According to Weatherford, an anthropologist of money, human communities as villages and tribes were self-sufficient and produced everything they needed by themselves (Weatherford, 1998). But Lydia, a small community in modern day Turkey, experienced a dramatic transformation around 700BC with the invention of metallic coins. Before there was money, the people of Lydia were producing nearly everything they needed on their own; but after there was money, people could specialize in just one kind of good or service (Weatherford, 1998). They will sell the excess goods in exchange for money. And they will turn the money into things that they needed when they needed them:
Using their newly invented coins as a standardized medium of exchange, the Lydian merchants traded in the daily necessities of life—grain, oil, beer, wine, leather, pottery, and wood—as well as in luxury goods such as perfumes, cosmetics, jewelry, musical instruments, glazed ceramics, bronze figurines, mohair, purple cloth, marble, and ivory. (Weatherford, 1998, p. 31)
Even more impressive were social changes that were unexpected. Due to women in Lydia being able to accumulate wealth as money, they could save up a substantial sum as their future dowries, which came along with rights to pick their own husbands (Weatherford, 1998).
Apart from the storage of value, another benefit of money is that they could be transported across distance, allowing trade to happen between distant communities. According to Weatherford (Weatherford, 1998), this was how ancient tribes ascended into wealthy city states. In barter, all goods have to be present at the time of the exchange in order for a trade to happen. But with money, independent tribes could engage in mutually beneficial exchanges via middle man. For example, the ancient Rome could sustain its populous cities by buying needed grains in Egypt. The food they could produce on their own could never have supported their vast military.
In the above examples, the important point to note is that money had allowed small communities to reorganize into a more complex and productive organization:
Kinship-based communities tend to be quite small: bands of sixty to a hundred people tied through kinship and marriage to similar neighboring bands. [But the new] system could easily include millions of people…The use of money does not require the face-to-face interaction and intense relationships… Nor does it require such extensive administrative, police, and military systems. Money became the social nexus connecting humans in many more social relationships, no matter how distant or how transitory. (Weatherford, 1998, p. 35)
The history of money taught us three key lessons: (1) Communities without money are organized around hierarchies according to members’ social reputations, e.g., warriors and priests typically had greater reputation in ancient societies. But communities with money have hierarchies organized around its members’ economic productivity, i.e., values of goods and services they are able to sell; (2) money can mediate development of role specialization and encourage broader exchange of goods and services. In order words, it increases communities’ interdependence and influence; and (3) the above could induce a systemic development of new and larger size organizations. For example, several villages may combine to become city states.
Could cryptocurrencies have similar mediating effects to online communities, as money has to real world communities? Only history has any certainties, and we can say for sure that most online communities today are also centralized around social reputations as key organizing principles [ref].
