The History of Money

Interviewer: Aco Momcilović, psychologist, EMBA, Owner of FutureHR

Interview with Mirko Sardelić, PhD, Research Associate at the Department of Historical Studies HAZU, Honorary Research Fellow of the ARC Centre of Excellence for the History of Emotions (Europe 1100–1800) at The University of Western Australia; formerly a visiting scholar at the universities of Cambridge, Paris (Sorbonne), Columbia, and Harvard.

We live in the times of the fastest changes ever. The financial sector, although rigid and regulated itself, is also facing different changes. With rumours of upcoming recession even before the COVID-19 crisis, and especially with the number of concerns that we are facing at the moment, it seems a good time to immerse ourselves in the pool of historical review. Hopefully, this will give us better perspective of our current situation, and maybe we will learn something useful for the future.

Q1. How did ancient societies exchange goods and services?

I would say that you have just used the keyword: exchange. When people meet, they exchange greetings, hugs, gifts — or, if it is not so friendly an encounter, they exchange fears, stereotypes, loathing, disgust. The history of exchange is inconceivably long and diverse. But no matter how friendly or hostile relations were, humans started to exchange goods and services a long time ago.

Everything started with barter: I give you my surplus of the fish I caught in exchange for the furs of the animals you hunted. This functioned for quite some time, although it was often problematic to negotiate ‘the exchange rate’ every time one wanted to exchange their fox fur for the other person’s grain, pearls, amber, tools or weapons. With a limited number of items exchanged, this could be arranged without major difficulty, but once the number of objects and commodities rose, some new mechanisms needed to be established. This led to creation of first currencies.

Q2. When were the first currencies created? Who created them? What were they made of?

First, people used standardised useful objects as currency, all most likely made from metal: it could have been an axe, a knife, a cauldron, or a ring. (Ancient non-metal objects very rarely survived intact to be discovered by modern-era archaeologists anyway). When discussing objects of ancient cultures, archaeologists and anthropologists often struggle to discern or analyse their (multiple) usage. This is because the same object could have a religious, financial, and ornamental use at the same time.

Currencies that were not metal were mostly natural. In China, Africa, and the Roman Empire, salt had, by contemporary standards, unimaginable value. Maritime states used this, but continental states also gained amazing wealth from this precious product we all need daily. Take, for example, the oldest-known salt mine in history: the Halstatt salt mine (Austria); or one of the most famous medieval mines, Wieliczka, upon which the splendid city of Krakow (Poland) built its riches.

Animal skins were used widely: beaver or squirrel pelts, marten, bear, or buck. The names of some of these animals can still refer to money in some languages: in English people still use the term ‘bucks’, while Croatian currency is still kuna (marten). Aztec and Mayan cultures used cocoa beans for currency. They kept them in bags containing 8,000 or 24,000 beans. One bean could be exchanged for an avocado, while 100 beans could be exchanged for a turkey, or a slave, depending on the time period and the particular area of Central/South America.

In Babylonia, metals (such as silver and copper), and barley grains were both used as currency. The value of one shekel was 180 barley grains. Hammurabi’s Code, more than 4000 years old and one of the most fascinating legal codes in the history of humankind, regulated the payment of field workers in grain, while surgeons, brick-makers and artisans were paid in silver currency. Seeds of carob (Greek keratos, or Italian carato) were used to relate to the fineness of gold — even today we use the same word, carats (as in 24-carat gold) for the same purpose. Amber, ivory, jade, rice, eggs, sheep, goats, camels, seashells, coconuts, and many other natural products were used as currencies.

Q3. How was the exchange between different currencies undertaken? What were the first exchanges?

Throughout history humans often set, in customary law or in legal documents, items that could be exchanged for something else and in what circumstances. Many societies even had a fixed price for human life: if a person killed someone, they could (or were obliged to) pay the sum to make up for this offence. In early Germanic societies it was called weregild: blood money. It was prescribed how much human life was worth, depending on the deceased person’s social status. There was even an amount for killing the king, which suggests that it had happened. Even the root of the word ‘pay’ comes from Latin pacare — to pacify or make peace with the creditor or the one you offended by killing their kin.

As we can see, Western civilisation owes so much, in terms of etymologies and financial traditions, to the Greco-Roman world, as well as to late-medieval Italian merchant states. Words such as ‘money’, ‘mint’, and ‘monetary’ have the same root. They all come from ‘Moneta’, the nickname for the Roman goddess Juno. Traditional etymology tracked its root from the verb monere — ‘to warn’. It is likely that the etymology of the word ‘cash’ is again Latin (from capsa — ‘(money) box’; Italian cassa), although some derive it from Tamil word casu — ‘copper coin’, via Portuguese caixa. Salary comes from Latin word salarium, which was a Roman soldier’s allowance to buy salt (sal in Latin).

Italian city-states, such as Venice, Genoa, and Florence, had trade networks and outposts throughout the Mediterranean world and the Near East, and developed quite sophisticated financial tools and means of exchange. The same can be said of Arab merchants of the period. When studying monetary history, one should also look into the financial traditions of China, where first paper money was put into circulation, more than a thousand years ago. Among these nations a lot could be learned about the exchange between currencies. However, the first exchange offices as we know them in the Western world today were probably established by the Dutch and the British, who became global (financial) powers in the 17th and 18th centuries.

Q4. FIAT money is an invention of the late 20th century? What was the monetary base in the past?

Not everyone will know what ‘fiat money’ is. This is money not linked to physical reserves (of precious metal, for example), but its value is arbitrarily defined by governments or rulers. In short: gold coins can be worth exactly their weight, while a full bag of paper notes is worth as much as the authority that has issued the currency agrees on its value. The other type of money is the mentioned ‘commodity money’, whose value is intrinsic, i.e., its value comes from the value of the commodity from which it is made, such as silver or gold. The last type is ‘representative money’, which is usually a piece of paper representing the worth of the sum, or the intent to pay. (PIC 09)

For three thousand years, the monetary base has consisted of reserves in (precious) metals: in ancient China the standard was copper; in Assyria lead; while in later centuries the standard has become silver and eventually gold. Gold could never have been a sole monetary reserve, as there would never be enough of it. It is a fabulous metal which is literally out of this world. It cannot be produced on Earth, although alchemists put so much effort into attempting its production during the Middle Ages and the early modern period. All gold deposits on Earth that have been blended into our planet’s core and crust were created by explosions of distant stars. One should bear in mind how rare and heavy gold is. The total amount of gold that has ever been mined or discovered on Earth throughout history is estimated to be between 200 and 400 thousand tons, which equates to the volume of four to eight Olympic swimming pools. This is because the specific mass of gold is 18.6 kg/litre. Just for comparison, a regular airline cabin bag (standardized at 50x40x25 cm) has a volume of 50 litres. If you packed it perfectly with gold bars, you would end up ‘carrying’ a staggering amount of 930 kg of gold!