(Mesopotamia, 4000 BC — DAN the farmer is hoeing his garden. His one sheep is grazing. LEROY the courier approaches on horseback. DAN sees him. He stops hoeing.)

LEROY: Good morning, sir. That is a fine sheep you have.

DAN: Ah, yes. Thank you. He is a good sheep. Nice and woolly.

(DAN resumes hoeing. He notices LEROY not leaving. He stops again. LEROY climbs down from his saddle.)

LEROY: Sir, I would like to trade for your sheep.

DAN: Oh, well I — Oh. I don’t know that I should. He is my only sheep. Though I do need chickens.

LEROY: Never mind all that. On behalf of the sultan, I offer you one piece of gold.

DAN: What is gold?

LEROY: It is a rare metal found in rocky areas after much toilsome digging.

(LEROY places a gold piece in DAN’s open palm. DAN stares at it. He looks up at LEROY and blinks. LEROY blinks. DAN looks back at the gold.)

DAN: What does it do?

LEROY: It is a new medium of exchange. To facilitate the trade of all goods and services. For example, one gold piece is worth one sheep. Thus, in exchange for your sheep, I will give you one gold piece.

DAN: Oh. What does it do?

LEROY: It represents value. Once you have it, you possess that value. As a frame of reference, you know it can be traded at any time for a sheep.

DAN: But I already have a sheep.

LEROY: You can trade it for anything of value equivalent to that of one sheep. You mentioned you need chickens.

DAN: Yes. The old man down the road has many chickens.

LEROY: Well then. You can trade him your gold piece for some chickens.

DAN: He would not give me his chickens for a yellow rock. It doesn’t do anything.

LEROY: It stores value universally. If he needs a sheep, he can trade it for a sheep.

DAN: But I can just trade him my sheep. If I give my sheep to you, you will have it.

LEROY: Certainly there are others who own a sheep. He can give them the gold piece in exchange for one.

DAN: But it doesn’t do anything. Why would someone give up their sheep for a yellow rock that doesn’t do anything?

LEROY: Try to understand.

DAN: Okay.

LEROY: The sultan must institute a neutral medium of exchange to defuse any potential trade freeze that might result from a misalignment of wants. For instance, say you want cows.

DAN: I want cows.

LEROY: No, I mean, say hypothetically you want cows.

DAN: Oh, right. Hypothetically I want cows.

LEROY: No. Please…just imagine you want cows.

DAN: See, that makes more sense.

LEROY: Yes.

DAN: Because I don’t really want cows. I want chickens.

LEROY: I know.

DAN: Like six of them.

LEROY: What do you need them for?

DAN: Dowry.

LEROY: Right.

DAN: For my daughter. She is good. Once she weaved many blankets to trade the shaman for some ground frog bladder.

LEROY: I don’t know how that —

DAN: I had a rash, and ground frog bladder was the only treatment. It was an epic rash, and itched with sublime fury. She weaved for many hours so I could be cured.

LEROY: Right. So in our example, you have a sheep and you need six chickens. Now imagine that there is a second person who has chickens. But he doesn’t need a sheep. He needs fish. Finally, imagine a third person — a fisherman. He has fish, but he needs a sheep. Here we see that bilateral exchange is impossible. All parties are left with a surplus of goods they don’t need and a lack of goods they do need. This is where your gold piece comes in. By standardizing the value of all goods, it gives you something to trade so that you can obtain your six chickens. Do you understand?

DAN: Actually, I’ll probably need like eight, nine chickens.

LEROY: I think you’re not understanding.

DAN: You have to be thorough with dowries. The competition for husbands is stiff nowadays.

LEROY: Okay, but —

DAN: Our supply of males has decreased ever since the Sky Man told the sultan to make war on those infidels across the Euphrates.

LEROY: Maybe look at this from another angle.

DAN: I may have to throw in some radishes.

LEROY: Think in terms of positive network externalities.

DAN: Is that like radishes?

LEROY: It means that a gold piece might not seem like much now, but each time a new person opts into the monetary system, every previous gold piece becomes more valuable.

DAN: You said the gold piece has value because it is rare.

LEROY: Well, no…I mean yes. Kind of. People will use it to trade for things they want. Thus, it will be common enough for everyone to learn to like it, but rare enough that they always need more of it. In our trials this greatly increased productivity.

(DAN’s eyes narrow.)

LEROY: You need not clamor though. You can put your gold in a bank.

DAN: What is a bank?

LEROY: A bank is where people store your gold to keep it safe.

DAN: If I give my gold piece to someone else, then I will have no gold piece and no sheep.

LEROY: They will give it back to you whenever you want it.

DAN: If I give it to them, I will have nothing to trade them to get it back except radishes. Then I would be without radishes also.

LEROY: It will still be yours. You possess its value. The gold will be in their bank but you will still have it.

DAN: If I give it to someone else, how will I still have it?

LEROY: A bank only obtains its license to act as a depository institution if it passes the sultan’s most stringent supervisory reviews and complies with our disclosure requirements. A robust banking system fuels long-term economic growth by acting as a contractual intermediary between savers and investors while still maintaining a steady reserve ratio. That is how they make their profit. A bank can only profit by ensuring public trust with their financial assets. So even when your gold is with them, you will still have it.

DAN: If my gold is with them, they will have it. That is how having works.

LEROY: But the sultan declares it. The sultan declares that you have it.

DAN: I think I have to pass.

(DAN gives the gold piece back to LEROY and turns back to his garden. LEROY sighs.)

LEROY: Wait.

(DAN waits.)

LEROY: You can always use your gold piece as a dowry.

(…)

DAN: Go on.

LEROY: Just tell the suitor’s father it is a rare metal found in rocky areas after much toilsome digging.

DAN: Mmm.

LEROY: Tell him it represents value and can be traded in exchange for any goods or services of equivalent value.

DAN: It is so outlandish that he just might fall for it.

LEROY: Well there you have it! Then you could keep your chickens and radishes. The management of the gold piece would be left to the suitor’s father.

DAN: That would be nice. I am a poor yeoman farmer and he is an asshat.

LEROY: See?

DAN: His son is too.

(LEROY returns the gold piece to DAN. DAN stares at it a long time. LEROY fidgets.)

LEROY: What is the matter?

DAN: Just thinking. About my daughter and the ground frog bladder.

LEROY: Yes! She can now be married.

DAN: With a real dowry of chickens and radishes, the father may one day bestow that wealth on his son. Then she will have some of it. If I give the yellow rock, she will have only an asshat.

LEROY: But —

DAN: No deal.

LEROY: In that case, on behalf of the sultan I am ordered to annex your sheep. As compensation, I bestow upon you one gold piece.

DAN: Oh.