The Origin Of Currency

If we truly want to understand an economy, and manipulate it (if you can even truly do that) to our gain we need to start at the bottom.  No, I’m not talking tips and tricks.  Tips and tricks are great.  They can get you in and making some quick and easy cash.  But sometimes, a lot of times, those tips and tricks dry up.  If you truly want to master the AH, the economy, then we have to have a better understanding of how the economy works, how they all begin.

And where they all begin, ultimately, is currency.

Don’t confuse currency with value.  Value is a concept we will have to deal with later.

Let’s start with a thought experiment.

Lets go way back…  Back to when skyscrapers didn’t exist.  Back before American settlers.  Back before midevil city states, way back.  Back to early cave men.

And, in this thought experiment we are only going to have two tribes.  Red and Blue.  Blue tribe lives near the ocean.  They can catch fish like crazy.  But they have very little water.

The second tribe is going to be red. They live at the edge of the forest.  This forest is pristine and lush, but the wildlife uses it to their advantage.  Red tribe has very little food, because they don’t have great hunters.  But they have water from the crystal clear rivers that feed into this lush river.

Both red tribe and blue tribe have been getting along pretty poorly on their own.  Their numbers limited by the fact that they can barely get enough of one key resource.  Then, one day, red and blue tribe sent scouts out to find a better place.  But instead, they found each other.  So the red tribe brings over people from the blue tribe for a nice little get together.  Red tribe sees the blue tribe watch in amazement at all the water they have.

Pretty soon it is obvious that the two tribes can benefit from a trade of resources, and a healthy relationship starts.  Both tribes are now better off, having access to resources they previously didn’t have, allowing them to live much more comfortably.

You can see how trade is essential to how these two tribes live and thrive.  But this is the simplest and easiest trade relationship to think about.  And while there is only two goods, both of which each tribe needs equal amounts of the other tribes goods, there will never be currency.  Let’s liven it up a bit here.  Let’s add a little bit of an imbalance, and a third commodity, Labor.

Red tribe suffers a great sickness.  Half of their numbers are lost to this mysterious fever.  As such, the red tribe cannot produce enough water for the newly thriving blue tribe’s water needs.  In short – they simply do not have enough labor, or man power, to fill the skins up, and haul them to the blue tribe fast enough.  So the blue tribe, starts sending less and less fish.  This suits red tribe fairly well, as their diminished number needs much less food to sustain.  But blue tribe is in grave danger of perishing due to thirst.

So blue tribe offers to send some people over to help make more water.  They are trading labor in exchange for more water.

This is where the term currency starts to gain some meaning.  But labor, in this situation, is still not currency.  Labor is still a trade good.  Let’s shake some things up even more. (poor red tribe!)  Let’s Add a fourth currency, shelter.  Yes, the basic need of all things, shelter is essential for life.  You can’t just lay out exposed to the elements (though on a cool summer night it is sometimes nice to do so).

Let’s also add a third tribe.  Green tribe.  Green tribe lives near a lake.  They have access to both food (fish, yum!), and water (helloooooooo!  It’s a lake.  Stay with me here people!).  But this lake has very flimsy trees and does not make for good shelter.

Both red tribe and blue tribe can make shelter.  But red tribe is still recovering from its bout with the fever, and its labor is entirely consumed with producing enough water to trade for food for its people.  However, blue tribe who is continuing to flourish, has plenty of time to make shelter.  But what do they get in return?

Well, green tribe has these stunningly shiny rocks that never seem to tarnish (because metal was not a concept back then).  And a beautiful trade relationship is born.  We are edging even closer to currency, but are not quite there yet.

Soon, blue tribe is ravaged by the fever.  Its numbers are diminished 10 fold.  It recalls its water laborers from red tribe, in order to keep up with red tribes fish requirement.  The water red tribe has been sending is more than enough to cover what the newly decimated blue tribe needs.  Soon enough, the red tribe is not seeing enough fish to cover its food needs, and instead, blue tribe is sending these shiny rocks that green tribe sends for the shelter.

Red tribe, being clever, takes these shiny rocks over to green tribe and asks if they will be willing to trade them for fish.  Happy to get their shiny rocks back, they eagerly start a new trade relationship with red tribe.

AH HA!  There it is.  See what happened there?  The shiny rocks became currency.  No?  Didn’t see it?  Ok, let me explain.

Currency is, at its core, is simply a trade good that is universally accepted for any number of other trade goods.  Salt, spices, silk, paper (think of the benjamin’s you have – or in my case don’t have >.<, in your wallet), and gold have all been forms of currency at one point.

When green tribe sent the shinies over to blue tribe in exchange for shelter, it was only a simple trade, though the blue tribe couldn’t have known how those shiny rocks would change the world.  When the blue tribe sent these shiny rocks over to the red tribe for the water it was receiving, it was even closer to currency.  But remember, currency is only currency when it is universally accepted.  So when the red tribe when to the green tribe and they accepted their rocks back for additional food, BAM!  Currency is born.

Let’s take this concept and see why it is important in WoW:

Ore (many different types), gems (many different types), enchants (many different types), labor (someone has to make all this stuff), weapons, armor, glyphs, *pant pant*, food, water, specialty foods, quest items….. The list is almost endless.  And each one of these items you will need in some quantity.  How do you get all of these things?  What can you trade to each person for these goods and services?

That’s right, gold.  Gold is the foundation of the WoW economy.  Otherwise, you would have to make many trades in order to get what you need, and you would have to hold a massive amount of stock in order to satisfy everyone’s needs.  Not to mention that EVERY SINGLE TRADE YOU MAKE, devalues your item further.

So the next time you trade 15g (or on my server 30g, GRRR!) for a mage port, be very thankful you have that gold to trade him.

Author’s note:  This has been an entirely fictional thought experiment.  There are many flaws with this thought experiment, I.E. that no tribe would stay in a place that so severely limited their living quality, and trade does take long periods of time to actually evolve, and there is a quality factor, and… the point is don’t be so foolish to try to use my thought experiment for a research paper 🙂

 

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Comments
4 Responses to “The Origin Of Currency”
  1. Julie says:

    I can get 30g for a port??? 🙂

    • Firespirit says:

      LOL, The problem with our server right now is that no mages are freaking even responding to port requests. Last night I literally just typed “would a freaking mage PLEASE respond?”

      And yes, 30g is about the average on our server right now 😦

  2. Klepsacovic says:

    “EVERY SINGLE TRADE YOU MAKE, devalues your item further”
    Can you elaborate on this? Items do not degrade, are you referring to the time cost? By that I mean, if it took 50 trades to get from ore to the armor I want, I’d see the cost of that armor as even higher, but except at extremes, more ore won’t make much difference in the time, so within reasonable limits, the needed ore hasn’t gone up. Maybe formulas would clarify what I mean. The arrows are trades
    ore -> bar -> cloth -> pet -> armor
    So the person with the armor really wants a pet, but nothing else is of much interest. This means that the net effect for me is
    ore + time -> armor
    I have to spend time to trade that ore for what the armor-seller wants. Adding a small amount of additional ore will not make it worthwhile for the armor-seller. I could offer enough ore that the armor seller would find it worth his time to go through the ore-bar-cloth-pet trading, but in this case those are trades that I would make anyway, so not much changes. I did simplify that slightly, but my confusion remains about what you mean that each trade devalues the item.

    “that no tribe would stay in a place that so severely limited their living quality”
    Africa and Los Angeles disagree.

    • Firespirit says:

      Klep:

      Sorry for the late response. Death in the family 😦

      Time, of course, is a big part of what I mean. And if I were to write out an equation, it would pretty much be what you have. Remember any time investment is lost income potential, and therefore costing you.

      But there are two other points that also came to mind when I wrote this: Specialization and Ratio Imbalance.

      First off, we are pretty much all in the same boat. While many of us AH buffs work several different professions, most people only work one or two. This leads to hyper specialization. For example, the first and most familiar profession that I work is JC. I can tell what almost any cut/gem is going to go for on my server/faction side. I am less familiar with, but recently started expanding into, the inscription market. While I do my due diligence and scan the AH and such every day, there is still a bit of a disconnect from the inscription because I do not spend as much time with it, and have much less experience in that market, than I do the JC market.

      One of the big things I am doing is the darkmoon cards. I am crafting whole decks, while selling off individual cards that I make duplicates of. One of those cards, that the AH said would go for one price, is actually selling for a much lower price. And another card, I sold for a MUCH lower value than what it was worth.

      You see, as you trade for items that are out of your specific umbrella of expertise, you are much MUCH more likely to devalue the product, and therefore make a bad trade and lose value on the item.

      The second item, ratio imbalance, might be something that most would dismiss. But across multiple trades, this is going to have a significant impact on your net worth.

      Am I likely to give up my items at a 1:1 value ratio? Well, you have to ask yourself – what, in a real world situation, has a perfect 1:1 trade ratio? And unless the other trader has an immediate need for the item, they are not likely to trade favorably for you.

      For example: I have one Bold Inferno Ruby. On my server, that equates to 14.59 zephyrites. And I need zephyrites for the JC daily. I offer to trade my Bold Ruby for 15 zephyrites. But my trade partner does not neccesarily need the bold. All he is going to do is sell it for the equivalent of 14.59 zephyrites. Instead, he offers 14 zephyrites. I make the trade, because I need the zephyrites, therefore devaluing my product, if only by about 4g. There is a reason “equal or lesser value” was coined.

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