The evolution of money

Lecture handout: The evolution of money*

Textbook Reading: Chapter 7 (Section 7.3; pp. 216-225)

“I’m very interested to watch the crypto community relearn centuries of monetary economics” John Cochrane (Conversations with Tyler, March 10th 2021)

Can someone really understand crypto currencies and the future of digital money without having a solid grasp of why money even exists? This topic is a great example of why historic knowledge and theoretical clarity are crucial when involved in fast changing industries – it provides a benchmark to verify the bold claims made by industry practitioners. The purpose of this lecture is to gain a deep understanding of what money is and how it has evolved.

Background readings:
  • Menger, C., 1892, “On the Origins of Money” Economic Journal, 2:239-55
  • Radford, R.A., 1945, “The Economic Organization of a P.O.W. Camp”, Economica, 12(48):189-201
Interactive practice

Here I am at a museum:

Extra activity: The Bank of England Museum

Fun fact

Apparently the first person to mention Bitcoin in a congressional hearing was Larry White, in 2011!

For more on the links between free banking academics and the early history of crypto see:

The Starbucks hustle:

Starbucks isn’t a bank, but here’s a good Twitter thread on their fintech capabilities:

For more see JP King’s post, “Starbucks, monetary superpower“. And here’s my short video on The Starbucks Hustle:


In May 2022 the stablecoin TerraUSD broke its peg to the dollar. A very good explanation of what happened, and why, is by Josh Hendrickson: When a Dollar Isn’t a Dollar. And so is this thread:

Troubled currencies
  • Steve Hanke runs the Troubled Currencies project which gathers black market data to construct up to date estimates of high inflation environments. You can see more here.
Recommended readings:
Further readings
  • Piecing it together, The Economist, March 11th 2023 – a fascinating theory that the adoption of the silver coin contributed to democracy
Recommended audio:
Recommended video:

Here is a standard historical overview of money:

This is a great lecture video, by the late Steve Horwitz, summarising Carl Menger’s work on the origins of money:

If you are totally new to concepts like blockchain, bitcoin and NFTs and want a thorough account of the history and development, in a well produced an informative documentary that takes a highly skeptical and cynical approach, I recommend this:

For a more positive view of NFTs, an identification of the context in which they’ve emerged (post global financial crisis and great stagnation), and subjectivist approach to value, see this Twitter thread.

A good article debunking a lot of Web3 hyperbole is here:

Some argue that Bitcoin’s main value is as a focal point for crypto more broadly. In this sense it is like Kerrygold butter. See:

  • Bailey, Andrew M. and Warmke, C., “Bitcoin is King”, Chapter 10 [PDF here]
Further activity

In September 2022 Sequoia Capital published a gushing profile of FTX founder Sam Bankman-Fried. In November they went bankrupt, and Sequoia removed the article. However, you can download a PDF version here.

Points to consider:

  1. Did SBF’s utilitarian philosophy contribute to his willingness to cross ethical boundaries? (His objective was to make as much “risk neutral” money as possible)
  2. If his intention was to contribute to the norms of capitalism, would he have behaved differently?
Learning Objectives: Understand the origins of money and how this can be used to understand the role of central banks in a fiat money system, as well as to navigate the crypto landscape.

Cutting edge theory: Making assessments of digital and crypto currencies.