Why Money Isn’t Real (But the Technology Behind It Is)

Why Money Isn’t Real (But the Technology Behind It Is)

Hey smart people, Joe here. How much money to do you have? Don’t worry, this isn’t a patreon thing…
(but we’re on Patreon now) Anyway, seriously…count your gold. …or your silver, or your Benjamins, or maybe
even your rai stones if we have any fans from the Pacific island of Yap. How much ya got? There’s a lot of ways to store your moolah,
from the mattress to mutual funds, gold bars or Venmo, but I’m willing to bet good money
that your money is just, like, numbers in some computer database. And I recently found myself wondering: who
says those bits and bytes are worth real money? I mean, the Amazons and Walmarts of the world
are perfectly happy when you tell your computer to tell the stores’ computers to tell MasterCard’s
computers to move that so-called “money” around for you. But how did we get from hoarding and exchanging
gold to a world of 0’s and 1’s being shoved around by algorithms? The truth is that money has always been sort
of imaginary—from people agreeing to agree that two lumps of silver are definitely worth
a goat, or some scribbling totally means you’re rich to today’s crypto cyberstacks. And at every step along the way, from clay
tablets to Bitcoin, it turns out that these shared delusions of value didn’t just come
from social and political forces. It was technology that made money possible. [OPEN] Say I’m a Mesopotamian farmer. My wheat crop is kinda wimpy this year, so
my neighbor Inkishush helps me out. He needs some wool, and I owe him a favor,
so I send some over. Everyone’s happy. But that didn’t involve any money. Just the exchange of gifts, or maybe barter. Easy! But say his crop comes a few months before
my sheep get fluffy enough. Tracking who owes you over time is hard! And it’s even harder if Inkishush insists
my wool has to be just as nice as his wheat or he’ll club me. If only there were some technology that could
help you record who owes who what… The earliest forms of writing were all about
accounting. At first, people recorded actual wheat and
wool or whatever, but eventually people started recording all their debts in standardized
units of account. The way we have standard units like meters
or degrees, early accounting used units like cowry shells or shekels of grain. Writing debts down in standard units serves
one of the main functions of money: it lets you store value, or save up favors to cash
in later. And when you do want to cash in, money gives
you a medium of exchange— a convenient way of swapping what you have for something you
want. Just record some new numbers in your ledgers,
and as long as everyone trusts what’s written, now you both agree on a new amount of imaginary
value that each owes the other. Boom! That’s money. And it’s actually why writing was invented! I want to pause to stress how mind-blowing
this is: money literally is accounting! It’s just a way to agree on how much value
someone has stored up and how to exchange it later for actual stuff. Yes, I just called accounting “mind blowing”. Finally, you accountants out there get to
claim some cool points. But when we think of early money, we tend
to think of commodity money—physical objects that are useful, like rice grains, or pretty,
like gold coins. It lets you store value by… literally storing it, and then exchange it
by, well, exchanging the actual physical objects. But using commodity money means you have to
make commodity money, which is solved by production technologies–like smelting. But it also creates a more subtle technological
problem: trust. If your trading partner gives you a payment
object—like, a coin—how can you be sure that it is what they say it is? Sure, it looks shiny, but how do you know
Inkishush or Erasmus or Giovanni didn’t dilute the metal? To solve that problem, people invented touchstones:
chunks of rock on which you’d scrape both real gold and the coin you were offered. The streaks would be different if the coin
was impure. A better solution was minted coins. A government could guarantee a coin’s purity
by stamping their official seal on a lump of metal. And milled or reeded edges—those little
ridges you see on coins? They could prevent anyone from secretly shaving
off some extra gold for themselves. These technologies let people trust money
enough to trade it. But commodity money has a problem: Get too
much, and it’s a pain to carry around. So people started storing their big piles
of heavy metal in temples and banks, which gave them paper receipts that they could cash
in later. It was a form of representative money—written
notes with no intrinsic value promising that whoever held one could exchange it later for
the stuff with actual value. And as far back as 12th century China, some
governments decided they could just declare certain pieces of paper were worth something,
even without shiny, valuable objects in a vault somewhere to back them up. You couldn’t trade them in for gold, but
neither could your neighbor, so everyone just agreed to pretend. It became way more practical to carry these
notes around instead of clay tablets or all that heavy metal, all thanks to technologies
for writing, printing, and making paper. So that’s how old-school technologies made
old-school money possible. But in the 1800’s, new technologies started
to dramatically change how money was stored and exchanged, starting with the telegraph. In 1872, Western Union set up a system where
customers could “wire” money to other offices across the U.S. Your grandma could give money to one office
and that office would send a specially coded message to a district clearing house, which
would verify the money had been handed over, then send a second coded telegram to the receiving
office telling them it was ok to give you your birthday cash. For the first time, money could move faster
than people! Just five years later, more than 38,000 wire
transfers were moving nearly $2.5 million around the country each year. Fast forward to the 1960s and people were
doing way more buying, particularly with these newfangled credit card things, which quickly
tell a merchant who to call to collect your money later. But every time a store needed to check a customer’s
credit card, they had to call on the phone and someone had to manually check paper records. Fortunately, electronic computers were just
becoming a thing. Ledgers could now be read by machines, so
when someone called, banks could now let the computers authorize card payments. And those magnetic strips let the merchant’s
machine automatically call the credit company’s machine, taking more humans out of the process. Fewer people, fewer errors, and faster than
ever. But remember that money is about storing value
too. During the 60’s, banks started installing
other electronic computers that replaced punch cards with magnetic disks or tapes that could
hold tens of megabytes! Which is only a fraction of this video file…
it was a different time. Since the 70’s, computerized financial data
has just kept growing. In 2018 alone, payment networks processed
nearly 370 billion transactions. Instead of finicky phone calls between glorified
calculators, digital networks now whisk transactions to huge farms of mainframe computers that
handle each one in a fraction of a second, essentially 100% of the time. Mainframes are the behemoths of the computer
world. Super-fast input and output, obscene amounts
of disk space, and all sorts of extra machinery for extreme reliability and security. Can’t play Fortnite on ‘em, but they do
have special error-correcting memory chips that can even catch if a random cosmic ray
switches a 0 to a 1 on some chip and changes your $24 into $1048. On top of that, sophisticated machine learning
programs take just milliseconds to compare my purchase against my past behavior and millions
of other people’s, and make sure this purchase was really made by me, and not some Nigerian
prince buying toy ponies with my stolen card number. Because I would never do that. This technology all works so well, we hardly
even think about it anymore. And right about now I know what you’re thinking…
is he gonna talk about cryptocurrencies like Bitcoin because they’re like, the future
of money or something? There’s a lot of videos about the ins and
outs of cryptocurrencies, but one thing that makes them unique is that instead of one ledger
of imaginary money kept by one person or multi-billion-dollar company in one place, everyone using the currency
cooperates to keep one giant ledger of imaginary money that lives somewhere in the cloooouds… But where traditional forms of money work
by everyone trusting everyone else, cryptocurrencies kind of work by no one trusting anyone else? Everyone keeps a copy of tThe ledger of who
has what, and only updates it is only updated after a bunch of computers have competed to
solve really hard math puzzles designed to make sure prove they haven’tno one has messed
around with the records. It’s a new money technology without a middleman,
which has some advantages for… certain things… and also if you don’t trust your government,
but at its heart it’s still aboutit basically serves all the classical functions of money:
storing and exchanging imaginary value via the magic of accounting. Of course, the role of technology is not all
rainbows and ponies. All this “progress” has made it much easier
for someone to do real damage to your imaginary money by hacking into stores’ treasure troves
of credit card numbers and stealing them. On the whole, though, we can safely say technology
is why money exists. Technology and invention, not just psychology
or economic theories, have continuously made our use of money faster, more convenient,
and more trustworthy—, even if it is all completely made up. Stay Curious.

Danny Hutson

100 thoughts on “Why Money Isn’t Real (But the Technology Behind It Is)

  1. The history of money isn't just a history of economics. It's a history of technology. Doing a history of technology video was a lot of fun. Let me know what you think!

  2. Joe: How money do you have?
    Me: uhh 69 cents, Ah you know what that means, I don’t have enough money for chicken nuggets :(((

  3. The association of cryptocurrency and its usage for purchasing illegal goods on the black market traces back to the infamous Silk Road. The story of the Silk Road has been reported on so frequently it's easy to see why the association became so crystallized in the public mind. However, if one looks at the history of confirmed Bitcoin transactions per day, they would note an, almost, imperceptible drop in the number of transactions after the Silk Road was shutdown. In fact, only a few months after the Silk Road was shut down, the number of confirmed transactions per day hit a new all time high and has, on average, continued to increase up until the present day.

  4. You shared a really important inaccuracy relating the formation of money to barter. This is actually inaccurate and has been discredited by the field of economic anthropology for about 100 years. Barter is a by-product of the abrupt collapse of a monetary system but has basically nothing to do with long-standing ancient or prehistoric economies. (See the book “Debt” by David Graeber)

  5. 9:00: NO, we can't. What we CAN and SHOULD say is Money is why Technology exists, and not the other way around.
    Many of the techs you speak about were invented for money, not adopted for it.

  6. If money is a fiction that requires collective invested belief to work, I suppose that makes capitalism a religion. Adam Smith, the founder of modern capitalistic thought, first came up with the idea of the "invisible hand of the market" by watching a water-powered automated mill. "Invisible hands" were turning raw material into valuable goods.

    So because one guy in the 1700s couldn't understand how machines work, hundreds of millions of people now think that government regulation of the economy is heretical.

  7. Technologies enrich social activities. Policies keep social activities sound. They will be two pillars of civilization.

    They help each other by social technologies (like account or education) & technological policies (like R & D or infrastructure policies).

    This movie is informative, teaching that other technologies & policies can also support these “Mutual Aid Routes“ 💖.

    https://19084.mitemin.net/i320520/ https://19084.mitemin.net/i405970/ https://19084.mitemin.net/i400431/

  8. it all depends on what you mean by "Money" money comes in many forms, currency and especially debt based fiat currency (like US dollars) is often used as money, but isn't actually money in and of itself.

  9. 4:44 now that is BIG BIG BIG BIG BIG BIG BIG BIG BIG problem. Currency just floating around out of control without anything back them up.

    I thought you are smart -_-

  10. I like the idea of measuring wealth by shells. I used to have a lot of those.
    The large 6-foot wide stone circles used by Yap islanders would be somewhat less convenient.

  11. Oh really? You dont say……. money isn't real 🙄…… been like that sense the beginning the only worth to an item is what you see in it…..

  12. The only real money is gold and silver because it is backed by the labor it took to produce it. Gold isn't valuable because it is "pretty", it is valuable because it is honest money. Article 1 section 10 of the constitution defines money as gold and silver but the bankers that create money from debt (nothing) and the government that spends it, hate honest money and ignore the Constitution. After all it is way more fun to create money from nothing and pass it out to your friends and campaine contributers.

  13. Human beings love placing immense value upon things that, in of themselves, often have no inherent value. . . Money is just paper with numbers on it, a flag is just a colorful piece of cloth, a turbin or a yamaka is just a funny looking piece of headwear. Yet just saying so is probably enough to drive some people into a blind rage.

  14. Imaginary money sounds really great until you find out that every implementation of a pretend value / fiat currency system has imploded in the past with 100% reliability. This has caused great suffering and chaos. In contrast, societies embracing money with tangible value have sometimes lasted 1000 years.

  15. The success of this channel is proportional to the intelectual value that it delivers.
    I'm glad that those fiat currencies and technologies allowd me to watch your content.

  16. Check out Modern Monetary Theory. The issuer of our currency (the federal government) can never run out of money and so much more.

  17. BTW, Cryptocurrency provides many benefits to everyone. It's not something that only crazy people and criminals use, it can help us move forward as a society. Kind of a bad choice on your part.

  18. Perhaps it’s time to stop repeating the fallacy that there was some kind of barter system before money. Anthropologists will tell you that the idea is fiction. Trading might happen between clans or tribes, but within groups of people, everyone used to share. The fiction of the farmer bartering with the sheep herder is a story invented to make us believe that capitalism is somehow “natural”. Do some research, don’t rely on old tropes. It’s okay to be smarter…

  19. Money has value because people are willing to trade goods and services with real value for it… Its a function of supply and demand, with bids, in the form of "goods and services", being made for money, all day, every day… Good history though..

  20. Money has never been "imaginary" until recently , fiat currency has never been successful and never will , it has been proven throughout the history.

  21. Money is something with intrinsic value (spices, clothing, food , water, ores, metals etc); un-backed , fiat, Currency has no value. I think you meant to say ' fiat currency has no value" but made the classic mistake of using the term money. Same thing when people conflate numbers with numerals, one always existed while the other is merely a language representation. you can burn a paper with the numeral '3' or 'III' but the number remains

  22. Hard, sound money has value that is not imaginary. The metal can be used for industrial purposes. There is a demand for these metals, which is why a penny costs more than it is worth, demand.

  23. Why is a fictional thing used to determine who eats and who starves? Why do we lie, cheat, and steal for it? Why do we kill for it?

  24. I think the thing that irks me about this video is calling money 'imaginary' is something of a misnomer, it would be better to say it's value is somewhat arbitrary. What we're using money for, when you really boil everything down to the meta of how civilization functions, is labor. You're paying the farmer to grow food, the lumberjack to chop trees, the soldier to fight, and the accountant to track wealth. Some of these jobs produce tangible goods, but not all of them. Even the value of one USD or one Pound Sterling isn't completely arbitrary, it's an abstract representation of a portion of the society's GDP; specifically that society's GDP, divided by the amount of currency in circulation. So, arbitrary, yes to an extent. Imaginary, no not really.

  25. Money is a terrible and ridiculous concept and we need to get rid of it! If we don’t we continue to have ridiculous and unnecessary problems that money inherently brings and itself is! Money itself is a problem!

  26. Of course you are not REAL. You are DOLLAR. The Brazilian Real doesn´t have american presidents printed on the bills.

  27. Yes, those pesky problems of having to deal with commodity money. So much better to replace it with a system that loses value at a managed rate of 2% per year, with the possibility of hyperinflation where the rate goes essentially to infinity. Yes. So good to replace the problem of governments debasing coins by diluting the precious metal content of coins or individuals shaving them which can be monitored by simple physical and chemical techniques with one where monitoring requires large scale monitoring of pricing of multiple commodities and assets. Yes, we are so much better off with these technological innovations!

  28. You are correct. There is no value in our system it was created by some low lives bankers. You are wrong silver and gold always will be valuable and money been around since earliest times. But when corrupt bankers approached politicians they got laws passed to be able to make fake money without a bases. The problem is that until recent times 20th century there was value to money due to it had to have a matching in silver or gold. Since fort Knox got cleared out they matched as you mention other governments crooked ways by making fake money with no value and be able to lend it to you. However what you did not mention is that when you pay back money it has to be real based. Welcome to the mark of the beast that all you fools keep lining up to get chipped. Laws should be made to reintroduce coins as the value of gold in them. Not the junk of today. I assure you the real billionaires purchase real wealth of gold and silver and other things they stockpile, When the worlds bank systems collapse they will have the wealth and all will be shut off and controlled.

  29. BOYYYY I have whole subject about money , no kidding, like I am learning history of money,what money can do, how it's made, what impact it has on economy. Write eseys about paper money is made, way they prevent money to be coppied. Sooooo… for me it's legit lol

  30. everything has value because we as a group assign value to that thing. money is no different, the value no less real. the whole idea behind this video is fallacious.

  31. The Thaller, which the dollar was derived from was minted privately. Governments weren't and aren't very trustworthy.

    Also, this sounds a lot like Austrian subjective value theory.

  32. "delusions of value". hah. I knew it! esp when it comes to my ex. He literally was asking around for calling himself a "gem". 😐😏 lol what?

  33. This is exactly why money is nonsense and we shouldn't have life based on something like this.  We could literally have everyone having everything they need permanently if we'd only just DO it and dispense with concepts like money and consumerism and materialism.  People basically need to get rid of the human ego.

  34. I love your videos. Keep them coming. Just have a bit of a disagreement with gold vs paper money.

    Didn't Reagan remove money from the gold standard. That's when Fiat money was created. Am I wrong?

  35. Money is basically something we invented to satisfy our selfishness. If we didn't expect things in return from others after doing them favours; money wouldn't exist, as we wouldn't need a way to record how much and how many people owes us things. Not to say that money isnt important(I mean it helped the human civilization advance and will help it future advance), but it was something we invented just to ensure we somehow, get back the things that others owe us.

  36. What I don't get is if banks can just make up money, why do they care if people don't pay loans back. If it's fake, then what is the benefit of receiving it?

  37. Since i’m a child i always thought that money was not real and if we decided that our new money was rocks i’d be rich.

  38. Great, as always. Note that cryptocurrencies consume a huge amount of electricity. Towns with loads bumping up against capacity have had to limit or ban mining.

  39. A missed opportunity to talk about the evil effects of the Federal Reserve. Web search: Austrian economics.

  40. You do not have to distrust your government to understand inflation destroys the buying power of stored currency. Bitcoin has likely not been used in as many crimes as federal notes. Also according to your cash timeline crypto is the next step 😁

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