No Cap
What can the Fallout series teach us about the history of money?
This is a story about money… loads of money
Fallout is a video game series set in a post-apocalyptic wasteland, in an alternate timeline where 50s culture never ended, the transistor was never invented, and nuclear technology reigned supreme. After a protracted conflict, the world was changed forever after the United States and China launched nuclear weapons at each other in the year 2077.
In nearly all of the game’s locations, from the San Francisco Bay Area to Las Vegas, Washington DC, the West Virginian wilderness, and Boston, the series has used bottlecaps (shortened as “caps”) as its main form of currency. Caps have therefore become a staple of the series, to the point where a player actually used them to pay for a copy of Fallout 4 back in 20161. Why do Fallout worlders use caps? And what can this teach us about real world monetary economics?
Note: post contains minor spoilers for the Fallout series
From Cap-lifornia to the Cap-ital Wasteland
Why are bottlecaps the currency of the Fallout series? Back in the original Fallout game, released in 1997, the people of post-apocalyptic California used bottlecaps as currency. Unlike in all later installments, bottlecaps were actually backed by a merchants’ guild supply of purified water, which led to caps being considered valuable on their own right. Fallout 2 abandoned the use of caps as currency, though it was brought back in all posterior installments (3, New Vegas, 4, and 76).
However, since Fallout 3, bottlecaps have not been explicitly backed by any item in particular. Traders and merchants in the settings of all later games (Washington DC, Las Vegas, Boston, and Appalachia) use caps as currency, and even far-off locations such as the untamed wilderness of Zion National Park, the slave-filled ruins of Pittsburgh, or the isolated communities near Bar Harbor, Maine accept bottlecaps. Las Vegas is unique because it also utilizes two other forms of currency: New California Republic dollars, and Caesar’s Legion coinage. All other locations, though, utilize only bottlecaps, primarily from the Nuka Cola brand, but also accepting Sunset Sarsaparilla, Vim, and even beer bottlecaps, depending on the region’s preferred soft drinks. Some other forms of currency are somewhat accepted, particularly “pre war currency” (American dollars), and Fallout 4 introduces what’s known as a cash card, a quasi credit card that… no other characters in the game will accept.
Two big questions remain: why bottlecaps? And why do people accept a currency that isn’t backed by anything?
Money, it’s a hit
Are bottlecaps even money? Well, to answer that, we need to start by finding out what money even is, and then checking if bottlecaps meet the definition.
The traditional Econ 101 definition of money is that it has three functions: means of exchange (being useful to buy things), store of value (being useful to “save”), and unit of account (measuring value). “Means of exchange” simply means being useful for transactions; but “store of value” and “unit of account” both also mean being useful for transactions: the only reason you’d want to store currency is to use it later, and the only things whose value you’d want to measure are things that you’d be at least in principle willing to buy or sell. Ergo, money only really has one use, transactions. In this sense, bottlecaps obviously fullfill it (whereas cash cards do not, lol), and it also functions as a store of value an a unit of account independently.
In the General Theory, Keynes claims people demand money for three reasons: performing transactions (see above), hedging from various scenarios, and speculation. We’ve already gone through transactions, so let’s focus on the other two motives. The speculative motive is probably weakest in the Fallout economy, mainly because there isn’t really a financial system or any reliable way to invest in anything in particular - but it’s more a weakness in practice than in principle, since there isn’t any reason why, in principle, you wouldn’t be able to buy stocks or bonds with your bottlecaps. The precautionary motive is obviously there, and there are many scenarios to hedge against (bandits, wars, injuries, you name it) and obviously bottlecaps are as good a hedge as a US dollar or any other modern currency.
Then, just like cryptocurrency, you can safely claim that bottlecaps are an actually usable currency within the Fallout world, at least as usable as, say, cigarrettes in prison. Although most societies through history used inherently valuable things, like gold or cocoa beans (in the Aztec empire), many used thoroughly worthless ones: some societies used seashells, others used inscribed sticls, and there was even an island which utilized gigantic stones called “Rai” and they simply agreed on who owned which without them ever changing hand.
Old money, new money
No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money (…) All available ethnography suggests that there never has been such a thing.
Humphrey, (1985), “Barter and Economic Disintegration”
Where does money come from? The traditional story, often repeated in Econ 101 classes, is fairly simple: in the old days, people bartered, which means they exchanged goods for each other directly. This had two main complications: first, people couldn’t easily figure out how to exchange different goods - literally apples and oranges. Secondly, and much more importantly, a problem known as double coincidence emerged: if you had apples, and wanted bread, you needed to find a baker who wanted apples; otherwise, you’d have to figure out what the baker wanted, and then find a person who had that and wanted apples, or find someone who’d exchange the apples for something you could exchange for something you could exchange for bread. This does not sound like an efficient system to trade regularly, so people opted for using a specific kind of item (either coins or paper bills) as currency, which had its value come from a precious metal (gold or silver) due to their rarity, perceived value, and difficulty to counterfeit.
The main problem with this story is that it’s not real. There is no evidence of any society using barter for any period of time, which might be definitionally impossible to find, since there wouldn’t be many records of transactions, but there also aren’t many historical documents showing that anyone in history was familiar with barter. In fact, the only historical records of barter show that it emerged after currency in societies that, for some reason or another, were short on it - for example, High Middle Ages Europe, which still technically utilized Roman currency but didn’t actually exchange any of it.
In reality, most communities didn’t really utilize money, and instead simply relied on keeping mental tabs of who traded with whom - I ask the baker for bread, and later he comes around and asks me for apples. In small communities, this is relatively straightforward, because enforcement of contract violations (i.e. welshing someone) is pretty easy - going around “hey everyone, the baker is a crook!” is really bad for the baker’s business. This only applied for locals, though; for strangers, people utilized some form of currency, mainly because the stranger’s trustworthiness could not be assessed properly. Eventually, though, this “oral” debt was replaced with “written” debt: once communities grew large enough, assessing who was trustworthy and who owed what became more and more complicated, especially since there were many more products to keep track of. This lack of ability to quickly evaluate “credit-worthiness” eventually led to the creation of a unified medium of exchange of known value: gold, silver, salt, cocoa beans, etc. This medium of exchange, even then, wasn’t really used, and until fairly recently people just took things from stores and later settled their accounts all at once.
There are a lot of examples of this happening. In both “Maus” and “The Shawshank Redemption”, prisoners exchange a variety of goods and services with each other using cigarettes as currency; more recently, prisons have banned cigarettes, and the nummeraire role switched over to ramen soups. A jail would be perfect for a pure barter economy: small community, ease of punishing a bad actor (either by exclusion from the market or… other means), and major limitations to the double coincidence problem, since supply is limited and knowing who wants what is fairly easy. The trouble is that prisoners can’t reasonably trust each other; after all, they’re all criminals. In addition, it’s fairly likely some prisoners might only want to sell things, and others only want to buy - so the market for many, if not all, goods and services might fall apart completely. Liquidity plays a major role: being able to pay for things, and being able to keep money, is key.
So it’s pretty easy why people in the Fallout universe use bottlecaps as currency: the various wastes of the post apocalyptic US are not high trust, closely knit communities, and therefore trading based on the honor system does not appear to be a reasonable way to go around. So, eventually, any single item was going to be adopted as a currency, and in most places it was bottlecaps simply because they’re a common, otherwise useless item that can be easily transported. In California (and to a lesser extent, Vegas) the fact that a big group of merchants out in a major city backed it with purified water made caps even more valuable. A government-run currency, both in the NCR and the Legion, is simply another way in which a single medium of exchange comes to dominate.
It also answers the question from the above-mentioned tweet: people accept the green piece of paper but not the white one because other people accept the green piece of paper but not the white one. Money is a public good: people use one specific kind of money because there are benefits to using the kind of money everyone else uses. People use, accept, and keep money because they trust that other people will use and accept it in the future. This is a fairly big leap, but trusting that people will just pay off their debts is an even bigger leap (increasingly so the bigger and more compelx a society is).
All that glitters
Where does the value of money come from? This is an ancient debate, going as far back as Plato and Aristotle. There are two main traditional positions: “chartalism” and “metallism”. Metallists argued that the value of money came from the value of whichever commodity backed it - so gold-backed money derived its value not just from gold, but from the amount thereof backing it. Chartalists, meanwhile, argued that money’s value came from the power of the state backing it: money had to be created by the government, and it was determined as the main means of exchange because it was the one the government demanded to be paid taxes in. The extent to which people used money depended on their trust on its value, which in turn depends on their trust on the power of the government creating it.
Metallism is an incredibly dumb position, to the point where it’s now considered a fallacy (the metallist fallacy). David Hume’s On Commerce gives a pretty good counterargument: the amount of gold can only determine the price level, but not relative prices. This is a fine distinction: a country having twice the amount of gold as another means it will have twice the amount of currency and therefore prices twice as high - but the real value of the currency will be exactly the same. A change in the amount of the gold to money ratio will change the nominal value of currency through changes in the price level (i.e. inflation) but not any real variables.2 So the amount of gold backing a specific currency is irrelevant - Milton Friedman (paraphrasing) wrote that it wouldn’t matter if Fort Knox had millions of gold ingots or a single nugget, the dollar would be just as useful and all that would change are (nominal) prices.
Chartalism is a whole different beast but it’s not really a very useful theory to understand money - people demand money based on their trust on its value for transactions, not because of their trust in the government. Countries with higher and higher inflation rates stop using their official currency for more and more transactions simply because it doesn’t hold its (real) value, not because of increasing mistrust of the government. Venezuela’s hyperinflation ended basically on its own after nearly a decade simply because people stopped using Venezuelan bolivars for transactions and started using US dollars instead - which you could argue means the government lost all control over the economy, but that’s pretty weak sauce ad hoc stuff. And there’s also currencies people use which aren’t backed by any government but by people’s faith in them3, and when people lose faith, they lose all value.
Now, to be fair, governments being the single issuers of a currency does have advantages. As mentioned above, it guarantees that every buyer has something any seller wants. Aditionally, it also guarantees that there’s going to be something that can be used for transactions reliably - “descentralized” currencies could be very prone to forgery or fraud without any checks on whoever issues them. It also has benefits for the government: creating one unit of currency almost never costs one unit of currency, so it’s always possible to create more of it to pay for anything. For instance, printing 100 Argentinian pesos cost 1.50 pesos in 2017, so the government could always finance 98.5 pesos of spending by printing 100 pesos. This benefit is known as “seigniorage”, and it has ancient and medieval origins: lords and kings would reduce the amount of gold or silver in their coinage to create more of it and pay for expenses. Evidently, the new coins were worth less than the old ones, and prices rose in response (see the second footnote for a bit more on this). Seigniorage is a double-edged sword because it allows the government to pay for any amount of spending it wants, but unless “real resources” increase, it would just bid up prices on a limited quantity of goods. If this sounds familiar it’s because it’s the backbone of Modern Monetary Theory (and also most monetary theory in general), and what sets it apart from mainstream claims is simply whether the amount of real resources increases or not, plus what is the extent of the inflationary effect of increasing the money supply.
Regardless, both chartalism and metallism are not correct descriptions of why money is demanded by individuals - simply because other individuals also demand it. People want seemingly worthless pieces of paper not because it has an army behind it, but because other people also want them (sometimes it helps to have an army behind it, though). So people use bottlecaps regardless of whether there’s water granting them value because everyone agreed that bottlecaps were valuable simply because everyone agreed they were valuable. Money is what Hayek would call “a result of human action but not of human design” - same as language: everyone uses the same one (in a specific context) not because of some grand design, but because the best response to everyone using one of the many alternatives is to use the same one.
Conclusions
Why do people accept bottlecaps as money? And what have we learned about money?
Money’s role in any economy is as a medium of exchange. Whether in the present or the future, by changing hands or appraising value, money’s role is to help perform transactions. People hold money to spend it, make money off of it, or to hedge themselves against bad outcomes.
Money emerged as a way to quantify obligations, not as a solution to barter’s problems. No human society has ever been observed to use barter as its main way to conduct transactions. Instead, people relied on “IOUs” until society got too complex to reliably keep track of them - at which point some specific item (with or without inherent value) was used to.
Money’s value comes from its role as the medium of exchange. Once a specific item is designated to be the medium of exchange, the reason people will accept it in transactions has nothing to do with its inherent value, and everything to do with the fact other people will also accept it in trasnactions.
Sources
A similar piece in Spanish I wrote a while back.
Previous posts on why Argentinians demand US dollars, and on cryptocurrency
Davidson (1965), “Money and Employment, chapter 1: Keynes’s Finance Motive”
Kiyotaki & Moore (2002), “Evil Is the Root of All Money”
Ilana Strauss, “The Myth of the Barter Economy”, The Atlantic, 2016
Friedman (1991), “The Island Of Stone Money”
It was probably a very bad bargain for him.
Actually Hume said that changes in the supply of money were non-neutral in the short term because different prices adjusted at different times and therefore relative prices would shift around and have real consecuences on output. But this isn’t a “was David Hume a New Keynesian?” post so this is beyond the point.
Some argue that the value of cryptocurrencies comes from their scarcity due to the difficulty of “mining” (i.e. creating) them, but creating bubblegum is also difficult and people don’t use it to pay for anything. They’re currencies as lon as people use them as such (to buy, save, or speculate), not because there’s few of them - the metallist fallacy is, after all, a fallacy.
My favorite (modern) money is the Somaliland shilling.
For one thing, it's issued by a government that no one recognizes, so it completely splinters the "we trust it because a (legitimate) government issued it" theory, and you certainly can't convert it (digitally) to any other "real" currency or wire it to bank accounts abroad, etc.
But I also love the Somaliland shilling because the notes themselves are of such low (individual) value, that no one ever pays for anything with individual bank notes. Instead, they're bound together in "bricks" with rubber bands, and nobody ever removes the bands, so over time, they do get kind of melded together into this thick, chunky single item that's only recognizable (from other denominations) by color.
In other words, even on a tactile level, it's completely different than other currencies. And yet, guess what? Somehow, it works!
Not an economist, but I do know a bit about art.
Cryptocurrency *is* valuable because of a shared belief that it is--but the truly interesting thing is that it behaves more like art objects than currency. That is, I've noticed that the process by which a crypto gains credibility (and exchange value) is uncannily similar to how an artist's work gains, or is granted, exchange value. The art market has been around for centuries, of course, but dates in its most contemporary form to ~ the 1920s. Skilful promotion, criticism, and community, as well as the emergence of national centers, mean that one group of colored suspended dirt, cloth, and wood objects is worth tens of millions, another literally not enough to pay to have it removed.