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three main forces that drove humans to unify: money, empires, and universal religions

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the history of money

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hunters and gathers had no money

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each band hunted, gathered, and manufactured almost everything it needed

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they didn't buy and sell anything

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some members had skills that others did not but they lived in an economy of favors and obligations

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e.g. boot repair from one person who can make boots

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some items needed to be obtained from other bands, but this could be done by simple barter

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e.g. seashells for flint

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the agricultural revolutions in the beginning changed very little in these arrangements

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most people continued to live in small communities

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ancient villages self-sufficient with a little barter with outsiders

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rise of cities 5000 years ago

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brought about opportunities for people to specialize in doing just one thing well

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professional shoemakers, carpenters, priests and soldiers

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small villages did not offer enough market for people to only be a shoemaker, but cities offered this

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in villages peasants began to specialize more and more

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one village would produce mainly olive oil

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based on geography: your area is not good for wheat but for olive trees

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bartner could never form the basis of a complex economy

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you produce the best apples in the entire province

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one day you need shoes

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you take your best apples to get new shoes

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problems:

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1. too many exchange rates

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need to know how many apples equal a pair of shoes

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with 100 commodities, 4950 exchange rates have to be known

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1000 commodities, 499500 exchange rates need to be known

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2. barter is not always possible

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shoemaker may not need apples when you need shoes, he may need medical car

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three and four-way transactions become to complex

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the solution to barter which led to complex economies was the invention and development of money

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money was developed many times and in many places in history

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money required no technological breakthrough, it was a purely mental and psychological revolution

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the creation of money simply meant the creation of a new inter-subjective reality, something that many people believe in together (that specific paper and coins have a specific worth)

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money is not coins and money is not bank notes

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money is anything that people are willing to us in order to represent the value of other things for the purpose of exchanging goods and services

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the value of money depends on our imagination, not on the worth of the material from which money is made

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there have been many types of money

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for us the most standard type of money is a metal coin and a paper bill

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but money existed long before the invention of the first coins or bills

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many cultures had complex economies without coins or bills, e.g. shells, cattle hide, grain, beads, clothes

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coral shells were used as money all over Africa, South Asia, East Asia and Oceania

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even in the early 20th century in Uganda, then part of the British Empire, you could still pay taxes with coral shells

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in Chinese script, the initial sign for money was the sign of the coral shell

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in prisons, money often thrives in the form of cigarettes, and is accepted currency even for prisoners who do not smoke since they know they can trade them for good and services among the prisoners

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in fact, coins and bank notes has become a very rare form of money

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most of the economic activity done today is not done with coins and bank notes

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in 2006, the sum total of money in the world was estimated at about $473 trillion, today it is somewhere in excess of $500 trillion

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yet if you take the sum total of all the coins and bank notes in the world, they are worth only about $50 trillion, so only about 10% of the money exists as physical cash whereas $450 trillion exists only on computer servers

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the overwhelming majority of money today exists as electronic bits which we move from here to there

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most business transactions today are done by moving electronic data, which is the dominant form of money today

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if everyone at one time were to go to the bank and demand to have their money in the shape of bills and coins, banks would collapse, since there are not enough coins and bills to do that

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we still hear in the news about governments printing money, but they often don't really print the paper bills or create coins, what actually happens is e.g. the Chief of the Federal Bank in the United States goes to a computer and where there is a number $50,000,000, he changes the first zero to a two and, hocus pocus, it now says $52,000,000. This is how money is printed today.

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as long as people are willing to exchange goods and services for moving bits from one place to another, this is perfectly valid money

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in order to have complex markets, you must have money, since money enables you to tell the relative value of goods and services in the market

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the most basic quality of money is that everybody always wants it, and the reason they want it is because everybody else wants it, since when you have money, you can exchange it for anything you like

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money is a universal medium of exchange that allows you to convert almost anything into almost anything else, e.g. with money, you can transform money into shoes, or more abstract entities such as transforming health into justice, e.g. a doctor treats someone illness, then takes the money and hires a lawyer for some issue

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money can also be stored and transported easily