Devon asked me recently why I've been spending so much time trying to understand money.
I've been reading about its history, watching lectures on banking and credit, and learning about ancient civilizations and how they kept track of their debts. When she asked, I didn't have an answer. I just knew I felt compelled to demystify money for myself.
Money has occupied an enormous amount of my mental energy as an adult. I've spent years trying to figure out how to get more of it, managing what I had saved, selling my time and skills in exchange for it and, unfortunately, at times conflating my net worth with my self-worth.
For something I had given so much authority, I understood very little about it.
I had never asked why human beings invented it in the first place, why this particular invention has such a hold over us, or why so much of American life seems to revolve around accumulating more of it.
If you had asked me where money came from, I probably would have given you the explanation I learned in school.
Before money, people bartered.
I have eggs. You have grain. I want your grain, but you don't want my eggs. Now I need to find someone who wants my eggs and has something you want, or perhaps something wanted by someone who has something you want, and trade my way through the village until I finally get my grain.
Economists call the problem the "double coincidence of wants."
According to the familiar story, humanity eventually escaped this absurd scavenger hunt by inventing money. I could sell my eggs for something everyone accepted and use that money to buy your grain.
It's a tidy explanation, which is probably why it has survived for so long. The challenge has been finding the economy it supposedly replaced.
In Debt: The First 5,000 Years, David Graeber spends considerable time pulling apart this story. Drawing on the work of anthropologists including Caroline Humphrey, he points out that although barter certainly existed, researchers have not found societies whose ordinary economic life resembled the pure barter economy required by the textbook account.
What they found instead were relationships built on credit, reciprocity and memory.
If you and I lived in the same village and I needed some of your grain, you didn't necessarily need to receive something from me that afternoon. You could give me the grain and I would owe you.
Maybe you needed eggs a few months later. Maybe I helped with your harvest or repaired your roof. Perhaps neither of us ever calculated an exact exchange rate between the grain and whatever I eventually did for you. We knew each other, expected to continue knowing each other, and carried some memory of what had passed between us.
Reputation made that arrangement possible. If I had a habit of taking and never returning anything, eventually nobody would be particularly eager to give me grain.
The more I read about these credit relationships, the less I believed the barter story I had been told. Humans already had a way around the problem of not wanting each other's goods at precisely the same moment. They could leave the account open.
But that creates another problem as soon as economic life expands beyond people who know one another.
"I owe Bob for the grain" may work perfectly well when Bob and I have lived beside each other for twenty years. It becomes less useful when obligations have to be remembered by a temple, an estate, a merchant operating in another city, or people who have never met. An informal promise can survive inside a relationship. A larger system needs to know more precisely what the promise consists of.
This is where something I heard in The History of Money lectures from The Great Courses changed how I thought about money:
We measure distance in miles and weight in pounds; money gives us a common unit for measuring value.
A dozen eggs, a day of labor, a goat and a parcel of land have no unit in common. There is no property of the universe that tells us how many eggs equal a goat. Yet once both can be expressed in the same monetary unit, they can occupy positions on a common scale.
Money does not create value any more than a mile creates distance. It gives people a way to express unlike things in common terms.
Economists call this a unit of account.
A vague obligation between neighbors can remain vague. But once obligations have to be managed beyond the people who remember them, vagueness becomes a problem. Grain, labor, livestock and other claims can now be denominated in a common unit and share the same accounting system.
The obligation no longer needs to be held in the memories of the people who created it.
Some of the earliest surviving writing from Mesopotamia was used to record economic activity — grain, livestock, rations, labor and obligations managed by temples, estates and other institutions. These tablets were not ancient versions of the receipt a shopper gets after buying twelve chickens at the market. Much of the surviving recordkeeping was administrative, created because institutions were managing more than any one person could reliably remember.
What fascinates me about those tablets is not that they look like primitive money.
They show economic memory being externalized.
An obligation could now survive because somebody had written it down. The people involved might change, but the account remained.
Over the centuries, humans became much better at doing this. Merchants kept books. States defined monetary units and collected taxes. Banks recorded deposits and loans. Legal systems enforced contracts. Paper eventually gave way to databases.
When I open my banking app and see $10,000, there isn't a box somewhere in a vault containing my particular ten thousand dollars. The balance tells me that I have a claim within a banking system, denominated in dollars, that other institutions recognize.
Then suppose I go to dinner and pay with a credit card.
I eat the meal. The restaurant receives payment. But I haven't actually paid for dinner yet. My card issuer handles the payment and records a debt that I will settle later.
The restaurant has no idea whether I'm the kind of person who honors my debts. It doesn't know my family or my standing in the community. It doesn't need to. The card is useful because banks, payment networks, merchants and courts participate in systems that specify whose accounts should be credited and debited and what happens when someone fails to settle.
We casually describe this as money moving from one place to another. Often what is literally happening is that several institutions are changing the numbers on several accounts.
That realization has done more to demystify money for me than learning any particular fact about coins or currencies.
I had spent much of my life thinking about money almost as though it were a natural resource. You could possess more or less of it. You could run out of it. Other people had enormous quantities of it. A number in an account seemed to define your position in the world.
There are clearly consequences attached to those numbers. Money affects where I can live, what I can buy, how long I can go without working and how easily I can absorb something going wrong. Understanding monetary history does not make rent cheaper or eliminate the consequences of running out of cash.
But I no longer see money quite as the elemental force I once did.
Behind the number is an enormous human construction: units we agreed to count in, obligations expressed in those units, records of who has claims against whom, and institutions built to make those records credible among people who will never know each other.
That is still tremendously powerful. It is simply less mysterious.
It also helps me understand why money is often given power beyond the economic role for which it was designed.
If you invent a common unit capable of putting a house, an hour of labor and a loaf of bread on the same scale, you have created an astonishing tool for comparison. One that becomes tempting to use on ourselves.
I eventually started putting myself on that scale too.
I've looked at what somebody was willing to pay me for an hour of work and allowed that number to say something about my worth — something it was never meant to do. I've watched my net worth rise and fall and, at times, felt as though the accounting of my life was rising and falling with it.
It helps to know what the number actually is.
My bank balance is important because of what it allows me to claim from the world we have built around it.
But it is still an account.
That may be the answer I was looking for when Devon asked why I cared about all of this.
I wasn't really trying to find out who invented money. The further back I went, the less plausible it seemed that there was ever one invention or one clear origin story to find.
I was trying to understand the thing I had spent so much of my life worrying about.
And when you take money apart, the boogeyman starts to look different. Beneath all the mythology surrounding wealth are people keeping accounts with one another, measuring obligations in shared units and building institutions elaborate enough to make those accounts work among strangers.
Five thousand years ago, some of those accounts were pressed into clay. Mine is a number on my phone.
I still care what the number says.
I just understand what it's counting a little better now.
