Money as Story and Social Consensus

Perhaps nobody in recent history has done more than Yuval Harari to illuminate the governing dynamics of the human species. One of his key ideas is that the characteristic of humankind that has allowed our species to dominate the world is the ability to believe in stories that drive a social consensus. This is the only factor that allows “teamwork” among a group of people larger than about 150 (the “Dunbar number” cited in Chapter 1). If you are only able to cooperate with someone you know on a personal level, you won’t be able to cooperate with very many people, and you will never be able to construct a pyramid or engineer a modern airplane or deliver a package anywhere in the country within 24 hours. But if you can believe in a story that creates a social consensus and if others do the same, then you can create a large team to achieve a complex endeavor.

The concept of stories extends to many of the major social abstractions that literally govern our daily lives. For example, try handing someone a piece of the U.S. government. I am writing this book in my home office, which has at least a five-mile view of the city to the west since I live on a hill. Even from this perch, I can’t see any U.S. government anywhere around me. But the social consensus around the story of the U.S. government’s existence and legitimacy lives in the minds of over 300 million Americans, and this social consensus powers the world’s biggest economy.

One way to think about the story and associated social consensus is that the story includes the origin, which is then expressed in the detailed consensus. The story is often simple and principles-based. It exists in people’s minds. But the detailed consensus is often more complex, and in order for it to function, it must be explicitly codified and recorded. To flesh out the details, it must be written down. The story of the United States that we have agreed to believe in is that it originated in the attempt to escape oppression by a distant hegemon and was loosely defined by concepts such as liberty. That fuzzy idea was then codified in the Articles of Confederation, and later amended into the Constitution, which was itself subsequently amended numerous times.

Money, too, is a story about which we have woven a social consensus. The most popular forms of money have little or no value other than as money. This is true for the dollar, which has almost no non-monetary value. It is also true for gold, which for centuries had almost no non-monetary value other than decoration, and later developed modest industrial uses, which still pale in comparison to gold’s monetary value. Once a form of money achieves status as money and accrues a monetary premium, it tends to maintain that monetary premium for a significant period of time as the social consensus around it attains a certain durability. A key source of the durability of this consensus is money’s characteristic of being a protocol.