Have you ever wondered how space colonists would trade? Would they pay for goods and services from other colonists with dollars, euros, yen or some other currency in the form of paper bills and coins?
Probably not. I’ll start with the conclusion:
Colonies trading on Mars are going to use water as money.
No, I don’t mean that they will be going around with bottles of water, pouring water to pay for things. That would be really silly and impractical. So what exactly do I mean?
The Case for Water
Before I answer that I’ll like to make the case for why water makes for an excellent choice as money on Mars, Venus or possibly the Moon.
Anything which is to be used as money has to have uniform quality and easily divide into different quantities. Precious metal such as gold and silver fit that description, which is one of the reasons why it was used to mint coins in the past.
It also ought to be storable for long time. Food products are hence poorly suited as money as it will rot and degrade. Metals and water both have this property.
Finally it ought to have some utility or desirability. There is no point in hoarding something which nobody is very keen on getting. Gold might not have a great utility but it has through history had a high level of desirability. Water has very high utility, but has never on earth been used as money.
The reasons are simple, while being very useful, it is extremely easy to access on the earth in large quantities, and thus has limited value.
On Mars, Venus and the Moon, this would be very different. Not only would water be much harder to obtain, but it will also have far more applications, than we are used to on earth.
On Mars and the Moon, collecting water would be equivalent to a mining operation. One would have to dig it up, process it, melt it and filter it, before storing it on big tanks. On Venus it would be the equivalent of going around collecting dew. Large films will have to collect water from clouds through condensation.
With such expensive and difficult collection methods, one will likely focus on close to 100% recycling of water, which is technically possible. At that point the economic properties of water changes. It becomes more of a capital good, than raw material or consumer good, as the total production of say food will depend on your stock of water. When plants are harvested and eaten, we will later return the water from the plant in the form of urine, which can be filtered and recycled back as water for future plants.
Water will have several other uses for space colonists. Electrolysis of water produces hydrogen and oxygen. This is useful possible backup method for making oxygen in case plants aren’t making enough. In fact this is how oxygen is produced at the international space station today. Hydrogen can be combined with carbon dioxide to produce e.g. methane or ethylene which has many uses: heating for cooking, rocket fuel, internal combustion engines, fuel cells (for night time, when there is no sunlight). In short water is useful for:
- Food production
- Oxygen for breathing
- Fuel production
Hence every possible space colony will have a use for water. Thus not a bad thing to hoard!
What Does Water Money Look Like?
Nobody is going to mint coins of water or carry around water bottles to make payments. But how will they then use money to pay for things?
The fundamental misunderstanding here is to associate money with physical objects you use to facilitate exchanges. That is not strange, since in my description, I have also encouraged this flawed thinking about the nature of money.
If I ask you what kilogram is, then you aren’t going to state that it is the same as the solid metal cylinder stored under a glass dome in Paris, representing the kilogram. This goes for all units in physics, whether it is celsius or a meter. A kilogram was originally defined as a liter of water at room temperature. But a kilogram of water isn’t a kilogram, but rather a representation of it. Kilogram, celsius and meter are all units, not physical objects.
Money is the same. Money is a measurement unit for value. This is clear from our earliest examples of the usage of money. In ancient Mesopotamia, the unit for value was a shekel. It was defined as the value of one bushel of grain, or alternatively as 11 grams of silver. 11 grams, corresponds to the weight measure “a shekel”. Money having names similar to weight measurements is not uncommon. The British currency a pound sterling, was so called, because its value was represented by a pound of silver at sterling purity. The Italian lira was similar, a pound of silver at high purity, derived from latin libra, meaning a pound.
Neither Brits or Mesopotamians had the habit of walking around with big chunks of silver, to use as money. Both the pound and the shekel were used as unit of account. There never was a shekel coin. Rather the silver existed as large silver bars guarded in the temples. One would simply record the value goods stored in the temple or money owed in shekels. The British pound note was basically an IOU (I owe you) for silver.
I can’t find the source anymore, but I believe the story of how paper money came into existence in Britain was that a group of rich bankers lent money to the British king after some costly wars. These bankers then realized that they IOUs the king issues them, or the debt letters could be passed on to other people easily. Since it was guaranteed by the king people knew they could put a lot of faith in it. And as by magic paper money was invented in Britain. Of course similar stories likely played out other places both before and after.
This is in contrast to the common understanding among many economists, which is that money started as a commodity to facilitate trade, since bartering would be too complicated. The case that Graeber makes (quite convincingly I think) is that people from the beginning primarily bought or traded using debt, so there never was a barter economy where one had to match up different items.
This isn’t really as odd as it may sound. We all naturally deal with trade in this fashion all the time. You buy your friend a beer one weekend and they owe you a beer for the next weekend. As a child in the 80s I’d buy milk and bread for my parents at the local store. If I didn’t have cash, they’d just put it on our tab. When my parents were young this was even more common.
Companies regularly order all sorts of things, receive bills, and pay much later. Buying things in other words doesn’t require an immediate exchange of an equally valuable commodity such as cash.
In medieval Europe this was the common way of trading. Merchants wrote down how much you owed. There was usually no exchange of physical coins. In fact coins was a rather rare thing. As David Graeber notes:
In olden days coins played a far smaller part in commerce than they do to-day. Indeed so small was the quantity of coins, that they did not even suffice for the needs of the Medieval English Royal household and estates which regularly used tokens of various kinds for the purpose of making small payments. So unimportant indeed was the coinage that sometimes Kings did not hesitate to call it all in for re-minting and re-issue and still commerce went on just the same.
The idea of money being primarily a unit of value to keep track of debt, is illustrated by the fact that in medieval Europe coins which were no longer in circulation remained as a unit of account for hundreds of years. Graeber:
after the collapse of the Roman Empire, and then again after the Carolingian Empire likewise fell apart, this seems to be what happened. People continued keeping accounts in the old imperial currency, even if they were no longer using coins.
The reason why I am elaborating on this is to hammer home the idea that whatever commodity we use to represent a unit of value (money in other words) doesn’t have to be an object we are carrying around with us, and which is involved in each transaction. That would after all have made water exceedingly difficult to use.
Instead we settle our debts within a certain time interval. This also happened in medieval European towns. On regular intervals accrued debt would be settled. This meant one did not have to have tiny denominations of coins to facilitate trade. You just needed something of sufficient value which you could use to settle your debts with later.
Two Mars colonies could then trade for some time, and say every month settle debt by driving a Mars rover with a big water tank to the other base to settle their debt, in case the exchanges didn’t even out through the exchange of other products.
Internally at a colony the population would likely be small enough and they would know each other well enough that trade would be rather informal. Frequently people would likely simply share with each other what is needed and in other circumstances one could use simple systems for recording what people owed each other.
Crypto currencies today, like Ripple are based on this idea. You digitally sign transactions of IOUs which could be anything, including liters of water. For instance there was a Ripple exchange in Singapore which would sell you IOUs in grams of gold. Hence you could receive a balance of gold with them which you could use to pay for things. Somebody getting paid with this IOU could then if desired, go to this Singapore base Ripple gateway and redeem the gold.
I’d love to hear your thoughts on this, whether you have better suggestions for money, or flaws you see in my reasoning. I have considered alternative money. One obvious candidate was metals as those would likely be quite rare and expensive on early colonies since they would lack the equipment to refine and process metals themselves.
On a Venus colony this would be even more pronounced as they would be located above the clouds as floating aerostats, incapable of utilizing metals on the ground. Hence all metals would be supplied from the Earth and very rare and expensive.
However my conclusion has been that it would be exceedingly impractical, as it makes most sense to manufacture advance products on earth from these metals, which you could not easily manufacture on Mars, Venus or the Moon. Hence a lot of value would be derived from the processed state of metal objects. Nobody in their right mind would want to melt them down to more uniform products for easier trading.
Another idea I played with was small computers as money. I was imagining colonies being supplied with lots of tiny Raspberry Pi or Arduino like computers or micro controllers. They would be valuable as computers would be hard to manufacture for a very long time on a space colony. But again the likely lack of uniformity, and the inability of dividing them into smaller parts, makes them unsuitable as a representation of value.
Fiat currency like dollars or euros, would likely never get used. For the most initial colonies were they could have made sense to be used, as that is what people would have had most immediate experience with, there wouldn’t really be markets and trading. Very small societies tend to work more like communism. People give each other things or lend things as needed. When multiple colonies have started to pop up and have lasted for a longer time, people will realize that hoarding a bunch of dollars isn’t going to be very strategic. It has no intrinsic value, and there is no tax man demanding them, nor a central government which can guarantee their value.
The precarious nature of life on another planet will make people think very hard about the utility of things they keep.
Imagine if you and a few other people were stranded on a couple of deserted islands trying to survive. You might trade with people on the other islands, but it simply feels very unlikely that anybody would ever develop a strategy of hoarding dollars. You want to keep tings which are clearly useable to you or which you know other people really need or desire. On Mars that would be water.