The History of Money
Introduction: The World Market
The thing that differentiates man from animals is money- Gertrude Stein
In the introduction, we see that no matter where you are in this world, money is essential to everyday life. Even in the town of Bandiagara, where people still need to have exchanges with money. Despite their illiteracy and complete lack of formal education, they are still able to negotiate, buy and sell with great facility.
It clearly states that the world is tied together by money.
“The fundamental activities of the market differ very little” - page7
Although we are all bound by money, different people live in cultures with different core values and focal points.
“Money serves as the master key that unlocks nearly all pleasures-as well as many pains” - page11
Phase 1: Classic Cash
Money alone sets all the world in motion - Publilius Syrus
Cannibals, Chocolate, and Cash
The last conflict is at hand in which Civilization receives its conclusive form-the conflict between money and blood - Oswald Spengler
Before the modern cash of money, people used a variety of objects for a similar transaction of goods. The Aztecs used cacao beans for their transactions.
By that time, the government of the Aztec Empire already knew the importance of controlling the market.
Cacao became so important, there was already a counterfeiting industry.
Commodity money has a value in and of itself and thus can always be consumed no matter what the status of the market. - page 20
The English word “salary” and the Italian, Spanish, and Portuguese world “salario” are derived from the Latin word “sal” meaning “salt”. Or more precisely “salrius”, meaning “of salt”.
The word “pecuniary” meaning “related to money” is derived from the Latin “pecuniarius” meaning “wealth in cattle”.
The use of commodity money has never disappeared, it rises again whenever the nomal flow of commerce and economic life is interrupted.
Commodity money always has it’s downside, some such as cigarettes, good, cloths,shells, gain, and tobacco would all lose their value because they would eventually deteriorate. Other commodity money such as animal skins and furs are not useful everywhere.
“Money never exists in a cultural or social vacuum. It is not a mere lifeless object but a social institution.” - page 24
Metal “money” is also another popular exchange object next to food.
Metal lasts, can be made in to small pieces, and almost everyone needs it.
The Fifth Element
Money ranks as one of the primary materials with which mankind builds the architecture of civilization - Lewis Lapham
In the two works of Homer, Lliad and Odyssey, we clearly see that money has no place in the epic poems, just as it had no place in the lives of his heros.
The market place was of no importance; each town tried to produce as much as it could for itself so they would have to trade as little as possible with neighboring towns.
“The heros of Homer were men of passion rather than the men of moderation so admired in classical Greece” - page29
It was in the little-known-kingdom of Lydia that humans first produced coins.
The first revolution began.
Croesus is the only well known ancient Lydian name.
As rich as Croesus
Croesus depended on his ancestor’s invention: coins, a new and revolutionary form of money.
Similar inventions can be found all around the world, but they did not really start using coins until the Lydians between 640 to 630 BC
Their money is called ingots
They were in a standardized size and weight, stamped with an emblem so that even the illiterate can verify their worth.
They made the first coins out of electrum
Coin sizes were around the size of a thumb, and then each coin would be stamped with the emblem of a lion’s head. Which name the oval nugget into a flat, circular coin.
Because each coin was the same weight and size, it eliminated one of the most time consuming steps in commerce: the need to weigh each gold every time a transaction is being made.
Lydia rose not from conquest, but from trade.
Croesus created new coins made of pure gold and silver.
Then came the invention of the retail market!
Brothels soon came and gambling followed.
Croesus used his wealth into the two bottomless wells of conspicuous among kings: buildings and soldiers.
It was when Croesus was defeated by Cyrus the Great, did the great empire of Lydia fall.
Even though the Persian army was unbeatable, they still couldn’t compete effectively with the revolutionary new mercantile system of market based on the use of money.
“In time, these new markets based on money spread throughout the Mediterranean, and they continued to clash with the authority of traditional tribunary states.” p34
The monetary revolution ended the heroic Greek tradition and set in motion the evolution of the Greeks into a nation based on trade.
Coins became a baseline which things can be measured and exchanged.
“The greatness of Greece came as a by-product of the monetary and mercantile revolution from Lydia, the introduction of money, modern markets, and wholesale and retail distribution”-p35
“Money connected humans in a more extensive and more efficient way than any other known medium”-p35
Money started to become as valued as time itself.
“Everything could be expressed within the terms of one simplified system”-p36
Coined money had a tremendous impact on the distribution of power
The center of a city was not the palace or a temple anymore, it was the marketplace. It was essentially a commercial civilization
Thats how Greece created a whole new kind of civilization
It’s because of this new kind of civilization, the Greeks had the opportunity to pursue social luxuries and the arts.
Money made people think in new ways, in numbers and their equivalencies.
Money was the Greek’s albeit cultural rather than natural, element.
“Chremata aner” - money is the man
Books that are written after the invention of coins became more “practical”. The characters no longer simply posses the heroic side, but a practical side was more described in stories and poems.
“oikonomikos” - skilled in managing a house-hold or estate
“According to Plato, no honest man could ever be rich, since dishonesty always paid better than honesty; consequently, the richer a man was, the less honest and virtuous he must be. In Plato’s view, people should be punished if they attempted to buy or sell their allotted land or home.”-p41
Aristotle on the other hand, doesn’t think like Plato. He thinks that people at the market shouldn’t all pay the same price for the same thing, it seemed to him only natural that people with more money should pay higher prices than poorer people. Since he thinks that the exchange of goods doesn’t just stand alone, it’s also to satisfy greed.
After nearly 500 years later, Rome was to be the greatest extension of classical civilization created by money, but it was also to be the beginning of the end of money as a system based on metal coins. Rome became both the climax of the classical world and its destroyer.
The Premature Death of Money
“Thy money perish with thee.” - Acts 8:20
Money was occupied a place in many temples, but one particular temple in Rome during those times. The temple of Juno Moneta, the highest Roman goddess.
In 269BC, the Romans introduced a new type of silver coin: the denarius. Made in the temple of Juno Moneta
From Moneta, came the English word “mint” and “money”, which is from the Latin word, meaning “warning”
The Spanish word for “coin”: “moneda”, also came from Moneta
“From very early classical times, money showed a close relationship to the divine and to the female”-p48
The Latin word “currere, meaning to run or to flow-> English word “currency”
Rome operated using a new system heavily borrowed from the traditional ideas, but combining it with the new revolutionary ideas of the market.
“Unification provided protection and therefore encouraged trade”-p49
But, many of the Roman leaders fail to see the power of “money”, their fame and glory still came from military conquests.
“Rome was a political and financial capital...a new sort of city. She imported profits and tribute, and very little went out from her in return”-p50
After Rome had looted all the lands around it, it was forced to import good from Asia, which Rome had nothing to trade except gold and silver.
Another money eater was the military. The Roman land was far to big for it to manage, and they still had to maintain the massive army.
During the time which Augustus ruled, salaries started, and the numbers of salaried officials increased.
Nero produced a momentary surplus of silver and gold. He collected the gold and silver coins and made them smaller, and it gave him almost a 15% profit.
Over the course of 2 centuries, the silver denarii had a two hundred-fold increase, because of the ruler’s shrinking the percentage of silver in each coin.
The taxes would all be fine if the government’s army still brings in great amounts of loot from it’s conquests. But as the loot decreases, the taxes increase. The types of taxes also increased.
By the time of Diocletian, many Roman subjects were not earning enough money to pay their annual taxes. Thus, more and more families were reduced to poverty.
The Roman government then used many grotesque ways to exploit their own citizens in order to get money.
It’s because of taste for luxuries grew, money was drained from Europe to Asia continued almost until the 19th century.
Public doles began to appear
Because of the tax rates, many people became to move away to tax-free estates, which led to not enough taxes paid, which led to the decline of the government.
The government still found many reasons to confiscate wealth from rich people or religions
Because of the chaos that was caused by the government, and which no ruler could solve, Europe went into the Dark Ages, then the Middle Ages, which money only played a wispy shadow of the role it had held in classical Greece and Rome at their height.
“Under the Roman hegemony, government had defeated and apparently destroyed the market system itself. The romans seem to have inadvertently managed to go what the Persians had attempted but failed to accomplish in their years of war against the merchant cites of Greece”-p62-63
But money did at least survive under the rule of the Byzantine emperors.
Knights of Commerce
“In faith there is profit” - Saikaku Ihara
The Knights Templar seems to be the Europe’s first international banking system.
Templars was founded in Jerusalem around 1118 by Crusaders, the Military Order of the Knights of the Temple of Solomon dedicated their lives to serve the church and, specifically to the task of liberating the Holy Land from the Infidels.
They later became businessman who ran the world’s greatest international banking corporation for nearly 200 years.
As the Templar grew, their wealth and power grew as they won battles. Like all religious orders, they also accept gifts, which made they quite rich. As the Templar grew, the more land and power they have. Which made them the ideal place to put one’s money in for safety. Which is what many kings did, and since the Templar was in charge of many roads, they can deliver that money safely from one place to another, which they charge an additional fee of course.
The Templars’ castles soon became full-service banks, offering many financial services to the nobility.
At the maximum strength, they had about 7000 people and 870 castles.
As the organization of the Templars grew larger, they became an easy target, just waiting for a sufficiently strong and greedy monarch to tackle them. Who was King Philip the fourth of France. He used the same tactics as Nero and made coins with fewer percentage of silver in it, as to seem to have more coins, but that as we know it doesn’t work. He began to heavily tax people, but even that still didn’t meet his hunger. So he decided to target the Templar’s headquarters just outside the city of Paris.
Instead of simply waging war against the Templar, Philip used small raids to get capture the older and weaker leaders of the Templar, and forced them to admit and sign confessions. Philip then unleashed a public relations war, and accused them of doing horrible crimes, which made the public against the Templars.
Another thing Philip used was because all Christians believe that Satan once tried to convince Christ to leave God and worship him, and Christ shall have all the riches in the world, but Christ didn’t, and lived in poverty. Contrast to the Templars, they must have made the deal with the devil in order to become so rich.
In their hour of need, the Templars received no help from the mother church that they had defended with their lives for so many years. For about a decade, the French authorities tortured the Templars. All the French authorities wanted a piece of the wealth, even Pope Clement V.
After the 4 years of mass execution of the Templars, Grand Master Jacques de Molay and Geoffroi de Charney were burned to death on a small island in the Seine River on March 18th, 1314
King Philip crushed completely the greatest and most powerful international financial institution of the time.
The triumph of Philip over the Knights marked a clear increase in the power of a national government that would not tolerate an international financial rival as powerful as the Templars.
For the first time since the fall of Rome, a government in western Europe had successfully reasserted its authority and power to control financial institutions, and it had broken the commercial power of the church.
“The destruction of the Templars, however, created a financial and commercial void that the church was too weak and fearful to occupy again and that government was not yet large and strong enough to fill.’-p71
During that pivotal moment in European economic history: The families of the north Italian city-states of Pisa, Florence, Venice, Verona, and Genoa began to offer the same services that the Templars did. Even though they started a new set of banking institutions, they had close ties with both the state and the church.
This was a new system of private, family banks, which only had one ambition: to take home a profit. (Which is pretty much like any bank we see these days.)
The Italian families differed from the Templars in many different ways, one of the most important differences is that they served everyone, not just the nobles. Instead of living in castles, they lived and worked among the people, having great relations with everyone.
The modern word “bank” came from the Italian words bank, banco, and banque, meaning “table” or “bench”.
“banking, as practiced by the Templars, faced a great limitation in that the church forbade usury, the charging of interest on loans, and getting around that barrier proved to be one of the greatest obstacles that the Italian families had to overcome in order to build their extensive banking enterprises.”-p73
The Italian banks avoided making loans, instead, they traded bills of exchange
The use of bills of exchange had another beneficial effect on commerce, coins were heavy, difficult to transport, easily stolen, often counterfeited. So, using the bills of exchange overcame a lot of obstacles.
The bills of exchange sort of act as a check of paper money these days.
The first checks appeared in the late 14th century.
The banks only fell because of the loans Edward the 3rd was unable to pay because of the Hundred Years War. Because the entire system of money based on bills of exchange ultimately rested on the honestly and the goodwill of the participants, the government became too burdened by the debts, it had the power to cancel them, thereby destroying the system.
But the baking system did not die, and it rose again the next century under that leadership of Florence’s greatest banking family, the Medici.
The Renaissance: New Money for Old Art
“Bankers are just like anybody else, except richer.” - Ogden Nash
Throughout history most cities in the world either change as time goes on or cling onto one particular time era. But the city of Florence, located in the Tuscan hills of Italy does, it clings onto to the time of the Renaissance.
The Florentines claim their their city the cultural capital of Italy, and they boast of maintaining the highest standard of art, the most magnificent architecture, the purest language, and the most glorious history.
As mundane and undramatic as a money exchanger machine or person may sound, they have a great impact on art, architecture, and mathematics as well as world finance.
In 1422, Florence was known as the banking city, and 72 international banks operated outside Florence.
The Medici family appeared a little later than the other banking families, but they made the most impact.
The merchant Giovanni di Bicci de’ Medici (1369-1429) founded the family fortune in banking.
There are many saying of what source of the family name and coat of arms came from, but no one is really sure.
The Medici learned from their Italian ancestor bankers’ mistakes, so even though King Edward the 4th defaulted on his loans, only the branch in London fell. They never repeated those mistakes again.
The Medici banks not only served as banks, but also as merchants. But they still never attained a monopoly like that of the Templars, nor control as much market as the Florentine bankers before them. By the time they started, there were many other banks already, but this probably served them as a protection.
The Medici bank operated until Charles the 8th of France invaded Florence on November 17th, 1494. The family returned back to Florence in 1530, but their heyday had passed.
The great genius of the Medici family was their ability to use their wealth and commercial success as a means to acquire political power and aristocratic titles.
“The Renaissance began not as a movement in arts and letters, but as a practical, mathematical revival to help bankers and merchants perform increasingly difficult tasks of converting money, calculating interest, and determining profit and loss.”-p85
Leronardo Fibonacci published Liber Abaci in 1202, introducing the Arabic numerals, even though they borrowed the numerals from India.
Many people, such as the government, and universities did not accept the new type of numerals.
The Arabic numerals in the words of mathematics historian J. D. Bernal: “had almost the same effect on arithmetic as the discovery of the alphabet on writing.”
The number 0 took a while for them to understand, especially when it’s not alone.
The word “algebra” comes from “al-jabr”
The use of decimals only came into attention after the 1585 publication of De Thiende by the Dutch scholar Simon Stevin (1548-1620)
In 1525, Christoph Rudolff published the first German book on algebra, introducing the sign for square root.
Gerorg Simmel: “Money by its very nature becomes the most perfect representative of a cognitive tendency in modern sciences as a whole: the reduction of qualitative determinations to quantitative ones.”
Money was changing the world’s system of knowledge, thinking, art, and values.
A big reason of humanism is because the rich families could finance their own scholarships and art, and so they emphasis on people rather than gods, saints, and angels.
You can see in many paintings, poems and other works of art, that money became a crucial part of people’s lives.
The rise of Italian banking and the Renaissance, a new type of civilization began to emerge. By themselves, the bankers and their new monetary system would not have been able to create a whole new civilization, but the changes that they introduced into European life were followed by a unique event in world history. The new wealth combined with the new financial institutions created a unique hybrid system of banking that dominated the world for the next five hundred years until the First World War.
The Golden Curse
“Make money, money by fair means if you can, if not, by any means money.” - Horace
The Indians of Bolivia believed that since coins are made from metal that come from the ground, they must worship a different God to protect them and give them wealth. Anything below the ground is the space of the devil, which the Indians built a statue of the devil and his wife and worship it before they start mining, in hopes to give them life.
After Columbus arrived in America in 1492, it took the Spaniards about 50 years to locate all the major treasures accumulated by the Indians.
After half a century of constant looting, the Spaniards looted all the rich places in America, so they turned to the mines in Peru and Mexico.
As known to most of us, the Europeans thought they can do whatever they want, and so they issued their own law saying that the pope can simply grant ownership of any land to individuals. Then the Crown demanded 50% of all the treasures that people found. For a high enough fee, the Crown’s agent will lease, grant, or even sell to individuals or groups the right to mine. But the “quinto real” (the royal fifth), says that they have to pay 20% of all the minerals they mine to the Crown, and in later years, the Crown kept wanting more.
The Crown also charged people by buying or using governmental supplies and ships by taxing them from 2% to 6% (alcabala). The Americans have to pay the “almojarifazgo”, a 7.5% import tax.
The Crown also collects “diezmo”, or tithe (1/10 of annual produce or earnings) for the church.
The wars and struggles among the European powers from the 16th to the 18th century focused on controlling the wealth of the Americas and the trade with Asia-p99
From 1500-1800, the mines of the Americas provided 70% of the world’s output of gold and 85% of its silver.
Based on all the research from p99-p100, researchers estimates until 1800, 145000 and 165000 tons of silver were shipped, and 2739 to 2846 tons of gold. At the price of $400 per ounce, it would all add up to approximately $36 billion.
At the beginning, no one really looked at Brazil as a place with gold and silver, just cheap slaves and sugar. But after the discovery of golden nuggets in Brazil, it became the center of the world’s gold production.
From 1741 to 1760, it was averaged more than 16 tons a year. The mining and transport of the minerals required approximately 150000 slaves.
Because the Portuguese kings squandered their wealth on palaces, pomp, and pageantry, there was tremendous inflation. The more silver people had, the more goods they wanted to buy, and the more people who wanted these goods, the higher the prices charged for them.
In 1776, Adam Smith: “the discovery of the abundant mines of America reduced, in the 16th century, the value of gold and silver in Europe to about a third of what it had been before.”
From 1500 to 1600, prices in Spain rose by 400%.
So much silver were being shipped from Spain to other countries in exchange of goods, even foreign ships had to help because most of the ships were running duties form Spain the the Americas.
Before the discovery of the mines, Spain mostly worked as peasants, tilling the soil and growing wheats and olives. When the gold and silver started pouring in, the Jews and Arabs helped with the math at first, then Italian merchants, German moneylenders, and Dutch manufacturers all quickly moves to fill the mercantile void left by the Jews and Arabs.
Votaire: “entered the pockets of the French, English, and Dutch who traded with Cadiz under Spanish names; and who sent to America the productions of their manufactories.” He added: “a great part of this money goes to the East Indies to pay for spices, saltpeter, sugar, candy, tea, cloths, diamonds, and monkeys.” p103
The gold and silver only ships annually, and the Spanish kings spent all of it before it arrived. They started out by borrowing money from their subject, then banks, then other countries. Many terrible wars started because of debt issues. By the 1640s, many of the Spanish provinces themselves had risen up in rebellion against the hard taxation repressive government of the Hapsburg monarchs. In some years, the Crown’s expenditures surpassed three times its income.
“The Spanish baroque and rococo eras have probably never been matched for the lavish use of gold in decoration.” p105
This era, known as the Siglo de Oro (Century of Gold), marked the apogee of Spanish civilization.
In literary terms, the Golden Age opened in 1522 when Garcilaso de la Vega began to write, and it close in 1681 with the death of playwright Pedro Calderon de la Barca.
During the 16th and 17th century, silver and gold coins became more accessible than any prior time in history. No longer would the use of precious metal coins by limited to wealthy individuals. p106
The discovery of more gold and silver in Americas produced a far more immediate impact on the lives of common people than did the banking revolution.
“Spain had unleashed a power that raced around the globe and operated with a force of its own, independent of both church and state. The wealth of America had run amok, and the world would never again be the same” - p108
Phase 2: Paper Money
“Geld regiert die Welt (Gold rules the world.)” - German Proverb
The Birth of the Dollar
“Money, not morality, is the principle of commercial nations.” - Thomas Jefferson
The dollar originated from the Czech village of Jachymov. A Bohemian village of 2700 inhabitants.
At the beginning of the 16th century, Jachymov came under German rule when Bohemia became part of the Holy Roman Empire.
Count Schlick ruled that area and largely unsettled area from Hrad Freudenstein.
Then miners discovered silver deposits in approximately 1516, it wasn’t really new in Bohemia, there were several major silver mines east of Jachymov.
Instead of simply mining silver and selling them, Count Schlick minted silver coins called “groschen”, in German: “Joachimstalergulden” , or “Joachimsthalergroschen”.
Gerog Bauer did a systematic study of the minerals in the area, and later became the father of mineralogy.
Jachymov then had over 18000 inhabitants, but then a plague came and the Bohemian monarchy began a fierce campaign of forced conversion to Catholicism. Many people were killed until the population dropped to only 529 people.
Even though the mines never recovered again, the coins of Jachymov spread around the world, influencing the names of many different European coins.
The word passed into Italian as tallero, into Dutch as daalder, into Danish and Swedish as daler, into Hawaiian as dala, into Samoan as tala, into Ethiopian as talari, and into English, as dollar.
From the first talers in Jachymov to the year 1900s, scholars estimated about 10000 different talers were used.
The most famous and widely used one is the Maria Theresa taler.
The coin that bear the portrait of Maria Theresa even outlived the empire.
They continued to mint coins with the date of Maria’s death (1780) on it until WW1 the Austro-Hungarian government (the government that kept on making the coins others made before) collapsed. Then the new Austrian Republic continued to make the taler until hitler seized the country in 1937.
The new Republic of Austria resumed minting the coins from 1956 to 1975.
Historians estimated around 800 million silver Maria Theresa talers were struck between 1780 to 1975.
Other coins started to be minted like the Maria talers, with the bust of a middle-aged woman who means something to the country.
The English word “dollar” actually came from Scotland.
No major country adopted the dollar as its official currency until the formation of the US. At first, since the 13 American colonies were still paying taxes to the British government, they ran out of British coins, so they looked for the closest coins to use, which was of course the neighboring Spanish colony of Mexico.
Because of the great wealthy produced in Mexico and Peru, Spanish coins became the most commonly accepted currency in the world.
“On July 6, 1785, the Congress declared that “the money unit of the United States of America be one dollar” Not until April 2, 1792, however, did Congress pass a law to create an American mint, and only in 1794 did the United States being minting its first silver dollars. The mint building, which was started soon after passage of the law and well before the Capital or White House, became the first public building constructed by the new government of the US.”-p118
The US government tested the Spanish dollars and found out they were only averaged 371 and 1/4, rather than the 377 grains claimed by Spain. The US government decided to set the value of the American silver dollar at 371 and 1/4.
In 1787, the US first issued its coins. they bore the motto: “Mind your own business” With the inscription “Fugio”, meaning “I fly”.
The US coins differ from the European coins in which the US coins persisted in not putting a picture of a person on the coins.
Canada created their own currency in 1858. Canada did not issue its own silver dollars until 1935.
In 1935, during the Great Depression, the US Treasury ended the minting of silver dollars; then, with the passage of the Coinage Act of 1965, they ceased using silver in American coins, replacing it with copper covered in cupronickel.
In Africa, only Liberia and Zimbabwe have named their currencies dollars. But, in 1943, the government of Liberia banned the use of all foreign currency except the US dollar. Beginning of 1960, Liberia had its own silver dollars. Liberia became one of the last countries to mint and use silver dollars, thereby bringing to a close a long chapter that had begun over 4 centuries earlier in the distant mines of Jachymov.
Beginning of 1987, the government of Liberia began to make cupronickel dollar that looked just like the old silver dollar and bore the same date 1968, but contains no silver. Until the 1990s, they started to issue their own coin, but misspelled memoriam as memorium.
The Devil’s Mint
“The trouble with paper money is that it rewards the minority that can manipulate money and makes fools of the generation that has worked and saved.” - Adam Smith [George Goodman]
On page 124, there are plenty of facts on America’s money.
The 20th century became the era of paper money.
The money in China in the past, mostly lie in the power of the state forces rather than the market forces.
The invention and dissemination of paper money in China marked a major step forward in government control of the money supply.
The invention of money had to be after the invention of paper and printing of course.
It is no accident that printing, papermaking, and paper money all originated from China. Historians have found illustrations that paper money went as far back as the 唐朝, but no examples from that era has been found.
A note representing a thousand coins measured 9 by 13 inches, the size of a napkin. Despite the awkward size, it was a great improvement from the bulky heavy coins.
In 1273, Kublai Khan issued a new series of state-sponsored and controlled bills. The Chinese government confiscated all the gold and silver from it’s citizens and even from merchant bureaucrats and then the traders will receive government-issued notes in exchange.
Marco Polo saw clearly that this system of paper money could work only where a strong central government could enforce its will on everyone within its territory.
Moroccan traveler Muhammad ibn-Batuta described China as the safest country in the world for merchants. No matter how far they traveled or how much paper money or other goods they carried with them, they were almost ever robbed.
The Chinese abandoned their paper money system around the 1400s, and it only reappeared again around the 20th century.
It was too easy to find ways to adulterate gold coins, so one of the earlier ways was to have a banker or government official to measure the gold coins before sealing it into a small purse and then write the value of it on the outside, giving the next merchant no choice but to trust the measurer.
There are many records of paper money being used in Europe, but no examples of them survived.
In July 1661, Sweden’s Stockholm Bank issued the first bank note in Europe to compensate for a shortage of silver coins.
The first national experiment for such paper money was undertaken in France. By royal decree on May 5th, 1716, the French chose a Scotsman, John Law, to head up a bank named Law and Company, but quickly renamed Banque Generale. Law immediately began issuing paper notes representing the supposedly guaranteed holdings of the bank in gold coins. Then on December 14th, 1718, the bank was changed to the official bank of the French government, which gave Law an even more immense power.
The Banque Royale printed paper money, which investors would borrow in order to buy stock in the Mississippi Company; the company then used the new notes to pay out its bogus profits. By the end of 1720, the Banque Royale lay devastated with a trail of worthless paper notes behind it.
The French government later on destroyed the machines which were used to make the paper money as to show the public their support. But then, afterwards, the government began the unfortunate cycle anew by issuing yet more paper money but calling it by another name: the mandat
The first successful application occurred in North America.
John Kenneth Galbraith said: “if the history of commercial banking belongs to the Italians and of central banking to the British, that of paper money issued by a government belongs indubitably to the Americans.” (I really think Americans are too proud)
The first paper money was printed in 1690 by the Massachusetts Bay Colony.
Benjamin Franklin holds the honor of being the father of paper money.
Despite his lack of a formal education, he wrote one of the first pamphlets on paper money at the age of 23.
At that time, paper money only existed as an emergency substitute for “real” money.
In 1751, the British Parliament outlawed the use of paper money in New England and in 1764 banned it in other American colonies.
The Second Continental Congress created paper money before it had declared independence from Britain. In order to become independent, they must raise an army, but they don’t have any money, so they used paper money first and promised that they are worth something.
In 1777, Congress issued 13 million worth of paper bills called Treasury notes but called “continentals” because of the label Continental Currency on them.
At the very beginning of the paper money issued by the Congress, they valued one Spanish milled dollar of silver, but at around 1780s, the value of the bills had dropped to 75 continentals to one silver dollar.
The whole experiment made the Americans distrust the paper money so much, they didn’t print paper money for the nearly a century.
The the Americans, the experiment with paper currency during the American Revolution was a great failure because they lost so much money, but to the rest of the world, the experiment appeared to be a great success because the Americans had won their war using the novel technique of issuing paper money.
In Johann Wolfgang von Goethe’s poetic tragedy Faust, Dr. Faust and Mephistopheles visited the court of the emperor and said that they have found the key to making gold, the secret that all alchemists had sought for centuries He obtains from the emperor permission to print paper money-”the heaven-sent leaf.” They then showed the emperor how it’s done, and got him to sign a note bearing the inscription: “To whom it may concern, be by these presents known, this note is legal tender for one thousand crowns and is secured by the immense reserves of wealth safely stored underground in our Imperial States.” By the next morning, the emperor has forgotten that he signed the note, but during the night Mephistopheles has had thousands of copies of it made in various denominations.
Metric Money
“Money, like number and law, is a category of thought.” - Oswald Spengler
Russia started the decimalization of money. It started as early as 1535. But the official royal order was on March 15, 1719.
At the beginning, no one wanted to adopt the new decimal way from Russia. It was only in 1782, the US proposed the decimal system. Congress adopted the basics of this system in 1785 and 1786 and finalized it in Alexander Hamilton’s Coinage Act of April 2, 1792.
In October 7, 1793, France adopted the decimal monetary system, “calcul decimal”. In 1795, the French replaced the name “livre” to “franc”, which consisted of one hundred centimes. But it was only until 1803 did France actually mint new coins using the decimal system.
The metric fetish in France went from 1793 to April 7, 1795, and it officially ended on January1, 1806.
But it’s because of it, the French invented the metric system we use today. The “meter”, the most original means of calculating things came from the one tenmillionth of the terrestrial meridian that ran through Paris.
The Scottish engineer and inventor James Watt also set up his own system, which on one ever adopted. So he only contributed to the unit of power that is still called the watt, and for 747.5 watts = one horsepower.
The Paris Exposition in 1855 shoed the world that by switching to the metric system is a way of expanding science and commerce.
“The Vienna Coin Treaty of January 24, 1857, helped move forward the adoption of the decimal system for coinage, and it encouraged the adoption of metric weights and measures.” p147
A New York librarian and Columbia University professor, Melvil Dewey divided library books into ten classifications, which he further divided and redivided into what became known as the Dewey decimal system. In 1876, at the age of 25, he published details of the system in “Decimal Classification and Relativ Index”, which he updated constantly almost until 1931, the year of his death.
The use of money spread all over the world, doesn’t matter who or where you are, you can’t avoid and hide from it. You see it come up in stories and folktales.
Money forces humans to reduce qualitative differences to quantitative ones. Thus numbering pushed ahead the development of math, and when applied to other fields, it made science possible.
“The new class of intellectuals no longer sought to discover knowledge only through studying the works of ancient scholars and religious writers. The themselves could create knowledge through observation and the recording of events around them. Knowledge could thus be induced from evidence rather than merely deducing from sacred Scripture or established dogma.” p149
It was only until the middle of the 19th century, did the major universities of europe reluctantly begin to open their doors to these new scientific disciplines, with Germany taking the lead.
The Gold Bug
“Time will run back and fetch the Age of Gold.” - John Milton
The place that the one-square-mile covers is called the City of London, and it continues as one of the world’s great financial forces. Something comparable to the City could be imagined if the US department of Treasury, Fort Knox, the Federal Reserve headquarters, and Wall Street were all located within one square mile.
Chartered as Governor and Company of the Bank of England, the bank raised money to finance the conquest of the world’s largest empire over the coming centuries.
At that time, a 20 pound note is roughly 1000 modern dollars, so it was used for large business transactions.
They issued one pound and two pound notes at the beginning of the 19th century.
In 1844, Parliament passed the Bank Charter Act, which gave the Bank of England a virtual monopoly on the right to issue bank notes in the UK.
The paper money of England was not issued directly by the government.
During the 19th century, the Bank of England became the focal and stabilizing institution of the world monetary and banking system.
Most countries in the world operated on a gold standard, but there were still countries, such as Mexico and China, which continued on a silver standard.
For about 70 years, from 1844 to 1913, the english pound reigned as the most steadfast and important currency int he world.
People started asking why do we use gold to back up our paper money?
Service became an important part of acquiring wealth.
Throughout the 19th century, the European governments wanted more money, but in order to print more money, you need more gold. So they sent out armies around the world in search of gold.
For the native people, the 19th century was the worst of times, stronger nations went around the world and took whatever they could have.
When there were no more lands to conquer, the nations turned on each other. Wars cost, and countries began to take themselves off the gold standard, and just printed money anyways in order to support their troops.
“Gold had done what no conqueror or religion had managed to do: it had brought virtually all people on earth into one social system.” p165
After WW1, the over printing of paper money continued, and power flowed increasingly into the hands of the politicians and the government administrators.
Everyone seemed to be looking for a scapegoat to take the blame for the calamitous monetary and economic fallout of the era.
Queen Elizabeth 2 became the first monarch whose portrait appeared on British paper currency. It clearly signifies that the government now held supreme control over the currency and all institutions associated with it.
Oswald Spengler, a historian and philosopher who lived through the transition from the Victorian to the modern era, said: “After a long triumph of the world-city economy and its interests over political creative force, the political side of life manifests itself after all as the stronger of the two.” He predicted the end of the age of money: “The sword is victorious over money.”
The Yellow Brick Road
“All you have to do is to knock the heels together three times and command the shoes to carry you wherever you wish to go.” - L. Frank Baum
During the latter years of the 19th century, New York began to replace London as the world financial center. The center had slowly worked its way from ancient Lydia across Greece and Rome, through Renaissance Florence, and then on to London during the early industrial era, and now it has entered NY.
Aristocratic French observer Alexis de Tocqueville wrote: “I know of no country, indeed, where the love of money has taken stronger hold on the affections of men.” That hold soon created the most dynamic economy in the world history so far.
Because the US government abused the use of paper money during the American revolution, Americans don’t trust paper money issued by the government. So, all paper money were issued by banks operating under state law, but still backed up by gold.
The Congress passed the National Bank Act in 1863 and thereby placed a tax on the notes issued by state banks beginning in 1866, which stopped wildcat bankers, and established a truly national currency controlled by the federal government and federally chartered banks.
Then, during the civil war, the government again started printing paper money, but they were called greenbacks, and the government promised to pay back the citizens at some unspecific time after the war. The value of the greenbacks reflected the people’s confidence that the Union would actually win the war and that the government would quickly redeem its notes in gold.
The value of 100 greenbacks only had the value of 35.09 dollars the year after the third Legal Tender Act was passed.
On January 2, 1879, citizens finally could exchange their greenbacks for an equivalent value in gold coins.
The judge of the US Supreme Court declared the issuance of greenbacks by the federal government to be illegal and unconstitutional. Which means Salmon P. chase ruled against himself, because he had been the one who first issued the greenbacks.
The US government issued 450 million dollars in paper, and the Confederacy issued around 1 billion dollars. Prices rose at a rate of about 10 percent a month until March 1861.
The Populists wanted silver as well as gold currency. With more currency around, they believed they would be less at the mercy of bankers and politicians from the cities.
The discovery of vast new deposits of gold in South Africa, Alaska, and Colorado roughly doubled the world’s supply, thereby easing the currency shortage.
Journalist L. Frank Baum, author of The Wonderful Wizard of Oz, who greatly distrusted the power of the city financiers and who supported a bimetallic dollar based on both gold and silver. Dorothy seems to be form the Populist orator Leslie Kelsey. After the tornado incident, Dorothy sets out on the GOLD road to fairyland, Oz, where the wicked witches and wizards banking operate. Along the way she meets the Scarecrow, who represents the American farmer; the Tin Woodman, who represents the American factory worker; and the Cowardly Lion, who represents William Jennings Bryan. The party’s march on Oz is a re-creation of the 1984 march of Coxey’s Army, a group of unemployed men led by “General” Jacob S Coxey to demand another publish issue of 500 million greenbacks and more work for the common people. More details on page 176.
The Golden Playpen of Politics
“Money is the lifeblood of the nation.” - Jonathan Swift
The US has a total of some 8000 tons of gold with a market value of approximately 100 billion dollars.
Fort Knox has become a synonym for wealth and security.
The gold sitting 80 feet below the street level of the Federal Reserve Bank contains about a quarter of all the mined gold in the world. Around 125 billion. Deposited by many governments.
Truth is, the gold stored away has nothing to do with the American dollar, it’s just a part of the wealth of the American government.
“The dollar is simply fiat currency. The dollar rests on the power of the government and the faith of the people who use it.” p180
“The problem with a gold-based currency is that it is limited by the amount of gold in the world.” p180
The two major steps that the US took to detach its money from bullion and other commodities is one taken by President Franklin Roosevelt in 1933, and the second by President Richard Nixon in 1971.
Because of the stock market crash in 1929, Roosevelt’s act was to take the US off the gold standard in order to stabilize the economy. The act of March 9, 1933, the Congress gave Roosevelt the power to prevent the hoarding of gold. By that, the US remained on the gold standard so other countries could still convert their dollars into gold, but the US citizens could not redeem their dollars for gold.
Roosevelt even had everyone, from refugees to their own citizens to turn in all gold coins, bullion, and even gold certificates. People are allowed to keep 100 dollars of gold things.
The people who had complied with the law and exchanged gold for paper lost 41% of the value.
Then Roosevelt started to confiscate silver as well, but people could keep their jewelry and a certain amount of silver for use in art and industry.
Americans were not allowed to own gold coins again until December 31, 1974, according to a bill signed by President Gerald Ford.
In July 1944, one month after D day, the Allies had a conference in a resort hotel in New Hampshire. According to the agreement that they signed on July 22. 1946, most currencies of the world were pegged to specific values relative to the US dollar, and in turn, the US set the value of the dollar at 35 dollars to an ounce of gold. But by 1960s, the increase supply of dollars and the concomitant inflation made it difficult for the central banks of the world to maintain this level.
In order to generate more money for the war, the Nixon-Connally plan, all the business freeze prices, wages, and rents in order to combat inflation, and he put a 10% surcharge on most imports to help improve the trade balance. During that time, Nixon closed the “gold window.” Which meant that the US dollar would float relative to all other currencies.
“This move, however, ended the era of stability and the period of greatest economic prosperity and productivity in the history of the American dollar.” p185
In March 1972, it was 38 to once ounce of gold, the next year, it was 42.22 per ounce of gold. The Swiss government said that beginning on January 24, 1973, it would no longer support the dollar with gold, and other nations quickly followed.
Chaucer asked in the prologue to the Canterbury Tales: “if gold ruste, what shal iren do?”
“Money no longer had any independent value; it depended entirely on the people’s confidence in their political system and leaders.” p188
Phase 3: Electronic Money
“We invented money and we use it, yet we cannot...understand its laws or control its actions. It has a life of its own.” - Lionel Trilling
Wild Money and the Stealth Tax
“If making money is a slow process, losing it is quickly done.” - Saikaku Ihara
The height of the Bolivian inflation was in 1985. Once the bills have lost their value as money, they have almost not practical use.
Paper money can be used for nothing except paper money.
At the height of the Bolivian inflation in 1984 to 1985, the economy operate on a cash-only basis. No one accepts payment by check or credit card. No one keeps money on deposit in the bank. Banks make no loans. Credit ceases to exist. People wait as long as possible to pay their bills, because a bill for 50 dollars could drop to only a few pennies within a week. Fixed incomes no longer exist.
The most popular purchase was the US dollars. They got it due to Bolivia’s main export: coca paste for manufacture of cocaine.
“Production and commerce gradually slow as people spend more and more of their daily lives searching for ways to escape the cost of inflation.” p198
When Alberto Fujimori took over as president of Peru in 1990, the country had an inflation rate of 7000%.
Inflation developed only when the supply of silver or gold expanded, thereby increasing the number of coins in circulation; but ultimately the major control on the amount of money was the amount of available gold and silver.
The 3 primary ways government finance their expenditures: taxing, borrowing, and printing more money.
The communists of the early 20th century in Russia thought that allowing rampant inflation, they would destroy the currency and therefore be able to build a society without money, by using coupons.
Because of the Treaty of Versailles, Germany was pressured into paying a bill of 132 billion gold marks. By the end of 1922, prices stood at 1475 times the prewar level. Lenders charged interest rates of 35% a day. At the end of the war it had cost roughly 4 marks to a dollar; by July 1923 the mark had dropped to 17792 to a dollar. By November 15, 1923, at the height of the inflation, it required 4.2 trillion marks to by one dollar.
“An item that could be purchased for one mark at the end of the war cost 726 billion marks by 1923.” p201
In order to maintain Germany, the government borrowed 497 billion marks.
German newspapers reported the outbreak of a new medical malady called “zero strokes,’ or” cipher strokes,” caused by the difficulties of calculating such large figures.
The inflation ended on the 20th of November, 1923. The government created the new rentenmark, which was 4.2 to the dollar.
The Finance Minister Rudolf Havenstein died on the same day.
The hyperinflation in the 1980s erupted in Latin America and Africa rather than Europe.
By the 1990s the Latin American republics managed to stabilize their currencies. But then, it hit the republics of the former Soviet Union whose citizens had lived with an extremely stable, albeit neither particularly valuable nor widely accepted, currency for nearly 70 years.
The so-called coupons were just poorly printed bills that lacked the luster even of play money.
The government releases more money into the system, and the politicians and bureaucrats have more money to spend on their favorite projects. The release of the new money however , makes all existing money worth a little less and thus eats away at the nation’s money and commercial vitality.
William Greider, an expert on the history of the Federal Reserve, wrote, “The recurring experience of inflationary spirals strongly suggested that the underlying source of these traumas lay not in economics but in politics-the choices made by government or, more precisely, choices that the government refused to make.”
“Inflation might even be called simply a tax on poverty.” p207
The Cash Ghetto
“The greatest of evils and worst of crimes is poverty.” - George Bernard Shaw
In the early 20th century, French writer Anatole France wrote: “It is only the poor who pay cash, and that not from virtue, but because they are refused credit.”
The high reliance on cash became an almost universal identifying characteristic of poor people.
Pawnbrokers appeared.
Much of the poor people’s work is temporary pickup work.
Such economic systems for the exchange of goods and services operate as an informal or parallel economy, largely beyond the control and supervision of the law and outside the normal financial structures and rules.
They operate not so much as a black market as a gray one, and not so much against the law as simply beyond it.
Among poor people, cash continues to function as an appropriate gift throughout life.
Some people sew coins on their garments for decoration, and it can also be used when they need it.
Interlude in Plastic
“And forgive us our debts, as we forgive our debtors.” - Matthew 6:12
Despite all the goods exchanged over the counters in the mall, little actual cash is used.
In the US in 1990, some 30 trillion dollars were transferred via check. By 1993, it was around 400 trillion transferred by electronic means.
In 1928, National City of New York started to offer small loans to working-class people. The bank only lost less than 3 dollars for every 1000 dollars, and with the 12% interest rate, it was a great new source of profit.
By the 1970s, almost anyone have their own type or organization to go to for a loan.
Money no longer had value in terms of gold, silver, or any other commodity. It had become merely “an algebraical cymbol for compaing the values of products with one another.”
In 1950, Diners Club created the first modern charge card. In 1958, the Bank of America introduced its BankAmericard which became the nation’s most widely known card. The name shortened to Visa in 1977.
The manufacturer received payment, the clerk received a commission, the government received sales tax, and the store received a profit.
“Credit cards took money to a whole new plateau of being.” - p229
People can earn “mileage” from purchasing anything, and because it doesn’t really count as an income, so it’s actually better than cash.
The commercial innovations and new ways of incurring debt altered the way customers paid for purchases, but they were also changing the nature of money itself and people’s relationship to it.
The Erotic Life of Electronic Money
When money stands still, it is no longer money. - Georg Simmel
“Money can beget money, and its offspring can beget more, and so on.” - Benjamin Franklin
People looked for ways to move money electronically after then invention of the telegraph
In 1972, the Federal Reserve Bank of San Francisco experimented with electronic payments that bypassed paper checks for transactions between its main office and its Los Angeles branch. By 1978, the network included all Federal Reserve banks around the US.
By the mid 1990s, electronic means improved a lot, but it was still largely a professional activity.
Europeans were the first to be comfortable with their income electronically sent to their accounts, and the US followed.
In the 1990s, nearly 100 percent of advanced west European countries and Japan received their pay electronically
In 1971, a banker in Burbank, California thought why not make a vending machine for money?
The experiment started in 1974 in a supermarket, and it turned out to be a success, it was easy and saved loads of time
Money transaction is bulky, and we needed a better and more efficient way.
The smart chip card stores all your information in it, and you can use it anywhere with the installed machine
The English National Westminster Bank developed an electronic cash payment system called Mondex which allowed money cards to be able to transfer money to each other.
Banks were looking more like communication companies, and communication companies saw their opportunity and so began jockery for position in the great competition.
The change has been technologically driven by businesses seeking a new way to make money.
The more sophisticated crime organizations also began to move into the field of electronic money
Then the Internet appeared, bringing the transportation of money to a whole new level.
In 1995, the Mark Twain Bank and the First Bank of the Internet began operation as just Internet banks.
Computer specialists sought to develop systems of encryption and ways of safeguarding payments.
“Of even greater importance is the question of who will control the creation and distribution of money itself - the substance on which rests all the wealth of nations, the power of corporations, and the success of individuals.” - p246
“Money has become even more like God: totally abstract and without corporeal body.” - p249
The Art of Currency Terror
Jesus went into the temple of God and...overthrew the tables of money changers. - Matthew 21:12
“A business that makes nothing but money is a poor kin of business.” - Henry Ford
The money system of the 21st century represents a mixture of humankind’s most basic desires, fears, and faith.
The currency market is the purest market of all, it is all transaction and no goods.
The traders must react instantly in a world market in which a few milliseconds can determine the difference between profit and loss and a few minutes can mean the difference between solvency and bankruptcy.
French president Jacques Chirac labeled currency speculation “the AIDS of our economics”
William Greider wrote: “Money was meant to be the neutral agent of commerce. Now it had become the neurotic master.”
Currency traders playing against bureaucrats will win virtually every time. Investors and bankers will defeat governments officials and their economic advisers. Currency trading in the closing decade of the twentieth century gave new meaning and a new cynicism to Voltaire’s comment that “In general, that art of government consists in taking as much money as possible from one part of the citizens to give to the other.”
The Age of Money
“It’s definitely new, it’s revolutionary - and we should be scared as hell.” - Banker Sholom Rosen
Throughout history, humans have fought over money, because it is the magic key to raising armies and moving mountains; to building castles and cities; to controlling the land, the water, and the air; to building canals and launching navies; and to gaining and losing power of all sorts over other humans.
“History has shown repeatedly that neither the government nor the market, by itself, is capable of regulating money.” - p266
“Homo oeconomicus is not behind us, but before us.” - Marcel Mauss
