Coins to Credit Cards, a Short History of Money

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http://www.businessweek.com/news/2011-10-25/coins-to-credit-cards-a-short-history-of-money-neil-macgregor.html

(This is an excerpt from Neil MacGregor’s new book, “A History of the World in 100 Objects,” just published by Penguin.)

Oct. 26 (Bloomberg) -- We’ve all grown so accustomed to using little round pieces of metal to buy things, it’s easy to forget that coins arrived quite late in the history of the world. For more than 2,000 years, states ran complex economies and international-trading networks without a coin to hand.

The Egyptians, for example, used a sophisticated system that measured value against standard weights of copper and gold. But as new states and new ways of organizing trade emerged about 3,000 years ago, coinage began to make an appearance. Paper money would not arrive for another couple of millenniums and credit cards, not until the 20th century.

Here are four landmark objects in the history of currency:

Gold Coin of Croesus

“As rich as Croesus.” How many people who use this familiar phrase ever pause to think about the original King Croesus? He was the ruler of Lydia, in what is now western Turkey, and these are some of the original gold coins that made him so rich.

They were minted in about 550 B.C. and came in various sizes, from about the scale of a modern British 1 penny piece or a U.S. nickel, right down to something hardly bigger than a lentil.

In a fascinating coincidence, at almost the same time in history, the Chinese also started using uniform metal pieces in very much the same way that we use coins -- though the early Chinese versions were miniature spades and knives.

The need for money, as we understand it, grows when you go beyond dealing with friends and neighbors whom you can generally trust to return any labor, food or goods in kind, and begin dealing with strangers you may never see again and can’t necessarily trust. That is, when you’re trading in a cosmopolitan city like Sardis.

Before the first Lydian coins, payments were made mostly in precious metal -- effectively just lumps of gold and silver. The shapes didn’t really matter, only how much they weighed and how pure they were. But this was a slow system because, in their natural state, gold and silver are often found mixed with each other and with less-valuable metals. Checking a metal’s purity was a tedious task, likely to hold up every business transaction.

The Lydian state solved this problem by minting coins of pure gold and silver, of consistent weights that would have absolutely reliable value.

The stamp used to indicate weight on Croesus’s coins was a lion, and as the size -- and therefore the value -- of the coin decreased, ever-smaller parts of the lion’s anatomy were used. The smallest coin shows only a paw. Because people could trust Croesus’s coins, they were used far beyond the boundaries of Lydia, giving the king a new kind of influence: financial power.

Ming Banknote

The whole modern-banking system of paper and credit is built on a simple act of faith that occurred in China seven centuries ago: Someone printed a value on a piece of paper and asked everyone else to agree that the paper was actually worth what it said it was.

This is one of those early notes, which the Chinese called “feiqian” -- or “flying cash” -- and it’s from the time of the Ming Dynasty, about 1400. Most of the world until this time was exchanging gold, silver and copper coins whose value could be judged by weight. But the Chinese saw that paper money had obvious advantages: It’s easily transportable and big enough to carry words and images to announce not only its value but also the authority of the government that backs it.

At first glance, this note doesn’t look at all like modern paper money. It’s a velvety gray color, and it’s made of mulberry bark, whose fibers are long and flexible, which is why the note is still soft and pliable after 600 years.

The Ming note also carries on it a government promise of a reward to anyone who denounces a counterfeiter, as well as a terrifying stick for any potential forger: “To counterfeit is death. The informant will receive 250 taels of silver and in addition the entire property of the criminal.”

A threat much bigger than counterfeiting was that the new currency might not hold its value. So the Ming ensured that the paper was equal to the value of a specific number of copper coins. In the middle of this note is a picture of the actual coins it represents: 20 stacks of 100 coins, for a total of 1,000 cash or, as the note says, 1 guan.

You can get some idea of just how welcome this early paper must have been when you consider that 1,000 coins weigh about seven pounds.

However, the exchange of paper for copper -- and copper for paper -- never flowed smoothly. And, like so many governments since, the Ming couldn’t resist the temptation to simply print more money. The value of its paper plummeted, and 15 years after the first Ming banknote was issued, one official noted that a 1,000-cash note like this one had an exchange value of just 250.

Eventually, about 1425, the Chinese government gave up the struggle and suspended the use of its paper money. But the memory lives on in a London garden. In the 1920s, the Bank of England, in conscious homage to those Ming notes, planted a little stand of mulberry trees.

Pieces of Eight

Of all the legendary currencies the world has known -- ducats and florins; groats, guineas and sovereigns -- the most famous of all must be pieces of eight. And it isn’t only thanks to Long John Silver’s parrot that they are celebrated. Pieces of eight were also the first truly global money.

Within 25 years of its first minting in the 1570s, the “peso de ocho reales,” the Spanish piece of eight, spread across Asia, Europe, Africa and the Americas, establishing a worldwide dominance that it would maintain until well into the 19th century.

By modern standards, a piece of eight is a large coin. It measures about an inch and a half across and weighs about the same as three 1 pound coins or four U.S. dollar coins. This particular example is a dullish silver color, thanks to surface corrosion, but when it was freshly minted, it would have glittered and shone.

About 1600, this piece of eight would probably have bought, in modern terms, something like 50 pounds ($80) worth of goods - - practically anywhere in the world.

The coins were made from silver that Spanish explorers found at a mountainous place called Potosi, now in Bolivia. Within a few years of the discovery of these mines, silver from Spanish America began to pour across the Atlantic, growing from a modest 148 kilograms a year in the 1530s to almost 3 million kilograms a year in the 1590s.

It was American silver that made the Spanish kings Europe’s most powerful rulers and paid for their armies and armadas. American silver allowed the Spanish monarchy to fight the French and the Dutch, the English and the Turks. The flow of silver provided rock-solid credit through the direst crises and bankruptcies: It was assumed that next year there would always be another treasure fleet, and there always was.

The production of this wealth came at a huge cost in human life. Young native-American men were conscripted and forced to labor in the mines, where conditions were brutal, indeed lethal. In the freezing high altitude of the mountains, pneumonia was a constant danger, and mercury poisoning frequently killed those involved in the refining process.

The Potosi mint fashioned the silver pieces of eight, which were loaded onto llamas for the two-month trek over the Andes to Lima and the Pacific coast. There, Spanish treasure fleets took the silver up to Panama, where it was carried by land over the isthmus and then across the Atlantic in convoys.

But Spain also had an Asian empire, based in Manila in the Philippines, and pieces of eight were soon crossing the Pacific in huge numbers, too. In Manila, they were exchanged, usually with Chinese merchants, for silks and spices, ivory, lacquer and, above all, porcelain.

The Spanish piece of eight became a foundation stone of the modern world, both prefiguring and making possible the modern global economy.

Credit Card

Since they emerged, credit cards and their kin have become part of the fabric of modern life, making bank credit, for the first time in history, available to people outside the elite.

The modern credit card is an American creation, devised in the credit boom following World War II. First came the Diners Club card, introduced in 1950. Then, in 1958, the BankAmericard, ancestor of Visa, and the first universal credit card issued by a bank and generally accepted by a large number of businesses. But only in the 1990s did credit cards become truly global, widespread beyond North America and the U.K.

Of course, a credit card isn’t itself money, but a way of spending it, moving it and promising it. With credit and debit cards, money has lost its materiality. It can be called up virtually anywhere in the world instantaneously.

And, whereas coins and banknotes are marked with king and country, a card acknowledges no ruler or nation, and no limit to its reach other than an expiration date.

This particular Gold Card is issued by the London-based bank HSBC Holdings Plc (founded by the Hongkong and Shanghai Banking Corporation Limited). It functions through the backing of Visa, the U.S.-based credit association; and has on it writing in Arabic. The card is, in short, part of a global financial system, backed by a complex electronic superstructure that many of us barely think about as we key in our PINs.

Credit cards allow you to borrow while avoiding both the traditional pawnbroker and the loan shark. Easy credit, in turn, undermines traditional values like thrift, because it sets you free from having to save before you spend. Credit cards have drawn the attention of moralists and been categorized as dangerous, even sinful in their very nature.

So it is perhaps surprising that religion is represented on our card. The red fretwork in the middle is Islamic patterning that marks the card as compliant with Shariah law -- including the prohibition of usury.

Most intellectuals and economists from the French Revolution onward -- including Karl Marx -- assumed that religion would steadily dwindle as a force in public life, and that in the long run the forces of God would yield to the forces of Mammon. In the first decade of the 21st century, religion has returned to the center of the political and economic stage in many parts of the world. Our gold credit card is a small, but significant, part of a growing global phenomenon.

(Neil MacGregor is the director of the British Museum and a presenter on BBC television and radio. This is an excerpt from his new book, “A History of the World in 100 Objects,” based on a BBC radio series and a British Museum exhibition, and published by Penguin. The opinions expressed are his own.)

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A mistake I often encounter is the assumption that one day, a Chinese or Lydian had a great idea and the coin was born and everybody cheered and started using them.

In reality, there is a gradual move from barter to money that took centuries to complete, from well before to well after those "first coins". The mistake colours our interpretation of archeological finds. Suppose an archeologists finds 7 unfinished spades of a type used in Sogdiana (around 300 BC). The temptation will be to conclude: spade workshop stood here. When no evidence of a workshop is found, the conclusions may well change to: traveller lost bunch of spades. However, the spades may be a treasure, hidden in the desert along the trade routes from India and China to central Asia and beyond. The spades are not seen as coins.

It works the same way after the invention of coins. Suppose a Swedish archeologist finds in his back garden a treasure of some jewelry, most broken, mixed with some 8th century coins. It still happens that the first conclusion is "grave of rich person". When no evidence of a grave emerges, the conclusion changes to something like "rich person hid treasure". Fortunately, there are more and more people recognizing a perfectly normal trading stash, rich in hack silver. The Scandinavian tribes did not strike much money of their own and chopped up silver loot to make money. For all practical purposes, those silver chops functioned as "coins", even if the went by weight, do not have a date or a denomination, a standard design or weight and aren't even legal tender.

I realise how difficult it is to do a (very) short history of coins and not mention those considered "the first coins". However, much could be achieved by a good choice of words.

Peter