by Unknown
26. In ancient Chinese script the cowry-shell sign represented money, in words such as ‘to sell’ or ‘reward’.
In modern prisons and POW camps, cigarettes have often served as money. Even non-smoking prisoners have been willing to accept cigarettes in payment, and to calculate the value of all other goods and services in cigarettes. One Auschwitz survivor described the cigarette currency used in the camp: ‘We had our own currency, whose value no one questioned: the cigarette. The price of every article was stated in cigarettes … In “normal” times, that is, when the candidates to the gas chambers were coming in at a regular pace, a loaf of bread cost twelve cigarettes; a 300-gram package of margarine, thirty; a watch, eighty to 200; a litre of alcohol, 400 cigarettes!‘6
In fact, even today coins and banknotes are a rare form of money. In 2006, the sum total of money in the world is about $60 trillion, yet the sum total of coins and banknotes was less than $6 trillion.7 More than 90 per cent of all money - more than $50 trillion appearing in our accounts - exists only on computer servers. Accordingly, most business transactions are executed by moving electronic data from one computer file to another, without any exchange of physical cash. Only a criminal buys a house, for example, by handing over a suitcase full of banknotes. As long as people are willing to trade goods and services in exchange for electronic data, it’s even better than shiny coins and crisp banknotes - lighter, less bulky, and easier to keep track of.
For complex commercial systems to function, some kind of money is indispensable. A shoemaker in a money economy needs to know only the prices charged for various kinds of shoes - there is no need to memorise the exchange rates between shoes and apples or goats. Money also frees apple experts from the need to search out apple-craving shoemakers, because everyone always wants money. This is perhaps its most basic quality. Everyone always wants money because everyone else also always wants money, which means you can exchange money for whatever you want or need. The shoemaker will always be happy to take your money, because no matter what he really wants - apples, goats or a divorce - he can get it in exchange for money.
Money is thus a universal medium of exchange that enables people to convert almost everything into almost anything else. Brawn gets converted to brain when a discharged soldier finances his college tuition with his military benefits. Land gets converted into loyalty when a baron sells property to support his retainers. Health is converted to justice when a physician uses her fees to hire a lawyer - or bribe a judge. It is even possible to convert sex into salvation, as fifteenth-century prostitutes did when they slept with men for money, which they in turn used to buy indulgences from the Catholic Church.
Ideal types of money enable people not merely to turn one thing into another, but to store wealth as well. Many valuables cannot be stored - such as time or beauty. Some things can be stored only for a short time, such as strawberries. Other things are more durable, but take up a lot of space and require expensive facilities and care. Grain, for example, can be stored for years, but to do so you need to build huge storehouses and guard against rats, mould, water, fire and thieves. Money, whether paper, computer bits or cowry shells, solves these problems. Cowry shells don’t rot, are unpalatable to rats, can survive fires and are compact enough to be locked up in a safe.
In order to use wealth it is not enough just to store it. It often needs to be transported from place to place. Some forms of wealth, such as real estate, cannot be transported at all. Commodities such as wheat and rice can be transported only with difficulty. Imagine a wealthy farmer living in a moneyless land who emigrates to a distant province. His wealth consists mainly of his house and rice paddies. The farmer cannot take with him the house or the paddies. He might exchange them for tons of rice, but it would be very burdensome and expensive to transport all that rice. Money solves these problems. The farmer can sell his property in exchange for a sack of cowry shells, which he can easily carry wherever he goes.
Because money can convert, store and transport wealth easily and cheaply, it made a vital contribution to the appearance of complex commercial networks and dynamic markets. Without money, commercial networks and markets would have been doomed to remain very limited in their size, complexity and dynamism.
How Does Money Work?
Cowry shells and dollars have value only in our common imagination. Their worth is not inherent in the chemical structure of the shells and paper, or their colour, or their shape. In other words, money isn’t a material reality - it is a psychological construct. It works by converting matter into mind. But why does it succeed? Why should anyone be willing to exchange a fertile rice paddy for a handful of useless cowry shells? Why are you willing to flip hamburgers, sell health insurance or babysit three obnoxious brats when all you get for your exertions is a few pieces of coloured paper?
People are willing to do such things when they trust the figments of their collective imagination. Trust is the raw material from which all types of money are minted. When a wealthy farmer sold his possessions for a sack of cowry shells and travelled with them to another province, he trusted that upon reaching his destination other people would be willing to sell him rice, houses and fields in exchange for the shells. Money is accordingly a system of mutual trust, and not just any system of mutual trust: money is the most universal and most efficient system of mutual trust ever devised.
What created this trust was a very complex and long-term network of political, social and economic relations. Why do I believe in the cowry shell or gold coin or dollar bill? Because my neighbours believe in them. And my neighbours believe in them because I believe in them. And we all believe in them because our king believes in them and demands them in taxes, and because our priest believes in them and demands them in tithes. Take a dollar bill and look at it carefully. You will see that it is simply a colourful piece of paper with the signature of the US secretary of the treasury on one side, and the slogan ‘In God We Trust’ on the other. We accept the dollar in payment, because we trust in God and the US secretary of the treasury. The crucial role of trust explains why our financial systems are so tightly bound up with our political, social and ideological systems, why financial crises are often triggered by political developments, and why the stock market can rise or fall depending on the way traders feel on a particular morning.
Initially, when the first versions of money were created, people didn’t have this sort of trust, so it was necessary to define as ‘money’ things that had real intrinsic value. History’s first known money Sumerian barley money - is a good example. It appeared in Sumer around 3000 BC, at the same time and place, and under the same circumstances, in which writing appeared. Just as writing developed to answer the needs of intensifying administrative activities, so barley money developed to answer the needs of intensifying economic activities.
Barley money was simply barley - fixed amounts of barley grains used as a universal measure for evaluating and exchanging all other goods and services. The most common measurement was the sila, equivalent to roughly one litre. Standardised bowls, each capable of containing one sila, were mass-produced so that whenever people needed to buy or sell anything, it was easy to measure the necessary amounts of barley. Salaries, too, were set and paid in silas of barley. A male labourer earned sixty silas a month, a female labourer thirty silas. A foreman could earn between 1,200 and 5,000 silas. Not even the most ravenous foreman could eat 5,000 litres of barley a month, but he could use the silas he didn’t eat to buy all sorts of other commodities - oil, goats, slaves, and something else to eat besides barley.8
Even though barley has intrinsic value, it was not easy to convince people to use it as money rather than as just another commodity. In order to understand why, just think what would happen if you took a sack full of barley to your local shopping centre, and tried to buy a shirt or a pizza. The vendors would probably call security. Still, it was somewhat easier to build trust in barley as the first type of money, because barley has an inherent biological v
alue. Humans can eat it. On the other hand, it was difficult to store and transport barley. The real breakthrough in monetary history occurred when people gained trust in money that lacked inherent value, but was easier to store and transport. Such money appeared in ancient Mesopotamia in the middle of the third millennium BC. This was the silver shekel.
The silver shekel was not a coin, but rather 8.33 grams of silver. When Hammurabi’s Code declared that a superior man who killed a slave woman must pay her owner twenty silver shekels, it meant that he had to pay 166 grams of silver, not twenty coins. Most monetary terms in the Old Testament are given in terms of silver rather than coins. Josephs brothers sold him to the Ishmaelites for twenty silver shekels, or rather 166 grams of silver (the same price as a slave woman - he was a youth, after all).
Unlike the barley sila, the silver shekel had no inherent value. You cannot eat, drink or clothe yourself in silver, and it’s too soft for making useful tools - ploughshares or swords of silver would crumple almost as fast as ones made out of aluminium foil. When they are used for anything, silver and gold are made into jewellery, crowns and other status symbols - luxury goods that members of a particular culture identify with high social status. Their value is purely cultural.
Set weights of precious metals eventually gave birth to coins. The first coins in history were struck around 640 BC by King Alyattes of Lydia, in western Anatolia. These coins had a standardised weight of gold or silver, and were imprinted with an identification mark. The mark testified to two things. First, it indicated how much precious metal the coin contained. Second, it identified the authority that issued the coin and that guaranteed its contents. Almost all coins in use today are descendants of the Lydian coins.
Coins had two important advantages over unmarked metal ingots. First, the latter had to be weighed for every transaction. Second, weighing the ingot is not enough. How does the shoemaker know that the silver ingot I put down for my boots is really made of pure silver, and not of lead covered on the outside by a thin silver coating? Coins help solve these problems. The mark imprinted on them testifies to their exact value, so the shoemaker doesn’t have to keep a scale on his cash register. More importantly, the mark on the coin is the signature of some political authority that guarantees the coin’s value.
The shape and size of the mark varied tremendously throughout history, but the message was always the same: ‘I, the Great King So-And-So, give you my personal word that this metal disc contains exactly five grams of gold. If anyone dares counterfeit this coin, it means he is fabricating my own signature, which would be a blot on my reputation. I will punish such a crime with the utmost severity.’ That’s why counterfeiting money has always been considered a much more serious crime than other acts of deception. Counterfeiting is not just cheating - it’s a breach of sovereignty, an act of subversion against the power, privileges and person of the king. The legal term is lese-majesty (violating majesty), and was typically punished by torture and death. As long as people trusted the power and integrity of the king, they trusted his coins. Total strangers could easily agree on the worth of a Roman denarius coin, because they trusted the power and integrity of the Roman emperor, whose name and picture adorned it.
27. One of the earliest coins in history, from Lydia of the seventh century BC.
In turn, the power of the emperor rested on the denarius. Just think how difficult it would have been to maintain the Roman Empire without coins - if the emperor had to raise taxes and pay salaries in barley and wheat. It would have been impossible to collect barley taxes in Syria, transport the funds to the central treasury in Rome, and transport them again to Britain in order to pay the legions there. It would have been equally difficult to maintain the empire if the inhabitants of the city of Rome believed in gold coins, but the subject populations rejected this belief, putting their trust instead in cowry shells, ivory beads or rolls of cloth.
The Gospel of Gold
The trust in Rome’s coins was so strong that even outside the empire’s borders, people were happy to receive payment in denarii. In the first century AD, Roman coins were an accepted medium of exchange in the markets of India, even though the closest Roman legion was thousands of kilometres away. The Indians had such a strong confidence in the denarius and the image of the emperor that when local rulers struck coins of their own they closely imitated the denarius, down to the portrait of the Roman emperor! The name ‘denarius’ became a generic name for coins. Muslim caliphs Arabicised this name and issued ‘dinars’. The dinar is still the official name of the currency in Jordan, Iraq, Serbia, Macedonia, Tunisia and several other countries.
As Lydian-style coinage was spreading from the Mediterranean to the Indian Ocean, China developed a slightly different monetary system, based on bronze coins and unmarked silver and gold ingots. Yet the two monetary systems had enough in common (especially the reliance on gold and silver) that close monetary and commercial relations were established between the Chinese zone and the Lydian zone. Muslim and European merchants and conquerors gradually spread the Lydian system and the gospel of gold to the far corners of the earth. By the late modern era the entire world was a single monetary zone, relying first on gold and silver, and later on a few trusted currencies such as the British pound and the American dollar.
The appearance of a single transnational and transcultural monetary zone laid the foundation for the unification of Afro-Asia, and eventually of the entire globe, into a single economic and political sphere. People continued to speak mutually incomprehensible languages, obey different rulers and worship distinct gods, but all believed in gold and silver and in gold and silver coins. Without this shared belief, global trading networks would have been virtually impossible. The gold and silver that sixteenth-century conquistadors found in America enabled European merchants to buy silk, porcelain and spices in East Asia, thereby moving the wheels of economic growth in both Europe and East Asia. Most of the gold and silver mined in Mexico and the Andes slipped through European fingers to find a welcome home in the purses of Chinese silk and porcelain manufacturers. What would have happened to the global economy if the Chinese hadn’t suffered from the same ‘disease of the heart’ that afflicted Cortes and his companions - and had refused to accept payment in gold and silver?
Yet why should Chinese, Indians, Muslims and Spaniards - who belonged to very different cultures that failed to agree about much of anything - nevertheless share the belief in gold? Why didn’t it happen that Spaniards believed in gold, while Muslims believed in barley, Indians in cowry shells, and Chinese in rolls of silk? Economists have a ready answer. Once trade connects two areas, the forces of supply and demand tend to equalise the prices of transportable goods. In order to understand why, consider a hypothetical case. Assume that when regular trade opened between India and the Mediterranean, Indians were uninterested in gold, so it was almost worthless. But in the Mediterranean, gold was a coveted status symbol, hence its value was high. What would happen next?
Merchants travelling between India and the Mediterranean would notice the difference in the value of gold. In order to make a profit, they would buy gold cheaply in India and sell it dearly in the Mediterranean. Consequently, the demand for gold in India would skyrocket, as would its value. At the same time the Mediterranean would experience an influx of gold, whose value would consequently drop. Within a short time the value of gold in India and the Mediterranean would be quite similar. The mere fact that Mediterranean people believed in gold would cause Indians to start believing in it as well. Even if Indians still had no real use for gold, the fact that Mediterranean people wanted it would be enough to make the Indians value it.
Similarly, the fact that another person believes in cowry shells, or dollars, or electronic data, is enough to strengthen our own belief in them, even if that person is otherwise hated, despised or ridiculed by us. Christians and Muslims who could not agree on religious beliefs could nevertheless agree on a monetary belief, because whereas religion asks us
to believe in something, money asks us to believe that other people believe in something.
For thousands of years, philosophers, thinkers and prophets have besmirched money and called it the root of all evil. Be that as it may, money is also the apogee of human tolerance. Money is more open-minded than language, state laws, cultural codes, religious beliefs and social habits. Money is the only trust system created by humans that can bridge almost any cultural gap, and that does not discriminate on the basis of religion, gender, race, age or sexual orientation. Thanks to money, even people who don’t know each other and don’t trust each other can nevertheless cooperate effectively.
The Price of Money
Money is based on two universal principles:
a. Universal convertibility: with money as an alchemist, you can turn land into loyalty, justice into health, and violence into knowledge.
b. Universal trust: with money as a go-between, any two people can cooperate on any project.
These principles have enabled millions of strangers to cooperate effectively in trade and industry. But these seemingly benign principles have a dark side. When everything is convertible, and when trust depends on anonymous coins and cowry shells, it corrodes local traditions, intimate relations and human values, replacing them with the cold laws of supply and demand.
Human communities and families have always been based on belief in ‘priceless’ things, such as honour, loyalty, morality and love. These things lie outside the domain of the market, and they shouldn’t be bought or sold for money. Even if the market offers a good price, certain things just aren’t done. Parents mustn’t sell their children into slavery; a devout Christian must not commit a mortal sin; a loyal knight must never betray his lord; and ancestral tribal lands shall never be sold to foreigners.