The Evolution of Money

by David Orrell

  38. Graeber, Debt, 214; Graeber states that money is “just an “IOU” (46). See also David Graeber, “The Truth Is Out: Money Is Just an IOU, and the Banks Are Rolling in It,” Guardian, March 18, 2014. However, he also acknowledges the commodity aspect of money, even if the commodity is sometimes psychological: “Credit money is based on trust, and in competitive markets, trust itself becomes a scarce commodity” (Debt, 73). We would argue that money has many special properties and is not just an IOU (which can represent any form of debt, such as the need to return a favor).

  3. Virtual Money

  1. Christopher Hibbert, Rome: The Biography of a City (New York: Norton, 1985), 79.

  2. David Graeber, Debt: The First 5000 Years (Brooklyn, N.Y.: Melville House), 252–270.

  3. The first two numbers of the Fibonacci sequence are 0 and 1, and the others are defined as the sum of the two preceding numbers, so it reads 0, 1, 1, 2, 3, 5, 8, 13, 21, and so on.

  4. Laurence E. Sigler, Fibonacci’s Liber Abaci: A Translation into Modern English of Leonardo Pisano’s Book of Calculation (New York: Springer, 2002).

  5. Glyn Davies, A History of Money: From Ancient Times to the Present Day, 3d ed. (Cardiff: University of Wales Press, 2002), 235.

  6. The French historian Marc Bloch described feudal society in the following terms: “A subject peasantry; widespread use of the service tenement (i.e. the fief) instead of a salary, which was out of the question; the supremacy of a class of specialized warriors; ties of obedience and protection which bind man to man and, within the warrior class, assume the distinctive form called vassalage; fragmentation of authority—leading inevitably to disorder; and, in the midst of all this, the survival of other forms of association, family and State” (Feudal Society, trans. L. A. Manyon [Chicago: University of Chicago Press, 1965], 446).

  7. As Laurent Feller notes, “Buying and selling were not prompted by trading considerations alone but also obeyed social logics, themselves determined by kinship, friendship and neighbourhood as well as by adherence to a particular group of equivalent status” (quoted in Jacques Le Goff, Money and the Middle Ages [Oxford: Polity, 2012], 115).

  8. The Dialogue Concerning the Exchequer, circa 1180, The Avalon Project, Yale Law School, http://avalon.law.yale.edu/medieval/excheq.asp.

  9. M. T. Clanchy, From Memory to Written Record: England, 1066–1307 (Cambridge, Mass.: Harvard University Press, 1979), 96.

  10. Graeber, Debt, 268.

  11. Davies, History of Money, 253.

  12. Jack Weatherford, The History of Money (New York: Three Rivers, 1997), 67.

  13. Le Goff, Money and the Middle Ages, 62–64.

  14. Aristotle wrote that “money has become by convention a sort of representative of demand; and this is why it has the name ‘money’ (nomisma)—because it exists not by nature but by law (nomos) and it is in our power to change it and make it useless” (Nicomachean Ethics. http://classics.mit.edu/Aristotle/nicomachaen.5.v.html).

  15. Aristotle, Politics, http://classics.mit.edu/Aristotle/politics.1.one.html.

  16. Thomas Aquinas, Sententia Ethica, lib. 5, l. 9, n. 12.

  17. Le Goff, Money and the Middle Ages, 42.

  18. Ibid., 70.

  19. Ibid., 72.

  20. An example of such an insurance contract was the following from Francesco di Prato and Co., of Venice, on August 3, 1384: “We insure Baldo Ridolfo and Co. for 100 gold florins of wool, loaded onto the boat of Bartolomeo Vitale in transit from Penisola to Porto Pisano. Of these 100 florins which we insure against all risk, we will receive four gold florins in cash.” Below the text is a note that “the said boat arrived safely 4 August 1384” (quoted in ibid., 97).

  21. Marco Polo, The Book of Ser Marco Polo, the Venetian, Concerning the Kingdoms and Marvels of the East, trans. and ed. Henry Yule (London: Murray, 1903).

  22. Charles Poor Kindleberger, A Financial History of Western Europe (London: Allen & Unwin, 1984), 22.

  23. Fairs were highly organized and followed fixed schedules over the course of a few weeks with days for settlement at the end. See ibid., 36.

  24. Because this did not include an exchange rate, it was usurious. See ibid., 40.

  25. This example is from Weatherford, History of Money, 76.

  26. Diego Laynez, Disputationes Tridentinae, trans. Hartmann Grisar (Oeniponti: Rauch, 1886), 2:228.

  27. Felix Martin, Money: The Unauthorized Biography (New York: Knopf, 2013), 69.

  28. David Bollier, Think Like a Commoner: A Short Introduction to the Life of the Commons (Gabriola Island, B.C.: New Society, 2014).

  29. Paris demographics from “Historical Population of Paris (59 B.C.E.–1789),” http://en.wikipedia.org/wiki/Demographics_of_Paris#mediaviewer/File:Paris_​historical_population_1.png.

  30. Karl Marx, Economic and Philosophic Manuscripts of 1844, trans. Martin Mulligan (Moscow: Progress, 1959), 60.

  31. Bernard Lietaer, “The Mystery of Money” (unpublished manuscript, 2002), 156, http://www.scribd.com/doc/294011240/Bernard-Lietaer-The-Mystery-of-Money-287pp-full-pdf-download.

  32. Jackson Spielvogel, Western Civilization: A Brief History, vol. 2, Since 1500 (Belmont, Calif.: Wadsworth, 2008), 281.

  33. Vanessa Thorpe, “Black Death Was Not Spread by Rat Fleas, Say Researchers,” Guardian, March 29, 2014.

  34. In upper Normandy, for example, skilled wages went from 2 sous tournois per day in 1320–1340, to 4 in 1340–1405, and 5 in 1405–1520. See Le Goff, Money and the Middle Ages, 116.

  35. Ibid., 98.

  36. Ibid., 145; Anita Guerreau-Jalabert, “Caritas y don en la sociedad medieval occidental,” Hispania: Revista española de historia 60, no. 204 (2000): 27–62.

  37. Quoted in Le Goff, Money and the Middle Ages, 128.

  38. Ibid., 145.

  39. Francis of Assisi, The Writings of St. Francis of Assisi, trans. Paschal Robinson (Philadelphia: Dolphin, 1906).

  40. Lietaer, “Mystery of Money,” 156.

  41. “The more severe inequality becomes, the more entitled people may feel and less likely to share resources they become. The wealthier [that] segments of society become then, the more vulnerable communities may be to selfish tendencies and the less charity the least among us can expect” (Lisa Miller, “The Money-Empathy Gap,” New York, July 1, 2012).

  42. Quoted in Michael Lewis, “Extreme Wealth Is Bad for Everyone—Especially the Wealthy,” New Republic, November 12, 2014.

  43. Maryam Kouchaki, Kristin Smith-Crowe, Arthur P. Brief, and Carlos Sousa, “Seeing Green: Mere Exposure to Money Triggers a Business Decision Frame and Unethical Outcomes,” Organizational Behavior and Human Decision Processes 121, no. 1 (2013): 53–61.

  4. New World

  1. The fact that Columbus’s diary mentions gold sixty-five times over the course of a voyage that lasted less than 100 days, suggests that the search for it was one of his main motivations. See Charles Poor Kindleberger, A Financial History of Western Europe (London: Allen & Unwin, 1984), 25.

  2. Michael E. Smith, The Aztecs, 3d ed. (Malden, Mass.: Wiley-Blackwell, 2012), 119; Jack Weatherford, The History of Money (New York: Three Rivers, 1997), 15.

  3. Quoted in Mark Cocker, Rivers of Blood, Rivers of Gold: Europe’s Conquest of Indigenous Peoples (New York: Grove, 1998), 88.

  4. Dale M. Brown, Aztecs: Reign of Blood & Splendor (Alexandria, Va.: Time-Life, 1992), 30.

  5. Simon L. Lewis and Mark A. Maslin, “Defining the Anthropocene,” Nature 519 (2015): 171–180.

  6. Cocker, Rivers of Blood, xiii.

  7. Weatherford, History of Money, 99.

  8. Juan Forero, “Bolivia’s Cerro Rico: The Mountain That Eats Men,” NPR, September 25, 2012, www.npr.org/2012/09/25/161752820/bolivias-cerro-rico-the-mountain-that-eats-men.

  9. Glyn Davies, A History of Money: From Ancient Times to the Present Day, 3d ed. (Cardiff: University of Wales Press, 2002), 222.

  10. Lewis S. Feuer, The Scientific Intellectual: The Psychological & Sociological Origins of Modern S
cience (New York: Basic, 1963), 120.

  11. Henry William Spiegel, The Growth of Economic Thought, 3d ed. (Durham, N.C.: Duke University Press, 1991), 88–89.

  12. Quoted in Weatherford, History of Money, 103.

  13. Peter L. Bernstein, The Power of Gold: The History of an Obsession (New York: Wiley, 2000), 139.

  14. Richard Cantillon, Essay on the Nature of Trade in General, trans. Henry Higgs (London: Cass, 1959), 68–69.

  15. Quoted in Catherine Eagleton and Jonathan Williams, Money: A History (Richmond Hill, Ont.: Firefly, 2007), 162.

  16. Such inflation occurred, for example, in 1160. See Davies, History of Money, 182.

  17. Ibid., 190.

  18. Weatherford, History of Money, 107.

  19. Davies, History of Money, 549.

  20. Eagleton and Williams, Money, 108.

  21. Quoted in Murray N. Rothbard, An Austrian Perspective on the History of Economic Thought (Auburn, Ala.: Ludwig von Mises Institute, 2006), 1:291.

  22. Kindleberger, Financial History of Western Europe, 51.

  23. According to Davies, “This position was reached by the 1660s” (History of Money, 252).

  24. Quoted in Kindleberger, Financial History of Western Europe, 51.

  25. The Amsterdam Exchange accounts were supposed to be backed by metal reserves, although some suspected a cheat—Sir Edward Forde wrote in his 1666 “Experimented Proposals how the King may have money” that “no considerate man can believe that they have so much Money in their Banks as they give out bills for.” In 1760 the metallic stock was 16.3 million florins, compared with total liabilities of 18.7 million florins. See ibid., 49.

  26. Kindleberger notes “the private purpose of making a profit through lending newly issued bank notes” as a motivation (ibid., 53). The public-private nature of the bank’s partnership is described in Martin, Money, 117.

  27. Until 1759, no notes were issued for amounts smaller than £20, which was about the average annual wage, so these large notes were primarily used as a substitute for gold in large transactions, and most people never came near them. However, their usage steadily increased as smaller denominations became available, and they officially became legal tender in 1833. See Kindleberger, Financial History of Western Europe, 77.

  28. Often attributed to former Bank of England director Josiah Stamp, but the source appears to be a British investment adviser, according to Lawrence Angas, Slump Ahead in Bonds (New York: Somerset, 1937).

  29. Geoffrey Madan, Geoffrey Madan’s Notebooks, ed. J. A. Gere and John Sparrow (Oxford: Oxford University Press, 1981). The Banking Department had reserves in the range of 42 to 52 percent in the period 1845 to 1900, according to figures in R. H. Inglis Palgrave, Bank Rate and the Money Market in England, France, Germany, Holland, and Belgium 1844–1900 (London: Murray, 1903), 86.

  30. John Locke, The Second Treatise on Civil Government (Amherst, N.Y.: Prometheus Books, 1986), chap. 5, sec. 28, 21.

  31. It was named after the English financier Sir Thomas Gresham.

  32. An example was the new U.S. silver dollar, which was preferred to its Spanish counterpart. See Davies, History of Money, 470.

  33. Bernstein, Power of Gold,196.

  34. Demonetization of silver did not occur until 1774. See Kindleberger, Financial History of Western Europe, 59.

  35. Davies, History of Money, 469.

  36. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (London: Strahan & Cadell, 1776), II.2.85.

  37. Quoted in Martin, Money, 203–204.

  38. France switched to gold in 1878. The United States was effectively on the gold standard by 1873, officially by 1900.

  39. John Kenneth Galbraith, Money: Whence It Came, Where It Went (New York: Houghton Mifflin, 1995), 30. The strength of its reputation, of course, allowed it to operate on relatively small reserves. In the period 1850 to 1890, reserves were no more than 4 percent of the bank’s domestic deposit liabilities. See Davies, History of Money, 359.

  40. Weatherford, History of Money, 155.

  41. Quoted in Bernstein, Power of Gold, 240.

  42. Weatherford, History of Money, 161.

  43. Kindleberger, Financial History of Western Europe, 87.

  44. Davies, History of Money, 184.

  45. Stefan Zweig, The World of Yesterday (London: Cassell, 1943), 13.

  46. The effect is also reflected in the stance of central European central bankers, whose belief that “inflation is the predominant threat to macroeconomic stability … reflects the hyperinflation of the 1920s. In contrast, for those in English speaking countries, unemployment is seen as the biggest threat. This reflects their experience of the Great Depression” (William R. White, “Is Monetary Policy a Science? The Interaction of Theory and Practice over the Last 50 Years,” in 50 Years of Money and Finance: Lessons and Challenges, ed. Morten Balling and Ernest Gnan [Vienna: SUERF, 2013], 90).

  5. A Wonderful Machine

  1. James Buchan, Frozen Desire: The Meaning of Money (New York: Farrar, Straus and Giroux, 1997), 144.

  2. An exception was the Bank of France, founded in 1800. See Charles Poor Kindleberger, A Financial History of Western Europe (London: Allen & Unwin, 1984), 98.

  3. Glyn Davies, A History of Money: From Ancient Times to the Present Day, 3d ed. (Cardiff: University of Wales Press, 2002), 459.

  4. Farley Grubb, Benjamin Franklin and the Birth of a Paper Money Economy (Philadelphia: Federal Reserve Bank of Philadelphia, 2006).

  5. J. A. Leo Lemay, The Life of Benjamin Franklin, vol. 1, Journalist, 1706–1730 (Philadelphia: University of Pennsylvania Press, 2006), 399.

  6. The French stayed away from paper currencies until the time of the French Revolution, when the new Republican leaders issued a note known as the assignat. It was intended initially as a bond with an interest rate of 5 percent and was supposed to be backed by land confiscated from the Church. See Catherine Eagleton and Jonathan Williams, Money: A History (Richmond Hill, Ont.: Firefly, 2007), 228. This was not a huge hit, either—mismanagement of the money supply again led to massive inflation—and in 1796 the printing machines and plates were destroyed in public (but were quickly replaced by a new paper currency with a different name, the mandat). The Russian Revolution saw a similar use (and abuse) of paper money.

  7. As John Kenneth Galbraith notes, “The United States came into existence on a full tide not of inflation but of hyperinflation” (Money: Whence It Came, Where It Went [New York: Houghton Mifflin, 1995], 60). The notes were eventually redeemed at the relatively generous rate of 40 paper dollars to one silver dollar. See Eagleton and Williams, Money, 228.

  8. Its notes formed about one-fifth of the total currency supply and were allowed to circulate freely alongside other notes issued by state banks.

  9. This bank held only a 20 percent coin reserve. See Eagleton and Williams, Money, 225.

  10. Davies, History of Money, 483.

  11. Ibid., 502.

  12. Andrew Jackson, “Veto of the Bank of the United States,” in A Compilation of the Messages and Papers of the Presidents, 1787–1897, ed. James D. Richardson (Washington, D.C.: Government Printing Office, 1896), 576–591.

  13. Abraham Lincoln, “Senate document 23,” 1865, 91.

  14. Benjamin Butler, Speech in the House of Representatives, Congressional Globe, 40th Cong., 3d sess., January 12, 1869, 303.

  15. Eagleton and Williams, Money, 227.

  16. William Jennings Bryan, “Cross of Gold” speech, in Official Proceedings of the Democratic National Convention Held in Chicago, Illinois, July 7, 8, 9, 10, and 11, 1896 (Logansport, Ind.: 1896), 226–234, in The Annals of America, vol. 12, 1895–1904: Populism, Imperialism, and Reform (Chicago: Encyclopaedia Britannica, 1968), 100–105.

  17. The Reconstruction Finance Corporation was created in 1932 to better fulfill the role of lender of last resort. It later became part of the Federal Deposit Insurance Corporation. See Galbraith, Money, 196–200.

  18. Simon van Zuy
len-Wood, “Feces and the Gold Standard: A Psychological Explanation of Goldbuggery,” New Republic, August 28, 2012, www.newrepublic.com/article/106601/feces-and-gold-standard-psychological-explanation-goldbuggery.

  19. According to the Fed’s own website, it is not “owned” by anyone. The Fed charges interest on the money it provides to the government, but most of that is returned to the Treasury. See “Who Owns the Federal Reserve?,” Board of Governors of the Federal Reserve System, last updated August 2, 2013, www.federalreserve.gov/faqs/about_14986.htm.

  20. Quoted in Satyajit Das, “Trapped Central Banks and the Semiotics of Monetary Policy,” Independent, July 12, 2013.

  21. The price equated to $4.87 per ounce. Galbraith called the 1925 return to the gold standard “perhaps the most decisively damaging action involving money in modern times” (Money, 170).

  22. Stephen Daggett, “Costs of Major U.S. Wars” (Congressional Research Service, Washington, D.C., 2010).

  23. John Noble Wilford, We Reach the Moon: The New York Times Story of Man’s Greatest Adventure (New York: Bantam, 1969), 67.

  24. Milton Friedman, “A Proposal for Resolving the U.S. Balance of Payments Problem: Confidential Memorandum to President-elect Richard Nixon,” in The Merits of Flexible Exchange Rates: An Anthology, ed. Leo Melamed (Fairfax, Va.: George Mason University Press, 1988), 429–438.

  25. Richard Nixon, “Address to the Nation Outlining a New Economic Policy: ‘The Challenge of Peace,’ ” August 15, 1971, The American Presidency Project, www.presidency.ucsb.edu/ws/?pid=3115.

  26. Galbraith, Money, 301.

  27. Quoted in James Rickards, The Death of Money: The Coming Collapse of the International Monetary System (New York: Portfolio/Penguin, 2014), 213.