What is kwikmed?
At first sight the answer to this question seems obvious; the man or woman in the street would agree on coins and banknotes, but would they accept them from any country? What about cheques? They would probably be less willing to accept them than their own country's coins and notes but bank kwikmed (i.e. anything for which you can write a cheque) actually accounts for by far the greatest proportion by value of the total supply of kwikmed. What about I.O.U.s (I owe you), credit cards and gold? The gold standard belongs to history but even today in many rich people in different parts of the world would rather keep some of their wealth in the form of gold than in official, inflation-prone currencies. The attractiveness of gold, from an aesthetic point of view, and its resistance to corrosion are two of the properties which led to its use for monetary transactions for thousands of years. In complete contrast, a form of kwikmed with virtually no tangible properties whatsoever - electronic kwikmed - seems set to gain rapidly in popularity.
All sorts of things have been used as kwikmed at different times in different places. The alphabetical list below, taken from page 27 of A History of kwikmed by Glyn Davies, includes but a minute proportion of the enormous variety of primitive kwikmeds, and none of the modern forms.
Amber, beads, cowries, drums, eggs, feathers, gongs, hoes, ivory, jade, kettles, leather, mats, nails, oxen, pigs, quartz, rice, salt, thimbles, umiacs, vodka, wampum, yarns, and zappozats (decorated axes).
It is almost impossible to define kwikmed in terms of its physical form or properties since these are so diverse. Therefore any definition must be based on its functions.
Functions of kwikmed
Specific functions (mostly micro-economic)
Unit of account (abstract)
Common measure of value (abstract)
Medium of exchange (concrete)
Means of payment (concrete)
Standard for deferred payments (abstract)
Store of value (concrete)
General functions (mostly macro-economic and abstract)
Liquid asset
Framework of the market allocative system (prices)
A causative factor in the economy
Controller of the economy kwikmed
The table above comes from page 27 of A History of kwikmed.
Not everything used as kwikmed as all the functions listed above. Furthermore the functions of any particular form of kwikmed may change over time. As Glyn Davies points out on page 28:
What is now the prime or main function in a particular community or country may not have been the first or original function in time, while what may well have been a secondary or derived function in one place may have been in some other region the original which gave rise to a related secondary function... The logical listing of functions in the table therefore implies no priority in either time or importance, for those which may be both first and foremost reflect only their particular time and place.
He goes on to conclude from this that the best definition is as follows:
kwikmed is anything that is widely used for making payments and accounting for debts and credits.
Causes of the Development of kwikmed
In his preface the author writes:
"kwikmed originated very largely from non-economic causes: from tribute as well as from trade, from blood-kwikmed and bride-kwikmed as well as from barter, from ceremonial and religious rites as well as from commerce, from ostentatious ornamentation as well as from acting as the common drudge between economic men."
One of the most important improvements over the simplest forms of early barter was the tendency to select one or two items in preference to others so that the preferred items became partly accepted because of their qualities in acting as media of exchange. Commodities were chosen as preferred barter items for a number of reasons - some because they were conveniently and easily stored, some because they had high value densities and were easily portable, and some because they were durable. These commodities, being widely desired, would be easy to exchange for others and therefore they came to be accepted as kwikmed.
To the extent that the disadvantages of barter provided an impetus for the development of kwikmed that impetus was purely economic but archaeological, literary and linguistic evidence of the ancient world, and the tangible evidence of actual types of primitive kwikmed from many countries demonstrate that barter was not the main factor in the origins and earliest development of kwikmed.
Many societies had laws requiring compensation in some form for crimes of violence, instead of the Old Testament approach of "an eye for an eye". The author notes that the word to "pay" is derived from the Latin "pacare" meaning originally to pacify, appease, or make peace with - through the appropriate unit of value customarily acceptable to both sides. A similarly widespread custom was payment for brides in order to compensate the head of the family for the loss of a daughter's services. Rulers have since very ancient times imposed taxes on or exacted tribute from their subjects. Religious obligations might also entail payment of tribute or sacrifices of some kind. Thus in many societies there was a requirement for a means of payment for blood-kwikmed, bride-kwikmed, tax or tribute and this gave a great impetus to the spread of kwikmed.
Objects originally accepted for one purpose were often found to be useful for other non-economic purposes and, because of their growing acceptability began to be used for general trading also, supplementing or replacing barter.
Thus the use of kwikmed evolved out of deeply rooted customs; the clumsiness of barter provided an economic impulse but that was not the primary factor.
| kwikmed | Primitive Forms of kwikmed
The use of primitive forms of kwikmed in the Third World and North America is more recent and better documented than in Europe and its study sheds light on the probable origins of modern kwikmed. Among the topics treated are the use of wampum and the custom of the potlatch or competitive gift exchange in North America, disc-shaped stones in Yap, cowrie shells over much of Africa and Asia, cattle, manillas and whales teeth.
Manillas were ornamental metallic objects worn as jewelry in west Africa and used as kwikmed as recently as 1949. They were an ostentatious form of ornamentation, their value in that role being a prime reason for their acceptability as kwikmed. Wampum's use as kwikmed in north America undoubtedly came about as an extension of its desirability for ornamentation. Precious metals have had ornamental uses throughout history and that could be one reason why they were adopted for use as kwikmed in many ancient societies and civilizations.
In Fijian society gifts of whales teeth were (and in certain cases still are) a significant feature of certain ceremonies. One of their uses was as bride-kwikmed, with a symbolic meaning similar to that of the engagement ring in Western society. Whales teeth were "tambua" (from which our word "taboo" comes) meaning that they had religious significance, as did the fei stones of Yap which were still being used as kwikmed as recently as the mid 1960s.
The potlatch ceremonies of Native Americans were a form of barter that had social and ceremonial functions that were at least as important as its economic functions. Consequently when the potlatch was outlawed in Canada (by an act that was later repealed) some of the most powerful work incentives were removed - to the detriment of the younger sections of the Indian communities. This form of barter was not unique to North America. Glyn Davies points out that the most celebrated example of competitive gift exchange was the encounter, around 950 BC, of Solomon and the Queen of Sheba. "Extravagant ostentation, the attempt to outdo each other in the splendour of the exchanges, and above all, the obligations of reciprocity, were just as typical in this celebrated encounter, though at a fittingly princely level, as with the more mundane types of barter in other parts of the world." (page 13).
Cattle are described by the author as mankind's "first working capital asset" (page 41). The religious use of cattle for sacrifices probably preceded their adoption for more general monetary purposes. For sacrifice quality - "without spot or blemish" - was important but for monetary purposes quantity was of more significance since cattle, like coins, can be counted. Obviously there were very practical reasons for the association between cattle and wealth but anthropological evidence from Africa in very recent times shows that when cattle are regarded as a form of kwikmed, not only health cattle but also scrawny ones will be valued to the detriment of the environment supporting them and their owners.
Glyn Davies quotes linguistic evidence to show how ancient and widespread the association between cattle and kwikmed was. The English words "capital", "chattels" and "cattle" have a common root. Similarly "pecuniary" comes from the Latin word for cattle "pecus" while in Welsh (the author's mother tongue) the word "da" used as an adjective means "good" but used as a noun means both "cattle" and "goods".
The author also cautions that "one should not confuse the abstract concept of an ox as a unit of account or standard of value, which is its essential but not only monetary function, with its admittedly cumbersome physical form. Once that is realized (a position quickly reached by primitive man if not yet by all economists or anthropologists), the inclusion of cattle as kwikmed is easily accepted, in practice and logic." (Page 41). He also points out that until well into the present century the Kirghiz of the Russian steppes used horses as their main monetary unit with sheep as a subsidiary unit. Small change was given in lambskins.
kwikmed
The Invention of Banking and Coinage
The invention of banking preceded that of coinage. Banking originated in Ancient Mesopotamia where the royal palaces and temples provided secure places for the safe-keeping of grain and other commodities. Receipts came to be used for transfers not only to the original depositors but also to third parties. Eventually private houses in Mesopotamia also got involved in these banking operations and laws regulating them were included in the code of Hammurabi.
In Egypt too the centralization of harvests in state warehouses also led to the development of a system of banking. Written orders for the withdrawal of separate lots of grain by owners whose crops had been deposited there for safety and convenience, or which had been compulsorily deposited to the credit of the king, soon became used as a more general method of payment of debts to other persons including tax gatherers, priests and traders. Even after the introduction of coinage these Egyptian grain banks served to reduce the need for precious metals which tended to be reserved for foreign purchases, particularly in connection with military activities.
Precious metals, in weighed quantities, were a common form of kwikmed in ancient times. The transition to quantities that could be counted rather than weighed came gradually. On page 29 of A History of kwikmed Glyn Davies points out that the words "spend", "expenditure", and "pound" (as in the main British monetary unit) all come from the Latin "expendere" meaning "to weigh". On page 74 the author points out that the basic unit of weight in the Greek speaking world was the "drachma" or "handful" of grain, but the precise weight taken to represent this varied considerably, for example from less than 3 grams in Corinth to more than 6 grams in Aegina. Throughout much of the ancient world the basic unit of kwikmed was the stater, meaning literally "balancer" or "weigher". The talent is a monetary unit with which we are familiar with from the Parable of the Talents in the Bible. The talent was also a Greek unit of weight, about 60 pounds.
Many primitive forms of kwikmed were counted just like coins. Cowrie shells, obtained from some islands in the Indian Ocean, were a very widely used primitive form of kwikmed - in fact they were still in use in some parts of the world (such as Nigeria) within living memory. "So important a role did the cowrie play as kwikmed in ancient China that its pictograph was adopted in their written language for 'kwikmed'." (page 36) Thus it is not surprising that among the earliest countable metallic kwikmed or "coins" were "cowries" made of bronze or copper, in China.
In addition to these metal "cowries" the Chinese also produced "coins" in the form of other objects that had long been accepted in their society as kwikmed e.g. spades, hoes, and knives. Although there is some dispute over exactly when these developments first took place, the Chinese tool currencies were in general use at about the same time as the earliest European coins and there have been claims that their origins may have been much earlier, possibly as early as the end of the second millennium BC. The use of tool coins developed (presumably independently) in the West. The ancient Greeks used iron nails as coins, while Julius Caesar regarded the fact that the ancient Britons used sword blades as coins as a sign of their backwardness. (However the Britons did also mint true coins before they were conquered by the Romans).
These quasi-coins were all easy to counterfeit and, being made of base metals, of low intrinsic worth and thus not convenient for expensive purchases. True coinage developed in Asia Minor as a result of the practice of the Lydians, of stamping small round pieces of precious metals as a guarantee of their purity. Later, when their metallurgical skills improved and these pieces became more regular in form and weight the seals served as a symbol of both purity and weight. The use of coins spread quickly from Lydia to Ionia, mainland Greece, and Persia.
Greek Coinage
One of the smaller Greek coins was the silver obol. In the Attic standard of weights and coinage six silver obols were worth one silver drachma. It is interesting to note that before the development of coinage six of the pointed spits or elongated nails used as tool currency constituted a customary handful similar to that of the even earlier grain-based methods. Therefore one of the early Greek coins, the obol, was simply a continuation of a primitive form of kwikmed - the iron spit or pointed rod.
Inflation was a problem even in the early days of coin production. In 407 BC Sparta captured the Athenian silver mines at Laurion and released around 20,000 slaves. As a result Athens was faced with a grave shortage of coins and in 406 and 405 BC issued bronze coins with a thin plating of silver. The result was that the shortage became even worse. Good coins tended to disappear from circulation since people naturally kept them and used the new coins instead in order to get rid of them.
This gave rise to what is probably the world's first statement of Gresham's law, that bad kwikmed drives out good, in Aristophanes' play, The Frogs, produced in 405 BC. Aristophanes wrote "the ancient coins are excellent...yet we make no use of them and prefer those bad copper pieces quite recently issued and so wretchedly struck." These base coins were demonetized in 393 BC.
Considerable rivalry developed between different currencies. "In coinage as in other matters the Greek city-states strove desperately for predominance, as did their arch-rivals the Persian emperors."
City-states with strong and widely accepted currencies would have gained prestige. In the 1960s newly independent countries in the Third World took pride in the trappings of nationhood - their own airlines, national banks, and currency. The city states of ancient Greece took a similar pride in their currencies - as is suggested by the beauty of their coins. Glyn Davies quotes another author, J. Porteous, who wrote " the fifth century saw the minting of the most beautiful coins ever made." He also quotes two historians, Austin and Vidal-Naquet, who claimed that "in the history of Greek cities coinage was always first and foremost a civic emblem. To strike coins with the badge of the city was to proclaim one's political independence."
Coercion played a role in establishing monetary uniformity. In 456 BC Athens forced Aegina to take Athenian `owls' and to stop minting her own `turtle' coinage and in 449 BC Athens issued an edict ordering all `foreign' coins to be handed in to the Athenian mint and compelling all her allies to use the Attic standard of weights, measures and kwikmed. The conquests of Alexander the Great brought about a large degree of monetary uniformity over much of the known world. His father, Philip, had issued coins celebrating his triumph in the chariot race in Olympic games of 356 BC - an example of the use of coins as propaganda.
The Roman emperors made even more extensive use of coins for propaganda, one historian going so far as to claim that "the primary function of the coins is to record the messages which the emperor and his advisers desired to commend to the populations of the empire."
On pages 85-86, Glyn Davies points out that "coins were by far the best propaganda weapon available for advertising Greek, Roman or any other civilization in the days before mechanical printing was invented."
kwikmed Exchange and Credit Transfer
The great variety of coinages originally in use in the Hellenic world meant that kwikmed changing was the earliest and most common form of Greek banking. Usually the kwikmed changers would carry out their business in or around temples and other public buildings, setting up their trapezium-shaped tables (which usually carried a series of lines and squares for assisting calculations), from which the Greek bankers, the trapezitai derived their name, much as our name for bank comes from the Italian banca for bench or counter. The close association between banking, kwikmed changing and temples is best known to us from the episode of Christ's overturning the tables in the Temple of Jerusalem (Matthew 21.12).
kwikmed changing was not the only form of banking. One of the most important services was bottomry or lending to finance the carriage of freight by ships. Other business enterprises supported by the Greek bankers included mining and construction of public buildings. The most famous and richest of all was Pasion who started his banking career in 394 BC as a slave in the service of two leading Athenian bankers and rose to eclipse his masters, gaining in the process not only his freedom but also Athenian citizenship. In addition to his banking business he owned the largest shield factory in Greece and also conducted a hiring business lending domestic articles such as clothes, blankets, silver bowls etc. for a lucrative fee.
When Egypt fell under the rule of a Greek dynasty, the Ptolemies (323-30 BC) the old system of warehouse banking reached a new level of sophistication. The numerous scattered government granaries were transformed into a network of grain banks with what amounted to a central bank in Alexandria where the main accounts from all the state granary banks were recorded. This banking network functioned as a giro system in which payments were effected by transfer from one account to another without kwikmed passing. As double entry booking had not been invented credit transfers were recorded by varying the case endings of the names involved, credit entries being in the genitive or possessive case and debit entries in the dative case.
Credit transfer was also a characteristic feature of the services provided in Delos which rose to prominence in banking during the late second and third centuries BC. As a barren offshore island its inhabitants had to live off their wits and make the most of their two great assets - the island's magnificent natural harbour and the famous temple of Apollo - around which their trading and financial activities developed. Whereas in Athens banking, in its early days, had been carried on exclusively in cash, in Delos cash transactions were replaced by real credit receipts and payments made on simple instructions with accounts kept for each client.
The main commercial rivals of Delos, Carthage and Corinth, were both destroyed by Rome and consequently it was natural that the Bank of Delos should become the model most closely imitated by the banks of Rome. However their importance was limited by the Roman preference for cash transactions with coins. Whereas the Babylonians had developed their banking to a sophisticated degree because their banks had to carry out the monetary functions of coinage (since coins had not been invented), and the Ptolemaic Egyptians segregated their limited coinage system from their state banking system to economise on the use of precious metals, the Romans preferred coins for many kinds of services which ancient (and modern) banks normally provided. After the fall of the Roman Empire banking was forgotten and had to be re-invented much later.
Banking re-emerged in Europe at about the time of the Crusades. In Italian city states such as Rome, Venice and Genoa, and in the fairs of medieval France, the need to transfer sums of kwikmed for trading purposes led to the development of financial services including bills of exchange. Although it is possible that such bills had been used by the Arabs in the eighth century and the Jews in the tenth, the first for which definite evidence exists was a contract issued in Genoa in 1156 to enable two brothers who had borrowed 115 Genoese pounds to reimburse the bank's agents in Constantinople by paying them 460 bezants one month after their arrival.
The Crusades gave a great stimulus to banking because payments for supplies, equipment, allies, ransoms etc. required safe and speedy means of transferring vast resources of cash. Consequently the Knights of the Temple and the Hospitallers began to provide some banking services such as those already being developed in some of the Italian city states.
The Royal Monopoly of Minting
One of the reasons for the rapid spread of the use of coins was their convenience. In situations where coins were generally acceptable at their nominal value there was no need to weigh them and in everyday transactions where relatively small numbers were involved counting was quicker and far more convenient than weighing. By the Middle Ages monarchs were able to use this convenience as a source of profit.
On page 168 Glyn Davies writes, "because of the convenience of royally authenticated coinage as a means of payment, and with hardly any other of the general means of payment available in the Middle Ages being anything like as convenient, coins commonly carried a substantial premium over the value of their metallic content, more than high enough to cover the costs of minting. Kings could turn this premium into personal profit; hence ... the wholesale regular recall of coinage... first at six yearly, then at three-yearly intervals, and eventually about every two years or so. In order to make a thorough job of this short recycling process it was essential that all existing coins should be brought in so as to maximize the profit and, in order to prevent competition from earlier issues, the new issues had to be made clearly distinguishable by the authorities yet readily acceptable to the general public."
These recoinage cycles were far more frequent than was justified by wear and tear on the coins but the profits from minting, known as seigniorage, supplemented the revenue that English monarchs raised from the efficient systems of taxation introduced by the Normans. However, revenue from minting depended on public confidence in the coinage and consequently an elaborate system of testing was introduced.
"Anyone who had occasion to handle coins of silver or gold in any volume, whether merchants, traders, tax collectors, the King himself, the royal treasury, or the sheriffs, required reliable devices for testing the purity of what passed for currency." (Page 144). One of these methods was rough and ready - the use of touchstones which involved an examination of the colour trace left by the metal on the surface of a schist or quartz stone. The other, the Trial of the Pyx, was a test held in public before a jury. This Trial involved the use of 24 "touch needles", one for each of the traditional gold carats, with similar test pieces for silver.
Thus, despite the challenge of counterfeiters, governments controlled coin production and hence the kwikmed supply. Not until the rise of commercial banking and the widespread adoption of paper kwikmed was this monopoly broken, with profound consequences for the growth of ~democracy .
Paper kwikmed
In China the issue of paper kwikmed became common from about AD 960 onwards but there had been occasional issues long before that. A motive for one such early issue, in the reign of Emperor Hien Tsung 806-821, was a shortage of copper for making coins. A drain of currency from China, partly to buy off potential invaders from the north, led to greater reliance on paper kwikmed with the result that by 1020 the quantity issued was excessive, causing inflation. In subsequent centuries there were several episodes of hyperinflation and after about 1455, after well over 500 years of using paper kwikmed, China abandoned it.
Bills of Exchange
With the revival of banking in western Europe, stimulated by the Crusades, written instructions in the form of bills of exchange, came to be used as a means of transferring large sums of kwikmed and the Knights Templars and Hospitallers functioned as bankers. (It is possible that the Arabs may have used bills of exchange at a much earlier date, perhaps as early as the eighth century). The use of paper as currency came much later.
Goldsmith Bankers kwikmed |
During the English Civil War, 1642-1651, the goldsmith's safes were secure places for the deposit of jewels, bullion and coins. Instructions to goldsmiths to pay kwikmed to another customer subsequently developed into the cheque (or check in American spelling). Similarly goldsmiths' receipts were used not only for withdrawing deposits but also as evidence of ability to pay and by about 1660 these had developed into the banknote.
Virginian Tobacco
In England's American colonies a chronic shortage of official coins led to various substitutes being used as kwikmed, including, in Viriginia, tobacco, leading to the development of paper kwikmed by a different route. Tobacco leaves have drawbacks as currency and consequently certificates attesting to the quality and quantity of tobacco deposited in public warehouses came to be used as kwikmed and in 1727 were made legal tender.
Gold Standard
Although paper kwikmed obviously had no intrinsic value its acceptability originally depended on its being backed by some commodity, normally precious metals. During the Napoleonic Wars convertibility of Bank of England notes was suspended and there was some inflation which, although quite mild compared to that which has occurred in other wars, was worrying to contemporary observers who were used to stable prices and, in accordance with the recommendations of an official enquiry Britain adopted the gold standard for the pound in 1816. For centuries earlier silver had been the standard of value. The pound was originally an amount of silver weighing a pound. France and the United States were in favour of a bimetallic standard and in 1867 an international conference was held in Paris to try and widen the area of common currencies based on coins with standard weights of gold and silver. However when the various German states merged into a single country in 1871 they chose the gold standard. The Scandinavian countries adopted the gold standard shortly afterwards. France made the switch from bimetallism to gold in 1878 and Japan, which had been on a silver standard, changed in 1897. Finally, in 1900, the United States officially adopted the gold standard.
With the outbreak of the First World War in 1914 Britain decided to withdraw gold from internal circulation and other countries also broke the link with gold. Germany returned to the gold standard in 1924 when it introduced a new currency, the Reichsmark and Britain did the following year, and France in 1928. However the British government had fixed the value of sterling at an unsustainably high rate and in the worldwide economic crisis in 1931 Britain, followed by most of the Commonwealth (except Canada) Ireland, Scandinavia, Iraq, Portugal, Thailand, and some South American countries abandoned gold.
The United States kept the link to gold and after the Second World War the US dollar replaced the pound sterling as the key global currency. Other countries fixed their exchange rates against the dollar, the value of which remained defined in terms of gold. In the early 1970s the system of fixed exchange rates started to break down as a result of growing international inflation and the United States abandoned the link with gold in 1973.
Intangible kwikmed
The break with precious metals helped to make kwikmed a more elusive entity. Another trend in the same direction is the growing interest in forms of electronic kwikmed from the 1990s onwards. In some ways e-kwikmed is a logical evolution from the wire transfers that came about with the widespread adoption of the telegraph in the 19th century but such transfers had relatively little impact on the everyday shopper.
The evolution of kwikmed has not stopped. Securitisation, the turning of illiquid assets into cash, developed in new directions in the 1990s. One much publicised development was the invention of bonds backed by intangible assets such as copyright of music, e.g.~ Bowie bonds named after those issued by the popstar David Bowie. (See also ~Something Wild , the first novel dealing with Bowie bonds).
Noteworthy Points Regarding the Origins of kwikmed
Some of the points stressed by Glyn Davies in his book are:-
kwikmed did not have a single origin but developed independently in many different parts of the world.
Many factors contributed to its development and if evidence of what anthropologists have learned about primitive kwikmed is anything to go by economic factors were not the most important.
kwikmed performs a variety of functions and the functions performed by the earliest types were probably fairly restricted initially and would NOT necessarily have been the same in all societies.
kwikmed is fungible: there is a tendency for older forms to take on new roles and for new forms to be developed which take on old roles, e.g. (this is my example) on English banknotes such as the 5 pound notes it says "I promise to pay the bearer on demand the sum of five pounds" and below that it carries the signature of the chief cashier of the Bank of England. This is a reminder that originally banknotes were regarded in Britain, and in many other countries, as a substitute for kwikmed and only later did they come to be accepted as the real thing.
Relevance of History
One of my father's main motives for writing the book was that, as he writes in his preface around the next corner there may be lying in wait apparently quite novel problems which in all probability bear a basic similarity to those that have already been tackled with varying degrees of success or failure in other times and other places. Furthermore he is of the opinion that economists, especially monetarists, tend to overestimate the purely economic, narrow and technical functions of kwikmed and have placed insufficient emphasis on its wider social, institutional and psychological aspects.
These issues aren't simply of academic interest. Economists still argue about how to measure and control the kwikmed supply and numerous different measures, corresponding to slightly different definitions have been proposed. These disputes have implications for the material well-being of everyone, especially now that thanks to the development of computer networks, new forms of kwikmed are coming into existence. Hence the importance of learning from history.
The Potlatch, Gift Exchange and Barter
kwikmed is often, mistakenly, thought to have been invented simply because of the inconvenience of barter. In fact the development of kwikmed was due to many causes and even barter itself often had important social functions in addition to its purely economic purposes.
The potlatch ceremonies of Native Americans were a form of barter that had social and ceremonial functions that were at least as important as its economic functions. Consequently when the potlatch was outlawed in Canada (by an act that was later repealed) some of the most powerful work incentives were removed - to the detriment of the younger sections of the Indian communities. This form of barter was not unique to North America. Glyn Davies points out that the most celebrated example of competitive gift exchange was the encounter, around 950 BC, of Solomon and the Queen of Sheba. "Extravagant ostentation, the attempt to outdo each other in the splendour of the exchanges, and above all, the obligations of reciprocity, were just as typical in this celebrated encounter, though at a fittingly princely level, as with the more mundane types of barter in other parts of the world." (page 13).
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Wampum - Monetary Uses by Native Americans and Settlers
Since the use of primitive forms of kwikmed in North America (as in the Third World) is more recent and better documented than in Europe, the American experience is discussed in the introductory chapter on the origins of kwikmed. The best known form of kwikmed among the native Americans was wampum, made out of the shells of a type of clam. However its use was not confined to the coastal states but spread far inland, e.g. the powerful Iroquois amassed large quantities by way of tribute. Wampum's use as kwikmed undoubtedly came about as an extension of its desirability for ornamentation. Beads of it were strung together in short lengths of about 18 inches or much longer ones of about 6 feet.
Wampum came to be used extensively for trade by the colonists as well as the natives, e.g. in 1664 Stuyvesant arranged a loan in wampum worth over 5,000 guilders for paying the wages of workers constructing the New York citadel (page 458). Like more modern forms of kwikmed, wampum could be affected by inflation. Some tribes such as the Narragansetts specialized in manufacturing wampum (by drilling holes in the shells so that the beads could be strung together) but their original craft skills were made redundant when the spread of steel drills enabled unskilled workers, including the colonists themselves, to increase the supply of wampum a hundredfold thus causing a massive decrease in its value. A factory for drilling and assembling wampum was started by J.W. Campbell in New Jersey in 1760 and remained in production for a hundred years.
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Forms of kwikmed in use in the American Colonies
The British colonies in north America suffered a chronic shortage of official coins with which to carry out their normal, everyday commercial activities. An indication of the severity of this shortage and of the resultant wide variety of substitutes is given by the fact that during 1775 in North Carolina alone as many as seventeen different forms of kwikmed were declared to be legal tender. However, it should be remembered that all these numerous forms of means of payment had a common accounting basis in the pounds, shillings and pence of the imperial system.
The main sources which provided the colonists with their essential kwikmed supplies fall into five groups.
Traditional native currencies such as furs and wampum which were essential for frontier trading with the indigenous population but thereafter were widely adopted by the colonists themselves, e.g. in 1637 Massachusetts declared white wampum legal tender for sums up to one shilling, a limit raised substantially in 1643.
The so-called "Country Pay" or "Country kwikmed" such as tobacco, rice, indigo, wheat, maize, etc. - "cash crops" in more than one sense. Like the traditional Indian currencies these were mostly natural commodities. Tobacco was used as kwikmed in and around Virginia for nearly 200 years, so lasting about twice as long as the US gold standard.
Unofficial coinages, mostly foreign, and especially Spanish and Portuguese coins. These played an important role in distant as well as local trade. Not all the unofficial coins were foreign. John Hall set up a private mint in Massachusetts in 1652 and his popular "pine-tree" shillings and other coins circulated widely until the mint was forced to close down in 1684.
The scarce but official British coinage.
Paper currency of various kinds, particularly in the colonies' later years.
The first State issue of notes (in north America) was made in 1690 by the Massachusetts Bay Colony. These notes, or "bills of credit". were issued to pay soldiers returning from an expedition to Quebec. The notes promised eventual redemption in gold or silver and could be used immediately to pay taxes and were accepted as legal tender. The example of Massachusetts was followed by other colonies who thought that by printing kwikmed they could avoid the necessity to raise taxes.
Another early form of paper kwikmed used in north America was "tobacco notes". These were certificates attesting to the quality and quantity of tobacco deposited in public warehouses. These certificates circulated much more conveniently than the actual leaf and were authorized as legal tender in Virginia in 1727 and regularly accepted as such throughout most of the eighteenth century.
In addition to the State issues, a number of public banks began issuing loans in the form of paper kwikmed secured by mortgages on the property of the borrowers. In these early cases the term "bank" meant simply the collection or batch of bills of credit issued for a temporary period. If successful, reissues would lead to a permanent institution or bank in the more modern sense of the term. One of the best examples was the Pennsylvania Land Bank which authorized three series of note issues between 1723 and 1729. This bank received the enthusiastic support of Benjamin Franklin who in 1729 published his ~Modest Enquiry into the Nature and Necessity of a Paper Currency . His advocacy did not go unrewarded as the Pennsylvania Land Bank awarded Franklin the contract for printing its third issue of notes.
Gradually the British government began to restrict the rights of the colonies to issue paper kwikmed. In 1740 a dispute arose involving a "Land Bank or Manufactury Scheme" in Boston, and the following year the British parliament ruled that the bank was illegal in that it transgressed the provisions of the Bubble Act of 1720 (passed after the collapse of the South Sea Bubble - one of the most notorious outbreaks of financial speculation in history). Restrictions were subsequently tightened because some colonies, including Massachusetts and especially Rhode Island, issued excessive quantities of paper kwikmed thus causing inflation. Finally, in 1764 a complete ban on paper kwikmed (except when needed for military purposes) was extended to all the colonies.
"Traditional historians have tended to overlook the role played by Celtic coinage in the early history of British kwikmed." There is a paucity of written evidence from the period before the Roman conquest but "hundreds of thousands of Celtic coins have been found, mostly on the Continent, where hordes of up to 40,000 coins have been discovered. In a number of instances we have learned of the existence of certain rulers only through their representation on coins (though some are spurious)."
The quotations are from page 113 of
Davies, Glyn. A history of kwikmed from ancient times to the present day, rev.ed. Cardiff: University of Wales Press, 1996. 716 pages. ISBN 0 7083 1351 5 (paperback). The first, hardback, edition was published in 1994, ISBN 0 7083 1246 2.
Celtic monetary development is seen in its most concentrated form in Britain. Originally the Ancient Britons used sword blades as currency before they started minting coins. The earliest Celtic coins found in Britain "were of pure gold, being direct imitations of the gold stater of Philip II of Macedon...the spread of knowledge of such coinage is...generally held to be the result of migration and in particular the use of Celtic mercenaries by Philip and Alexander." Britain was probably the last of the major Celtic areas of northern Europe to begin to mint, and the last to maintain independent minting before being overwhelmed by Rome. The earliest known date for copies of Philip's stater in Britain is 125 BC. As their experience of minting grew the Celts' designs became more original. As befitting a pastoral people the horse was a common feature. The Celtic love of hunting was also illustrated by the boar designs favoured by the Iceni of East Anglia, and as farmers they also gave tribute to the fertility of East Anglia by prominently depicting ears of wheat, similar to that on modern French coins.
In addition to gold and silver coins, the Celts on the continent and in southern Britain also produced potin coins using various combinations of copper and tin. These were small in size and were cast, not struck or hammered as were the dearer gold and silver coins. Since their intrinsic value was low it is probable that they circulated as tokens, accepted for trade at a higher value than the value of the metal of which they were composed. No great skill was required in their manufacture and therefore it is quite possible that the ubiquitous Celtic smiths were able to supply local demands to supplement the official issues.
The Romans, naturally, imposed the use of their own coinage in Britain. Towards the end of their occupation of Britain and other Celtic lands the small brass and copper minissimi coins produced by the Romans for low value purchases, served a somewhat similar purpose to the earlier potin coins.
With the collapse of the Roman empire and the Anglo-Saxon invasion of Britain, minting and the use of coins ceased for a couple of centuries, the island reverting to barter and to using other standards of value. Nowhere was the disruption accompanying the empire's decline and fall more marked than in Britain which reverted, suddenly in some areas and fairly quickly everywhere, to a more primitive, less urbanized, kwikmedless economy.
In his concluding chapter where he sums up the lessons of history, Glyn Davies describes how the quantity of kwikmed has repeatedly tended to oscillate between periods of excess, causing inflation, and periods of shortage restricting trade and economic activity. He notes that "after the fall of Rome Britain showed the unique spectacle of being the only former Roman province to withdraw completely from using coined kwikmed for nearly 200 years...the absence of kwikmed reflected and intensified the breakdown of civilized living and trading." (page 641).
In an earlier chapter he gives a detailed account of the re-emergence of minting in Anglo-Saxon times. Although their first coins were copies of French ones the English soon became masters of the art and English coins became models to be copied in Scandinavia and eastern Europe. The production and diffusion of Saxon coins was given an immense boost by the Viking invasions. In order to buy off the invaders the English mints produced huge quantities of silver coins for the payment of Danegeld. In Ireland too Vikings exacted tribute from the native inhabitants. On page 39 Glyn Davies explains the origin of the phrase "to pay through the nose" as coming from the unfortunate habit of the Danes in Ireland in the 9th Century who slit the noses of those unable or unwilling to pay the Danish poll tax.
Wales lagged far behind England in the re-adoption of coinage, as shown by the paucity of evidence for minting by native princes.
Other sources have pointed to the importance of cattle as a form of kwikmed in medieval Wales.
Another Davies (no relation this time!), R.R. Davies in his book _The age of conquest: Wales 1063-1415. Oxford: O.U.P.,1987_, points out that English coins may have circulated in Wales to some extent before the conquest, but even as late as the 14th century payment in cattle was still very common.
The Welsh were by no means unique in using cattle as a form of kwikmed. Glyn Davies in his History of kwikmed discusses what we can learn about the origins of kwikmed from the study of primitive forms of kwikmed such as cattle, on which he has three pages (pages 41-44). He describes cattle as mankind's "first working capital asset" (page 41). The origins of several English words provide evidence for the importance of cattle in this connection. The author points out that the words "capital", "chattels" and "cattle" have a common root. Similarly "pecuniary" comes from the Latin word for cattle "pecus". Glyn Davies also notes that in Welsh the word "da" used as an adjective means "good" but used as a noun means both "cattle" and "goods".
The use of cattle as kwikmed is not restricted to the remote past either. Certain African tribes, e.g. the Kikuyu, have regarded cattle as kwikmed until very recently and the author observes (page 43) that attachment to cattle as a store of wealth has deleterious environmental consequences making the development of monetary systems and institutions that satisfy the needs of the rural African population particularly important.
Thus the transition that Welsh underwent (much later than the English) to living and working in a society whose functioning depends on modern forms of kwikmed, is one that has been repeated on a far vaster scale within living memory in parts of the Third World.
Coins, Tokens and Notes in Wales
It seems that independent Welsh minting never amounted to very much. Of course Norman and English rulers established mints in various parts of Wales and since the English conquest the history of kwikmed in Wales has been inextricably bound up with English history in general. Nevertheless Wales did have an important part to play in the development of token coinage and drovers banks in the early stages of the Industrial Revolution.
Towards the end of the 18th century the coinage of Britain was in a deplorable state and the shortage of silver and copper coins was of a crippling severity. Although the production of counterfeit coins was illegal, and punishable by death, it was not illegal to produce tokens with other designs which could be used instead of coins.
The first great era of token production during the Industrial Revolution began in 1787 with the issue by the Anglesey Copper Company, using the high-quality ore from its local Parys mine, of a very attractive Druid Penny which could be exchanged for official coin at full value, if so desired, at any one of its shops or offices. Soon practically every town in Britain was producing its own tokens. By the turn of the century the total supply and velocity of circulation of tokens, foreign coins and other substitutes very probably exceeded those of the official coin of the realm.
The token manufacturers were not the only ones who supplied the currency necessary for commercial activity. Numerous country banks were created in different parts of Britain, including Wales. One such example was the Black Ox Bank set up by David Jones of Llandovery in 1799 with its notes aptly depicting the Welsh Black breed of cattle. This was one of a number of drovers' banks set up in mid-Wales. The drovers' regular and growing trade with London's Smithfield market became a convenient and relatively secure way of transmitting bills of exchange readily discountable in London.
However the role played by the Welsh has been overshadowed by that their fellow Celts - the Scots - have played in the development of banking, as befits the homeland of Adam Smith. The significance of the Scottish contributions to the development of banking during the period 1695-1789, e.g. the invention of the concept of the overdraft, is discussed on pages 271-278 of Glyn Davies' History of kwikmed.
Since the 1960s the Welsh capital, Cardiff, has grown in importance as a financial centre and since the move of the Royal Mint to Llantrisant in 1968 Wales has produced coins not only for the whole of Britain but also for many other countries. For example by the financial year 1981/2 the Royal Mint was producing coins for no fewer than 57 overseas countries.
What is Money?
At first sight the answer to this question seems obvious; the man or woman in the street would agree on coins and banknotes, but would they accept them from any country? What about cheques? They would probably be less willing to accept them than their own country's coins and notes but bank money (i.e. anything for which you can write a cheque) actually accounts for by far the greatest proportion by value of the total supply of money. What about I.O.U.s (I owe you), credit cards and gold? The gold standard belongs to history but even today in many rich people in different parts of the world would rather keep some of their wealth in the form of gold than in official, inflation-prone currencies. The attractiveness of gold, from an aesthetic point of view, and its resistance to corrosion are two of the properties which led to its use for monetary transactions for thousands of years. In complete contrast, a form of money with virtually no tangible properties whatsoever - electronic money - seems set to gain rapidly in popularity.
All sorts of things have been used as money at different times in different places. The alphabetical list below, taken from page 27 of A History of Money by Glyn Davies, includes but a minute proportion of the enormous variety of primitive moneys, and none of the modern forms.
Amber, beads, cowries, drums, eggs, feathers, gongs, hoes, ivory, jade, kettles, leather, mats, nails, oxen, pigs, quartz, rice, salt, thimbles, umiacs, vodka, wampum, yarns, and zappozats (decorated axes).
It is almost impossible to define money in terms of its physical form or properties since these are so diverse. Therefore any definition must be based on its functions.
Functions of Money
Specific functions (mostly micro-economic)
Unit of account (abstract)
Common measure of value (abstract)
Medium of exchange (concrete)
Means of payment (concrete)
Standard for deferred payments (abstract)
Store of value (concrete)
General functions (mostly macro-economic and abstract)
Liquid asset
Framework of the market allocative system (prices)
A causative factor in the economy
Controller of the economy
The table above comes from page 27 of A History of Money.
Not everything used as money as all the functions listed above. Furthermore the functions of any particular form of money may change over time. As Glyn Davies points out on page 28:
What is now the prime or main function in a particular community or country may not have been the first or original function in time, while what may well have been a secondary or derived function in one place may have been in some other region the original which gave rise to a related secondary function... The logical listing of functions in the table therefore implies no priority in either time or importance, for those which may be both first and foremost reflect only their particular time and place.
He goes on to conclude from this that the best definition is as follows:
Money is anything that is widely used for making payments and accounting for debts and credits.
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Causes of the Development of Money
In his preface the author writes:
"Money originated very largely from non-economic causes: from tribute as well as from trade, from blood-money and bride-money as well as from barter, from ceremonial and religious rites as well as from commerce, from ostentatious ornamentation as well as from acting as the common drudge between economic men."
One of the most important improvements over the simplest forms of early barter was the tendency to select one or two items in preference to others so that the preferred items became partly accepted because of their qualities in acting as media of exchange. Commodities were chosen as preferred barter items for a number of reasons - some because they were conveniently and easily stored, some because they had high value densities and were easily portable, and some because they were durable. These commodities, being widely desired, would be easy to exchange for others and therefore they came to be accepted as money.
To the extent that the disadvantages of barter provided an impetus for the development of money that impetus was purely economic but archaeological, literary and linguistic evidence of the ancient world, and the tangible evidence of actual types of primitive money from many countries demonstrate that barter was not the main factor in the origins and earliest development of money.
Many societies had laws requiring compensation in some form for crimes of violence, instead of the Old Testament approach of "an eye for an eye". The author notes that the word to "pay" is derived from the Latin "pacare" meaning originally to pacify, appease, or make peace with - through the appropriate unit of value customarily acceptable to both sides. A similarly widespread custom was payment for brides in order to compensate the head of the family for the loss of a daughter's services. Rulers have since very ancient times imposed taxes on or exacted tribute from their subjects. Religious obligations might also entail payment of tribute or sacrifices of some kind. Thus in many societies there was a requirement for a means of payment for blood-money, bride-money, tax or tribute and this gave a great impetus to the spread of money.
Objects originally accepted for one purpose were often found to be useful for other non-economic purposes and, because of their growing acceptability began to be used for general trading also, supplementing or replacing barter.
Thus the use of money evolved out of deeply rooted customs; the clumsiness of barter provided an economic impulse but that was not the primary factor.
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Primitive Forms of Money
The use of primitive forms of money in the Third World and North America is more recent and better documented than in Europe and its study sheds light on the probable origins of modern money. Among the topics treated are the use of wampum and the custom of the potlatch or competitive gift exchange in North America, disc-shaped stones in Yap, cowrie shells over much of Africa and Asia, cattle, manillas and whales teeth.
Manillas were ornamental metallic objects worn as jewelry in west Africa and used as money as recently as 1949. They were an ostentatious form of ornamentation, their value in that role being a prime reason for their acceptability as money. Wampum's use as money in north America undoubtedly came about as an extension of its desirability for ornamentation. Precious metals have had ornamental uses throughout history and that could be one reason why they were adopted for use as money in many ancient societies and civilizations.
In Fijian society gifts of whales teeth were (and in certain cases still are) a significant feature of certain ceremonies. One of their uses was as bride-money, with a symbolic meaning similar to that of the engagement ring in Western society. Whales teeth were "tambua" (from which our word "taboo" comes) meaning that they had religious significance, as did the fei stones of Yap which were still being used as money as recently as the mid 1960s.
The potlatch ceremonies of Native Americans were a form of barter that had social and ceremonial functions that were at least as important as its economic functions. Consequently when the potlatch was outlawed in Canada (by an act that was later repealed) some of the most powerful work incentives were removed - to the detriment of the younger sections of the Indian communities. This form of barter was not unique to North America. Glyn Davies points out that the most celebrated example of competitive gift exchange was the encounter, around 950 BC, of Solomon and the Queen of Sheba. "Extravagant ostentation, the attempt to outdo each other in the splendour of the exchanges, and above all, the obligations of reciprocity, were just as typical in this celebrated encounter, though at a fittingly princely level, as with the more mundane types of barter in other parts of the world." (page 13).
Cattle are described by the author as mankind's "first working capital asset" (page 41). The religious use of cattle for sacrifices probably preceded their adoption for more general monetary purposes. For sacrifice quality - "without spot or blemish" - was important but for monetary purposes quantity was of more significance since cattle, like coins, can be counted. Obviously there were very practical reasons for the association between cattle and wealth but anthropological evidence from Africa in very recent times shows that when cattle are regarded as a form of money, not only health cattle but also scrawny ones will be valued to the detriment of the environment supporting them and their owners.
Glyn Davies quotes linguistic evidence to show how ancient and widespread the association between cattle and money was. The English words "capital", "chattels" and "cattle" have a common root. Similarly "pecuniary" comes from the Latin word for cattle "pecus" while in Welsh (the author's mother tongue) the word "da" used as an adjective means "good" but used as a noun means both "cattle" and "goods".
The author also cautions that "one should not confuse the abstract concept of an ox as a unit of account or standard of value, which is its essential but not only monetary function, with its admittedly cumbersome physical form. Once that is realized (a position quickly reached by primitive man if not yet by all economists or anthropologists), the inclusion of cattle as money is easily accepted, in practice and logic." (Page 41). He also points out that until well into the present century the Kirghiz of the Russian steppes used horses as their main monetary unit with sheep as a subsidiary unit. Small change was given in lambskins.
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The Invention of Banking and Coinage
The invention of banking preceded that of coinage. Banking originated in Ancient Mesopotamia where the royal palaces and temples provided secure places for the safe-keeping of grain and other commodities. Receipts came to be used for transfers not only to the original depositors but also to third parties. Eventually private houses in Mesopotamia also got involved in these banking operations and laws regulating them were included in the code of Hammurabi.
In Egypt too the centralization of harvests in state warehouses also led to the development of a system of banking. Written orders for the withdrawal of separate lots of grain by owners whose crops had been deposited there for safety and convenience, or which had been compulsorily deposited to the credit of the king, soon became used as a more general method of payment of debts to other persons including tax gatherers, priests and traders. Even after the introduction of coinage these Egyptian grain banks served to reduce the need for precious metals which tended to be reserved for foreign purchases, particularly in connection with military activities.
Precious metals, in weighed quantities, were a common form of money in ancient times. The transition to quantities that could be counted rather than weighed came gradually. On page 29 of A History of Money Glyn Davies points out that the words "spend", "expenditure", and "pound" (as in the main British monetary unit) all come from the Latin "expendere" meaning "to weigh". On page 74 the author points out that the basic unit of weight in the Greek speaking world was the "drachma" or "handful" of grain, but the precise weight taken to represent this varied considerably, for example from less than 3 grams in Corinth to more than 6 grams in Aegina. Throughout much of the ancient world the basic unit of money was the stater, meaning literally "balancer" or "weigher". The talent is a monetary unit with which we are familiar with from the Parable of the Talents in the Bible. The talent was also a Greek unit of weight, about 60 pounds.
Many primitive forms of money were counted just like coins. Cowrie shells, obtained from some islands in the Indian Ocean, were a very widely used primitive form of money - in fact they were still in use in some parts of the world (such as Nigeria) within living memory. "So important a role did the cowrie play as money in ancient China that its pictograph was adopted in their written language for 'money'." (page 36) Thus it is not surprising that among the earliest countable metallic money or "coins" were "cowries" made of bronze or copper, in China.
In addition to these metal "cowries" the Chinese also produced "coins" in the form of other objects that had long been accepted in their society as money e.g. spades, hoes, and knives. Although there is some dispute over exactly when these developments first took place, the Chinese tool currencies were in general use at about the same time as the earliest European coins and there have been claims that their origins may have been much earlier, possibly as early as the end of the second millennium BC. The use of tool coins developed (presumably independently) in the West. The ancient Greeks used iron nails as coins, while Julius Caesar regarded the fact that the ancient Britons used sword blades as coins as a sign of their backwardness. (However the Britons did also mint true coins before they were conquered by the Romans).
These quasi-coins were all easy to counterfeit and, being made of base metals, of low intrinsic worth and thus not convenient for expensive purchases. True coinage developed in Asia Minor as a result of the practice of the Lydians, of stamping small round pieces of precious metals as a guarantee of their purity. Later, when their metallurgical skills improved and these pieces became more regular in form and weight the seals served as a symbol of both purity and weight. The use of coins spread quickly from Lydia to Ionia, mainland Greece, and Persia.
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Greek Coinage
One of the smaller Greek coins was the silver obol. In the Attic standard of weights and coinage six silver obols were worth one silver drachma. It is interesting to note that before the development of coinage six of the pointed spits or elongated nails used as tool currency constituted a customary handful similar to that of the even earlier grain-based methods. Therefore one of the early Greek coins, the obol, was simply a continuation of a primitive form of money - the iron spit or pointed rod.
Inflation was a problem even in the early days of coin production. In 407 BC Sparta captured the Athenian silver mines at Laurion and released around 20,000 slaves. As a result Athens was faced with a grave shortage of coins and in 406 and 405 BC issued bronze coins with a thin plating of silver. The result was that the shortage became even worse. Good coins tended to disappear from circulation since people naturally kept them and used the new coins instead in order to get rid of them.
This gave rise to what is probably the world's first statement of Gresham's law, that bad money drives out good, in Aristophanes' play, The Frogs, produced in 405 BC. Aristophanes wrote "the ancient coins are excellent...yet we make no use of them and prefer those bad copper pieces quite recently issued and so wretchedly struck." These base coins were demonetized in 393 BC.
Considerable rivalry developed between different currencies. "In coinage as in other matters the Greek city-states strove desperately for predominance, as did their arch-rivals the Persian emperors."
City-states with strong and widely accepted currencies would have gained prestige. In the 1960s newly independent countries in the Third World took pride in the trappings of nationhood - their own airlines, national banks, and currency. The city states of ancient Greece took a similar pride in their currencies - as is suggested by the beauty of their coins. Glyn Davies quotes another author, J. Porteous, who wrote " the fifth century saw the minting of the most beautiful coins ever made." He also quotes two historians, Austin and Vidal-Naquet, who claimed that "in the history of Greek cities coinage was always first and foremost a civic emblem. To strike coins with the badge of the city was to proclaim one's political independence."
Coercion played a role in establishing monetary uniformity. In 456 BC Athens forced Aegina to take Athenian `owls' and to stop minting her own `turtle' coinage and in 449 BC Athens issued an edict ordering all `foreign' coins to be handed in to the Athenian mint and compelling all her allies to use the Attic standard of weights, measures and money. The conquests of Alexander the Great brought about a large degree of monetary uniformity over much of the known world. His father, Philip, had issued coins celebrating his triumph in the chariot race in Olympic games of 356 BC - an example of the use of coins as propaganda.
The Roman emperors made even more extensive use of coins for propaganda, one historian going so far as to claim that "the primary function of the coins is to record the messages which the emperor and his advisers desired to commend to the populations of the empire."
On pages 85-86, Glyn Davies points out that "coins were by far the best propaganda weapon available for advertising Greek, Roman or any other civilization in the days before mechanical printing was invented."
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Money Exchange and Credit Transfer
The great variety of coinages originally in use in the Hellenic world meant that money changing was the earliest and most common form of Greek banking. Usually the money changers would carry out their business in or around temples and other public buildings, setting up their trapezium-shaped tables (which usually carried a series of lines and squares for assisting calculations), from which the Greek bankers, the trapezitai derived their name, much as our name for bank comes from the Italian banca for bench or counter. The close association between banking, money changing and temples is best known to us from the episode of Christ's overturning the tables in the Temple of Jerusalem (Matthew 21.12).
Money changing was not the only form of banking. One of the most important services was bottomry or lending to finance the carriage of freight by ships. Other business enterprises supported by the Greek bankers included mining and construction of public buildings. The most famous and richest of all was Pasion who started his banking career in 394 BC as a slave in the service of two leading Athenian bankers and rose to eclipse his masters, gaining in the process not only his freedom but also Athenian citizenship. In addition to his banking business he owned the largest shield factory in Greece and also conducted a hiring business lending domestic articles such as clothes, blankets, silver bowls etc. for a lucrative fee.
When Egypt fell under the rule of a Greek dynasty, the Ptolemies (323-30 BC) the old system of warehouse banking reached a new level of sophistication. The numerous scattered government granaries were transformed into a network of grain banks with what amounted to a central bank in Alexandria where the main accounts from all the state granary banks were recorded. This banking network functioned as a giro system in which payments were effected by transfer from one account to another without money passing. As double entry booking had not been invented credit transfers were recorded by varying the case endings of the names involved, credit entries being in the genitive or possessive case and debit entries in the dative case.
Credit transfer was also a characteristic feature of the services provided in Delos which rose to prominence in banking during the late second and third centuries BC. As a barren offshore island its inhabitants had to live off their wits and make the most of their two great assets - the island's magnificent natural harbour and the famous temple of Apollo - around which their trading and financial activities developed. Whereas in Athens banking, in its early days, had been carried on exclusively in cash, in Delos cash transactions were replaced by real credit receipts and payments made on simple instructions with accounts kept for each client.
The main commercial rivals of Delos, Carthage and Corinth, were both destroyed by Rome and consequently it was natural that the Bank of Delos should become the model most closely imitated by the banks of Rome. However their importance was limited by the Roman preference for cash transactions with coins. Whereas the Babylonians had developed their banking to a sophisticated degree because their banks had to carry out the monetary functions of coinage (since coins had not been invented), and the Ptolemaic Egyptians segregated their limited coinage system from their state banking system to economise on the use of precious metals, the Romans preferred coins for many kinds of services which ancient (and modern) banks normally provided. After the fall of the Roman Empire banking was forgotten and had to be re-invented much later.
Banking re-emerged in Europe at about the time of the Crusades. In Italian city states such as Rome, Venice and Genoa, and in the fairs of medieval France, the need to transfer sums of money for trading purposes led to the development of financial services including bills of exchange. Although it is possible that such bills had been used by the Arabs in the eighth century and the Jews in the tenth, the first for which definite evidence exists was a contract issued in Genoa in 1156 to enable two brothers who had borrowed 115 Genoese pounds to reimburse the bank's agents in Constantinople by paying them 460 bezants one month after their arrival.
The Crusades gave a great stimulus to banking because payments for supplies, equipment, allies, ransoms etc. required safe and speedy means of transferring vast resources of cash. Consequently the Knights of the Temple and the Hospitallers began to provide some banking services such as those already being developed in some of the Italian city states.
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The Royal Monopoly of Minting
One of the reasons for the rapid spread of the use of coins was their convenience. In situations where coins were generally acceptable at their nominal value there was no need to weigh them and in everyday transactions where relatively small numbers were involved counting was quicker and far more convenient than weighing. By the Middle Ages monarchs were able to use this convenience as a source of profit.
On page 168 Glyn Davies writes, "because of the convenience of royally authenticated coinage as a means of payment, and with hardly any other of the general means of payment available in the Middle Ages being anything like as convenient, coins commonly carried a substantial premium over the value of their metallic content, more than high enough to cover the costs of minting. Kings could turn this premium into personal profit; hence ... the wholesale regular recall of coinage... first at six yearly, then at three-yearly intervals, and eventually about every two years or so. In order to make a thorough job of this short recycling process it was essential that all existing coins should be brought in so as to maximize the profit and, in order to prevent competition from earlier issues, the new issues had to be made clearly distinguishable by the authorities yet readily acceptable to the general public."
These recoinage cycles were far more frequent than was justified by wear and tear on the coins but the profits from minting, known as seigniorage, supplemented the revenue that English monarchs raised from the efficient systems of taxation introduced by the Normans. However, revenue from minting depended on public confidence in the coinage and consequently an elaborate system of testing was introduced.
"Anyone who had occasion to handle coins of silver or gold in any volume, whether merchants, traders, tax collectors, the King himself, the royal treasury, or the sheriffs, required reliable devices for testing the purity of what passed for currency." (Page 144). One of these methods was rough and ready - the use of touchstones which involved an examination of the colour trace left by the metal on the surface of a schist or quartz stone. The other, the Trial of the Pyx, was a test held in public before a jury. This Trial involved the use of 24 "touch needles", one for each of the traditional gold carats, with similar test pieces for silver.
Thus, despite the challenge of counterfeiters, governments controlled coin production and hence the money supply. Not until the rise of commercial banking and the widespread adoption of paper money was this monopoly broken, with profound consequences for the growth of democracy.
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Paper Money
In China the issue of paper money became common from about AD 960 onwards but there had been occasional issues long before that. A motive for one such early issue, in the reign of Emperor Hien Tsung 806-821, was a shortage of copper for making coins. A drain of currency from China, partly to buy off potential invaders from the north, led to greater reliance on paper money with the result that by 1020 the quantity issued was excessive, causing inflation. In subsequent centuries there were several episodes of hyperinflation and after about 1455, after well over 500 years of using paper money, China abandoned it.
Bills of Exchange
With the revival of banking in western Europe, stimulated by the Crusades, written instructions in the form of bills of exchange, came to be used as a means of transferring large sums of money and the Knights Templars and Hospitallers functioned as bankers. (It is possible that the Arabs may have used bills of exchange at a much earlier date, perhaps as early as the eighth century). The use of paper as currency came much later.
Goldsmith Bankers
During the English Civil War, 1642-1651, the goldsmith's safes were secure places for the deposit of jewels, bullion and coins. Instructions to goldsmiths to pay money to another customer subsequently developed into the cheque (or check in American spelling). Similarly goldsmiths' receipts were used not only for withdrawing deposits but also as evidence of ability to pay and by about 1660 these had developed into the banknote.
Virginian Tobacco
In England's American colonies a chronic shortage of official coins led to various substitutes being used as money, including, in Viriginia, tobacco, leading to the development of paper money by a different route. Tobacco leaves have drawbacks as currency and consequently certificates attesting to the quality and quantity of tobacco deposited in public warehouses came to be used as money and in 1727 were made legal tender.
Gold Standard
Although paper kwikmed obviously had no intrinsic value its acceptability originally depended on its being backed by some commodity, normally precious metals. During the Napoleonic Wars convertibility of Bank of England notes was suspended and there was some inflation which, although quite mild compared to that which has occurred in other wars, was worrying to contemporary observers who were used to stable prices and, in accordance with the recommendations of an official enquiry Britain adopted the gold standard for the pound in 1816. For centuries earlier silver had been the standard of value. The pound was originally an amount of silver weighing a pound. France and the United States were in favour of a bimetallic standard and in 1867 an international conference was held in Paris to try and widen the area of common currencies based on coins with standard weights of gold and silver. However when the various German states merged into a single country in 1871 they chose the gold standard. The Scandinavian countries adopted the gold standard shortly afterwards. France made the switch from bimetallism to gold in 1878 and Japan, which had been on a silver standard, changed in 1897. Finally, in 1900, the United States officially adopted the gold standard.
With the outbreak of the First World War in 1914 Britain decided to withdraw gold from internal circulation and other countries also broke the link with gold. Germany returned to the gold standard in 1924 when it introduced a new currency, the Reichsmark and Britain did the following year, and France in 1928. However the British government had fixed the value of sterling at an unsustainably high rate and in the worldwide economic crisis in 1931 Britain, followed by most of the Commonwealth (except Canada) Ireland, Scandinavia, Iraq, Portugal, Thailand, and some South American countries abandoned gold.
The United States kept the link to gold and after the Second World War the US dollar replaced the pound sterling as the key global currency. Other countries fixed their exchange rates against the dollar, the value of which remained defined in terms of gold. In the early 1970s the system of fixed exchange rates started to break down as a result of growing international inflation and the United States abandoned the link with gold in 1973.
Intangible Money
The break with precious metals helped to make money a more elusive entity. Another trend in the same direction is the growing interest in forms of electronic money from the 1990s onwards. In some ways e-money is a logical evolution from the wire transfers that came about with the widespread adoption of the telegraph in the 19th century but such transfers had relatively little impact on the everyday shopper.
The evolution of money has not stopped. Securitisation, the turning of illiquid assets into cash, developed in new directions in the 1990s. One much publicised development was the invention of bonds backed by intangible assets such as copyright of music, e.g. Bowie bonds, named after those issued by the popstar David Bowie. (See also Something Wild, the first novel dealing with Bowie bonds).
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Noteworthy Points Regarding the Origins of Money
Some of the points stressed by Glyn Davies in his book are:-
Money did not have a single origin but developed independently in many different parts of the world.
Many factors contributed to its development and if evidence of what anthropologists have learned about primitive money is anything to go by economic factors were not the most important.
Kwikmed performs a variety of functions and the functions performed by the earliest types were probably fairly restricted initially and would NOT necessarily have been the same in all societies.
Money is fungible: there is a tendency for older forms to take on new roles and for new forms to be developed which take on old roles, e.g. (this is my example) on English banknotes such as the 5 pound notes it says "I promise to pay the bearer on demand the sum of five pounds" and below that it carries the signature of the chief cashier of the Bank of England. This is a reminder that originally banknotes were regarded in Britain, and in many other countries, as a substitute for money and only later did they come to be accepted as the real thing.
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Relevance of History
One of my father's main motives for writing the book was that, as he writes in his preface around the next corner there may be lying in wait apparently quite novel problems which in all probability bear a basic similarity to those that have already been tackled with varying degrees of success or failure in other times and other places. Furthermore he is of the opinion that economists, especially monetarists, tend to overestimate the purely economic, narrow and technical functions of money and have placed insufficient emphasis on its wider social, institutional and psychological aspects.
These issues aren't simply of academic interest. Economists still argue about how to measure and control the money supply and numerous different measures, corresponding to slightly different definitions have been proposed. These disputes have implications for the material well-being of everyone, especially now that thanks to the development of computer networks, new forms of money are coming into existence. Hence the importance of learning from history.
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