Preamble: Welcome to the Story of Money Podcast week here at RollingAlpha.com. We’re five episodes in – and so it felt like a good time to remind everyone to go and check it out. In particular, we’re desperate for your ratings and reviews. Thanks to everyone who’s given us feedback – it’ll help us improve things going forward. In this series of posts, I’m doing some selective highlights.

Which came first: the money chickens or the credit eggs?

This is a story that I’ve told before. But when most people think about the origins of money (if they even think about it at all), they assume that money just replaced bartering.

But this is not quite the case. Instead, direct bartering was probably replaced by a system of social credit.

So:

“I’ll trade you these berries for that fish.”

became

“I’ll trade you these berries for a fish once you’ve caught one.”

This type of bartering is essentially a complex system of social credit, built on trust. Everyone more or less kept track of what they owed and were owed by everyone they knew. But in practice, there was likely to be a strong family-community-village connection which created a gift-like environment. An environment with strong social and moral obligations to be a generous gift-giver in return for all the gifts that you received as a community member.

And the arrival of money?

Under this history, money arrived when people started trading outside of their communities. That is: when that community trust was no longer sufficient to support economic trade (or did not apply).

So money emerged as a ‘replacement’ or substitute for communal trust.

A commonly-accepted commodity would be adopted by villages accepting trades from passing merchants for their products. After all, a merchant wouldn’t stay long enough to contribute to the community – and didn’t have the prerequisite family ties.

And as we’ve globalized, the importance of money/currency has grown to become the far more dominant form of trust.

Money is a bit like the margarine alternative to home-grown butter. Butter tastes better – but it doesn’t last nearly as long, and it’s not always so readily (or cheaply) available.

For more on this: check out episode 2.

Rolling Alpha posts opinions on finance, economics, and sometimes things that are only loosely related. Follow me on Twitter @RollingAlpha, and on Facebook at www.facebook.com/rollingalpha. Also, check out the RA podcast on iTunes: The Story of Money.