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  • Hi, I'm John Green. This is Crash Course World History and today we're going to make it rain.

  • We're going to talk about money, the stuff that makes the world go 'round.

  • I'm not very good at making it rain.

  • Mr. Green! Mr. Green! I'm sorry, but money doesn't make the world go round.

  • It's actually conservation of angular momentum. It's the same thing that allows, like, figure

  • skaters to turn in circles.

  • John: Look, me from the past. I know you came in fourth for physics, among all "C" students

  • in the entire state of Alabama in the 1994 state academic decathlon tournament, but that

  • doesn't actually make you good at science.

  • So, here is what economic textbooks say about money. In general it has three functions:

  • medium of exchange, unit of account, and store of value. And its first function is by far

  • the most important.

  • Like, this is a quote from my actual, physical high school econ text book: "In primitive

  • economies, food might be traded for clothing, or help in building a house might be exchanged

  • for help in clearing a field. But exchange today in all economies -- market as well as

  • command -- takes place through the medium of money."

  • A couple things about that quote, first off, primitive is a cringe-y word. Secondly, a

  • market economy is basically all economies these days, and a command economy is what

  • we called the Soviet Union's economy back in the eighties.

  • Anyway, money is very important to history--like, our old friend Adam Smith thought that, quote:

  • "property money and markets not only existed before political institutions, but were the

  • very foundation of human society." Ehh, he was pretty into economies, so he was probably

  • a little biased toward money, but it is important.

  • Smith also thought that before there was money, there was barter, but barter could be cumbersome;

  • like if I make cheese and you make shoes, and you're lactose intolerant, then barter

  • breaks down because I need shoes, but you don't need cheese. Then I have to live like

  • a hobbit and get this very powerful ring, it's like, really stressful, I end up having

  • to go to Mordor, it's just very complicated.

  • So, Smith's ideas that rather than adapt to shoelessness, humans created a commodity that

  • they would agree upon ahead of time could be used in exchange, and that commodity is

  • money. Yes, these are all ones.

  • Stan, I forgot to mention this, but you are buying lunch today.

  • Now, we generally think of money as like coins, or later, bills, but the material of money

  • is arbitrary. Smith wrote: "In all countries, however, men seem at last to have been determined

  • by irresistible reasons to give the preference, for this employment, to metals above all other

  • commodity." A sentence that shows you why we didn't teach him in Crash Course Literature.

  • But of course, it's really inconvenient to like, weigh and measure metals every time

  • you wanna buy or sell something, so people hit upon the idea of making coins with a standard

  • size and weight. Now, Smith is probably right that coins are much more convenient than bartering,

  • right? Like, especially if the main store of value in your community is something like

  • cattle. I mean, let's say you still need a pair of shoes, well, they aren't worth an

  • entire cow; trading in partial cows... fairly messy. It's also very bad for the cow's health,

  • and the cow loses a lot of its value, because, you know, it's no longer living.

  • So that all makes sense, but it's problematic when Smith universalizes that observation

  • by claiming that as a matter of convenience, every prudent man in every period of society

  • must naturally have endeavored to create money.

  • Smith -- man of the enlightenment that he was -- is positing that the creation of money

  • is part of human nature. Like, in the second chapter of Wealth of Nations, Smith explicitly

  • says that the division of labour is the, quote: "consequence of a certain propensity in human

  • nature ... to truck, barter, and exchange one thing for another."

  • But yet, no! Like, what made sense for eighteenth century city and town dwellers like Adam Smith

  • doesn't necessarily apply to like, all human beings over the course of many millennia.

  • And if you don't believe me, you can just ask anthropologists. They love to talk about

  • this stuff.

  • So, here's the fascinating thing to me: when you look at places where the social order

  • is not based on money, we find that people actually don't barter at all. So David Graeber's

  • book "Debt: The First 5,000 Years" surveys the literature of anthropology and discovers

  • that in societies without money, people don't actually barter, but they do find ways to

  • exchange. He quotes an anthropologist named Caroline Humphrey, who concluded: "No example

  • of a barter economy, pure and simple, has ever been described, let alone the emergence

  • from it of money; all available ethnography suggests that there has never been such a thing."

  • Now, that's not to say that barter doesn't exist or that it never has, I mean, I just

  • traded Stan two copies of my book Paper Towns for the candy left in this pinata. Big money,

  • no whammies. Two things of Sweet Tarts?! Stan! That's not fair.

  • Alright, let's go to the Thought Bubble.

  • So, according to Graeber, barter was reserved for trade between strangers, even enemies.

  • For most of human history, humans lived in small communities, and in those small communities,

  • most exchange took place using forms of credit. Basically, when people know each other well,

  • they're willing to trade with the future expectation that what one gives today will be repaid at

  • some future date with something of roughly equivalent value. So in small, localized communities,

  • everyone is in debt to everyone else, and there's no real need of physical money, like

  • coins, as a way of keeping a count, because, you know, you remember when someone owes you

  • forty barrels of beer, or whatever.

  • We see this historically in the early civilizations of the Fertile Crescent, where the basic monetary

  • unit was the shekel, and one shekel's weight in silver was the equivalent of a bushel of

  • barley. Money in Ancient Sumer was actually created by bureaucrats in order to keep track

  • of resources and move things back and forth between departments. But that doesn't mean

  • that silver actually circulated freely. Graeber writes: "While debts were calculated in silver,

  • they didn't have to be paid in silver."

  • So while some people seem to think that money is naturally backed by precious metals, usually

  • gold or silver, that doesn't seem to have been the case. It was enough to establish

  • that something was worth a shekel or a fraction thereof, and then trade for something of equivalent

  • value -- meat, or whatever else, without actually having to have the shekels change hands.

  • And this was especially helpful in economies where taxes and payments to workers were both

  • in grain, rather than money.

  • Thanks, Thought Bubble. So, first, Graeber blows our minds by telling us that Adam Smith

  • was all wrong about money evolving from barter societies, but what about credit as the precursor to money?

  • I mean, it's basically saying that credit cards aren't an advancement so much as they're

  • a return to the glorious past, except instead of trust, there are like, large, faceless

  • corporations with the power to sue you.

  • So the essence of credit is debt, and at least according to Graeber, that's the glue that

  • holds social orders together, at least, if you consider debt at its heart, to be about

  • obligation. At least one of the things that binds us together as a community is the recognition

  • that we owe our neighbors something and that they owe something to us in return. It's like

  • keeping your lawn mowed so that you can keep your neighbor's property value high. It doesn't

  • make sense to have a lawn -- they're expensive and time consuming, and you can't eat grass.

  • But you take care of your lawn for the same reason your neighbors take care of theirs.

  • Out of the sense of mutual obligation.

  • But money changes our understanding of those obligations, right? Because once we're able

  • to put a price on our obligations, we can make them transferable, which wouldn't be

  • possible without money. Like, for instance, it allows you to hire someone to mow your

  • lawn for you, but Graeber argues that money, especially in the form of coinage, also may

  • chattel slavery, possibly.

  • So in West African social orders before the arrival of Europeans, money was used, but

  • only for weddings, funerals, and other activities that like, cemented human relationships. And

  • the money largely had symbolic value. But when Europeans arrived, they introduced monetized

  • trade into the system, and in the process, transformed that system. Money was no longer

  • about transferring value to solidify relationships between individuals and families; it was about

  • quantifying debt and also making it transferable.

  • So, Graeber's theory links money as we know it to slavery and war, like, coins began to

  • be used in India, China, and the soon to be Persian province of Lydia, almost simultaneously,

  • all around 600 BCE. And in Graeber's view, this happened because this was a period of

  • time that saw a shift from earlier forms of honor-based warfare, like, what is described

  • in the Iliad, to a new, more state-based warfare.

  • Armies started fighting over things like territory and resources, rather than, like, kidnapped

  • wives. So in a-- oh, it's time for the open letter!

  • But first, let's see what's inside my globe today. Oh, look, it's a molten core of nickel

  • and iron! Can--can you turn into coins? Oh! Stan! Look how rich I am! Virtually.

  • Thought Bubble's clearly much better at making it rain than I am. An open letter to honor-based warfare.

  • Dear Honor-Based Warfare, um, I guess now is the time in the video that I have to tell

  • you that I don't entirely agree with Mr. Graeber. Like, with the Iliad we were telling ourselves

  • a story about why we went to war, right? We went to war not for resources, but for glory.

  • Honor. Now, I don't want to sound cynical and disbelieving, but we still tell ourselves

  • those stories. These days, the President rarely goes on TV and says, "You know why we're going

  • to go to war? We need resources." No, we still say it's about honor and ideas and standing

  • up for the defenseless, and et cetera, which is all about as historically convincing as

  • the Iliad. In short, honor-based warfare, I'm not entirely convinced that you, you know,

  • exist. Best wishes, John Green.

  • Anyway, so in all three of these governments in India, China, and Lydia, they were pretty

  • small scale, especially compared to the empires that would soon come, but they built their

  • power on professional armies that needed to be paid, and coins were a great way to pay

  • them. It just works much better than like, trying to split up the plunder among everybody

  • The plundering method of payment is just like a garage sale. The people who get there early

  • get all the good plunder, and then the rest of the people, they're just left dividing

  • up, you know, old clothes.

  • Also, in Graeber's view, states began to encourage the use of coins because of the uncertainty

  • of war -- like, violence creates uncertainty for merchants, and decreases the likelihood

  • that they will accept payment in the form of some kind of trust-based credit arrangement.

  • And soldiers aren't known for accepting credit as payment, either, because, you know, soldiers

  • are keenly aware that they might die soon. So, according to Graeber, this combination

  • of war and state-building led to the rise of coinage. And then in order to keep paying

  • soldiers, rulers, like, say, Alexander the Great, needed to continue their conquests.

  • So you need an army in order to have an empire, and your army only likes to be paid in coins.

  • Now, you can seize some sweet, sweet metal plunder and then melt it down and make coins,

  • but with an empire-sized army, that's not gonna cut it. You need more silver. Where

  • are you gonna get new silver? Mining. Nope, Stan, not miming, I said "mining", don't ever

  • put mimes in Crash Course again.

  • So now you need a steady supply of miners; fortunately, you've conquered a bunch of people,

  • so you have lots of prisoners of war, and now you have slavery.

  • This military-coinage slavery complex was described explicitly in the Arthashastra,

  • a political guidebook written by Minister Kautilya for the Mauryan dynasty, that made

  • it clear that coins and markets sprung up, above all, to feed the machinery of war. He

  • wrote: "The treasury is based upon mining, the army upon the treasury; he who has the

  • army and the treasury may conquer the earth."

  • And Graeber says that China followed a similar pattern: he writes, "The same fractured political

  • landscape, the same rise of trained, professional armies, and the creation of coined money largely

  • in order to pay them." So, if money is a creation of the state and its military, then it follows

  • that when the state fails, as it did in Europe after the fall of the Western Roman Empire,

  • coinage largely disappears. And that's exactly what happened, actually, but of course, that

  • doesn't mean that transactions failed to take place or that trade completely disappears,

  • but it did decline a lot. And in situations like that, people often revert to the virtual

  • credit systems that we talked about earlier: the ones that rely more on personal connections

  • than on like, state enforcement.

  • So Adam Smith's origin myth of money -- that it derives from people's natural desire to

  • make barter more convenient through the creation of a medium of exchange -- really doesn't

  • hold up to scrutiny. I mean, there are clearly examples of an alternate history where production

  • and exchange work okay without actual coins or bills changing hands. It's kind of like

  • today, actually -- money works as long as there is some form of trust and a way to make

  • people meet their obligations. People used to feel obligated because failure to meet

  • their obligations would hurt their standing in their small, localized communities, and

  • now we meet our obligations because otherwise, like, people take our houses or whatever.

  • But while we have evidence that money, as we conceive of it today, isn't necessary for

  • exchange, it IS necessary, or, at least, very useful, for states, and I think states are

  • probably good.

  • Oh, maybe not, I'm not positive. I just like the internet so much; I don't think we would

  • have the internet without states.

  • So I wanna be clear that I don't entirely buy Graeber's version of history. I might

  • be wrong, of course, but I'm not convinced that coins necessarily lead to slavery. And

  • I don't think that ancient slavery is really comparable to the chattel slavery that we

  • saw in the Americas. But I do think that it's important to look at alternative points of

  • view when it comes to history, even when you don't agree with them. It's helpful to understand

  • that there's more than one well-argued point of view in the world. And I do think Graeber

  • very effectively challenges the idea that human beings are like natural, rational, economic

  • actors who wouldn't be possible without money. And in the face of overwhelming anthropological

  • evidence, at least this much is true: money is not the product of human nature; it's the

  • product of human actions, like the formation of governments and markets.

  • In short, and I know this will disappoint some of the economics majors out there: ultimately,

  • I think my mom was right. We aren't made of money. Thanks for watching, I'll see you next week.

  • Crash Course is made with the help of all of these nice people. I didn't want to do

  • the credits without my globe. And it exists because of your support through Subbable.com.

  • Subbable is a voluntary subscription service that allows you to support Crash Course directly.

  • We want to thank all of our Subbable subscribers; thanks to everyone for watching. As we say

  • in my hometown, don't forget to be awesome.

Hi, I'm John Green. This is Crash Course World History and today we're going to make it rain.

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Money & Debt: Crash Course World History 202

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    Thuy Pham posted on 2015/11/18
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