CHAPTER XIX

MONEY AND MONETARY HISTORY ¹

From the evolutionary standpoint, money is the father of private property; it possesses this character from the beginning, and conversely, there is no object with the character of money which does not have that of individual ownership. The oldest private property consists in objects of individual handiwork, the tools and weapons of the man, and articles of adornment of both men and women. They are subject to a special law of inheritance from person to person, and in the field of such objects the origin of money is primarily to be sought.

Today, money has two special functions, serving as a prescribed means of payment and a general medium of exchange. Historically, the function of a prescribed means of payment is the older of the two. In this stage money does not enter into exchange, a characteristic made possible by the fact that many transfers of value take place from one economic unit to another which do not involve exchange but yet require a means of payment. Such are tribal gifts between chieftains, the bride price, dowries, head money, damage payments, and fines—payments which must be made in a standard medium. On a secondary level there become included payments from the chieftain to his followers, in contrast with those from subject to chieftain —that is the wage which the lord gives to his vassals in the form of a gift—and still later payments of generals to their soldiers. Even in a city like Carthage, and exclusively in the Persian Empire, the coinage of money appears only for the purpose of providing a means for making military payments, not as a medium of exchange.

In this stage of development, money in the unitary sense of today is not to be thought of; rather in each economic zone different sorts of services rendered correspond to specific sorts of goods which mediate the payment function, so that different species of money exist side by side. For example, never and nowhere could a man buy a wife for shells, but only for cattle, while in small transactions the shells were accepted because they were available in small denominations. Money which develops in this way in connection with intra-group payments we call internal money.

A further function, which is less characteristic of money today but which it has performed through long periods of history, is that of a medium for accumulating treasure. The chieftain who wished to maintain himself in his position must be prepared to support his followers and to compensate them by gifts on special occasions. Hence the extraordinary value which was placed on the thesaurus such as was possessed by every Indian rajah and every Merovingian king. The Nibelungen hoard is nothing else than such a thesaurus. As means of accumulation, various typical objects were employed, such things as the prince was accustomed to give as presents to his followers and which at the same time constituted objects valued for the purpose of making payments. Here again money was not a means of exchange but merely an object of class possession; one who possessed it kept it only on grounds of prestige and for nourishing his social self-esteem. In this function money required one of the most important characteristics which is demanded of it today, namely, that of durability, in contrast with that of portability. Elephant tusks and huge stones of a certain quality, and later gold, silver, copper, and metals of all kinds, serve as money and as a medium for accumulation. This class character money finds expression in two facts. The first is that in the primitive stage of development it is differentiated according to the sexes, the woman not daring to possess the same type of money goods as the man; thus the possession of certain aragonite stones was reserved to men while pearl shells were women’s money only and were used for the morning-gift of the husband to the bride. In addition, class differentiation involved distinguishing chieftain money from that of the subjects; shells of a certain size could only be acquired and possessed by the chieftain and were paid out by him only in case of war or as presents.

The function of money as a general medium of exchange originated in foreign trade. Its source is in some cases a regular commerce by gifts outside the group, such as that revealed for Egypt and the ancient east in the Tell-el-Amarna tablets.

A state of peace between two peoples presupposed continual gifts between their rulers; this is really a quasi-commercial exchange between the chieftains, out of which chieftain trade as such develops. To omit the gifts means war. A second source is a foreign product of wide spread use. The typical clan and tribal trade imparts to certain objects, not obtainable locally and therefore highly prized, the function of a medium of exchange. This external money took over the internal function where quasi-commercial payments were to be made, such as duties or road tolls. The chieftain provided the safe conduct but had to permit the merchants to pay with the medium which they carried with them. In this way the external money made its way into the internal economy.

At this stage of development money appears in numerous forms: 1. As objects of personal adornment. The type is the cowry shell in Africa and the regions of the Indian Ocean, extending into the interior of Asia. In addition there has been a great quantity of objects serving as means of payment or exchange in circles of varying extent—beads, amber, coral, elephant tusks, and certain kinds of scalps. Regularly and primarily decorative money was internal money; it became a general medium of exchange where the same means of payment was used in different tribes. 2. Utility money. This was primarily external money. As a means for carrying out obligatory payments or evaluating other goods, various objects of general use are met with; for example, grain, as in Java, also cattle and slaves. It is not generally, however, such articles of common use but rather means of enjoyment such as tobacco, brandy, salt, iron tools, and weapons. 3. Clothing money. This primarily performed the functions of internal as well as external money. As clothing money we meet with furs, skins, and fabrics, which are not produced in the locality. 4. Token money. Under conditions which have not the least relation to modern monetary conditions it happens that after people have become accustomed to certain objects on social grounds or accustomed to making certain payments in them, the monetary function becomes attached to them as mere symbols which have no value or significance in themselves. Thus in interior British India Chinese game counters are found as money. In Russia there has been fur money, consisting of bits of fur with no use value, and similarly in southern regions the use of quantities of cotton as money developed into the preparation of strips in a form which excluded real value but adapted them for service as token money.

Since in this stage not one means of payment alone but many circulate side by side, some scale of relative values is necessary. They are generally brought together in a scale, not in the sense that a unit of one is made equivalent to so many units of another but that several objects together form a value unit. Thus in Java the value unit consists of a certain very valuable stone and 20 pearl shells. Of the Missouri River Indians it is reported that the purchase price for a wife consisted of two knives, a pair of trousers, a blanket, a flint-lock, a horse, and a leather tepee. The meaning is that a woman is of equal value with a complete equipment for an Indian warrior and is sold by her tribe for this amount. It follows that the basis of such value scales is not merely economic qualities but the customary worth of the goods, their traditionally imposed social significance, and also the requirement for round numbers easily handled. In this connection again the decimal figures play a special role. Thus there are tribes in which ten cocoanuts equal in value a certain quantity of tobacco, 300 dolphin teeth correspond to a woman, etc.

Head money and expiatory payments also, and other considerations expressed in money, have no relation to economic values but to social valuation exclusively. The head money (wergeld) of a free Frank amounted to 200 solidi. This amount was fixed because it had to be brought into a certain relation with the head money for a half-free or servile person. Only traditionally imposed evaluations find expression in these principles. As soon as economic exchange relations make headway, as was already the case in the early middle ages, head money is no longer determined in terms of a claim for restitution of damage but it becomes a typical phenomenon that a larger amount is insisted upon. Evaluation in terms of a given monetary good by no means always implies payment in the same good, but may be only a standard in which the payment of the individual is measured. The latter may depend upon the capacity to pay of the dispenser—“in quo potuerit” —not according to a tariff but signifying rather a traditionally fixed consideration for restitution.

Out of the conditions just described evolved the distinctive position of the “noble” metals as a nominal basis of monetary organization. The determining conditions of this evolution are purely technical. The precious metals oxidize with difficulty and hence are not easily destroyed, while in consequence .of their relative scarcity they have a high value for the specific use of objects of adornment; finally, they are relatively easy to shape and to subdivide. The decisive fact was that the scales could be applied to them, and were applied at a very early date. The grain of wheat seems to have served as the earliest comparative weight. It goes without saying that the precious metals have also been employed in the form of objects of utility, but were specialized as a means of payment even long before they became media of exchange. In the former case they appear first in the chieftain trade; the tablets of Tell-el-Amarna show that the western Asiatic rulers expected from the Pharaohs more than anything else shipments of decorative gold. A preferred form for the gift of the prince to his followers was the gold ring; in the skaldic language the king is specifically called the ring spender.

In the form of coinage, money first appears in the 7th century before Christ. The oldest mints were located in Lydia, probably on the coast, and arose out of the co-operation of the Lydian king and the Greek colonists. A forerunner of coined money was precious metal in bars privately stamped by merchants, which appear in Indian commerce and later in Babylonia and in China. The shekel is nothing but a piece of silver with the stamp of a certain mercantile family, which was recognized for conscientiousness in weighing. The Chinese tael is similarly a piece of bar silver stamped by the mercantile guilds. Not until later did the political power take over the coinage, and shortly afterwards assume a monopoly of the activity. The last seems however to have been the case in Lydia. The Great King of Persia stamped the darics as a means for paying his Greek mercenaries.

The Greeks introduced coins into commerce as a medium of exchange. On the other hand, Carthage did not attempt coinage until three centuries after its invention, and even then the purpose was not to secure a medium of exchange but merely a means for paying its mercenary armies. In general the Phenician commerce was carried on entirely without money, and it was especially the technical advantage of coins which helped to establish the superiority of Greek; trading activity. Even Rome, which carried on an export trade in primitive times, went over to coinage very late and to begin with only to the coinage of copper. It tolerated the stamping of precious metal in Capua, while in Rome itself the most diverse sorts of coins circulated until 269 B. c. when the coinage of silver was taken up. In India coinage is first met with between 500 and 400 B.C. and was in fact taken over from the west; really usable coins in the technical sense are first found after the Alexandrian period. In eastern Asia the conditions are obscure; perhaps an independent origin of coinage is to be assumed. Today, it is limited to the coinage of copper, in consequence of the persistent debasement by the mandarins.

The technology of manufacturing coins had little in common with that of today before the 17th century. In antiquity the coins were cast, in the middle ages “struck,” that is stamped, but until the 13th century it was purely a handicraft operation. The coin had to pass through the hands of not less than ten to twelve different craftsmen who worked with hand tools only. The costs of the process were extremely high, amounting to a fourth of the value for the small coins and was still as much as 10 per cent in the 14th and 15th centuries, while today it may be placed at 10 per thousand. In consequence of the primitive technique the accuracy even of the best coins varied; even with the English gold crown, in spite of relative perfection of the process, the variation was still 10%. Commerce reacted to these errors by accepting the coins where possible only by weight. For fineness the stamp was a fairly secure guaranty. The first relatively exact coins which were also maintained constant were the famous Florentine gold gulden, after 1252. A really reliable coinage in the technical sense dates, however, only from the end of the 17th century, although the use of machinery in coining occurs somewhat earlier.

By a metallic standard we today understand in the first place the enforcement of certain coinage as a means of payments, either in all amounts (standard money) or up to a certain maximum amount (subsidiary coins); in the second place, connected with this is the principle of free coinage of the standard money which with the deduction of minimal costs of manufacture anyone at any time has the right to have made and with it to make payments to an unlimited extent. The standard may be mono-metallic or bi-metallic. In the latter case the only conception which seems possible to us is the so-called double standard, that is the several metals are set by law in a fixed relation to each other, as for example in the Latin Monetary Union gold stands to silver in the ratio of 1 to 15½. The second possibility, which was much more prevalent earlier, is that of parallel standards. Under this rule there was either actual unrestricted coinage of the metals, with in general no scheduled value relation or only a periodical adjustment of a varying value relation. In the choice of the metal for coinage the matter of the needs of trade were decisive. Internal and local trade could use only a metal with a value not too high, and here we find silver or copper or both. Distant commerce could and from necessity did for a time get along with silver, but after the commerce grew in importance it preferred gold. For the actual circulation of gold, however, the legal relation to silver was decisive; whenever one of the metals was given an unfavorable valuation in comparison with the available supply, the consequence was that the coins stamped from that metal would be melted up and used in commerce in this condition.

The history of the value relation between the different metals shows a sharp contrast as between eastern Asia on the one hand and the western Asiatic and European conditions on the other. Because the eastern Asiatic countries were cut off from the outer world an abnormal relation arose and it was possible to maintain a relative valuation which never existed in the west. Thus in Japan for a time gold was valued only 5 times as high as silver. In contrast, the continuity was never completely broken in the west. In Babylon values were reckoned in terms of silver, which however was not coined by state agencies, but circulated in the form of privately stamped silver bars or shekels. The value of silver in comparison with gold was set at 13 to 1 and this relation remained the standard for antiquity. The Egyptians took over the Babylonian silver bars in the form of deben but reckoned in terms of copper, silver, and finally gold, side by side, large amounts being paid in gold.

For later antiquity and the time down to the Merovingians, the monetary policy of Rome was definitive. Here originally parallel standards of copper and silver prevailed and the effort was made to fix the ratio at 112 to 1. The important measure was the manufacture of the silver sestertium equal to a pound of metal. Gold was coined merely as a commercial coin while copper progressively declined to the level of credit money for small transactions and came finally to have the character of token money. Coinage was in fact predominantly in the hands of military generals whose names the gold and silver coins almost always bore, even in the republican period; they were preferred as payment for spoils of war, and served the purposes not of commerce but of paying the army.

When Cæsar took over the imperial power the first real regulation of standards was instituted, Cæsar going over to the gold standard. His aureus was intended to be equal to a hundred silver sestercis on the basis of a ratio of 11.9 to 1. Hence silver had somewhat increased in value, a sign of the fact that trade experienced an increasing need for it. The aureus maintained itself down to the time of Constantine, while silver was variously experimented with. Nero decreed the denarvus, increasing the prestige of the aureus. Caracalla pursued the debasement of coinage systematically as a business, and his successors, the barrack emperors, followed in his path. This coinage policy, and not the alleged outflow of the precious metals to India or a failure of mining, ruined the Roman monetary organization. It was restored by Constantine the Great. He replaced the aureus with the gold solidus of which he coined 72 from a pound (327.45g.) of metal. In commerce the solidus probably passed by weight.

The gold solidus outlived the Roman empire. In the Merovingian period, it possessed the highest prestige in Germany within the area of the former Roman economic penetration, while to the east of the Rhine the older Roman silver coins circulated in a way somewhat similar to the Maria Theresa dollar later in Africa. The change to the Carolingian rulers meant politically a shifting of the center of gravity from the western to the eastern portion of the Frankish empire; but in coinage policy, although much gold was imported into the empire from the east, it meant a change from a gold to a silver standard. Charlemagne after many measures not clear as to their import, established a unit pound of 409 grams—though this assumption is not undisputed,—and out of this pound coined 20 silver solidi of 12 denarii each. Officially, the Carolingian coinage system, the last survival of which is the English units of pounds sterling, shillings, and pence, remained in force to the end of the middle ages and with it, over by far the greater part of the continent, the silver standard.

The central problem for the coinage policy of the middle ages, however, was not that of the standard, but was raised by questions of an economic and social character which affected the production of coins. Antiquity took seriously the coinage monopoly of the state. In the middle ages on the contrary, the rule was appropriation of the coinage function by numerous territorial coinage jurisdictions and their proprietors. As a result, after around the middle of the 11th century, the Carolingian coinage system everywhere had only a common-law significance. The coinage right, it is true, remained officially reserved to the king, or emperor; but the manufacture of coins was carried out by an association of handicraft producers and the revenue from the coinage business fell to the individual coinage lord. Infeudation of the coinage right to individual coinage lords involved an incentive to debasement which was practised on a wide scale throughout the middle ages. In Germany the solidus sank from the 13th to the 16th century to a sixth of its original content ; likewise in England the denarius from the 12th to the 14th century; in France, was originated the solidus grossus, a thick coin stamped on both sides, which competed intensively with the thin denarius coined in Germany in the 12th and 13th centuries and stamped on only one side (Brakteaten); but the new coin sank from the 14th to the 16th century to a seventh of its value.

The coinage debasement which affected silver led to the result that in commerce, which has to compute in stable units, the prestige of gold was increased. In consequence it was an epoch-making event when in 1252 the city of Florence minted a gold solidus of 3½ grams weight (florenus, florin) and maintained it at a weight as nearly uniform as was technically possible. Everywhere the new coinage was accepted, and it became the general monetary unit of commerce. Nevertheless we observe a pronounced increase in the price of silver, which can only have been caused by the urgent demand of the growing money economy for silver for use in trade. Toward 1500 the ratio between silver and gold increased from 12½ to 1 to 10½ to 1. At the same time there was an irrational fluctuation of the currencies in relation to each other and a difference between bullion and “pagament” or metal in the form of coin. While in wholesale trade men computed in terms of bars or Florentine gold gulden, in retail transactions the various coins were evaluated by agreement.

It was not only the greed of the coinage lords which was responsible for the debasement; it was due largely to the automatic working of the variation between specimens of the same coinage, which amounted to as much as 10%. Only the worst of the coins struck would remain in circulation, while the best made would be melted up at once, or in any case sorted out. It is true that the greed of the monetary lords contributed; they employed their monopoly to put out new coins, cancelling and calling in the old. But the latter were to a large extent in circulation outside their home district. The monopoly which a coinage lord officially claimed, he never could fully put into effect in his territory; a change could only be brought about through an agreement between several princes. Thus, aside from the coinage and good faith of the Florentines, the middle ages remained a period of coinage irrationality. Precisely because of this irrational condition in the production of coins, unrestricted coinage went without saying; since the coinage lord by increasing the mintage could secure an advantage from his business he strove to secure all the precious metal for his own mint. The possessors of precious metal were subjected to pressure in this connection; prohibitions on export were of common occurrence, especially in districts containing mines, and miners and shareholders in the mines of precious metals seemingly had no choice as to whether they should bring the metal to the mint of the coinage lord or not. Yet all these measures remained without effect. Not only was an enormous amount of smuggling carried on, but the coinage lord had to arrange by agreement to concede a supply of metal to the mints of other lords who possessed no mines, and this metal constantly returned to his district in the form of foreign coins. An irrational trade in coins persisted throughout the middle ages; the demand for the various sorts of coins could not be determined and the extreme fluctuations in the seigniorage operated to prevent adjustment of supply to demand; only the competition among the coinage lords caused them to renounce seigniorage.

After the 16th century the increased inflow of precious metal to Europe provided the economic basis for the establishment of more stable relations in the field of coinage, and at least in western Europe the absolute states had already cleared out the multiplicity of coinage lords with their competition among themselves. Down to the date mentioned Europe had been a region of permanent exportation of the precious metals; only the period of the crusades, lasting for about 150 years, with their spoils in gold, and also the produce of the plantations, had formed an interruption to this condition. At this time the discovery of the sea route to the East Indies by Vasco de Gama and Albuquerque broke the monopoly of the Arabs over the transit trade. The exploitation of the Mexican and Peruvian silver mines brought great quantities of American metal to Europe, while the discovery of an effective process for extracting silver, by amalgamation with mercury, contributed to the result. The quantity of precious metal obtained from Mexico and South America has been estimated for the period from 1493 to 1800 at nearly 2½ million kilograms of gold and 90 to 100 million kilograms of silver.²

The increase in the production of the metal meant immediately a sharp increase in the supply of coined silver. The silver standard permeated to the farthest confines of trade in Europe and reached its expression in the money of account. In Germany, the Florentine gold gulden was even brought out in silver (the Joachimstaler). This condition obtained until the Brazilian deposits of gold were opened up. Although exploitation of these lasted only for a short time—from the beginning to the middle of the 18th century—it dominated the market and resulted in the change of England to the gold standard, against the will of the English law makers and the advice especially of Isaac Newton. After the middle of the 18th century, silver production again came to the fore and influenced the French legislature at the time of the revolution, calling into being the French double standard.

But the rationalization of coinage could not at once be carried out. The condition which obtained before it was completed may be described by saying that innumerable kinds of coins were in circulation, yet no money, in the present day sense of the word. Even the imperial coinage edict of Ferdinand I in 1859 was forced to recognize thirty types of foreign coin. The extraordinary range of variation in the content of the same type of coin, due to the imperfection of the technique of manufacturing, especially in the case of the smaller coins, in connection with the great volume of the mintage, led to a restriction in Germany in the 16th century of the legal tender power of the silver coins, but without the transformation of these into subsidiary coins; the definite rational establishment of subsidiary coinage was reserved for English monetary policy to introduce. The official monetary unit was the gold gulden coined in silver, the Joachimstaler, but in fact the following development took place in the commercial field.

After the 13th and 14th centuries, commerce emancipated itself from coinage and reckoned in bullion, accepting coins only by weight, specifying payment in a certain type of coin, which had to be recognized as customary by the empire. Finally, it went over to deposit banking. The prototype of the latter was provided by China. Here the debasement of the coins had led to the establishment of metallic deposit banks for the commerce of the merchants. With the fixation of a weight unit the silver payments were made either by checks or instruments similar to checks, drawn on a bank in which the individual merchant kept his deposit of bar silver, or else by means of silver in stamped bars—taels—which, however, played no considerable role in comparison with the payment by checks. Thus was created a bank money based on the possession of bullion by the merchants concerned and which was the exclusive means of payment for the persons connected with the deposit system.

Imitations of this prototype are found in the west as early as the 16th century: in Venice the Rialto bank; in Amsterdam, the Wisselbank, 1609; in Nuremburg in 1621; in Hamburg in 1629. These banks reckoned by weight and only coined pieces were accepted in payment. The individual account was usually subject to a minimum, as were the payments; thus in Amsterdam the minimum size of the draft or order were 300 gulden. On the other hand, no payment above 600 gulden could be made in any other way than through the medium of the bank. In Hamburg this bank standard persisted down to 1873.

Modern monetary policy is distinguished from that of the past by the absence of the fiscal motif; only general economic interests resting on the need of commerce for a stable basis of capital computation determine its character. In this connection England took the lead of all other countries.

Originally, silver was in England the effective means of payment for all internal commerce while international trade was based on a gold money of account. After the Brazilian discoveries, increasing amounts of gold flowed to England and the English government was subject to increasing embarrassment by the parallel system. After gold became cheap it flowed to the mints and at the same time the silver circulation was endangered by the melting up of the silver coins. As all loans had to be repaid in silver, capitalistic enterprise was interested in preventing the outflow of the silver. At first the government attempted to maintain the parallel coinage by arbitrary measures, until in 1717 it decided to carry out a new definitive valuation.

Under the guidance of Isaac Newton the typical English gold coin, the guinea, was fixed in value at 21 shillings even though gold was still over-valued. When in the course of the 18th century gold continued to flow in, silver flowed out and the government proceeded to radical preventive measures. Gold was made the standard metal and all silver degraded to the position of subsidiary coin. It lost its unlimited legal tender and was alloyed and coined at more than its bullion value so that the danger of its leaving the country was removed.

After much experimenting, the French government finally adopted during the revolution a double standard, the basis of which was silver; 1000 francs were coined from 9 pounds of silver (222% to the kilogram) and the ratio of silver to gold was fixed at the current relative value of 15½ to 1. The extraordinary domestic demand for coin in France, which was stronger than that of England, led in fact to a stabilization in the value relation between gold and silver over a long period.

In Germany, the silver system had to be left intact during the 19th century, the first part of which shows a period of decreasing metal production. There was no central authority in a position to effect a transition of gold. Gold was however minted as a commercial coin with a legalized value, especially in Prussia; but the attempt to give gold a different position in the monetary standard was unsuccessful. The war indemnity of 1871 first enabled Germany to go over to the gold standard, a step which was facilitated by the sharp increase in the world’s stock of gold which followed the Californian discoveries, while on the other hand the value ratio of 15½ to 1 was gradually destroyed. These conditions determined the creation of the German Reichsmark equal to one-third Taler; since 30 Taler equalled a pound of silver, the ratio of 15½ to 1 made the pound of gold equal to 1395 marks.