Our economic travails can be traced back to the origins of money. The origin of money can be linked to the origin of trade between humans and the resulting inequalities in access to resources. To understand why and how such inequalities arose, for a moment let us go back in time to the Stone Age.
If you lived in the Stone Age, you would pretty much get or make everything yourself. You would hunt animals or gather wild berries to eat, scrape and clean animal skin for your clothing and search for a cave to live in. These things were just there for you to pick; you did not have to trade anything that you had for something that you wanted.
If on some day, you feel too lazy to go hunting, you may grunt to your neighboring cave dweller to hunt for you (you would not have learned how to speak) and will promise to make a stone axe for him (or her) on the next day, in exchange for food. Now, if you need half a day (one meal time) to make the axe, you will demand one stomach-full of food in exchange for your labor.
Let’s add a layer of complexity to the situation. If you have a young child to feed too, you have two possible ways to barter your labor. You may either perform two chores in exchange for two meals, or demand two meals for one chore (and the neighbor can moan about inflation).
Your neighbor will have the choice to accept or reject your offer, or bargain with the knowledge that another fellow down the hill was ready to do the same job for one meal (that’s competition). For an exchange of two things to happen, prices of both must be exactly the same. So, the value of what your neighbor is ready to forego in your favor should be equal to the opportunity cost of your foregoing something in return.
In economics, the laws of demand and supply say that “all things being equal, higher the price, lower the quantity demanded” and “higher the price, higher the quantity supplied”. In a condition of economic equilibrium, the quantum of a thing being supplied is exactly the same as the quantum being demanded. For our story, it means that as long as there is someone ready to do the job for one meal, the asking price will not go up.
Alas! In the real world, all things are never equal. So, you will exercise your grey cells and grunt to your neighbor that your axe will be superior to the one made by the fellow downhill (your value proposition). To prove your claim, you may take two days to deliver the axe and make sure it is shining (value addition). If he buys your argument, you will make sure that the shining axe is shown to other cave dwellers too (publicity). Soon, you will have a full order book, become rich and will never have to hunt again (wealth creation).
