Currencies are not always intuitive. At a basic level, human trade is more straightforward when we can trade item for item, service for service, or knowledge for knowledge without the use of a different medium of exchange. After a natural disaster, on the playground with playing cards, or in the neighborhood, exchanges of similar things without a currency can be common and straightforward. If you have a lot of extra water but need fuel for a generator after a hurricane, you can probably come to agreement with someone close by who has extra fuel and is need of water. A limitation, however, of exchanging like goods, as can be seen in all three examples, is that such exchanges often require proximity and trust with the individual. Young kids on the playground probably wouldn’t make a lot of trades with random kids they don’t know from other schools (I did as a kid and got burned by a fake card). And neighbors will help each other out, but few of us would ask someone from several blocks away to check on our house while we are on vacation and few of us would shovel snow from the driveway of a house that wasn’t immediately next to ours (no matter how generous we feel during the holidays).
Currencies are able to overcome these barriers. “Money is the most universal and most efficient system of mutual trust ever devised,” writes Yuval Noah Harari in his book Sapiens. Money allows us to make exchanges with people who are not in our immediate proximity and who we don’t know. I wouldn’t shovel the driveway for someone I didn’t know who lived a few blocks away from me, but I would certainly give them a few pieces of paper or coin in exchange for a lamp if I saw one I was interested in at a garage sale. I don’t need to know the person, know anything about the lamp, or demonstrate that what I was trying to trade them was of equivalent value to the lamp. We could both trust the currency I was using in the exchange and smile and move on without ever seeing each other again.
Money expands the scope of who we can interact with and facilitates markets by providing a medium through which we can compare different goods, services, and information. It is hard to trade information about an approaching winter storm for a gemstone, but if enough people are willing to give someone money if they can relatively accurately predict the weather, then that forecaster can go purchase a gemstone. If we couldn’t trust the forecaster, if we only had goods and services to exchange for their information, the market couldn’t exist and trades could only rarely take place. Instead we trade currencies, or numbers from digital bank accounts, for information, goods, and services. The money, or digits on the computer screen, are not in themselves valuable, but through our system of trust they become valuable. Currency enables trust and is further enhanced by trust, allowing us to cooperate with more people than just our neighbors or the other kids on the playground.
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