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Part II: Money

Last week in Part I of our series: Time Thieves we explored how Bitcoin measures time. Time is money, and no money keeps time like Bitcoin. But before we understand how Bitcoin revolutionizes money, we need to understand what makes money ‘good’ in the first place. Let’s dive in.

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​Money makes the world go round.
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Without it you’re in a tight spot. With enough of it, you can do almost anything.
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It has also been said that ‘the love of money, is the root of all evil.’
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And don’t we know it. The things our fellow humans have done for a few extra dollars would make our skin crawl and our hearts shudder. War, theft, violence, crime, murder, prostitution, extortion, corruption, all done in the never-ending pursuit of money.
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Conversely, technology, innovation, science, art, literature, engineering and architecture are all made possible because of money.
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Money is paramount to our lives on earth. We need money to live, to build, to dream about the future.
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Yet for something of such importance most of us don’t understand what money even is. How is it made? Why do we use the money we use? Is our money even good? How can we know if it’s the only money we’ve ever known?

To understand what makes money good or bad, we need to go back. Way back. Before dollars, before banks, before even gold - to when humans first discovered money in nature itself.

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From Shells to Shiny Rocks

Early civilizations discovered money in what nature provided. Seashells were beautiful, portable, and somewhat scarce - perfect for coastal communities to trade. Salt was so valuable that Roman soldiers were paid in it - 'sal' being the Latin root from which we get the word 'salary.' The Romans understood salt's unique properties: it was essential for life, uniform in quality, and limited in supply. A soldier's salt allowance was as good as gold, preserving both food and wealth. Cattle represented real wealth too - they multiplied on their own, provided food, and everyone understood their value.
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Each of these served their time and place. Shells worked brilliantly along trade routes, where their distant origin kept them scarce. Salt quite literally kept people alive, making it universally accepted from Rome to China. Cattle were a reliable store of value - they grew more valuable as they reproduced.

As trade networks expanded and societies grew more complex the flaws of these early forms of money emerged. Shells break. Salt dissolves. Cattle die. Making exact change meant precise shell counting, weighing of salt sacks, or the impossible task of splitting a cow. ‘Cornelius, can you break this heifer for me? I only need a chicken’s worth…’

Nature's money had serious limitations. It served its purpose as best as it could but good wasn’t good enough. As civilization expanded we needed better money. But how could we know what made money better?
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Humanity needed a way to judge money itself. Enter Aristotle - not just a philosopher, but history's first monetary scientist. He cracked the code that would shape money for the next 2,000 years… Student of Plato and tutor to Alexander the Great, Greece’s greatest thinker turned his mind to the fundamental question of money. He identified six properties that all good money must possess. His framework proved so accurate that every currency in history has attempted to fulfill these requirements. Have a look at the graphic below.

Aristotle’s six properties of money are listed on the left. As you can see, primitive money lacks qualities like durability and divisibility. Gold is better in almost every way. Unlike shells that break or salt that dissolves in the rain, gold is durable- it lasts forever. Cattle get sick, need feeding or just plain wander off. Gold stores value perfectly over time. It doesn’t just wash up on the beach, it must be mined with tremendous effort, making it naturally limited in supply. Kings and merchants began minting standard gold coins- every ounce identical- adding uniformity to gold's impressive list of perfect money properties. Gold was truly golden and would reign supreme as humanities best money for the next 2000 years.

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Heavy Metal Problems

Over the centuries however, merchants travelling vast trade routes became painfully aware of the drawbacks of hauling gold bullion over thousands of miles. Vulnerable caravans passing through remote areas made perfect targets for bandits. Ironically, this also became the golden age of highway robbery. If the weight of the gold didn't break you, the bandits surely would. A solution emerged that seemed ingenious: paper receipts for gold. Each receipt was a claim on real gold, safely stored at the bank. Light enough to hide in your boot, valuable enough to buy a fleet. Trade the paper instead. Simple. Elegant. What could go wrong?

The bankers who kept the gold soon noticed something curious about the new system. People rarely came to collect their metal, happy to trade the receipts instead- after all they were as good as gold. But as the bankers watched their vaults overflow with idle gold, a dangerous idea began to form: if no one's checking anyway, why not issue a few… extra receipts?

Tune in next week for Part 2B: ‘The Money Magicians.’ We'll pull back the curtain on the modern banking system and reveal how a simple solution to gold's weak portability became the greatest sleight of hand in history.

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Bottom Line:

• Primitive money taught us what makes money 'good'
• Aristotle defined six properties all money must have
• Gold dominated for millennia because it met most requirements
• Difficulty in transporting gold over distance led to paper money
• Bankers discovered they could do more than just store gold...

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Don’t miss Part 2 of Part 2 in our series BTC: Time, Money, Truth. Sign up at financialperformer.com to get weekly insights straight to your inbox.

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