There are many historians who have proposed other theories. For a long time, it was recognized that money was invented by Phoenicians. And some economic scientists or economic anthropologists have said that, in ancient times, some products were used as money before cultures minted coins that were made of metal. Taking these theories into account, it could be argued that money itself is tens of thousands of years old.
Therefore, it is plausible to defend the theoretical interpretation that the first forms of money were sorts of primitive proto-money born in the Neolithic era via the appearance of agriculture and livestock. Pre-neolithic life was based on hunter-gathering which represented almost no capacity to produce beyond what humans needed for immediate consumption. For money to exist though, it is necessary to comply with the fundamental requirement: that there be surplus energy or surplus value.
The first production-efficient economy capable of going beyond immediate needs occurs in the Neolithic with the sedentarization of human life. Here, the phenomenon of surpluses takes place for the first time in history. Technology made it possible for human beings to not have to spend all the goods they produced right after the production process was completed, but to save those goods for later.
When one has highly appreciated goods stored and protected for future use, one is already in the threshold of inventing money. Surpluses and the capacity to store these precious goods contain some of the most important factors that are crucial for money to be created. The first and perhaps most important is already achieved: value as cognitive-emotional or psychological experience.
The one factor still lacking in this stage to complete the recipe, is the socialization of the psychological experience that the goods evoke in oneself. One needs more than just one person to share the subjective experience of value in order to transform the objects and the perception of value attached to them, into the new technology of money. Money starts then as a type of savings. Money constitutes, in the first place, a space-time point where it condenses and reserves value perceived by social beings. Becoming a medium to communicate value comes later.
The birth of the socio-economic phenomenon of “having surplus” meant that a certain quantity of goods did not need to be consumed immediately after being produced. Sentiments of value associated to these goods were created and shared among many humans. Surplus is the grandmother of money. At first, surplus gave the opportunity for not everyone to work in basic survival modes. Money or proto-money is born from this first economic revolution thanks primarily to the pseudo-scientifically systematized production of essential goods brought about by the agricultural revolution.
Some people were, therefore, able to devote themselves to the art of producing items that required a lot of processing time, since it was not necessary that all people worked in hunting or gathering. This allowed the first form of trade, barter, directly exchanging goods and services for others. The proto-money was therefore those goods that represented the inter-subjectivity between human beings who perceived the value of such goods at the same level. The psychological basis of money was born: the perception of value shared by two or more people.
For apparently convenient reasons, people later realized that it was not very smart to use those goods as a store of value or a medium of exchange. Even if by using these primitive creations as money they could obtain successful value-communication by means of a socially shared mutual perception, the technology was still in itself inconvenient, since one depended on the need that others have for your specific product at a certain point in time.
If you produce stone collars, but your neighbors do not currently need stone collars, even if they share the mutual perception of its particular value, there is a problem. That problem becomes even harder to solve if those stone collars degrade and decompose over time like textiles and food. Something more “stable” or incorruptible was needed.
It needed to be a kind of good that could be perceived naturally as highly valuable by almost anybody (some people call this property “intrinsic value”). For this reason, a more generic and universal value-carrier would be chosen later: precious metals. One particular precious metal became the king of all metals used to reserve and transmit value: gold.
For many centuries gold maintained its supremacy thanks to the high level of desirability it evoked, thanks to how difficult it was to acquire and its scarcity. Mining for it required a lot of effort and work. And all over the planet there seemed to be only a small amount of the precious metal in existence, compared to many other elements of nature.
The world economy was based on this type of asset for centuries: a value container with high inelastic demand and a very low supply limited by the forces of nature. For many generations, gold also represented one more advantage, the perception of value came from people with free will. Desirability and value-perception towards gold emerged from people’s own experience and it was not value imposed by governments with armies.
This was the case until, in the second half of the 20th century, in the so-called “Bretton Woods Agreements”, the International Monetary Fund (IMF) and the World Bank (BN) were born. These institutions helped to adopt the US dollar as the standard of the world economy instead of the gold that had been used for centuries throughout history.
The countries of the world —some not totally convinced— accepted to abandon the direct use of gold as the basis of the economy, alleging that it presented many inconveniences, such as it being very difficult to audit the existence of gold in each country, or that it was very difficult to manipulate and transport. Most countries agreed to use the dollar as the new store of value and as the international medium of exchange.
In the beginning, however, there was an agreement that the Federal Reserve System of the United States would respect a fundamental gold standard by pegging the circulating supply of US dollars to the value of the gold in their reserve. This gold would be audited periodically for transparency. Dollars would, then, have no value created out of thin air.
For this reason, most people born as Baby Boomers or as the Generation X —this includes people born between the 40s and the 70s—, learned in their elementary schools or in their homes that every single US dollar was backed by solid gold stored safely in Fort Knox. This was true for some time. Today it is not, even if many people still believe it to be true; a large number of people are not informed that the gold standard came to an end almost five decades ago.
The degree of development and social evolution experienced by the planet during the 60s and 70s, however, changed things for all human beings. Several of the world’s biggest economies began to grow exponentially, with the United States leading. In these years the United States rose to the point to be considered as the example to follow throughout the world. In this period, this nation was consolidated as the main world power; this period has been called “Golden Age” or “The 30 wonderful years” of USA.
This era gave the United States the power to change history as well. And the United States used that power to transform the nature of money by making money no longer backed by natural wealth like gold. The US imposed a new system where the value of money came from political decisions or political power. As of 1971, the United States abandoned the gold standard, and therefore the value of the dollar happens to be sustained exclusively by a legal declaration of the US government, in the form of a fiat currency (or money by decree).
Since then, the money that moves the entire global economic system, the dollar, has ceased to have real and tangible assets as origin of value. Considering this, dollars do not represent the value of some socially accepted solid asset. Before 1971, the gold standard was a monetary system that set the value of fiat money in terms of a certain amount of gold. And the value of gold was accepted because it was approved and desired by most human beings in a free and democratic manner.
Before 1971, the issuer of dollars had to guarantee to all the users of the dollars – or to any possessor of coins and bills – that this fiat money represented the amount of gold consigned in them. From 1971, thanks to power, politics, and economic and military hegemony, the United States told the world: “I do not need to have gold, or any other socially-accepted asset, in order to make all human beings accept the value of my currency; people have to accept the value of my dollars only because I say they have value.”
It is intuitively easy to understand for anyone —no matter the level of formal education one may have — why a house, a boat or an aqueduct is valuable. These are real products that, by consensus free of coercion, people accept as valuable products. For millennia, the value of money was socially perceived as naturally valuable, or socially perceived as having “intrinsic value”, as with houses, boats or aqueducts. People experienced value in the form of some goods throughout their daily lives and could have freedom in choice through their perception of value.
People around the world chose gold as valuable based on their experience and perception. Gold and many precious metals were used as money because people believed in their value freely and democratically. In 1971, it was decided that the perception of value by people all over the world no longer mattered, because governments had armies and laws to force citizens to accept something that was not backed by anything that the citizens of the world would choose based on freedom.
In 1971, the governments of the world, by deciding that the value of money would be based on the power of a small elite that owns the armies, those same governments created the conditions for the birth of the most highly evolved type of money that has existed in the world: Bitcoin. Bitcoin is the first kind of money that is not issued by an authority and does not need or abide by the control of a central authority.
The very existence of central authorities imposing fiat money with guns to people, translates into an intrinsic source of value-perception for people. In a way, one can say that greedy governments made Bitcoin possible, by creating the urgent need for sound money not managed by human beings but by the laws of Math.
Bitcoin is an expression of freedom. Bitcoin has value because millions and millions of people perceive its value and because those millions of people want to recover that freedom of choice that governments destroyed almost half a century ago. People like Bitcoin because it was not created by the same people who impose fiat with guns nor can those guys with guns stop it.
Bitcoin does not need to convince the traditional systems or governments, even if they act as if must. Bitcoin does not need the banks or institutions for its Blockchain to represent the financial system of the future. Bitcoin does not need their permission or approval. Bitcoin simply is. Bitcoin cannot be controlled or shutdown. And its value comes from the intrinsic desirability and trust that people chose to feel towards it, as opposed to the weakness and lack of trust they perceive in the fiat backed only by empty political ideologies.
Global Crypto News Editor and Writer.
OE-Blockchain researcher. B.S. Psychology, Licentiate in Clinical Psychology, Msc. Cognitive Sciences. President of HUMANA Consulting. Founder of COGNOSCITIVA Consulting.
10 years in OE and Market Research. Java, C++ developer. 22 years University Professor in Japan and Costa Rica.
Teachings: Psychology, Research Methodology, Neuroscience, Statistics, Japanese language. Crypto Psychology currently under development.