Birch - Before Babylon, beyond Bitcoin : from money that we understand to money that understands us

Copyright 2017 David G. W. Birch

Published by London Publishing Partnership www.londonpublishingpartnership.co.uk

Published in association with Enlightenment Economics www.enlightenmenteconomics.com

All Rights Reserved

ISBN: 978-1-907994-67-8 (epub)

A catalogue record for this book is available from the British Library

This book has been composed in Candara

Copy-edited and typeset by T&T Productions Ltd, London www.tandtproductions.com

Cover image by Austin Houldsworth: www.austinhouldsworth.co.uk

Author photograph by Ewan Mackenzie: www.ewanmackenzie.co.uk

Cover design by James Shannon: www.jshannon.com

This book is dedicated to Gloria Benson, Stuart Fiske and Neil McEvoy, my business partners at Consult Hyperion for more than three decades. Without them, I might never have discovered the worlds of digital identity and digital money that obsess me today!

Everything, then, must be assessed in money: for this enables men always to exchange their services, and so makes society possible.

Aristotle (384322 bce ) in Nicomachean Ethics , Book V, Chapter 5

Foreword by Andrew Haldane

O ften, the most interesting issues in economics arise from the intersection sometimes the collision between technology and society. To take an example, there is no more topical, and vexed, an economic issue right now than the impact of new technologies (such as robots, artificial intelligence and big data) on the world of work (individuals, sectors, communities, societies). Indeed, history makes clear that this creative friction between technology and work has existed for many millennia.

Money is another issue that, through the ages, has illustrated vividly this complex tango between societies and technologies. Money is a technology indeed, a key one for discharging obligations between people, for keeping score in the economy, for facilitating trade, finance and commerce. But money is also a social good indeed, a key one as an emblem of civic identity, as a measure of societal trust and order.

Technology and society have, in the main, operated in harmony when it comes to monetary issues. As money technologies have improved, this has tended to enhance trust in money, thereby boosting its supply and enhancing its public good properties in society. For example, one of the most transformative shifts in monetary technologies was from commodity to fiat monies. This not only freed up resources for more productive uses but over time enhanced the attractiveness of money.

But new monetary technologies have not always been trust boosting, certainly not immediately. Indeed, in the hands of the wrong government or private entrepreneur, some money technologies have been trust busting. Some of the relative tranquillity in fiat monies over recent centuries can probably be put down to the stabilizing role of central banks.

Now a new technological wave may be about to break over money. For some, this could herald a completely new monetary epoch perhaps one where money is fully digital rather than physical, where the structures that engender trust in money are distributed rather than centralized, where central banks role is changed fundamentally or even circumvented.

This issue is shaping up to be every bit as vexed as those of robots and jobs. Passions around cashless societies run high. If nothing else, this tells us that money is, always has been and always will be much more than a cryptographic code; it is a social convention. Old conventions tend to change slowly. And it is society, rather than technology, that tends to choose the destination.

This book by David Birch brings out in rich and lucid detail the full historical journey money has been undertaking and the technological revolutions it has encountered en route. More speculatively, it also sketches the possible contours of future monetary paths, given the possibility of transformative technological change.

Historical scholars, technologists, monetary economists and policy makers will all find something in here to hold their attention, to reshape their view of history or technology, finance or policy. They may or may not agree on what the next chapter in the history of money holds. But this book provides a well-researched and engaging account of the story so far, of money in retrospect and money in prospect.

Andrew Haldane

Chief Economist and Executive Director for Monetary Analysis, Research and Statistics at the Bank of England,

and member of the Monetary Policy Committee

Foreword by Brett King

B efore Babylon, Beyond Bitcoin makes several points that are absolutely essential to understanding why money, banks and money markets are set to be massively disrupted over the next century. The first critical framing in the book is the undeniable truth that money is just a technology in and of itself, and as such it cannot possibly be immune from the broad technology shifts that were witnessing.

From the first recognizable coin in Lydia 2,500 years ago through sea shells, shekels, wooden tally sticks, Mondex and Bitcoin, Dave Birch takes us on a journey through how and why money and value exchange work the way they do. More importantly though, he examines why various currencies, money exchange systems and value stores have succeeded while others have failed. The books second critical framing is the idea that capitalism took money from a system of control largely at the whim of the owner of a currency (such as a feudal lord) to a system based on titles to assets, and leverageable debt.

The third critical framing I took away from the book is one for those that argue about the stickiness of cash and how hard it will be to displace. We are given plenty of examples to show that this is not the case, including the fact that the payment card itself is clear evidence of rapid change across technical, social, business and regulatory lines.

An additional point Dave Birch makes is about how the use of the term unbanked is obviously part of the problem, because forcing people to use banks is demonstrably no longer a precursor to financial inclusion look, for example, at what is happening in Kenya, India and China. Let us just get the argument for the longevity of cash out of the way: it doesnt have a future because technology will simply force us to change the way we pay for things and store value. That said, the book does make a case for why cash might still hang on for a few years yet.

The secret to the readability of Before Babylon, Beyond Bitcoin is the wry sense of humour, which brings us a take on the history and the future of money that is unique. An example is this quote from the book about Sir Thomas Gresham, one of the leading merchants in the era of Henry VIII: He went on to die of apoplexy which may well be a common fate for those who truly understand money and left an astonishing legacy. Or this one about the bankers behind Overend & Gurney, a British Bank that collapsed in 1866: The directors were, incidentally, charged with fraud, but they got off as the judge said that they were merely idiots, not criminals.

Birch has an insatiable appetite for just the right story to describe what is happening and to make his point. Whether it is Internet-powered underpants or the disruption of the Pony Express by the first transcontinental telegraph line, its the story that matters. He is a natural narrator for the story of money, especially when it comes to the changes being thrust on this ancient mechanism by rapid technology and behavioural shifts. There are so many insights in Before Babylon, Beyond Bitcoin that I came away with a lot more ammunition to use when talking to stalwarts who dont get the significance of technology in financial services and the chaos it is currently unleashing and the chaos that new technologies have consistently unleashed over the centuries.