From Livestock to Bitcoin: “Legitimacy” and the Evolution of Money
Once a society embraces the division of labor, direct exchange becomes increasingly infeasible. Without money, specialization is constrained; without money, dreams of constructing an advanced society are merely a utopian pipe dream. At its core, money is the lubricant for human relations. It simultaneously solves many problems of cooperation while serving as the basis for economic calculation. As awareness of nonsovereign cryptocurrencies has risen dramatically, questions about the history of money have gained salience. How does money arise? From where does it derive its value? The following sections will expound upon the cumulative development of money, from livestock to bitcoin, by infusing the concept of legitimacy into Carl Menger’s theoretical framework as outlined in On the Origins of Money.
Legitimacy is a pattern of higher-order acceptance. An outcome in some social context is legitimate if the people in that social context broadly accept and play their part in enacting that outcome, and each individual person does so because they expect everyone else to do the same.
From Buterin’s perspective, legitimacy operates as a hidden force that guides coordinated behavior. Legitimacy manifests itself through numerous avenues. These include brute force, continuity, fairness, process, performance, and participation. In addition to serving as an intrinsic component of blockchain technology, the concept of legitimacy can be applied as a mediating variable to explain the evolution of money.
From Protomoney to Store of Value
Barter societies revolve around economic actors who exchange goods and services directly, without a monetary medium. The impracticality of direct exchange ultimately inhibits societal prosperity and economic progress. Livestock and other agriculture products arose as protomoney within barter societies as early as eleven thousand years ago. In 1200 BC, cowry shells filled the role of a primitive money. Bronze and copper coins did the same two hundred years later in China. Furs, teeth, and wampum were utilized in a similar manner by Native American tribes for centuries.
An axiom within the marketplace is that not all goods possess the same saleability (i.e., the facility of disposing of said good at a convenient time, while it retains its purchasing power). Among modern foragers, ornamentation has been shown to be universal. The practice of collecting rare items, art, and jewelry remains preva
Article from Mises Wire