The Evolution of Money

by David Orrell, Roman Chlupatý

The sharing economy's unique customer-to-company exchange is possible because of the way in which money has evolved. These transactions have not always been as fluid as they are today, and they are likely to become even more fluid. It is therefore critical that we learn to appreciate money's elastic nature as deeply as do Uber, Airbnb, Kickstarter, and other innovators, and that we understand money's transition from hard currencies to cryptocurrencies like Bitcoin if we are to access their cooperative potential.The Evolution of Money illuminates this fascinating reality, focusing on the tension between currency's real and abstract properties and advancing a vital theory of money rooted in this dual exchange. It begins with the debt tablets of Mesopotamia and follows with the development of coin money in ancient Greece and Rome, gold-backed currencies in medieval Europe, and monetary economics in Victorian England. The book ends in the digital era, with the cryptocurrencies and service providers that are making the most of money's virtual side and that suggest a tectonic shift in what we call money. By building this organic time line, The Evolution of Money helps us anticipate money's next, transformative role.

Genres: Nonfiction, Economics, Money, History, Finance, Social Science, Business

322 pages, Kindle Edition

Published June 14, 2016

About the author

David Orrell, Ph.D. is a scientist and author of popular science books. He studied mathematics at the University of Alberta, and obtained his Ph.D. from Oxford University on the prediction of nonlinear systems.

His work in mathematical modeling and complex systems research has led him to diverse areas such as weather forecasting, particle accelerator design, economics, and cancer biology. He has authored or coauthored research papers for journals including Journal of the Atmospheric Sciences, Nature Genetics, the International Journal of Bifurcations and Chaos, and Physica D.

He is the author of Economyths and The Other Side of the Coin: The Emerging Vision of Economics and Our Place in The World about new economic theories; and The Future of Everything: The Science of Prediction about prediction in weather, genetics, and economics, which was a national bestseller and finalist for the 2007 Canadian Science Writers' Association book award. Foresight called it "An engaging, as well as deeply insightful, discussion on the difficult task of prediction ... it can change the way you view forecasting."

David has been a guest on radio shows including Coast to Coast AM, NPR, and BBC, and his work has been featured in print media such as New Scientist and the Financial Times. He has spoken at many conferences and events including the Art Center Global Dialogues on Disruptive Thinking. He currently lives in Oxford, UK, where he runs a mathematical consultancy Systems Forecasting.

Awards
Finalist: Canadian Science Writers' Association book award (2007)
Finalist: National Business Book Award (2011)

Reviews

[Darren · Rating 5 out of 5]

What is money and how has it developed? The question is simple but the answer is not necessarily obvious or even a simple response. The whole nature of money has developed over time and will continue to change in the future, bringing advantages and disadvantages along the way.

This book looks at the relationship of money and the economy and the guiding, diverting role it has had within society-at-large. Consideration is also given to the current state of currencies in the world and the role cyber currencies may play and changes to the financial system that can ensue in the future. That said, there is still something comfortable and secure about a few bank notes in one’s wallet, yet without trust and an entire support system they are just expensive bits of decorative paper…

It all makes for a fascinating, informative read, even if you are not necessarily an economist or historian at heart. The authors believe that this book will help the reader better understand and even appreciate the role and scope of money, itself perhaps an essential requirement as new digitally backed currencies slowly establish themselves. The authors have produced an excellent book that can be different things for different readers. The generalist will not feel overwhelmed by the sheer breadth and depth of the book and neither will the specialist fear that it has been dumbed-down. It is a deep read and the authors have managed to keep matters in focus, itself not necessarily an easy task due to the broad nature of the book’s contents. As you would expect, there is a very extensive collection of references for future reading and research if required. Nothing has been left to chance!

A great book that informs, educates and is very more-ish. A worthwhile investment, whether using physical or digital money. The sharing culture might be still with us, but the publishers and authors probably won’t be swapping a copy of this book for some of your own labours… although it never hurts to ask!

[Warren Mcpherson · Rating 4 out of 5]

This is a very good review of the development of money and the relationship between money and society. The discussion of the influence of ancient Greeks on our thinking is surprisingly current. It is also valuable to understand that while money existed for a long time, its role in our understanding of wealth has changed fundamentally since feudalism.
The book frequently reminded me of Perry Mehrlings New Lombard Street mostly because it is so rare for a book to focus on money itself. The two books are very different, both very good.
This very broad discussion included: the fetish of the numerical element of money; the duality between the abstract number and the authority compelling its value; the relationship between gold content and the sovereign; the reflections of Benjamin Franklin; deflation and the yellow brick road; Local Exchange Trading Systems; Air Miles; mPesa; the development from gold backing to unbacked fiat currency after the Nixon shock; and some other utopian theories. I was also struck by the diversity of references.
Near the end the authors wanted to make recommendations and that is reasonable but the recommendations do not follow strictly from the content and it feels like there is an opportunity to fill out the research on how best to proceed.
I find people often have strong opinions about Bitcoin, but most of the time the basis is an instinct that when people are eager to talk about money they are usually trying to appropriate it. Beyond the emotional reaction, the analysis tends to be vague. This book is an excellent step on the road toward a better understanding of money itself. I hope to see more research and analysis in the future but this striking coverage of historical material is likely to be an enduring value.

[Arup · Rating 3 out of 5]

Comprehensive history of the beginning of money to how a currency usage kicks off (by decree, popular will or profit motive). The final chapters on cryptocurrency complexity, acceptability and future developments are good. Attempt at explaining or rather imagining tomorrow's monetary system given the economic and technological shifts underway was not that well organized but did cover a few good points - like parallel currencies, reduction in financial overhead etc.

[Paul W · Rating 2 out of 5]

Orrell and Chlupatý set out to answer what, on the face of it, seems a simple question: what is money?
Their journey introduces us to the Roman goddess Juno Moneya, the origin of the word "money"; Greece, where the introduction of money was followed by democracy; the Spanish Armada in 1588, "the failed invasion of England...inflamed" by Spain’s acquisition of New World gold; the American Revolutionary War, which Franklin believed was caused by increased unemployment resulting from the contraction of the money supply when the British Parliament made it illegal for the American colonies to print their own money; and Karl Marx who sagely noted in The Communist Manifesto "Money plays the largest part in determining the course of history".
As they discuss how money may evolve they introduce the reader to:
• Depression era currencies from the 1930s: Bavarian Wära, Swiss WIR, Austrian Wogl
• community based quasi-currencies: Belgian Torekes, Canadian Calgary Dollars, English Bristol Pounds, Philadelphia’s Equal Dollars, San Francisco’s Berrnal Buck;
• time based currencies: Canada’s LETS (Local Exchange Trading Systems), Japan’s Hureai Kippu (Caring Relationship), the WAT (based on energy as a currency), New York’s Ithaca Hours; and
• other quasi currencies: mPesa’s mobile minutes, and airline points - the largest (but also the most rapidly depreciating) quasi-currency globally worth ~28 trillion in 2012 with airlines the equivalent of central bankers.
And they bring a new twist to the Wizard of OZ as an allegory for banking (p100).
The authors correctly note that ‘With fiat currencies, system control of money production is dispersed to private banks (through ‘the mechanism of "fractional reserve" banking’) rather than being centralized’. Were it not for this in an environment of (1) low inflation and (2) high government debt, governments could just print money (seigniorage)—"as much money as they like" —to repay debt and boost the economy.
However this critical issue in answering the question ‘what is money?’ is left inadequately explored. The role of commercial banks, rather than central banks or governments, in creating money is much better explained in Mervyn King’s The End of Alchemy.

The central theme of Orrell’s (an applied mathematician) and Chlupatý’s book, one borrowed from other authors, is to compare money with quantum physics drawing an analogy of money's dual properties as a store of value and a medium of exchange with the dual particle and wave properties of light. But in contrasting a Newtonian versus a quantum view of money, they push their physics analogy beyond its usefulness and succumb to:
• the trite — ‘an advantage of numbers is that they never run out’ (p55) and ‘money spreads its numbers around’ (p46)
• the unintelligible — ‘money can transcend its role of reducing everything to numbers…’ (p5) and ‘Money…frequently shows paradoxical behavior and can seem both real and unreal at the same time…’ (p48); ‘Money…is actually erasing local memories and creating a kind of cultural amnesia’ (p227) — what do these sentences actually mean?;
• the bizarre — ‘the role of money is therefore like a shadow version or negative reflection of social values.’ (p115) and ‘The psychology of money …has much to do with our attitude toward femininity.’ (p115); and
• the inaccurate — ‘our failure to recognize the…two-sided dynamic nature of money contributed…to the 2008 financial crisis…’ (p54)

Because of this the authors draw conclusions which at best confuse correlation and causation, and at worst are meaningless drivel. And, because they belabour their quantum physics analogy they leave unexplored an analogy with time, another "invented" concept, but one which has proven useful to civilisation, and have limited discussion on the positive effect from the creation of the concept of money.

Orrell and Chlupatý deviate from the central theme of their book and stray into a Picketty-esque critique of economics and capitalism arguing that ‘For the world economy to be sustainable, capitalism needs to readjust.’ They justify this noting that ‘A first step [in readjusting capitalism] is to rethink the function and purpose of money and the meaning of wealth.’ (p5)
They correctly note, quoting Boulding, that "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist", but fail to explore this beyond the catchy quote. And it’s not the money system that focuses on GDP and ignores environmental damage, as the authors argue (p170). It is the difficulty in quantifying externalities and generating alternative measures of economic activity. The authors ignore that economics, for a long time, has known about positive and negative externalities, and knows its models are simplified explanations, but they provide explanatory power in many, but not all, circumstances.

As a result their critique of economics is a little shrill and their economic analysis incomplete. The authors incorrectly argue that because China is buying US Treasuries, it is manipulating its currency (p129), ignoring that the current account is the balance of BOTH trade AND investment, and in today's economy the proportion of investment relative to trade is increasing. They also discuss another contemporary proposal, providing citizens with a basic income as an alternative to welfare, but ignore that while this might work at a nation state level, it does not work globally, or where there is open or significant immigration given the levels of inequality of income globally.

There are a number of elements which make this book an interesting read. But for a more insightful, and readable, discussion about money and economics, you would be better served by The End of Alchemy, by former UK central banker, Mervyn King.

[Laurence · Rating 3 out of 5]

Decent introduction/history of money, I think I've covered most of it elsewhere.

[Lloyd Downey · Rating 3 out of 5]

I read this as a Blinkist summary so it's not the original and my comments can only reflect the views I picked up in the summary. Though it was not sufficient for me to go to the trouble of finding and reading the original. I've long been fascinated by the concept of money ....maybe triggered by seeing large rolls of red feathers which were used as money by some of the pacific polynesian societies. The red feathers were relatively rare (a bit like gold) and came from particular sorts of parrots. But it was clearly this invention of money that made most of modern commerce possible and could lead to the financing of large building projects etc .
Contrary to popular belief, money wasn’t invented to replace the barter system.....One old and popular theory holds that money was “invented” as societies outgrew the barter system. In fact, this theory dates back to Aristotle......This idea of money evolving from bartering may sound plausible, but it’s actually been debunked. In 1913, Alfred Mitchell-Innes, a British economist, published his own findings, noting that there was no evidence in commercial history to suggest that a barter-only system ever existed.
Around 5,000 years ago, in Sumer, one of Mesopotamia’s earliest urban civilizations, commercial transactions were recorded on clay tablets, which show us that salt, beads and bars of precious metals were all used as early versions of money.....The truth is, we don’t know exactly how or when money came to be used, but we do know that the first coins began appearing in the seventh century BC, in the Mediterranean kingdom of Lydia.
Determining the value of money reveals its complex nature.
This is how we got the name for a British “pound”–one of these silver coins used to be worth one pound of gold....Money is, of course, a real and tangible object, like the coins and bills in your pocket. But money can also represent intangible things, such as the number denoting its value. Some people consider the dual nature of money–what it physically represents versus what it theoretically represents–to be similar to a quantum object, like a photon that has the characteristics of both a particle and a light wave.
Today a dollar might get you a bottle of water, but tomorrow conditions could change, and you might be able to sell that same bottle of water for two dollars.
This complex nature has been confounding and enchanting economists for centuries.
Banking and international trade flourished after the invention of debt........Debt can’t exist without negative numbers. And the first person to demonstrate the use of negative numbers was Brahmagupta, an Indian mathematician who explained their purpose in his seventh-century book, The Opening of the Universe.......From this point on, businesses could use bookkeeping and the double-entry system,
In seventh-century Mesopotamia, promissory notes known as sakk were introduced. Around the same time, Islam officially forbade usury, the practice of lending money at high interest rates, but it did allow for fees to be accepted in exchange for loans.
Loans proved to be useful in the Middle Ages, as European towns used them to build churches,
Moneychangers then formed their own guild called Arte del Cambio at the turn of the thirteenth century, making them the earliest version of modern bankers.
Eventually, international traders realized that heavy coins weren’t ideal, which is how bills became popular. At first they were simply letters, instructing a banker or a foreign agent to make certain payments on the writer’s behalf.
The gold and silver riches of the New World significantly changed the world economy.
Spain was flooded with more precious metals than they could have imagined. Between 1500 and 1800, around 150,000 tons of silver and 2,800 tons of gold was produced. This influx led to a new problem: inflation, as the value of the precious metals declined. [ This wasn't exactly a new problem. Solon devalued the Drachma in 594 BC].........Prices now had to be adjusted, and as Spanish goods became more expensive, massive debt caused Spain to default on its loans a whopping 14 times between 1500 and 1700.....The newfound riches also led to the development of mercantilist nations, such as Great Britain,.....Such nations operated under the mercantilist theory, which assumes that there’s a fixed amount of resources in the world, and a nation’s wealth depended on how much precious metal it possessed. So, for one to gain, another must lose.
The ability to print money led to problems, but stable economy eventually emerged......The history of banknotes goes back to the early eighteenth century when France was facing some tough economic times......Banknotes were attractive since they could be produced cheaply and in huge amounts without using expensive metals.
Supported by Benjamin Franklin, the state tied its supply of bills to measurable assets, like land and future taxes, meaning that more bills were only issued in relation to growth in these assets. And, sure enough, the economy stabilized and grew.
Abraham Lincoln wasn’t happy with the power struggle that was going on between the private and the federal banks, both of which could issue money.....Eventually, the Federal Reserve in the United States ended up providing reliable supervision and regulation of private banks,
Economic theory changed over last centuries: now includes psychological aspects.
Adam Smith typically determined the value of something by considering the labor required to obtain it. So, for instance, the value of gold should reflect the amount of work it takes to unearth it.......two centuries later, economist Irving Fisher developed the quantity theory of money. This became the prevailing philosophy for the twentieth century.
So an ideal economy is one where people are constantly investing and buying, not hiding their money under mattresses or in piggy banks.
Most economists up until the latter half of the twentieth century assumed that our economic decisions were rational. More recently, economists like Daniel Kahneman and Amos Tversky have shown that that’s not the case, and we are in fact profoundly irrational when it comes to money....They created a new field called behavioral economics.....Behavioral economics illustrated that we place a higher value on money that we can have now rather than in the future.
Economists and politicians have tried various methods to deal with monetary crises.
In December of 2008, Australia did just that, giving every taxpayer $900 to encourage spending. And unlike many other countries, Australia did not experience a recession after the crash......Another strategy is called quantitative easing (QE), which involves a central bank providing extra money and boosting reserves by buying assets from private banks.
Yet a QE plan has recently been put in place in Iceland after the nation experienced a banking collapse, and it has since proved successful.....However, if currency is in short supply, introducing negative interest rates can help stimulate spending.
Clearly, when times are tough and money is tight, creative monetary solutions abound.
Bitcoin changed present status of monetary systems: future has many challenges..
Bitcoin was created in 2008 as an electronic currency unconnected to any banking system. It can also be seen as a response to rising distrust of the global financial system after the 2007 banking crisis.
Right now we’re in a largely deregulated capitalist system that aims for unlimited growth by exploiting more and more of nature’s very limited resources.....Every level of the environment is being damaged;
Meanwhile, income inequality is at an all-time high. An average CEO in the United States earns 354 times more than an unskilled worker.
While it’s difficult to predict how all this will ultimately resolve itself, it’s not unreasonable to think that an economic revolution might play a role.
Final summary
It’s trite but true: money makes the world go round. Throughout history, money has taken on a number of different forms, but some things never change–those with money wield immense power, and the strength of a civilization’s economy may spell its success or demise.
Overall, quite a reasonable history of money. But not sure that I learned very much that was new to me. Not sufficient for me to investigate the original book. I would have liked more one theories of money and the circumstances that lead to hyperinflation and money becoming valueless. So three stars from me.

[Harry · Rating 5 out of 5]

Finance, economics and the monetary system are a famously complex, arcane area of knowledge, exemplified by Alan Greenspan's 1987 quip to a Senate committee "If what I have said seems clear to you, you have misunderstood me." In light of that idea, The Evolution of Money is nothing short of a masterpiece. Orrell and Chlupatý have put together a book which makes money so comprehensible, which is so lucid in its language and incisive in its analysis, that one almost cannot help but question whether the subject was truly complex to begin with—or is there a measure of academic obfuscation at work, in the famously-besieged disciplines of, for example, economics?

The central aim of this book is to determine why, despite a century of high standing and astonishing funding, economics and financial science persist in being functionally useless forms of inquiry; how, for instance, did the entire global economic community fail to predict the catastrophe of 2008? Orrell and Chlupatý approach this question by—understandably—breaking away from the traditional mindset of economic study. Piece by piece, in intelligent, cogent, rigorous steps, they chip at the fundamental assumptions of economics from its founding mythology of "double coincidences" and "barter" to its persistent modern myths—"abstractions"—of rational actors and informational symmetries. What emerges is a narrative that centres not on fantasy "nominal" figures, but on the object that is simultaneously central to and peculiarly absent from economic storytelling: money.

Rather than treating money as a sort of measurement, Orrell and Chlupatý centre money as an object in itself, an object that embodies the bizarre tension between the notion of value, an idea rooted in a virtual world that exists only inside our heads, and wealth. By considering money as an effort to quantify the world, assigning a number to value and attaching that to wealth, they reframe the history of money in terms of that tension. The origins of money are no longer rooted in Aristotelian mythology about the "double coincidence of wants", but become a narrative of orientation and reorientation as society after society sought to reconcile value with wealth and manage the seismic shifts that emerge from too much weight being placed on either.

The Evolution of Money is a fine history book, and an admirable refutation of numerous poorly-informed fringe theories regarding the monetary system—not least the widely-held idea of the gold standard as a, hah, gold standard of financial organisation. More than that, though, it is a strident, coherent critique of the ways that we currently study and understand money and of the ways that money is governed. Economics is the only field of modern academic discourse with a majority of its best and brightest students operating in open revolt against the methods and ideas of their teachers, and this book is a magisterial exposition of the reasons why.

[Marcus Gitau · Rating 5 out of 5]

A book on the history of money and critical of neo-classical economic thought.

The most interesting thing I’ve learned from this book, and what seems to be its central theme, is the dual characteristics of money. Money seems to be able to move between the physical/materialistic world and the abstract/theoretical world. It is isn’t really one or the other but rather is both and lies on a spectrum with its position being directed by society.

The authors like to create potential links between the technology (money) and its relationship with society that are often overlooked or ignored in standard economics. For example when money takes on its more materialistic form, women tend to be better off in society. An interesting observation that requires careful consideration. They also seem to enjoy calling out economists for (a) their failure to incorporate money into learning and models and (b) their inability to formulate an accepted scientific theory in the field.

The book recognises that the world is at an inflection point between the maturing old ways of doing things and emerging new ways of doing things and nicely presents the role that money may play in forming this “new common sense”. They also recognise that the digital age of 1s & 0s changes the “rules of the game” meaning we have no precedence to inform our opinions of what the future might look like, but that does not let them shy away from making a brief attempt in the final chapter.

The books was quite complicated and I would love to read this again in a few years.

[Jap Hengky · Rating 4 out of 5]

It’s trite but true: money makes the world go round. Throughout history, money has taken on a number of different forms, but some things never change – those with money wield immense power, and the strength of a civilization’s economy may spell its success or demise.

[Tor · Rating 4 out of 5]

Interesting read on the past, current and future state of our monetary system.

[Her Half · Rating 3 out of 5]

Very interesting read. I would have preferred more history and less commentary on modern financial issues.

[Connor · Rating 5 out of 5]

This is one of my favourite books about quantic economics. David Orrell is such a great writer, and just like all his other books I'd HAVE to rate this five stars.