Banking also allowed for the usage of more extensive credit systems, by allowing a third party (a money changer or a bank) to serve as a trusted intermediary between two non-trusting entities (buyers and sellers, or creditors and debtors).
In other words, banking allowed for transactions (commerce) and settlements (money) to be separated. Transactions for individual goods and services could occur more frequently, existing for a period of time in a state of credit, until they were settled with precious metals in less frequent occurrences and in larger amounts. However, while this process of batching multiple transactions into fewer and larger settlements increased transaction efficiency and reduced the risk of theft, it couldn’t overcome a fundamental constraint: the speed of information.
For thousands of years, transactions and settlements had the same maximum speed limit: the speed of foot, horses, and ships.
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However, with the invention of the telegraph, and then the telephone, the speed of transactions increased to nearly the speed of light. The first working telegraph was invented in the 1830s. Engineers then spent much of the 1840s and 1850s figuring out how to run cables over long distances, including under large bodies of water, during which time they were able to connect the various financial centers of Europe together, including London and Paris. After some failed attempts, the first long-lasting transatlantic telegraph cables were put in place in the 1860s, and the global banking system quickly became more interconnected in the decades that followed.
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All around the world, people and institutions increasingly relied on interconnected bank accounts rather than coinage. And with currency units abstracted from the underlying metal, it turned currency units into an inherently political topic between creditor groups and debtor groups.
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The more and more efficient the global banking system became at netting and clearing imbalances, the less and less it needed metal as a proportion of transactional volumes and saving volumes during the normal course of operation. And consumers happily went along with it as well, due to the greater ease that it provided them with. And yet this increasing efficiency is precisely what allowed it to become so unbacked and unstable at its foundation. The disinclination of most people to want to withdraw and secure the cumbersome physical metals allowed for the extreme proliferation of gold claims relative to the amount of actual gold.
By the early 20th century, thanks to this extreme degree of monetary abstraction and the associated ease of claim creation for World War I approximately four decades after Jevons’ book, the global gold standard collapsed and never recovered. In the decades after that, governments eventually dropped gold and silver backing from their financial systems entirely, and that’s how we eventually got to this world of 160 different inflationary fiat currencies — each with a local monopoly in their respective jurisdiction.
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This is the only time in history where, on a global scale, a weaker money won out in terms of adoption over a harder money. And it occurred because telecommunication systems introduced speed as a new variable into the competition.
Money is now 1/0s, it is digital currency. The actual value of this money is The Velocity of Money, it must keep moving or it dies. Money’s velocity is the Speed of Light.
Go and see if you doubt me.
I have. I do.