7.6.2 Money

In the midst of the COVID-19 pandemic, many shops witnessed a scarcity of hard currency, prompting them to put up signs requesting people to use credit or debit cards or mobile payment apps to make purchases. This episode is part of a larger shift over the past several decades away from coins and bills and toward more abstract forms of payment such as chip cards and “fintech,” the mobile debit apps accessed through smartphones. And even more abstractly, now there are even virtual currencies such as bitcoin and other cryptocurrencies. Bitcoin is a currency generated by a computer dedicated to solving complex mathematical problems. How is that even money?

What is money? In the formulation of classical philosophy, money is defined by three functions: it serves as a medium of exchange, a unit of account, and a store of value. Imagine that two friends from neighboring groups, one a pastoralist group and the other a horticultural group, meet in town. The pastoralist has a freshly slaughtered goat slung over their shoulder. The horticulturalist is carrying a small sack of vegetables. They decide they’d like to trade. The farmer wants all of the meat, but the herder wants only a small portion of the vegetables. Each person wants the trade to be equal; that is, they both want to give and receive the same value. How can they conduct this transaction? How do they know the value of the things they want to trade?

It seems natural to imagine these two trader friends attempting to negotiate some sort of barter. The swapping of goods on the spot, however, was never a dominant form of exchange in any culture in the past. Instead, many anthropologists argue that precapitalist peoples relied more on gift exchange, redistribution, and debt to circulate goods through society. So it’s more likely that the pastoralist would make a good-faith gift of the whole goat to their gardening friend, knowing that both would remember the gardener’s obligation to return the favor with more vegetables (or something else of fairly equal value) in the future. If this seems complicated, it probably was. Individuals would have been involved in many such relationships simultaneously – whole communities of people all mutually entwined in relations of credit and debt.

The other possible solution is money. If these two traders live in a society that uses some arbitrary other thing to enumerate value, they would know that all of the meat has the value of 50 units (or shekels, cowrie shells, tally sticks, bones, animal skins, brass rods, gold coins, bank notes, or any one of the myriad other objects used as money in the past). A small portion of vegetables might have the value of only 10 units. If these two have come with their wallets, they can use money to make two separate transactions for items of different value rather than trying to negotiate one swap. They can make the exchanges and walk away without entanglement.

There are two kinds of money, general purpose and special purpose. The transaction described above is an example of general-purpose money—that is, money that can be exchanged for a wide variety of goods and services. Dollars, euros, pesos, yen, and bitcoin are all forms of general-purpose money. General-purpose money is portable, divisible, and easily available. Special-purpose money is currency that is used to purchase one particular kind of thing. In some pastoral societies of West African, cattle have been used as forms of bridewealth, or the payment made by a groom to the family of his prospective bride. The Tinputz people of Papua New Guinea had two forms of special-purpose money, strings of flying fox teeth and strings of shell disks. These were used for marriages and other socially important occasions. Special-purpose money is generally more difficult to obtain, transport, and/or measure precisely. In American society, many grocery stores now offer special-use “points” for loyal shoppers that can be used to buy gas at particular gas stations. Credit card companies, airlines, and other businesses offer similar forms of special-purpose points. Such special-use currency illustrates the arbitrary nature of money.