Chapter 5: What Money Made Possible

In 1820, the average human being survived on less than two dollars a day, in today's terms. This had been roughly true for centuries—millennia, even. Whether you were a Roman peasant, a medieval European serf, or a Qing dynasty farmer, your material standard of living was, by modern measures, crushing poverty. Most of humanity spent most of history on the edge of starvation, one bad harvest away from catastrophe.

Then something happened.

Over the next two centuries, average global income would increase more than tenfold. Life expectancy would double. Infant mortality would plummet. Literacy would spread from a tiny elite to the majority of humanity. More goods would be produced in a single year than in all previous human history combined. The economist Deirdre McCloskey calls it the Great Enrichment—the most dramatic improvement in material human welfare ever recorded.

What caused it? No single factor explains a transformation so vast. But money—specifically, the market economies that money enabled—was central to the story. Before we examine money's costs, we must understand what it made possible.

The Division of Labor

Adam Smith opens The Wealth of Nations not with money but with a pin factory. Watch the workers, Smith says. One draws the wire. Another straightens it. A third cuts it. A fourth sharpens the point. A fifth grinds the top for the head. Ten workers, each performing a single specialized task, could produce forty-eight thousand pins in a day. The same ten workers, each trying to make complete pins on their own, might manage a few hundred at most.

This is the division of labor: the decomposition of complex tasks into specialized components, each performed by workers who become extraordinarily good at their narrow piece. The productivity gains are staggering—not additive but multiplicative. Specialization doesn't just make workers faster; it makes possible new production processes, new tools, new scales.

But specialization creates a problem. The pin-maker can make thousands of pins but cannot eat them. She needs bread, cloth, shelter—goods she cannot produce while making pins. Without a way to exchange her surplus pins for others' surplus goods, specialization is suicide.

Money solves this problem. It allows the pin-maker to convert her pins into a universal medium, then convert that medium into whatever she needs. She needn't find someone who wants pins and has bread; she needs only find someone who wants pins and has money, then find someone who has bread and wants money. The "double coincidence of wants" that would strangle specialization dissolves in the solvent of currency.

This is why money and specialization grow together. As money becomes more reliable and widespread, specialization deepens. As specialization deepens, the need for money increases. The cycle compounds, and productivity soars.

Trade Across Time and Space

Consider the journey of a cup of coffee.

The beans were grown in Ethiopia or Colombia or Vietnam, picked by farmers who will never meet you. They were processed, dried, sorted, and bagged by workers in facilities you'll never see. They were shipped across oceans in containers, one among millions, tracked by logistics systems of stunning complexity. They were roasted in a factory, packaged, distributed to a store, prepared by a barista—and now you're drinking them, having paid three dollars and given it no thought at all.

Behind that cup lies a web of transactions spanning continents, threading through thousands of hands you'll never see. Each transaction was mediated by money. None of those people needed to know you, trust you, or even know you exist. Money allowed them to contribute their piece without requiring the impossible: personal relationships with everyone in the supply chain.

This is trade across space. Money enables goods to flow where they're wanted from where they're made, regardless of distance, regardless of relationship. The Silk Road's merchants used money. The shipping containers crossing the Pacific carry goods paid for with money. The globalization that brought exotic goods to ordinary tables happened because money could bridge the gaps between strangers.

Money also enables trade across time. If I grow wheat this summer, I can't eat it all before it spoils. Without money, my options are limited: consume what I can, give the surplus to neighbors who will owe me later, or watch it rot. With money, I can sell the wheat now and hold the money for later. The currency stores value across seasons, years, lifetimes.

This temporal bridging makes investment possible. I can save now to build later. I can borrow against future production to fund present activity. The factory, the research laboratory, the infrastructure project—all require resources now for returns later. Money, as a store of value, makes this temporal transfer possible.

Capital and Accumulation

Here's a word loaded with controversy: capital.

At its simplest, capital is wealth used to create more wealth. The farmer's plow is capital—it doesn't satisfy needs directly but makes production more efficient. The factory's machinery is capital. So is the startup's code, the researcher's equipment, the training that makes a worker more productive.

Capital accumulation—the building up of productive capacity over time—is central to economic growth. A society that consumes everything it produces remains static. A society that invests some of its production in better tools, better infrastructure, better knowledge can produce more tomorrow than today. Compound this over generations and you get the Great Enrichment.

Money enables capital accumulation in several ways. It allows savings to aggregate: my small savings and your small savings can combine into investment large enough to fund a factory. It allows savings to flow to opportunities: money invested in rural England could fund railroads in America, shipping in Asia, mines in Africa. It creates incentives for investment: the possibility of profit motivates risk-taking, innovation, the patient building of productive capacity.

Critics rightly note that capital accumulation has never been neutral—it has always involved power, often exploitation, frequently violence. The factories funded by Victorian savings ran on labor extracted from workers with few alternatives. The railroads opened territories seized from indigenous peoples. The mines enriched investors while poisoning communities. We'll examine these shadows in the next chapter.

But the accumulation itself—the building up of productive capacity, the creation of tools that multiply human effort—is why material abundance is even possible. The Great Enrichment wasn't magic; it was the compound interest of capital investment over generations, enabled by monetary systems that could aggregate, transfer, and motivate the necessary savings.

Innovation and Creative Destruction

Joseph Schumpeter, the Austrian economist who gave us the phrase "creative destruction," understood something essential about market economies: they are engines of transformation. The market doesn't just allocate existing resources efficiently; it generates entirely new possibilities.

Why? Because markets reward innovation. Build a better product and you can sell more of it. Find a cheaper production method and you can undercut competitors. Identify an unmet need and you can create a new market. The profit motive, whatever its distortions, is a powerful incentive for creative problem-solving.

The results have been extraordinary. In 1900, there were no antibiotics, no commercial aviation, no electronic computers. The transformations of the twentieth century—the automobile, the transistor, the internet, the smartphone—emerged from market economies that rewarded whoever could make them work. Not all innovations came from markets (government research, university labs, and military projects contributed enormously), but markets provided the scaling mechanism, the way to get innovations from laboratory to living room.

Schumpeter called it creative destruction because innovation destroys as it creates. The automobile devastated the horse-and-buggy industry. Digital photography killed film. E-commerce hollowed out retail. Each wave of innovation sweeps away the old, often painfully, before establishing the new.

This dynamism is, in coherentist terms, a compost cycle running at market speed. Old economic forms break down, releasing resources and opportunities that new forms absorb. The process is chaotic, often cruel to those caught in the destruction. But it's also why market economies have proven so adaptable, so capable of transformation, so resistant to stagnation.

The McCloskey Thesis

Deirdre McCloskey, in her Bourgeois trilogy, argues that the Great Enrichment wasn't fundamentally about capital, or institutions, or exploitation—it was about ideas. Specifically, ideas about the dignity and value of commercial activity.

For most of human history, McCloskey argues, commerce was low-status. Aristocrats despised merchants. Priests denounced usury. Philosophers praised contemplation over profit-seeking. The people who made things and sold things were, culturally speaking, beneath notice.

Something changed in northwestern Europe between 1600 and 1800. Commercial activity became respectable. The bourgeoisie—the middle class of merchants, manufacturers, professionals—gained social acceptance. Their values of prudence, innovation, and mutually beneficial exchange became, gradually, society's values. People began to see market activity not as grubby necessity but as a worthy contribution to human flourishing.

This cultural shift, McCloskey argues, unleashed human creativity on an unprecedented scale. When clever people think commerce is beneath them, they become priests or soldiers or poets. When they think commerce is dignified, they start businesses, tinker with production processes, look for profitable problems to solve. The Great Enrichment began not when capital reached some threshold but when culture changed to encourage commercial innovation.

Whether or not McCloskey's thesis fully explains the Great Enrichment, she identifies something important: markets are embedded in culture. The same institutional structures can produce very different outcomes depending on the ideas and attitudes that surround them. Money is a technology, but technologies need cultures that know how to use them.

The Positive Case, Stated Clearly

Let us state the positive case for money and markets as clearly as possible, because understanding it is essential before the critique.

Money enables coordination at scale. Without it, large-scale economic organization is nearly impossible. The alternatives—gift economies, central planning, command hierarchies—each have hard limits. Gift economies can't scale beyond personal networks. Central planning can't process the information required for complex economies. Command hierarchies can organize armies and build pyramids but not coordinate millions of daily decisions about what to produce and consume. Money and markets do what these alternatives cannot.

Markets generate wealth. Not just allocate it—generate it. The Great Enrichment wasn't a transfer of wealth from one group to another (though plenty of that happened too). It was a massive creation of new wealth, new capabilities, new possibilities. The material abundance we take for granted—abundant food, modern medicine, global communication, unprecedented mobility—emerged from market-driven growth.

Markets enable innovation. The incentives they create encourage creative problem-solving, risk-taking, and transformation. They provide a mechanism for scaling successful innovations and pruning failed ones. The dynamism of market economies—chaotic, often cruel, always changing—is also their adaptive strength.

Markets create freedom of a particular kind. Within market economies, individuals can make choices about what to produce, what to consume, where to work, how to live. This isn't freedom from all constraint—everyone faces budget constraints, market prices, competitive pressures. But it's freedom from certain kinds of constraint: the dictates of planners, the prescriptions of tradition, the obligations of gift networks.

These are real gains. Dismissing them as bourgeois apologetics or ideological mystification won't do. The improvements in material welfare over the last two centuries—in longevity, health, access to goods, opportunity for ordinary people—are among the most important developments in human history. And money-mediated markets were essential to making them happen.

The Thread Forward

But this is not the whole story.

Every technology has costs as well as benefits. Every solution creates new problems. The market economy that produced the Great Enrichment also produced factory slums, environmental devastation, colonial exploitation, and inequality on scales previously unimaginable. Money's power to coordinate is also power to alienate, to commodify, to reduce human beings and natural systems to entries in a ledger.

The next chapter turns to these shadow sides. Not to negate the gains—they are real and must not be forgotten—but to understand what money cannot see, cannot price, cannot preserve. For the coherentist question isn't "are markets good or bad?" but "what does this coordination technology do well, where does it fail, and what might complement or eventually supersede it?"

We gave money its due. Now we examine what money owes.