My Observer review of Edward Castronova’s book, Wildcat Currency: How the Virtual Money Revolution Is Transforming the Economy.
We think of money as being a factual, straightforward thing. But actually it’s very mysterious. I have a piece of paper before me as I write. Printed on it are some images, lots of hieroglyphics and the words “Twenty Pounds”. If I wave it in front of a shopkeeper, it produces magical effects: in return for it, he gives me a newspaper and other pieces of paper and some bits of metal. But actually my £20 note is just that: a note. A piece of paper. What gives it its magical properties is, Professor Castronova explains, “a social process that enshrines a good as a unique artefact called money; once enshrined, that artefact serves money’s three functions, well or poorly”.
What are these functions? A medium of exchange, a unit of account and a store of value. As it happens, my £20 note fulfils all three functions quite well. But so did cigarettes in prisoner-of-war camps and, in days gone by, the shell of Cypraea moneta, aka the cowrie. For most of recorded history, money took almost as many forms as there were societies, or at any rate rulers, and it’s only in relatively recent times that we have converged on a relatively small number of currencies together with a very small number of super-currencies, chief among them the mighty US dollar and its enfeebled fiscal cousins, the pound sterling and the euro.
Even as this process of monetary consolidation continued, however, strange new kinds of currencies were bubbling up…