History of Money: From Ancient Times to the Present Day
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History of Money: From Ancient Times to the Present Day

by Glyn Davies, George Tonypandy

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This is a straightforward, readable account, written with the minimum of jargon, of the central importance of money in the ordinary business of the life of different peoples throughout the ages.


This is a straightforward, readable account, written with the minimum of jargon, of the central importance of money in the ordinary business of the life of different peoples throughout the ages.

Editorial Reviews

“This work of monumental proportions is both well conceived and executed . . . Davies writes with a sparkling wit, and his prose is elegant and flowing. This book is a total success. Both undergraduate and graduate students can learn much from this excellent work, which will be useful to economists, political scientists, and even anthropologists.” –Choice

Banking World

“If you want a chronological history of money, here it is. If the development of banking is required, that is available. And if you want to worry about the exploding world population, the book provides some interesting theories."

Financial Times

“Highly readable.”

Economic Journal

“A thoroughly good read."

World Money Laundering Report

“A masterful examination. . . . It’s a helter-skelter ride through history, swooping and touching on civilization and how they did business, funded their treasuries and paid their servants including armies."

Sacra Moneta

“If you are a numismatist looking for a book that will explain the economy then this is it. Highly recommended.”

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University of Wales Press
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A History of Money

By Glyn Davies

University of Wales Press

Copyright © 2002 Glyn Davies
All rights reserved.
ISBN: 978-0-7083-1717-4


The Nature and Origins of Money and Barter

The importance of money

Perhaps the most common claim with regard to the importance of money in our everyday life is the morally neutral if comically exaggerated claim that 'money makes the world go round'. Equally exaggerated but showing a deeper insight is the biblical warning that 'the love of money is the root of all evil', neatly transformed by George Bernard Shaw into the fear that it is rather the lack of money which is the root of all evil. However, whether it is the love or conversely the lack of money which is potentially sinful, the purpose of the statement in either case is to underline the overwhelming personal and moral significance of money to society in a way that gives a broader and deeper insight into its importance than simply stressing its basically economic aspects, as when we say that 'money makes the world go round'. Consequently whether we are speaking of money in simple, socalled primitive communities or in much more advanced, complex and sophisticated societies, it is not enough merely to examine the narrow economic aspects of money in order to grasp its true meaning. To analyse the significance of money it must be broadly studied in the context of the particular society concerned. It is a matter for the heart as well as for the head: feelings are reasons, too.

Money has always been associated in varying degrees of closeness with religion, partly interpreted in modern times as the psychology of habits and attitudes, hopes, fears and expectations. Thus the taboos which circumscribe spending in primitive societies are basically not unlike the stock market bears which similarly reduce expenditures through changing subjective assessments of values and incomes, so that the true interpretation of what money means to people requires the sympathetic understanding of the less obvious motivations as much as, if not more than, the narrow abstract calculations of the computer. To concentrate attention narrowly on 'the pound in your pocket' is to devalue the all-pervading significance of money.

Personal attitudes to money vary from the disdain of a small minority to the total preoccupation of a similarly small minority at the other extreme. The first group paradoxically includes a few of the very rich and of the very poor. Sectors of both are unconsciously united in belittling its significance: the rich man either because he delegates such mundane matters to his servants or because the fruits of compound interest exceed his appetite, however large; the poor man because he makes a virtue out of his dire necessity and learns to live as best he can with the very little money that comes his way, so that his practical realism makes his enforced self-denial appear almost saintly. He limits his ambition to his purse, present and future, so that his accepted way of life limits his demand for money rather than, as with most of us, the other way round. At the other extreme, preoccupation with money becomes an end in itself rather than the means of achieving other goals in life.

Virtue and poverty, however, are not necessarily any more closely related than are riches and immorality. Thus Boswell quotes Samuel Johnson:

When I was a very poor fellow I was a great arguer for the advantages of poverty ... but in a civilised society personal merit will not serve you so much as money will. Sir, you may make the experiment. Go into the street, and give one man a lecture on morality, and another a shilling, and see which will respect you most ... Ceteris paribus, he who is rich in a civilised society, must be happier than he who is poor. (Boswell 1791, 52–3)

Johnson's commonsense approach to the human significance of money not only rings as true today as it did two centuries ago, but may be mirrored in the statements and actions of much earlier civilizations.

The minority who find it possible to exhibit a Spartan disdain for money has always been exceptionally small and in modern times has declined to negligible proportions, since the very few people concerned are surrounded by the vast majority for whom money plays a role of growing importance. Even those who as individuals might choose to belittle money find themselves constrained at the very least to take into account the habits, views and attitudes of everyone else. In short, no free man can afford the luxury of ignoring money, a universal fact which explains why Spartan arrogance was achieved at the cost of an iron discipline that contrasted with the freedom of citizens of other states more liberal with money. This underlying principle of freedom of choice which is conferred on those with money became explicitly part of the strong foundations of classical economic theory in the nineteenth century, expounded most clearly in the works of Alfred Marshall, as 'the sovereignty of the consumer', a concept which despite all the qualifications which modify it today, nevertheless still exerts its considerable force through the mechanism of money.

Sovereignty of monetary policy

This essential linkage between money, free consumer choice and political liberty is the central and powerful theme of Milton Friedman's brand of monetarism consistently proclaimed for at least two decades, from his Capitalism and Freedom (1962) to what he has called his 'personal statement', Free to Choose, published in 1980. An even longer crusade championing the essential liberalism of money-based allocative systems was waged by Friedrich Hayek, from his Road to Serfdom in 1944 to his Economic Freedom of 1991.

Yet for a generation before Friedman, the eminent Cambridge economist Joan Robinson called into question the conventional basis of consumer sovereignty in her pioneering work on Imperfect Competition (1933). Indeed she doubted 'the validity of the whole supply-and- demand-curve analysis' (p.327). Many years later, with perhaps too humble and pessimistic an assessment of the tremendous influence of her writing, she felt forced to lament: 'All this had no effect. Perfect competition, supply and demand, consumer's sovereignty and marginal products still reign supreme in orthodox teaching. Let us hope that a new generation of students, after forty years, will find in this book what I intended to mean by it' (1963, xi).

By the mid-1970s it became obvious that, as in the inter-war period, the fundamental beliefs of economic theory were again being challenged, and nowhere was this probing deeper or more urgent than with regard to monetary economics. Mass unemployment had pushed Keynes towards a general theory which, when widely accepted, helped to bring full employment, surely the richest reward that can ever be laid to the credit (if admittedly only in part) of the economist's theorizing. But persistent inflation posed questions which Keynesians failed to answer satisfactorily, while the return of mass unemployment combined with still higher inflation finally destroyed the Keynesian consensus, and allowed the monetarists to capture the minds of our political masters.

Nevertheless, Joan Robinson's view is quite true in that the modifications of classical value theory (now being painfully and patchily refurbished by the New Classical School) were as nothing compared with the surging revolutions in monetary theories which have occurred since the 1930s, mainly taking the form of a forty years' war between Keynesians and monetarists, until the latter ultimately achieved control over practical policies in much of the western world by the end of the 1970s, despite the continuing strong dissent of the now conventional Keynesian economists. Whereas the man in the street knows nothing of the economics of imperfect competition or the theory of contestable markets, he feels himself equipped and more than willing to take sides in the great monetarist debates of the day. Without being dogmatic about this, it is unlikely that in any previous age monetary affairs and monetary theories have ever captured so vast an army of debaters, professional and amateur, as exists in today's perplexing world of uncertainty, inflation, unemployment, stagnation and recession. Can the control of money, one wonders, be the sovereign remedy for all these ills?

Never before has monetary policy openly and avowedly occupied so central a role in government policy as from the 1980s with the 'Thatcherite experiment' in Britain and the 'Reaganomics' of the United States. Needless to say, if monetary policy finally reigns supreme in the two countries of the world which have together dominated economic theory and international trade and finance over the last two centuries this fact is bound to have an enormous influence on current financial thought and practice throughout the world. If money is now of such preponderant importance in the North it cannot fail also to exert its powerful sway over the dependent economies and 'independent' central banks of the developing countries of the South. This tendency is of course strongly reinforced by the growing burden of sovereign debt, i.e. debts mainly owed or guaranteed by governments and government agencies in countries like Mexico, Brazil, Argentina, Poland, Romania, Nigeria, India and South Korea, and to private and public banks and agencies in the West. The unprecedented scale of this long-term debt, coupled with the vast short-term flows of petro-dollars and Euro-currencies, is in part reflection and in part cause of the worldwide inflationary pressures, again of unprecedented degree, which have raised public concern about the subject of money to its present pinnacle. There are far more people using much more money, interdependently involved in a greater complex of debts and credits than ever before in human history. However, despite man's growing mastery of science and technology, he has so far been unable to master money, at any rate with any acceptable degree of success, and to the extent that he has succeeded, the irrecoverable costs in terms of mass unemployment and lost output would seem to outweigh the benefits.

If money were merely a tangible technical device so that its supply could be closely defined and clearly delimited, then the problem of how to master and control it would easily be amenable to man's highly developed technical ingenuity. In the same way, if inflation had simply a single cause – government – and money supply came simply from the same single source, then mechanistic controls might well work. However, although government is powerful on both sides of the equation it is only one among many complex factors. Among these neglected factors, according to H. C. Lindgren, in a rare book on the psychology of money, 'the psychological factor that continually eludes the analysts and planners is the mood of the public' (1980, 54).

Furthermore, technology in solving technical problems often creates yet more intractable social and psychological problems, which is why, according to Dr Bronowski, 'there has been a deep change in the temper of science in the last twenty years: the focus of attention has shifted from the physical to the life sciences' and 'as a result science is drawn more and more to the study of individuality' (Bronowski 1973). It is ironic that just when physical scientists are seeing the value of a more humanistic approach, economics, and particularly monetary economics, has become less so by attempting to become more 'scientific', mechanistic and measurable.

Unprecedented inflation of population

There is an additional factor, 'real' as opposed to 'financial', which helps to explain the sustained strength of worldwide inflationary forces and yet remains unmentioned in most modern works on money and inflation, viz. the pressure of a rapidly expanding world population on finite resources – virtually a silent explosion so far as monetarist literature is concerned. Thus nowhere in Friedman's powerful, popular and influential book Free to Choose is there even any mention of the population problem, nor the slightest hint that the inflation on which he is acknowledged to be the world's greatest expert might in any way be caused by the rapidly rising potential and real demands of the thousands of millions born into the world since he began his researches. Further treatment of these matters must await their appropriate place in later chapters, but since the size and distribution of this tremendous growth of population is crucial to an understanding of why the study of money is currently of unprecedented importance, a few introductory comments appear to be essential. One neglected reason why monetary policy may appear to be so attractively powerful in the richer North and West is precisely because there population pressures are least. In contrast, whereas monetary policy is of special importance in the poor developing countries of the South and East, its scope and powers are considerably reduced because this is where population pressures are greatest. Too many people are chasing too few goods.

The currently fashionable monetarist explanations of inflation fail, then, to take into account the rapid rise in real pressure on resources stemming from the population explosion. This forces communities to react by creating, by means of various devices easily learned from the West, the moneys required to help to accommodate such pressures. The enormous size of these increases since 1945 is such that millions of relatively rich have added their effective demand to the frustrated potential demands of the thousands of millions more who have remained abysmally poor. The trend of demand increases year by year causing relatively greater scarcities of primary resources and also of manufactured goods and services such as consumer durables, health care and education. The vastly increased competition for such goods and services helps to give an upward twist to the inflationary spiral despite the periodic changes in the terms of trade for certain primary products. World population has ultimately increased, in some ways as Malthus predicted over two hundred years ago, at a pace exceeding productivity, since productivity is at or near its lowest in those areas where population growth is at or near its greatest.

It took man a million years or so, until about 1825, to reach a total population of 1,000 million, but only about one hundred years to add another 1,000 million and only some fifty years, from 1925 to 1975 to double that total to 4,000 million, by which time the population was already increasing by 75 million annually. In the generation from 1975 to the year 2000, according to a consensus of opinion among experts in Britain, USA and the United Nations Organization, world population will increase by 55 per cent or 2,261 million to a total of 6,351 million and will then be increasing by around 100 million annually, so that, if currently projected growth rates continue, world population may reach 10,000 million by around the year 2030, well within the life expectancy of persons now reaching adult years in the western world.

The whole world has now broken the link with commodity money which once acted as a brake on inflation. The less developed countries are even less able than the industrialized countries to avoid the mismanagement of money, so that in their attempts to create monetary claims, including borrowing, to compete for resources which are tending to grow ever scarcer relatively to demand, runaway inflation with rates of up to 100 per cent or more per annum are not uncommon. Added to these unprecedented monetary problems over 90 per cent of the projected increase in population to the end of the century will take place in these poor and less developed countries, which by their very nature find it more difficult than their richer, industrialized neighbours to stem the full tide of inflation. Intensifying this trend is the increasing urbanization of previously predominantly rural communities, with the greater emphasis on money incomes that is the inevitable concomitant of such migration. A few telling examples must suffice, taking the population in 1960 and the projections for the year 2000 in parenthesis based on UN estimates and medium projections: Calcutta 5.5 m (19.7 m); Mexico City 4.9 m (31.6 m); Bombay 4.1 m (19.1 m); Cairo 3.7 m (16.4 m); Jakarta 2.7 m (16.9 m); Seoul 2.4 m (18.7 m); Delhi 2.3 m (13.2 m); Manila 2.2 m (12.7 m); Tehran 1.9 m (13.8 m), and Karachi 1.8 m (15.9 m). These ten towns alone will increase from a total of 31.5 m to 178 m. (Global 20001982, 242). This gives a new twist to William Cowper's claim: 'God made the country and man made the town.'

The young age composition of such vastly expanding populations increases mobility, the acceptance of change and the political pressures for change, including the desire to have at least some share in the rising standards of living of the richer countries, of which, through rapidly improved communications, they are becoming increasingly conscious. This international extension of the 'Duesenberry effect' (Duesenberry 1967), viz. that the patterns of consumption of the next highest social class are deemed most desirable, again helps to create increased expenditure pressures throughout the developing world and particularly in those populous pockets of relatively rich areas which exist almost cheek by jowl among the urban poor. Duesenberry also makes the important point that 'the larger the rate of growth of population the larger the average propensity to consume' (Duesenberry 1958, 265). Confronted with the magnitude of the problem of world poverty, western man may feel uncomfortable, individually helpless and perplexed by the merits of 'aid versus trade'. There is an imbalance in awareness as between North and South, and whereas it would be a caricature to say 'They ask for bread, and we give them ... Dallas', nevertheless the three-quarters of the world's people in the hungry south are increasingly aware of how the other quarter lives. This caricature is not unlike Picasso's definition of art as a 'lie which helps us to see the truth'. Be that as it may, the expenditure patterns of society throughout the world are becoming westernized, breaking down indigenous social patterns and so leading to modern habits which, unfortunately, tend to encourage inflationary monetary systems. Thus, the worldwide expansion of money has been partly caused by, but has far exceeded, the vast expansion of population.


Excerpted from A History of Money by Glyn Davies. Copyright © 2002 Glyn Davies. Excerpted by permission of University of Wales Press.
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Meet the Author

Glyn Davies was emeritus professor of the University of Wales and formerly economic adviser to Julian Hodge Bank Limited, director of the Bank of Wales, and senior economic adviser to the secretary of state for Wales.

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