Explanation:
Money is one of the most important inventions in human history. It helps people who do not know or trust each other to trade. If you have enough money, you can go into a store and walk out with a candy bar. The store owner does not need to know or trust you. They only need to count your money. This is a pretty big deal if you think about it.
Before money, most exchange was based on credit and debt. Imagine that you were part of an ancient tribe and had an extra pair of shoes. If your tribe mate Joshua needed shoes, you might give him your extra ones. Joshua would then be in debt to you. He would owe you one. Later, your family might be starving in the depths of winter. You might have no success hunting, and Joshua might share some of his food with you.
The credit and debt system served humans well for much of time. Our minds are good at remembering favors and who owes whom. The problem with this system is that it requires trust. I need to know the reputation of the person to whom I am lending. I need to trust that he or she will repay me. Otherwise, we cannot trade. It's easy to trust our tribe mate Joshua. We know him. We are familiar with his reputation. But what about those from the tribe across the sea? Do we trust them? Probably not. At least not enough to give them our shoes on credit. After all, we don't even know them.
A society that does not have money cannot grow very large. It's hard to maintain relationships with more than 150 or 200 people. Reputational systems of exchange fail as groups grow larger. The need for money develops.
Imagine that you were a soldier living in a Roman army camp in the 1st century. Thousands of men and women live alongside you. Many are soldiers. Some are nurses or physicians. Others are merchants, farmers, or cooks. Let's say that you needed a blacksmith to repair your armor. The blacksmith doesn't know you. Even if he or she did, you might die in the next battle. The blacksmith cannot trust you to repay your debts. But the blacksmith does not need to trust you. You are paid in gold and silver coins. You can trade coins with strangers for whatever goods or services you desire.
Today, the monetary system once again relies on credits and debts. But now, banks and lenders can keep track of everyone's reputation. They use computers and government issued identities. They know our credit histories. They know our spending habits. They use algorithms to rank our credit worthiness. They know us well enough to issue credit to us, even though they don't actually know us. What a world!
