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A HISTORY OF MONEY
Studium Generale WUR
Wageningen, 30 October 2018
Joost Jonker
University of Amsterdam/IISH
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Contents
•Money, an introduction
•Three phases
•Conclusions
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Money, an introduction
•Three requirements :
• Stable value, relative scarcity, trust
•To fulfill three functions :
• Means of exchange, gauge of value, store of value
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Money, an introduction
•Money a convention
•Anything meeting requirements can serve as money if we agree on it : shells, dolphin teeth, squirrel pelts, coco beans, cigarettes...
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Money, an introduction
•Trust lodged in :
• The preciousness of the material
• The social cohesion of a community
• The power of rulers
• Any two of these three
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Three phases, 1: commodity standards
• From earliest times until 1914
•Oldest forms ingots of scarce metal: copper, bronze, gold, silver...
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•Oldest forms scarce metal ingots : copper, bronze, gold, silver...
•Coinage appears about 3,000 years ago
• Stamped lumps of precious metal: electrum, silver, gold
• Big coins, so small circulation
Three phases, 1: commodity standards
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Stater from Efesos, 6th-7th century BCE Stater from Miletos, 6th-7th century BCE
Puranas, Karshapanas or Pana from India, 6th century BCE
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•Oldest forms scarce metal ingots : copper, bronze, gold, silver...
•Coinage appears about 3,000 years ago
• Stamped lumps of precious metal: electrum, silver, gold
• Big coins, small circulation
• Coining seized as sovereign right : stamped with authority
Three phases, 1: commodity standards
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Roman gold aureus, 2nd Century CE
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Gold dinar, India, 6th Century CE
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Gold dinar minted at Damascus, 7th Century CE
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•Advantages :
• Coins worth their weight in metal
• Fixed and recognizable value
• Stable exchange rates between coins and countries
Three phases, 1: commodity standards
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Spanish silver dollar, 1797
British gold sovereign, 1817
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Gold 10-guilder piece, Netherlands 1933
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•Drawbacks :
• Cumbersome for both large and small transactions
• Clipping and counterfeiting popular pastime
Three phases, 1: commodity standards
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Quinten Metsys, The money changer and his wife (1514)
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•Drawbacks :
• Cumbersome for large and small transactions
• Clipping and counterfeiting popular pastime
• Monetary policy impossible
• Sovereigns untrustworty, always debase coins
Three phases, 1: commodity standards
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• Solutions :
• Technology (mint presses, ribbed sides, edge lettering)
Three phases, 1: commodity standards
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10 stuiverstuk, Zeeland, 1613 10 stuiverstuk, Holland, 1761
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• Solutions :
• Technology (mint presses, ribbed sides, edge lettering)
• Parliamentary control over minting and money circulation
• Central banks set up to manage currency
• Licensed to issue paper money
Three phases, 1: commodity standards
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Chinese Jiaozi banknote, 11th Century BCE
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Swedish Riksbank note, 1666
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• First forms in China, 12th-13th century
• Europe late 17th century
•Based on trust in repayment : fiduciary money
• Essentially a promise to pay backed by silver or gold
Three phases, 1: commodity standards
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• From 1914 until 1971
• First World War ends Gold Standard
•Gold concentrated in central banks, no longer in circulation
Three phases, 2: fiduciary money
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•Gradual acceptance of money as managed (Keynes)
•Backing rests on trust in government
• Economic mismanagement can wreck currencies
Three phases, 2: fiduciary money
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Reichsmark note, July 1923
Reichsmark note, October 1923
Zimbabwe dollar, 2008
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•Bretton Woods links Western currencies to gold via US dollar
•Macro-monetary flexibility boosts post-war growth
•Constraints on US economic policy ends system, 1971
Three phases, 2: fiduciary money
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• From 1971 until now
• Money no longer backed by anything at all
• Strong exchange fluctuations upset international economy
• Monetary policy from technical management into politicalfootball
• Efforts to reboot economy boost inflation everywhere
Three phases, 3: fiat money
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•Governments from solution to key problem
• Stable money depends on social and political balance
•Calls for a return to gold
• Suspicion against state inspires alternatives like bitcoin
Three phases, 3: fiat money
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•Money is a convention
•Acceptance depends on ability to fulfill three functions
• Fiat money culmination of 5,000 years evolution
• Balance between parliament and independent central bank the best bet for stable currency
Conclusions
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•A regular occurence throughout history :
• Local scarcity of coin
• Emergency situations
Alternative currencies
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•Cryptocurrencies the newest manifestation :
• A world currency
• Circulating freely without governments or banks
• Trust lodged in supposed power of abstract and diffuse community to check production and use
Alternative currencies
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•Must meet at least two criteria to fulfill three functions :
• Relative scarcity, stable value, trust
• Means of exchange, gauge of value, store of value
• So far, only relative scarcity possible
Alternative currencies
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• Fallacies and drawbacks :
• Abstract community diverse and unable to control
• Growing use will dampen strong fluctuations
• Ideal vehicle for thieves, speculators, and money launderers
• Transactions still very slow and very expensive
• Fools and their money...
Alternative currencies
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