5 min read · Feb 2, 2023
Money is fiction, is power, is political, is a way to cooperate with countless strangers, and is adapting to Technological Innovations.
Yuval Noah Harari, a historian and philosopher, has stated that money is fiction in the sense that it has no inherent value and exists only as a shared belief. In his book “Sapiens: A Brief History of Humankind,” he argues that money has allowed for the creation of complex societies by enabling trust and cooperation between individuals who may not know each other. He also asserts that the development of money is one of the key drivers of human history and has had a profound impact on our social and political systems.
Yuval Harari talks about Sapiens as the masters of all fiction and then he emphasizes that one of the main reasons we survived is our ability to communicate and work together in large numbers. Even more importantly, our ability to cooperate in any number of waves with countless strangers. In the graphic novel version of his of `Sapiens: the birth of humankind` in his timeline of history, he places the first scripts and money ideas around the same time of the first kingdoms which was approximately 5,000 years ago and then 2,500 years later he places the invention of universal money and coins.
George Soros, a billionaire investor, and philanthropist has often stated that money is a social construct and a form of fiction. He believes that money only has value because people believe it does and that this belief can be manipulated for political and economic gain.
Several economists (e.g. post-Kenysians like Hyman Minsky and Gerald Epstein) view money as a social construct that facilitates trade and economic activity. However, it is not a neutral and passive tool. They argue that money is created and sustained by social and institutional arrangements and that it is very much intertwined with political and economic power relationships within and across countries.
American journalist Jacob Goldstein, ex-co-host of Planet Money, devotes an entire book to the concept of money as a social construct and a human invention — “Money: The True Story Of A Made-Up Thing” 2020. He argues that money only has value because people agree to use it as a means of exchange and that this agreement is based on trust in the stability and acceptability of the currency.
The concept of Money is clearly evolving as we speak.
Young children prefer to get paid in Robux coins instead of dollars for household chores. Digital Wallets store Non-fungible tokens and owners can use them as collateral to borrow cryptocurrencies or stablecoins.
The narrative is evolving as Technology is changing Society and vice versa.
All thinkers, authors, academics, and entrepreneurs building new rails for money, look back in history to understand the evolution of money. Some remain fixated on the textbook or traditional definition of money and others are challenging that approach.
`Traditionally, Money Is anything that fulfills these 3 qualifications`
- Medium of exchange
- Store of Value
- Unit of Account
While in Davos during the WEF, I had the pleasure to attend a panel organized by Circle Team, the USD-backed stablecoin issuer of USDC (but not only) with the participation of the historian and author, Niall Ferguson. He emphasized that the traditional triplet of requirements for what qualifies as money does not serve us anymore. He referred to his colleague`s approach to better understand how to design Money for the 4IR. Upon my return, I had to research his colleague Manny Rincon-Cruz and his trilemma, to understand what Niail Ferguson said about Money satisfying at most 2 of the 3 attributes of the textbook definition of Money.
(ChatGPT doesn’t know anything about Manny Rincon-Cruz even though he is the executive director in the history group at the Hoover Institution of Stanford, a web 3 investor, and a Defi protocol builder through the Buttonwood foundation and Prometheus Research Labs as well as an advisor to Ampleforth.)
The twist in our thinking about Money requires us to shift focus from `WHAT IS MONEY` to `WHAT MONEY DOES`. This allows for a different triple classification according to Manny Rincon-Cruz :
- Money supply that responds to demands — what Manny refers to as Adaptive Supply
- Money whose purchasing power of the TOTAL stock stays constant over time — what Manny refers to as Durable Value
- Money whose purchasing power of a one unit stays constant over time — what Manny refers to as Stable Peg
The Circle Stablecoin USDC is an example of satisfying the Stable Peg & Durable Value combo.
Fiat USD is an example of satisfying the Adaptive Supply & Durable Value combo.
As Niail Ferguson rhetorically asked during the panel `Are Bills of Exchange money? No, of course not.
However, Bills of Exchange were the way for paying that was highly efficient for many years and did not require third-party verification by any state entity. Bills of Exchange didn’t have the heads of sovereigns on them they just had the signatures of merchants and as the system evolved it became very sophisticated.
Ferguson, views the history of the Bills of Exchange market as one of the first network-based system of payments that the world has seen. He suggested that cryptocurrencies can be viewed as the digital reinvention of this peer-to-peer network concept of Bill of Exchanges.
We need to keep reminding ourselves that the traditional triplet of the Money definition is not helpful anymore.
Let’s all stop being fixated on what is money and arguing whether Robux, Bitcoin, or some other digital asset is money.
Let’s focus on what kind of networks can move value better and be transparent. Let’s allow for many kinds of `money` with different combinations of capabilities for different purposes. As Ferguson repeatedly said `the traditional definition of Money is not at al helpful in thinking of our current and future digital reality`.
[1] How To Borrow Against Your Crypto Or NFTs
[2] The Ampleforth Ecosystem is a decentralized finance infrastructure powering innovations in money. Ampleforth develops and supports the use of foundational building blocks for a new digital economy through its unit of account protocol AMPL, its DAO governance protocol FORTH, and its upcoming inflation-resistant store of value protocol.
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