The dictionary definition of money describes it as "a current medium of exchange in the form of coins and banknotes." The origins of money and trade can be traced back to ancient civilizations like the Sumerians and Babylonians, who traded goods and services using commodity money like barley and silver. In the 7th century BC, the Lydians were the first to produce coins from electrum, which is a naturally occurring mixture of gold and silver. This innovation paved the way for the widespread use of coins as a medium of exchange.
The promulgation of overseas trade after the Middle Ages spearheaded the rise of paper money, which quickly gained dominance due to its convenience and efficiency in facilitating trade. The introduction of the printing press enabled the mass production of paper money, which soon became the dominant form of currency in many countries.
Entrepreneurial individuals physically moved or transferred resources to and from various parts of the community to access suitable opportunities that highlighted their strengths.
Trading goods and services was not always as easy. For thousands of years, bartering was the primary method of exchange. As humans evolved out of being hunter gatherers and formed larger communities, we began to tap deeper into our creative side because our communities produced in excess, and ceased to exist in perpetual survival mode. We enhanced oft-used products and improved their range of functionality.
The excess produced in communities provided access to the time and resources people needed for their creativity to flourish. This is because the excess produced by the community was distributed to fund the creation of the most imaginative ideas that improved the lives of the people within the community, and helped ensure that the quality and integrity of its activities remain independent from environmental conditions. As communities grew to encompass areas with varying settings, the needs of different parts of the community began to diversify. The popularity of goods fluctuated between communities, and so did the opportunity cost of producing and manufacturing them.
"The complexity linked to this displacement in pursuit of lower opportunity cost and higher innovation, demanded a higher degree of flexibility at the transactional level to incentivize the exchange of productivity and output with greater ease and assurance." - Shawn Shahpari
Entrepreneurial individuals physically moved or transferred resources to and from various parts of the community to access suitable opportunities that highlighted their strengths. As a result, mobility of people and resources among communities grew. The complexity linked to this displacement in pursuit of lower opportunity cost and higher innovation, demanded a higher degree of flexibility at the transactional level to incentivize the exchange of productivity and output with greater ease and assurance.
Fiat currency is the modern method of exchange because it provides sufficient flexibility to stabilize the ever-increasing speed of evolving desires for higher degrees of independent contribution.
Fiat currency is the modern method of exchange because it provides sufficient flexibility to stabilize the ever-increasing speed of evolving desires for higher degrees of independent contribution. It is not technological advancements that ushered in the era of fiat currency, but rather the human desire to create opportunities while insulating individual values from the cultural values of their communities.
Consider the ease with which an economy's money supply can be managed when it is supported by easily quantifiable assets like silver and gold. By contrast, managing the amount of money in a fiat currency system, where the asset backing your money is the promise of productivity by the people living within a particular nation-state, is more abstract and therefore more difficult to manage. In the upcoming posts, we'll delve into the dynamic processes that generate the most effective controls for managing an economy based on fiat currency.
