Money is a Technology
I often tell people money is a technology. That's a strange notion to many people because we think of technology as computers, cell phones, and other electronics. This article is for technologists, people who love technology, or anyone who wants to understand what money actually is and what I mean by calling it a technology.
Is Money Part of Nature?
People think of money often, mostly about how they don't have enough and where to get more. We spend a lot of time getting money by working. If you didn't need to get money, you probably wouldn't be doing the work you're doing. Everyone understands this, that you need money.
However, people often don't think about why they need money and what money actually is. Money is like water and food to most people, something that's just there, something needed to live. Something out of nature.
Money is not something natural. It's a technology made by humans. When said like this it's obvious, but what isn't obvious is why it was invented and for what purpose.
Everything is Accounting
Before we get to emperors and armies, let's talk about another technology called accounting. Accounting is about who has what and how much. Accounting is one of the oldest technologies, in fact, even older than writing. What's even more crazy, The oldest writings were about accounting.
The proto-cuneiform tablets excavated from Uruk (modern-day Iraq) between 1928 and 1976 reveal that writing was invented not for storytelling but for bureaucratic record-keeping. Approximately 85% of all proto-cuneiform texts are administrative bookkeeping records like inventory lists, wage records, rations distributed to temple workers, and receipts.
The timeline is striking: the first numerical tablets appear around 3500-3350 BCE, proto-cuneiform emerges by 3300 BCE, but the earliest Sumerian poems about Gilgamesh don't appear until 2100 BCE, more than a thousand years later. As Cambridge scholar Eleanor Robson writes, early writing "represented concrete nouns, numbers and little else... Its functionality was as yet so limited that it was used only to keep accounts."
It's a good thing writing turned out to be useful for other purposes, because the world would be boring. Can you imagine all writing being about accounting and keeping track of stuff? Thank goodness we have creative people in this world who can take a technology like writing and do creative stuff with it. So we now have stories to read and articles to write.
But here's what's really wild: before even these clay tablets, humans had developed a sophisticated accounting technology. French-American archaeologist Denise Schmandt-Besserat demonstrated that small geometric clay objects like cones, spheres, cylinders, and disks functioned as counting devices for at least 5,000 years before writing (from roughly 8000 BCE). Different shapes represented different commodities: cones and spheres for measures of grain, cylinders for livestock, ovoids for jars of oil.
Want to count your sheep? You'd keep a bag of tokens, one token per sheep. The breakthrough came with the bulla, or clay envelope. Accountants would seal tokens inside hollow clay balls, then impress the tokens on the envelope's exterior to show what was inside. It was a primitive double-entry bookkeeping system. As Schmandt-Besserat explains: "The change in communication that occurred on envelopes when the three-dimensional tokens were replaced by their two-dimensional impressions is considered the beginning of writing."
Writing, humanity's most transformative technology, was invented for state administration. For tracking who owed what to the temple-palace complex. The sign for "beer" appears on some of the earliest tablets, documenting rations distributed to workers. Even the earliest "list of professions" from Uruk reads like a government org chart.
There Once Were Emperors and Kings
There once were emperors and kings. Well, I guess they still exist in some places. The one identifying quality of an emperor or king is they often want to expand their sphere of control. They generally do this through conquest using large armies. The first problem they have is raising such an army. How do you convince a lot of people to risk their lives for your adventures? And it isn't like convincing your closest friends to go on an adventure, we're talking about strangers, people you never meet. Words alone aren't enough. People need incentives.
This is where our story of money as technology starts.
As an emperor raising an army of strangers, you need a system and you need accounting. How many swords do you have? Shields? Who has them? Did everyone who needs one get them? Are your soldiers fed? Do you have enough food? Cooks? Where are they? What about entertainment? Are musicians there? How many? Where are they?
Sending an army out to battle, you have a huge problem. It's not enough to give them weapons. Each soldier needs to be fed and entertained. This is a massive logistical challenge. If you have a hundred thousand man army, do you send another hundred thousand cooks, doctors, entertainers, seamstresses, swordsmiths, and everyone else they need?
Well, here is where someone clever came up with money. But before I explain the solution, let's look at what economists think money is and why they're mostly wrong.
What Makes Something "Money"? The Textbook View vs. Reality
The textbook story goes like this: primitive humans bartered goods inefficiently until they discovered that certain commodities worked better as universal media of exchange. Money emerged spontaneously from markets to solve the "double coincidence of wants" problem. Over time, people settled on things that had the right properties like durability, portability, divisibility, scarcity and eventually gold and silver won out.
There's an old economics mnemonic: "Money is a matter of functions four: a medium, a measure, a standard, and a store." Money must be a medium of exchange (so you don't need to find a mechanic who wants bassoon lessons), a unit of account (so prices aren't quoted in bushels of corn), and a store of value (so your earnings don't rot).
This framework treats money as a neutral technology that anyone could invent if they just found the right commodity with the right properties. Salt, shells, gold, paper or whatever works.
There's just one problem: anthropologists and historians have found almost no evidence that this ever happened.
David Graeber spent years searching for examples of the mythical barter economy that supposedly preceded money. In Debt: The First 5,000 Years, he reports the result: "No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money... The standard economics textbook story of the origins of money has almost nothing to do with how money actually came about."
What anthropologists actually find in societies without state-issued currency isn't barter, it's credit and social obligation. If I need your help building a barn, I don't trade you three chickens on the spot. I owe you one. You might call in that favor next month or next year. Complex webs of mutual obligation governed economic life for millennia before coins existed.
So where did coins come from? Graeber's research points to a consistent answer: states created money to provision armies and collect taxes. The first coins appear in Lydia around 600 BCE and spread rapidly because they were useful for paying soldiers and demanding tribute. "Banking, tabs, and expense accounts existed for at least 2 thousand years before there was anything like coinage," Graeber writes. Credit came first. Coins were a state innovation.
This changes everything about how we evaluate "money." The textbook attributes of medium of exchange, store of value, unit of account aren't criteria that make something money. They're consequences of state acceptance. The dollar is a stable store of value because the U.S. government accepts it for taxes and pays its debts in dollars. It's a medium of exchange because everyone needs dollars to pay their taxes. It's a unit of account because the legal system enforces dollar-denominated contracts.
The real attribute that makes something money is this: a state that demands it for tax payments and punishes you if you don't have it.
Everything else follows from that.
Money is for Statecraft: The Proof
Now back to our emperor with his army problem. The solution is elegant and brutal.
Instead of sending all those people to feed, clothe, and entertain your soldiers, you can stamp your face on a small piece of metal. After all, you control all the gold and silver mines already. So you have people make these coins with your face and you give them to the soldiers. They might look at you funny since they can't eat the coins or do anything with them.
But then you tell them: "When you conquer a town or city, you tell everyone there they need to collect these coins and give them back to me, otherwise they get punished. Call it a tax."
What's clever about this is that there is only one place these people can get these coins to pay the tax and that's from the soldiers. So suddenly the people that were conquered are doing the bidding of the soldiers for coins. They are feeding them, clothing them, and entertaining them.
Isn't that a clever bit of technology? A technology that encourages people to work for you.
This theory has a name: Chartalism, from the Latin charta (token or ticket). German economist Georg Friedrich Knapp put it simply in 1905: "Money is a creature of law." Modern proponents like economists L. Randall Wray and Stephanie Kelton distill it to three words: "Taxes drive money."
You might think this is just theory. It's not. We have explicit historical proof.
The hut tax was an annual tax levied on every dwelling occupied by indigenous Africans under British colonial rule. The tax was payable only in colonial currency, which Africans could obtain only by working for European employers.
Kenya's Governor Sir Percy Girouard stated the policy explicitly: "We consider that taxation is the only possible method of compelling the native to leave his reserve to seek work. Only in this way can the cost-of-living increase for the native, and it is on this that the supply of labour depends."
In Natal (South Africa) starting in 1849, the hut tax of 14 shillings per hut eventually grew to contribute 75% of all Natal revenues. In Sierra Leone in 1898, Governor Colonel Frederic Cardew imposed a tax of 5-10 shillings annually per hut. The result was the Hut Tax War of 1898, led by Temne chief Bai Bureh, who declared his people "should not be compelled to pay tribute to foreign rulers." The rebellion lasted ten months; 96 rebels were hanged.
In Kenya starting in 1901, the hut tax started at 1 rupee per hut and escalated rapidly. By 1911-12, men faced three-month prison terms for failing to carry their tax receipt. Non-payment could result in forced labor or the burning of huts.
The mechanism was explicit:
- impose a tax obligation in colonial currency
- Africans must obtain that currency
- The only source is wage labor for European employers
- Traditional economies collapse
- A captive labor force is created.
For taxes to work, you need the technology of accounting, otherwise how else do you figure out who owes what and keep track of who paid and who didn't?
Money as Debt
Money by its nature is debt. This might sound strange, but think about it: a dollar bill is a note, a promise. It used to say it was redeemable for gold. Now it just says the government backs it.
We've already seen Graeber's point: credit systems and accounting predated physical currency by millennia. The Mesopotamian economy ran on temple-administered credit long before the invention of coins. Debt came first. Money was layered on top.
Modern money does not use a hard currency like gold or silver. It doesn't need to. Gold and silver money have a lot of problems as a technology that fiat money doesn't. They're heavy, hard to divide, and their supply depends on mining rather than economic needs. So you can think of fiat money as a superior technology for statecraft.
Under the Bretton Woods system (1944-1971), the U.S. dollar was convertible to gold at $35 per ounce, and other currencies were pegged to the dollar. On August 15, 1971, President Nixon announced the suspension of dollar-gold convertibility. The "Nixon Shock" effectively ended the gold standard. By 1976, the Jamaica Accords formally ratified the end of Bretton Woods. Today, no country in the world backs its currency with gold.
How Modern Money is Created
Modern money is fiat, so how does modern money get created? Most people assume money is printed by governments. The reality, as the Bank of England acknowledged in a landmark 2014 paper titled "Money Creation in the Modern Economy," is radically different.
Modern money is created by two sources:
1. Government Spending - When the government spends, it credits bank accounts with new money. When it taxes, it removes money from circulation. The government doesn't need to "collect" taxes before it can spend because it's the issuer of the currency.
2. Bank Lending - And this is the big one. The Bank of England states: "Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money."
The bank doesn't transfer existing funds from somewhere else. It credits the borrower's account with new deposits. 97% of all money in circulation is created this way, not by the central bank or government printing presses.
The Bank explicitly debunks the textbook "money multiplier" model: "While the money multiplier theory can be a useful way of introducing money and banking in economic textbooks, it is not an accurate description of how money is created in reality."
The traditional causation is reversed: "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits." Economists sometimes call this "fountain pen money" which is created at the stroke of bankers' pens when they approve loans. When loans are repaid, money is destroyed.
A 2014 global survey found that only 20% of people correctly understood that commercial banks create most money. When informed of this reality, 59% wanted this responsibility transferred to public institutions.
Why is Money a Scalar, and Does it Have to Be?
Now that we are thinking about money as a technology (which it is) we can think about its features and see if there are any improvements we can make.
One question we can ask ourselves is: why is money denominated as a scalar? A dollar is a single number. This should be a compelling question to anyone who has done machine learning or any form of mathematics.
Everything has a price represented by a number. But why can't it be represented by a vector? Or some other mathematical object? There is no reason it can't be.
I can't prove this, but I believe money is denominated by a scalar because it's an old technology that required humans to do the accounting. It's hard enough for accountants to add and subtract a ton of numbers by hand, it would be much harder to do that with vectors or other mathematical objects.
But we have computers now. All accounting is now done by machines, and machines can add and subtract numbers very quickly. They can also add and subtract vectors and other mathematical objects just as easily.
Maybe now that we have computers we can create new forms of accounting and money systems. Because scalars have big problems.
The Problem: Market Externalities
Traditional money reduces all value to a single number. But economic activity generates externalities: costs or benefits affecting parties not involved in the transaction and not reflected in market prices.
When you buy a car, it's a two-party transaction between you and the dealer. But everyone else deals with the pollution cost. The price you pay doesn't include the cost of the carbon dioxide that will warm the planet, the particulates that will cause respiratory disease, or the noise that will disturb neighborhoods.
As Nicholas Stern declared in his famous 2006 review for the British government: "Climate change is the greatest market failure the world has ever seen."
Stern elaborated: "It's a market failure because the price we pay for products and services that involve emissions of greenhouse gases does not reflect the costs they cause through damage to the climate."
The FAO estimated food wastage's hidden environmental impact at $700 billion annually with social costs of $900 billion. The Rockefeller Foundation found that while Americans spend $1.1 trillion on food, the true cost is $12.7 trillion when externalities are included.
Single-number prices can't capture this. They're fundamentally inadequate for representing the true cost of economic activity.
What if Money Was Multi-Dimensional?
One great solution for externalities is to account for them directly in the price.
Imagine we account for pollution in the price of things. How do you do that? Well, everything can have a price denominated in dollars and a price denominated in carbon (or whatever other pollution you need to track). That's a two-dimensional price! We can use vectors instead of scalars for that.
Everyone can then keep track of how many dollars they have and how many pollution credits they have. When they buy something, their dollars go down and pollution credits go down. How dollars are created and how pollution credits are created can be completely different.
This isn't just theoretical. Personal Carbon Allowances (PCAs) offer exactly this kind of dual-currency system. As described in the British Medical Journal: "Carbon allowances will act as a parallel currency to real money as well as creating an ecologically virtuous circle. Individuals with low energy use and therefore low emissions will have a surplus to sell, while those maintaining high energy use will have to buy this surplus."
A 2021 Nature Sustainability study found PCAs could now be viable: "Recent advances in machine learning technology and smarter home and transport options make it possible to easily track and manage a large share of individuals' emissions."
Such systems would be progressive, redistributing from high-emitting rich households to lower-emitting poor ones. The wealthy person flying private jets would need to buy carbon credits from the person taking the bus.
The EU's Emissions Trading System already demonstrates that pricing externalities works. Carbon prices reached a record €100.34 per tonne in February 2023, and the system has achieved a 47.6% reduction in emissions below 2005 levels.
A 2024 arXiv paper titled "Money as a Tensor" argues that "traditional economic models generally treat money as a scalar quantity... [which] struggles to capture the multidimensional nature of economic systems." The authors propose modeling money as a mathematical tensor incorporating sectors, agents, and temporal dimensions.
The fundamental insight from chartalism offers a path forward: if states create money through taxation, they can design monetary systems that incentivize different behaviors. A carbon unit that must be surrendered alongside currency creates demand for low-carbon goods, just as the colonial hut tax created demand for British currency.
Why Cryptocurrencies Aren't Money
At this point you might be thinking: well, we now have crypto and it's a new form of money. I'm sad to tell you, cryptocurrencies aren't money.
And the reason isn't primarily technical. Yes, Bitcoin is volatile. Yes, it's slow. Yes, it consumes absurd amounts of energy. But these are symptoms, not the disease.
The fundamental problem is that no state stands behind cryptocurrency.
Remember what actually makes money work: a state that demands it for tax payments and punishes you if you don't have it. The British didn't need to convince Kenyans that shillings were a good store of value or an efficient medium of exchange. They just imposed a hut tax payable in shillings and burned down the huts of people who didn't pay. Suddenly everyone needed shillings.
Bitcoin has no army. No tax collector. No state demanding it for obligations. There's no external force creating demand for it beyond the hope that someone else will buy it for more later.
This is why Graeber's insight matters: people don't naturally use money. In the absence of states, humans organize economic life through credit, gift economies, and mutual obligation. Money is an imposition! A technology states use to mobilize resources and extract labor. Without that imposition, you just have... speculation. There is no such thing as a stateless money and can never be because money is in a deep way, unnatural without imposition.
The volatility problem flows from the statecraft problem.
Bitcoin has experienced multiple crashes exceeding 70-80%: from nearly $20,000 in December 2017 to losing over 80% by December 2018; from $69,000 in November 2021 to roughly $15,479 by late 2022. Why? Because there's no floor. The long term value of bitcoin is zero.
The dollar has a floor: every April, hundreds of millions of Americans must acquire dollars to pay their taxes or face penalties. Every government contractor must be paid in dollars. Every court judgment is denominated in dollars. This creates a massive, guaranteed, recurring demand for dollars that has nothing to do with speculation.
Bitcoin's demand is entirely speculative. People buy it hoping others will pay more later. When confidence wavers, there's nothing stopping the price from falling to zero because no one needs Bitcoin for anything. Steam co-founder Gabe Newell stopped accepting Bitcoin because "people weren't happy when a game could cost $10 one day and $100 the next." He called the volatility "a complete nightmare." But the nightmare isn't a technical bug, it's the predictable consequence of money without a state.
The acceptance problem flows from the statecraft problem.
Only about 10% of merchants worldwide accept cryptocurrency. Cryptocurrency has just 2% market share in U.S. payments. Why would merchants accept something volatile when they can accept dollars?
The much-hyped El Salvador experiment of adopting Bitcoin as legal tender in 2021 is instructive. The government tried to create state-backed demand by making Bitcoin legal tender. But it couldn't actually require taxes in Bitcoin (the economy still ran on dollars), and it couldn't force merchants to prefer it. By 2024, only 7.5% of Salvadorans used Bitcoin for transactions (down from 25.7% in 2021). Only 1.7% of remittances were sent via crypto. Bitcoin was rescinded as legal tender in January 2025. The Economist concluded the experiment "had been a failure."
El Salvador proved the chartalist point: you can't just declare something is money. You need the state apparatus of taxation, legal tender laws with teeth, and payment of government obligations to actually make it function as money.
The technical problems are real but secondary.
Bitcoin processes roughly 5-7 transactions per second. Visa averages 1,700 TPS. Bitcoin's maximum capacity represents only 0.03% of global digital payments. One Bitcoin transaction uses approximately 1,200 kWh of energy, equivalent to nearly 100,000 Visa transactions. Bill Gates noted: "Bitcoin uses more electricity per transaction than any other method known to mankind."
These are real problems. But even if Bitcoin were fast and energy-efficient, it still wouldn't be money without state backing.
The experts understand this.
Nobel laureate Paul Krugman: "The truth is that Bitcoin, which was introduced 15 years ago, an eon in tech time, remains economically useless... At this point there are still no, I repeat, no significant legal use cases."
Economist Nouriel Roubini told the U.S. Senate: "Calling it a currency, it's not a currency. It's not a unit of account, it's not a means of payment... it's not a stable store of value."
Warren Buffett: "Bitcoin is probably rat poison squared... If you told me you own all of the bitcoin in the world and you offered it to me for $25, I wouldn't take it."
Charlie Munger called cryptocurrency "totally absolutely crazy, stupid gambling."
The data confirms it's speculation, not money.
Luno CEO Marcus Swanepoel estimates "roughly about 90% (of Bitcoin usage) would be investments/speculations... and about 10% would be transactions."
This is exactly what you'd expect from Graeber's framework. Without a state imposing obligations payable in Bitcoin, people don't use it as money. They use it as a casino chip, a bet that greater fools will come along.
Cryptocurrency enthusiasts often say they're creating "money without the state." But that's like saying you're creating "law without enforcement" or "property without courts." The state isn't an unfortunate add-on to money. The state is what makes money work.
Conclusion: Money as Conscious Design
The evidence across five millennia points to a single conclusion: money is not a natural phenomenon but a technology of governance.
Writing itself was invented for accounting. States create demand for their currencies through taxation. Commercial banks create most money through lending. Cryptocurrencies fail as money precisely because they lack state backing and the tax-driven demand that gives fiat currency value.
This understanding carries profound implications. If money is designed, it can be redesigned. The question isn't whether markets naturally produce optimal monetary systems (they don't) but what goals we want our monetary technology to serve.
The EU's carbon market demonstrates that pricing externalities is technically feasible. Personal carbon allowances show how parallel currency systems could align individual incentives with collective environmental goals. The recognition that money is statecraft opens possibilities for monetary designs that conventional economics, trapped in the myth of money's natural emergence, cannot imagine.
The Mesopotamian accountants pressing clay tokens into bullae, the British colonial officers imposing hut taxes, the Bank of England creating money at the stroke of bankers' pens, they all understood what economic textbooks often obscure: money is a tool of power, and its design shapes the societies that use it.
Once you see money as technology, you can start asking the right question: what kind of money should we build next?
References and Further Reading:
- Bank of England, "Money Creation in the Modern Economy" (2014)
- David Graeber, Debt: The First 5,000 Years (2011)
- Stephanie Kelton, The Deficit Myth (2020)
- L. Randall Wray, Modern Money Theory (2012)
- Denise Schmandt-Besserat, How Writing Came About (1996)
- Nicholas Stern, The Economics of Climate Change: The Stern Review (2006)