Here's what we think we know about money. In the beginning, there was barter. Barter got awkward after a while — you want a sheep, but your neighbour only has beans, and the neighbour who has a sheep only wants eggs — and so we moved to metal coins as universal units of value. From there, we moved to increasing levels of abstraction: gold-backed paper notes, then paper notes backed only by the full faith and credit of the issuing government, then numbers in cyberspace. Somewhere at the end of that lengthy path lies Bitcoin, the currency equivalent of celebrities who are famous only for being famous.
'Wrong!', says Felix Martin, the author of Money: The Unauthorised Biography and partner in the fixed income division at Liontrust Asset Management. Our love of shiny things is making us look the wrong way. In this historical view of economics, Martin makes the case that the real story of money lies in the merging of several concepts, only one of which is the use of physical representations.
Far more important to money, he argues, is the concept of transferable credit, which he traces to the Micronesian island of Yap, where giant stone wheels were used for money. The stones never moved because, Martin says, the stones were merely tokens: Yap's real monetary system was the mechanism of accounts and clearing that developed around the stones.
Value, accounting and authority
Touring through Greece, Rome, China, and Britain, Martin slowly constructs our present-day monetary system. Money, he explains, is really three things: a universal unit of value, an accounting system and an authority that backs the whole thing and makes it scale. For a long time the authority was kings; now it's usually banks. But note that this list says nothing about whether the universal unit of value has to be a physical item. For a lot of us it's nice if it is: there's great visibility about your resources if you have a nice 12-foot stone parked outside your house. But it's not essential.
Money, Felix Martin explains, is really three things: a universal unit of value, an accounting system and an authority that backs the whole thing and makes it scale.
Which all leads perfectly to Bitcoin. Martin doesn't get into cryptocurrencies, but viewed in the light of his discussion Bitcoin looks like a local currency — like Ithaca Hours, or Switzerland's WIR Bank, which serves 62,000 customers and trades the equivalent of approximately six billion Swiss francs a year. Regulators around the world are grappling with how to think about Bitcoin — the American Internal Revenue Service (IRS) has decided to treat it as 'property', for example.
Martin closes the book with a discussion of how to cure our economic ills, including various suggestions for reforming banks and dealing with debt. However, his key take-away message is that money is social: it is, in other words, up to us to fix things.