We spend most of our lives working for money. It’s the yardstick we generally use to measure our success. Even if having a bunch of it doesn’t buy happiness, not having enough of it definitely puts us in a very bad spot. Having money allows us to meet our most basic needs: food, shelter and clothing. In other words, it governs most aspects of our lives. In fact, it has become so ubiquitous that we no longer even question its existence, or its legitimacy. However, having a fair economic system is only possible if the currency used in this system is also fair! But what is a fair currency, and can our currency, the euro, and all the currencies imposed on us by the states be considered as such?
To understand this, we have to go back to what drove the use of money, or, in other words, why did we need money? Why did we use gold and silver in the past and why did we exchange them for fiduciary currencies, which only have value because of the “trust” that we give them? So many questions that we don’t ask ourselves very often, but which are nevertheless fundamental to understand the world in which we live.
To answer all these questions, let’s go back in time, before we even had money, and before we organized ourselves into tribes. In their time, the natural diversity of individuals was expressed by the fact that each one had different predispositions than the others. It soon became apparent that, rather than each individual being self-sufficient and therefore having to provide for all the tasks necessary for survival, it was more efficient for each individual to have a role determined by his or her own abilities. Thanks to collaboration, which is based on the idea of reciprocity, each person brought to the others his skills and services in exchange for the skills and services of the others. This is when bartering was born. The same is true when we consider the territories inhabited by different tribes, which possess certain natural resources in abundance, while others are scarcer, thus favoring inter-regional or inter-tribal exchange. For such acts of consensual exchange to take place, both parties to the exchange must believe that the value of the other’s property is greater than that of the property owned, so that in this transaction both parties make a net profit. For this process to work, two people who want the other’s product or service must meet, which in practice is a rare coincidence. For example, if Bob has a watch and is looking for a jacket, and Alice, who covets this watch, only has gloves, how can they make an exchange? This is when we discovered indirect exchange, which, as we will soon see, will give rise to the birth of currencies. To satisfy Bob’s need, Alice will try to exchange her pair of gloves for someone else’s jacket, and then exchange the jacket with Bob. So she did not make the first exchange for the product she wanted, but for a product that allows her to get what she wanted from Bob.
This process, which at first sight may seem to be a complication rather than a general solution to the problem of bartering, has in fact, as we shall now see, allowed the emergence of the concept of money.
Indeed, let us imagine for example that Bob has succeeded in his life and owns a Rolex but, finally, tired of the bling bling and longing for a simpler life, he wishes to sell it for chickens, cows and a draft horse. As it will be complicated to find all these animals at the same seller, and especially for a Rolex, Bob will try to exchange his Rolex for a product that he will be able to easily exchange again for what he wants, that is to say a product that is in high demand. On the market, there is a vast choice of such products and Bob will certainly choose it according to the ease with which the product in question can be divided, transported, or preserved.
It is clear that the most marketable commodities, i.e. those that can be sold most easily, will gradually be selected as the medium of exchange. As they become so, the demand for them will increase more and more, which will also increase their value. Greater commercial potential thus leads to wider use as a medium of exchange, which leads to even greater commercial potential, and only a few goods then become used as currency. Over the centuries, many currencies were used, such as tobacco, pearls, grain, tea or copper, but eventually gold and silver took over. Here it is important to point out that the latter have imposed themselves as a currency of exchange in the face of free competition from all other goods that could have served the same purpose. According to Rothbard:
The cumulative development of a medium of exchange in the free market is the only way in which money can be established. Money cannot come into existence in any other way, either by the sudden decision of individuals to create money out of useless materials or by the government calling pieces of paper “money.
So, if in the past our money was based on very concrete goods and decided by the free market, how did we come to exchange it for a fiduciary money, that is to say, a money that has no value except the one we give it?
The answer is actually very simple and comes from the coercive power that states have towards their citizens and other states. A perfect example is given by the recent fluctuations of the ruble rate. Indeed, when Russia started to invade Ukraine, numerous economic sanctions, including the exclusion of Russian banks from the SWIFT system, caused the value of the ruble to fall sharply, simply by preventing its use. However, as soon as Putin imposed that the payment of the gas he sells to certain European countries must be made in rubles, the demand for the ruble increased again. This was quickly reflected in its value, which is now higher than even before the invasion began. In the same way in the holy of holies, the state will not hesitate to use force on its inhabitants, to force them to pay their taxes with the national currency. This creates a demand for this currency and therefore gives it a certain value, that of not ending up in prison. We see here that, ironically, these currencies that are called “fiduciary”, that is to say based on trust, are in reality entirely based on coercion.
The state thus uses the monopoly it has on the use of violence to acquire control of the currency. Unlike gold, whose total quantity can only change with the discovery of new veins, the state can change the quantity of money as it pleases, by printing more money, or by withdrawing it from circulation. Printing is generally the most used option, because in addition to allowing states to finance themselves for free, it also allows them to drown their ever-growing debt in inflation.
It is precisely to counter the state monopoly and give the sovereignty of the currency to the individual that a man named Satoshi Nakamoto, whose exact identity remains unknown to this day, created bitcoin in 2010. Bitcoin is an entirely digital currency. Unlike our fiat currencies, Bitcoin uses cryptography to manage the validation of transactions in a completely decentralized way, so that its money supply cannot be changed by anyone. The inventor of Bitcoin has created a system that makes it possible to no longer need to trust a third party, not even himself, to maintain the durability of his currency. Since then, many different cryptocurrencies have been created to fulfill different roles. Of course, faced with such a threat, the reaction of governments was not long in coming and many are therefore trying to control the use of these crypto-currencies which, by their very nature, are very difficult. This is where this episode concludes. We have seen how and why the state maintains the monopoly of the management of the currency, and how technology can allow us to overcome this monopoly. So many topics very briefly discussed here, which will be developed in other episodes. Again, if you made it this far, congratulations. I look forward to your comments on this topic: do you think we should change the monetary system, or do you think it is fair and equitable?