, 25 tweets, 5 min read Read on Twitter
1/ Just re-read “Shelling Out: The Origins of Money” by @NickSzabo4

An absolute must read: nakamotoinstitute.org/shelling-out/

Here's a thread summarizing what I learned 👇
2/ Abstract: "The precursors of money, along with language, enabled early modern humans to solve problems of cooperation that other animals cannot – including problems of reciprocal altruism, kin altruism, and the mitigation of aggression...."
3/ England forced their 17th century American colonies to use fiat (coinage in short supply). Then Colonists discovered a better money - Native American Wampum (durable clam shells) and stopped using fiat. Finally, England issued coinage, and colonists dumped their Wampum bags.
4/ What does "Shelling out" mean?

Since shells (Wampum, etc) were used as money in America - "a hundred clams" became "a hundred dollars". "Shelling out" came to mean paying in coins/bills, eventually by check/card. Little did we know, we touched the very origins of our species
5/ Humans used Collectables as money for at least 75,000 years. Collectable proto-money has taken many forms: ostrich eggshell beads, animal teeth, cattle, mammoth ivory beads. Generally rare, hard to forge, wearable, and easier to assess value.

(image: 75k year old shells)
6/ "Money is a formal token of delayed reciprocal altruism"
--@RichardDawkins (Selfish Gene)

Exploring this definition of money is one of the key tenets of “Shelling Out”
7/ Money solves the problem of 'keeping track of favors.' Harder than it sounds: Remembering faces, who performed what favor, at what time, how much value do you assign to the favor?

Not to mention avoiding disputes/misunderstandings can be improbable/prohibitively difficult.
8/ The main barrier to "reciprocal altruism" (keeping track of favors) = the ability of both parties to agree on the value of a favor. Ie: Is twenty minutes of backscratching worth one piece of fruit or two? And how big a piece?
9/ Money converts the division of labor problem from a prisoner's dilemma into a simple swap.
10/ Collectibles substituted for otherwise necessary, but non-existent, trusting long term relationships. This enables trade allowing the “starving band” to survive instead of perish.

Collectables as a trust-trade mechanism increased carrying capacity of humans.
11/ Collectibles (as money) also lowered transaction costs in each kind of wealth transfer:

-Voluntary (inheritance, mutual trade, and marriage)
-Involuntary (legal judgements and tributes)
12/ In order for a collectible to be worth making, it had to add value in enough transactions to amortize its cost.

ie: in order to spend time making beads out of mammoth bones, the collectables must be used in enough transactions to compensate for the time spent making it.
13/ Desirable traits of a good collectable (Menger called them “intermediate commodities”):

1- More secure from loss/theft (wearable + hide-able)
2- Harder to forge (unforgeable costliness)
3- Easier to assess relative value
14/ In order for the “theory of collectibles” to be correct - we must identify closed loops of mutually beneficial trades. Closed loops = collectibles continue circulating which amortizes their costs.

Example: Marriages between clans (marriage is probably as old as humanity)
15/ Humans have been minimizing tax burden since time immemorial. Our ancestors existed in a general state of war/tribute - incentivizing tribes to hide wealth in case they lost the fight.

Hidden assets ensured “value measurement” was hard which reduced tribute (tax) burden.
16/ Collectibles were low velocity money, involved in a small number of high value transactions (marriage dowry, tribute, heirloom).

Coins were high velocity money, facilitating a large number of low value trades.
17/ The Lydian Kings (ie: Midas) were the first govt to mint coinage. Govt revenue = tax. Coinage value is easier to estimate than collectables. This greatly optimized tax revenues (Laffer Curve)

More efficient markets were a (beneficial) byproduct, not the intention of coinage
18/ Fiat currencies = novelty of the 20th century. Fiat is an excellent MoE & an awful SoV. No wonder collectables (ie: rare art) have been increasing in value last 100 years.

Collectibles both satisfy our instinctive urges & remain useful in their ancient role as a secure SoV.
19/ Inheritance made humans the first animals to pass wealth to their next generation kin. These heirlooms could be used as collateral, buy for food to prevent starvation, pay a marriage bride price. Collectibles made these kinds of transactions possible for the first time.
20/ “Collectibles augmented our large brains and language as solutions to the Prisoner's Dilemma that keeps almost all animals from cooperating via delayed reciprocation with non-kin.” -- @NickSzabo4
21/ With their unprecedented technology of cooperation, humans had become the most fearsome predator ever seen on the planet. They adapted to a shifting climate, while Neanderthals and dozens of their large herd prey were driven to extinction (through hunting and climate change).
22/ Fun fact: Most large animals on the planet today are afraid of projectiles – an adaption to only one species of predator (humans).
23/ Homo Sapiens built better social institutions (wealth transfer via collectables, language, marriage, inheritance). This lead to the displacement of the stronger Neanderthals.

Sapiens increased carrying capacity by 10x & had time for art (cave paintings, figurines, jewelry)
24/ In summary: “The results for our ancient forebears were the first secure forms of embodied value very different from concrete utility – forerunner of today's money”

In other words: Our ancestor’s invented “monetary premium” which has persisted from shells to Bitcoin.
PS: If you enjoyed this, I did a similar thread summarizing @aantonop book “Internet of Money: Volume 2" 👇

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