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