When I was 2, my grandfather gave me a £50 note and I ripped it in half. I was recently reminded of this incident (or rather, the years of jokes about it throughout my childhood) when my own 2yo was upset over being given a paper note and asked for “real money” instead.
Physical coinage and precious metals have a value that even toddlers understand. So where does this come from, and where did it start? What does the history of money tell us about the future of cryptocurrency? These questions have been swirling around in my head for months, so naturally I’ve found myself reading thousands of years worth of history and re-examining my international economic law notes of yesteryear. I blame Covid.
So join me as I wade through the history of money, from the first coins to the emergence of banking in London and all the way to decentralised Bitcoin and Wall Street Bets.
Stage 1: The First Coins
Gold, silver and other precious metals have been used as a store of value and value exchange since the dawn of civilisation.
Gold is referenced more often in the Bible than any other metal and Abram, the father of Judaism (as well as Christianity and Islam if we’re being technical), is described in Genesis 13:2 as being "very rich in livestock, in silver, and in gold." Later in Genesis we read of Joseph’s brothers travelling from Israel to Egypt with sacks of money when a famine drove them to search for grain to purchase from further afield (Genesis 42). So we know international trade took place in the ancient world, but often through direct trade of goods or precious metals, or the use of coinage which could be melted down to its pure gold or silver form.
There’s evidence of coins used by Israelites right up until their exile to Babylon around 550 BC, but this money had quite a fixed value that is different to our modern approach to cash.
Fast forward to the Roman empire of 27 BC-476AD and coinage was a little more sophisticated. Caesar’s face was printed on drachma coins and in occupied regions such as Palestine, the shekel was in circulation along with minas.
Some attribute the invention of coins to the Lydians, in the 6th century AD. Gold and silver coins were certainly used in shops in Lydia but metal coins were used in other places too.
At this time, banking had yet to emerge but the presence of traders, moneylenders and tax collectors meant there was some semblance of a financial system. When money was lent both debtors and creditors were recorded in writing, but these loans were based on very fixed values and not hypotheticals. There were interest payments, but certainly no complex instruments or quantitative easing. Money in the ancient world was very different from our modern banking system.
Stage 2: Paper money
Paper currency first emerged in China in form of huizi during the Song dynasty of 960-1279 AD. It worked well at first... then hyper inflation devalued the huizi to the point of collapse.
The dynasty fell soon after the economic crash, perhaps because the rulers could no longer feed and pay armies. In any case, European travellers such as Marco Polo took note of China’s paper money round 1271AD and the idea soon spread.
Marco Polo described the use of paper currency in China as the innovative manner in which:
"[Khubilai Khan] causes all payments on his own account to be made; and he makes them to pass current universally over all his kingdoms and provinces and territories, and whithersoever his power and sovereignty extends. And nobody, however important he may think himself, dares to refuse them on pain of death. And indeed everybody takes them readily, for wheresoever a person may go throughout the Great Kaan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold. And all the while they are so light that ten bezants’ worth does not weigh one golden bezant.”
Marco Polo noted, with much fascination, that leaders could give their stamp of approval to otherwise quite worthless paper, and with a magical marker such as a wax seal, transform paper into money. The authentication of paper money was an important part of the process and the convenience of travelling with light notes rather than heavy gold or silver meant the idea took hold quickly.
And thus, the magical money tree was born. Rulers across Europe also began printing money, and what was initially such a noteworthy innovation, is now so familiar we barely consider it remarkable at all.
Stage 3: Markets and the Emergence of Banking
Within our modern, industrial world, markets have come to refer to the physical or intangible area in which goods can be exchanged: the Asain market or the millennial market, have both come to refer to the same notion: where can a thing be sold. This is a relatively new use of the term, but in essence, markets are just places where things are bought and sold.
A strange obsession of mine has been visiting markets around the world. I find it fascinating to observe the similarities between market stalls in England, Wales, Hong Kong, Israel, Ghana, Nepal, America, Austria, France, Portugal, Egypt and Sweden. All markets have certain things in cThere is something fundamentally human about the experience.
Back to the history of money. A major shift in civilisation occurred in the 1100s when new technologies led to an explosion in record keeping from the 1190s. Many records were established in official rolls by the 1300s, as well as inventories of national treasure, and surveys of manors and which lords held them. This change led to a major shift in local peace.
Lords no longer relied on their memory and fought other lords who challenged their claims to land. Instead they took their beef to court and relied on rolls and records. More local peace meant less time spent on fighting and more time devoted to crafting new products and goods which could be traded at markets.
It's not just me who finds market fascinating. Markets as centres of commerce have a huge base of historical and anthropological research to look through. From the research, there seem to be at least three points of origin:
Service to landlords in a feudal system which required grain to turn into money,
Rural fairs where farmers used whatever grain remained after feeding families and paying landlords, to trade with other cultivators for things they needed or wanted.
International trade where carrying too much capital across long distances could be dangerous.
Let’s linger on 3 here and focus on Europe, as I find the evolution of formal international markets during the medieval ages to be quite fascinating...
Though some form of international trade has been around since at least 970BC, commercial markets properly exploded in 1200-1500AD in Europe. Contrary to our strange modern ideas that international travel is new, medieval people in Europe frequently traveled to visit fairs and large markets, or for religious pilgrimages or even to visit judges or the King to settle disputes. People also travelled to visit doctors or to go to university.
As international trade grew, coinage replaced barter and the denarius became popular throughout most of Christendom (deniers in France, denari in Italy, dineros in Spain, dinheros in Portugal, denars in Hungary and pfennige in Germany.) All forms of denarius were silver pennies which were heavy enough in ration to their value to be impractical for international trade.
The only gold coin available was the nomisma of the Byzantine empire, but there were not enough nomisma coins to meet demand so other nations attempted to produce their own. The gold penny was attempted in England, but the gold was worth so much more than the coin that people frequently melted it down.
Whilst traders were trying to figure out how to buy and sell without lugging around heavy sacks of coins (and thus making themselves targets for robbers), a new economic development arose.
In the French region of Champagne, where luxury goods were sold at the rural fairs, the rise of literacy allowed for bills of credit and exchange to be created. This meant rather than handing over gold coins and silver bullion for every purchase of silk, wool, sugar or spices, merchants kept written notes of what was owed. At the end of the fair, the buyers would settle their debts and hand over cash owed in one go.
These early stock exchanges were simply locations where traders from all over Europe used drafts, notes and bills of exchange for stock: agricultural goods and other commodities such as handcrafted leather bags and tools. Commercial bills of exchange were traded by the first type of stockbroker, the courtier de change.
Later The Van der Buerse family opened up their front garden to the traders and so the stock exchange was often referred to as the buerse, or bourse. The bourse gave rise to the bourgeoisie (although the etymologies are unrelated) as wealth was generated through trading stock. During the 16th and 17th centuries, similar trading centres sprung up in the Netherlands, Denmark, Britain and Germany.
Bills of exchange at stock markets started to be passed on by agents who organised themselves on benches in the market, promising payment for the bills of exchange by a particular date. Those agents also created double entry bookkeeping and the means for goods in transit to be insured by 1300AD. The agents formed companies and became known by the name of the benches, or banche they sat on; the first banks.
Banking companies emerged all over Europe and were international from the outset and the Ricciardi of Lucca and Frescobaldi banks even lent money to King Edward I. International banking had begun, and it had a royal stamp of approval.
International banking would change humanity forever.
In PART 2 I'll cover: future markets, hedge betting and The Bank of America.