In early pastoral societies, cattle served as the prevailing currency. Draco’s law code measured fines in oxen. In Latin, pecus means livestock, and is the root word for “pecuniary”.
If cattle is money, then the idea of interest rates is intuitive. Cows are productive assets. In the beef industry, a pregnant heifer commands a premium over an empty cow, and the premium increases the closer she is to calving. A very pregnant cow is like a bond that’s near maturity.
The Sumerian word for interest, mass, is the same as the term for calves. The Egyptians use a similar word, ms. In ancient Greek, τόκος means usury as well as offspring. If I lend you a cow, you’d better return a cow plus a baby cow.
But what if I lend you a mule? A mule is the sterile progeny of a horse and a donkey. If the mule cannot reproduce, should it bear interest?
Hittite records show that while the price of an ox was equal to ten sheep and a horse was twenty sheep, the price of a mule was equal to sixty sheep. A donkey was only three or four sheep.
It seems that the nonproductive mule ought to trade at a discount to its peers, given that it has no cash flow, earnings, coupons, or yield. Assuming the Hittites understood interest rate parity, the only rationale for buying a mule would be that it was a better store of value than the rapidly debasing ox.
Maybe we can think of the mule as a collectible – it commands a higher price than other livestock because it is rare. A mule has a sort of unforgeable costliness: In order to make one, you have to restrain a female horse while she’s mated with a donkey, which doesn’t sound very nice now that I think about it.
I’m kidding! A mule is not a collectible and it’s silly to examine its fundamentals. A mule is an incredibly useful animal that combines the load-bearing capacity of a donkey with the temperament of a horse with the smooth sweet ride of a barcalounger. Mules have been used to transport things from military equipment to narcotics to the family of King David. The fact that they were more expensive than other livestock is a reflection of how much value they created.
Bitcoin is at an all-time high and is bound to surpass $3000 by the end of the night. It has no intrinsic value or cash flow, but it’s not just a store of value either. Bitcoin’s job in life is to move assets around, just like a mule. This isn’t a glamorous job, but it sure is a valuable one.