. Rather — as David Graeber wrote in his seminal “Debt: The First 5,000 Years” — the origin of coin money is in the need of conquering states to provision themselves. To feed soldiers garrisoned in imperial territories, emperors imposed a tax on farmers, that had to be remitted in the coins that soldiers received in pay. Farmers who didn’t pay their taxes faced terrifying, violent consequences and were therefore willing to sell their produce to soldiers in exchange for those coins.

Money, therefore, arose out of liability: farmers valued coins because they had a nondiscretionary liability that could only be settled with those coins (their taxes). People who weren’t farmers would also accept coins, because they knew that the farmers needed them, and since they needed to trade with farmers, anything the farmers would accept was therefore valuable to all.