Book: The History of Money

The Silk Roads book mentions in passing the incredible boon to international trade when representational money was invented. No longer were barter markets dominant, but things could have standard prices, and you could sell your harvest in one market without needing to trade for something right away in the same marketplace. Labor and craftsmanship could be valued in concrete terms. Value could be stored indefinitely.  Your wealth did not rot or die.

But Silk Roads didn't go into any depth at all on this development.  When?  Where?  How?

Decided somebody must have written a History of Money... and of course Jack Weatherford did in 1997.

640BC in Lydia.

And initially merchants carried a chunk of precious metal, whose size determined its value. It was a comparatively small leap from there to carry a representative coin, easy to carry, with a denomination printed on it representing a much larger piece of metal somewhere else.

According to Weatherford, the rise of banking in the 1400-1600s as a business run by private citizens for profit (as opposed to governments or kings) led to the creation of wealthy families not tied to the clergy or the government.  This in turn led to these families, such as the Medicis, collecting thousand year old cultural artifacts from the Greeks and Romans, including books and art, and creating scholarships, universities, and patronage of artists such as Da Vinci & Michaelangelo.

It was the banking industry, he contends, that led to the Renaissance, freeing art and literature from the "restrictive grasp of the church and its monasteries" -- which had presided over a thousand year Dark Ages.

On April 5, 1933 President Roosevelt signed a proclamation making it illegal to collect gold bouillon or gold coins. His reasoning was that the U.S. dollar was still tied to the gold standard—40% of the dollar had to be backed by gold—and during the height of the Great Depression people were hoarding gold to the point where the treasury couldn't print any more money.

In 1971 the U.S. eliminated the gold standard, and in 1974 Gerald Ford repealed the prohibition.

There is a speculation that the rise in the use of paper, for all uses, about the time of Gutenberg came about because of the Plague.  With millions of deaths, the sudden availability of lots of fibers and clothing made paper manufacturing cheap and easy.

However, there's a hundred years between the Black Death and Gutenberg.

The author makes the point on page 138 that the invention of paper money was a form of alchemy. Instead of turning another metal into gold, it turned paper into gold, based on the future expected mining of gold underfoot.  As long as people held faith in the paper notes, they were as good as money.  They didn't really need the backing of gold, only the promise of the backing of gold sometime in the future.

The United States was the first country on the planet to introduce a wholly digital form of currency, with pennies and dimes and dollars. This was in part because our currency was created all at once, with no traditional history of fractional currency, and partly because the Founders wanted to separate us from the arcane and confusing systems of currency in Great Britain and France.

Eventually almost all other countries adopted their own decimal currency. Great Britain was one of the last, waiting until 1971.

In fact, France's adoption of digital currency, after their own revolution in 1792, went a bit overboard.

They also created the 100 minute hour, 10 hour day, ten day week. They started year zero on the date of the revolution.

They even dictated that a circle should have 400 degrees, and a right angle would be 100º.

It wasn't workable, and was abandoned two years later.

A horse can output up to 15 horsepower.

An athlete human can output 1.2 horsepower for short bursts.

The author contends－reasonably I think－that the rise of digital money led to the creation of standardized weights and measurements (such as the metric system) which led to the rise of science and discovery (as opposed to merely studying the classics). This rage for measuring everything and creating rules to explain everything led to communism and socialism and the periodic table and Linnaean classification and the Dewey Decimal System and the tree of life.

This book is about a lot more than money.

German hyperinflation after the First World War, that saw the mark drop from 4.2 marks to the dollar before the war, to 4.2 trillion (with a 'T') marks to the dollar in 1923, was a major factor in the rise of extremism in Germany.  Wages would lose so much of their value that if not spent on payday, they'd be burned the next day for fuel.

All of the participants in WWI saw major inflation, including the U.S. who experienced a stock market crash in '29.

Ever since the U.S. abandoned the gold standard, the dollar has floated according to a number of factors, but annual inflation of 3-5% has lingered in the background.  This causes prices to rise (against the dollar) at a steadily compounding rate. This inflation is caused by governments printing more and more money to pay for things they want to do. Politicians find this preferable over raising taxes, though it has essentially the same effect.

Borrowers like this system because the loans they take out today are worth much less in thirty years. Banks build-in an inflation adjustment when figuring interest rates.

Prior to the free-floating dollar however, prices actually DROPPED from 1800-1933.  Improved mechanization of manufacturing and improved crop yields meant the cost-of-living actually improved every year.

Prior to The Depression, banks rarely made personal loans to individual customers.  They mostly financed businesses, while the customers of those businesses paid cash, saved until they had enough cash, rented lodging instead of taking out a mortgage, and if they ran a tab at the grocer or bar it was the business advancing them credit.

Banking industry regulation changes during The Depression made it more attractive for banks to lend to consumers, and credit cards, mortgages and consumer debt became the norm.

Today's economy runs on debt.