A History of Money: Fourth Edition

by Glyn Davies, Duncan Connors (Editor)

A History of Money is exactly that—a look at how money, the indispensable unit of our economy, developed through time. Starting with the barter system, the authors describe how the basic function of exchanging goods evolved into a monetary system based on coins made of precious metals and how, from the 1500s onwards, financial systems were established and currency became intertwined with commerce and trade, finally settling by the mid-1800s into a stable system based on gold. Rather than approaching money as a theory, the authors show how usage developed pragmatically over time to suit the economic needs of society; and they make a surprising yet compelling argument for the inherent stability of the gold standard.

Genres: History, Economics, Money, Finance, Business, Nonfiction

800 pages, Paperback

First published February 1, 2002

Reviews

[Katia N · Rating 4 out of 5]

It is an exciting and comprehensive history (for those who can get exited about the history of money). This book provides a relatively comprehensive world coverage history of money with more of a focus on the UK and the US as history moves along. The rest of the world including Europe and China is covered less comprehensively. But this is understandable considering the author's need to establish the priorities to cover more than a thousand years.

The unique feature of the book for me was the formulation of a concept that the author calls “meta-theory of money”. In other words, it is the author’s proposition which type of current thinking on money would prevail depending on the state of economy in the certain time period or just before. He calls his meta-theory “The quality-to-quantity pendulum”. He also explains the reasons for relatively dramatic oscillations in public support of contradictory theories with time.

Briefly, it all comes down to the contradiction between the interest of net debtors and net creditors in the society. Usually the net debtors are “much poorer and always more numerous than the normally more powerful and less numerous creditors”. However, the net debtors often include the powerful politicians on their side and the state is often a net debtor in some form. The debtors naturally want to increase the quantity of money and try to find “acceptable substitutes”. While it is in the interest of the creditors to maintain the quality of money while limiting its supply and maintaining or increasing its value.

The resulting dynamic in the historical perspective is as follows:

1) quality of money comes first (respectively the interests of potential creditors) “for if whatever is intended to act as money is not desired strongly enough to be held, it will fail to be selected long enough to be imitated.”
2) when something is accepted as a money “the quality faces competition from an increased quantity of substitutes;
3) the quantity increases, the quality falls. “if the process is speed up, the currency may become completely discredited and useless, requiring replacement.”

And here we go at it again. But it is an extreme case in our days in the developed world. Usually when the debtors prevail “the pendulum eventually swings towards depreciating the value of money and inflationary pressure. But at some point they are met by the net forces of creditors going other direction. Too much debtors pressure leads us to inflation. Too much of the creditors pressure leads us “to excessive emphasis on quality which severely restricts the growth of the economy”, and respectively the welfare of those debtors one way or another.

It could be long periods of relative stability in this game, but nothing is guaranteed as this pendulum tends to overshoot. So far we were talking about the real economy pendulum as opposed to the pendulum of the meta-theory. But when it comes to the current theories trying to explain the current situation, unsurprisingly, there is a similar dynamic:

“At any given time, especially after drastic changes in monetary affairs, a whole host of theories may arise to explain the existing value of money. Given a wider historical perspective these temporary theories group themselves with little distortion into either debtor-quantity or creditors- quality theories. The meta-theory brings this two apparently contradicting and divergent theories together under symbiotic union.'

This idea explains why the prevailing one of these theories tend oscillate so widely and why the opposite theory tend “to follow each other in repeated alterations over the centuries”.

He gives the example of the last big swing between the Keynesian “liquidity theory of money” (net debtors’ theory in his speak) that was followed by the monetarism of Milton Friedman. But even I can add a few more flux when the monetarism went out of fashion, New Keynesians including the MMT (Modern Money Theory) has started to get an ear of some policy makers. However, when the inflation resurfaced partly due to some of form of the increase of money supply influenced by that thinking, the tighter monetary controls has started to reduce the inflationary pressure.

As with all good ideas, this meta-theory sounds almost obvious when one assimilates it. But it did not seem obvious to me before reading this book. The longer span of history he writes to illustrate this idea is amazing. It is much trickier to understand what is going on while being inside of your own time and seeing only a fragment of this pendulum: it has reminded me about the proverbial elephant and the blind men who each imagined a totally different creature based upon their separate observations. However, it makes sense. And the timing of these theories gaining popularity with the public makes sense as well. It would be impossible to convince a voter about the risk of inflation until he feels it in the shop. He would not just buy it so to speak.

In general, this meta-theory probably illustrates that any set of ideas in public discourse are going through a similar cycle-pendulum. Again sounds almost obvious, but it is not that trivial. However, it looks I need to think about it a bit more to come up with something interesting to say.

And the last but not least about this book - it is a great chronological history containing lots of interesting and relevant facts and personalities. Very careful reader might find a slight trace of the author's agenda (against international banking and pro-UK industrial development). But it is truly minimal within the huge scope of the book. The text is very informative and well written as well.

My notes with some factoids and questions from the reading under the "spoiler":


Civilisations (Toynbee):
Sumerian
Egyptian
Minoan
Chinese
Andean (Incas)
Mayan

600-300 bc
Conquest, taxes, tribute, offering to temples, gift exchange and finally trade; all these were methods of gaining precious metals in amount sufficient to establish and maintain mints.
In general in no way there a sense that coinage was a necessary preliminary to the development of banking.
Romans

765 - first penny in Britain after 200 years of barter.
928 - national currency and royal prerogative over minting.
Reminting coins each 6 years.
No national currencies in France, Germany or Italy for 600-900 years.

Tally 12th century 🇬🇧:
The first stage of the process was the “assignment”, by which a debt owed to the king, shown physically by the tally stock held in the Exchequer, could be used by the king to pay someone else, by transferring to this third person the tally stock. Thus the king’s creditor could then collect payment from the king’s original debtor. Alternatively this new creditor might decide to hold the tally to pay his share of taxes in subsequent tax season.
Food security brexit etc

In the 17th century “the healthy development of the banks themselves was crucially dependent upon the foundation of a sound and sufficient supply of the traditional and officially most important form of money good silver copper. IS IT REALLY TRUE CAN CREDIT WORK WITHOUT THE BASIS OF SCARCITY OF METALS?

In the 19th century they realised that the achievement of convertibility, even when combined with a conservative and cautious policy of discounting, was not enough to supply the right amount of money to satisfy the demands of trade. Convertibility merely carried the micro-economic guarantee of to a person the ability of changing paper money into gold at a fixed price. Convertibility could not also carry macro-economic guarantee of supplying the country with optimum quantity of money. Some additional controls over
paper money 💰
Relationship between boe notes and other banks
Discount policy/interest rate
Metallic backing of notes.

Currency vs banking school in 1830s.

Legal tender is any form of payment recognized by a government, used to pay debts or financial obligations, such as tax payments. National currencies, such as the U.S. dollar, are legal tender. In the U.S., the Treasury is authorised to create and issue dollars to the public

The seeds of industrial decline relatively speaking were being widely sown during the period of sterling’s unchallenged supremacy.

Merchant banks did not want to invest in British industry. Jews court ? Slightly anti-Semitic. What about overseas empire? The us absorbed main investments.

There are few things more impressive than the haughty analytical certainty with which fundamental theories of money are for a time universally held, only to be discarded in favour of diametrically opposite but equally firmly and widely held new orthodoxy which in turn lasts until the whole process reversed itself suddenly a generation later.

Born of the crisis, new monetary practices come quickly into being accompanied at rather more leisurely pace by the appropriate theories which rule until next crisis cause a reverse swing in the whole process.

Resorting to devaluation a country cheapens its exports and makes its import dearer thereby increasing employment in its own country but reducing employment abroad.

Uk it’s pound and it’s banking sector are no longer leading the world in any sense as may have been the case once upon a time but the currency and financial industry is still a major global player and will continue to be so, not due to its size nor hegemony but unique and beneficial characteristics into the largest sector of British economy dealing with other people money.

The dollar climbed to its international immense on the back of America factories and farms. The strength was not derived from the strength of financial system; rather the reverse.

In the 19th century us

Thus to answer chronologically the chicken egg question of the relationship of money supply to development the 1830s saw demand lifted upwards by a rising flood of finance the cumulative and excessive growth led to crisis 1937. Thereafter for the most of 1840 the money supply contracting to the real needs of an expanded population acted as a brake on development. From 1848 enormous increases in gold gave one of the crlearest examples in stimulative quality of good quality money. Business and banking build an excessive superstructure of credit on this golden foundation leading to another crisis in 1857.

Continent vs England: initially banks supported industrial revolution through loans rollover. But “ when banks in France and Germany in the last half of 19th century were forging closer links with industry and strengthening regional bases the British banks were loosening their ties with local industry strictly avoiding entangled in medium and long term lending and began to centralise in London. As the consequence the failure rate declined as did the growth of British industry.

During the ww2
In addition to normal expenditure on food and raw materials from rest of sterling zone (colonies) there were vast new current expenditure on forces, harbours, roads etc. rsa “unrequited” earnings from this trade were accumulated as “sterling balances” in London. These grew to such an extent that much of rsa become substantial creditors. London hold balances in the form of treasury bills rose to £3 bln by 1945. Despite changed of the composition, they stood like that for the last 20 years. Britain changed from large creditor to large debtor.

P657 - economist and FT piece.

“Economic complementarity of prewar commonwealth has been drastically altered by the war.”

“Bankers and brokers steered Britain’s savers away to “ safe investment” abroad rather than towards more risky pioneering investments in the newer industries at home. “

“Cheap coal, cheap iron and cheap capital from Europe in general and from Britain in particular, helped in creating the infrastructure, such as ports, waterworks in underdeveloped world. To what extent this should be praised as development or castigated ad exploitation remains largely a subjectivity political rather than objectively economic question.”HELLO! The import of expensive munition and cheap food largely paid by Victorian investments?

[Teresa · Rating 5 out of 5]

If you want to understand what money is and how it works, read:

(1) Fernand Braudel's three-volume history of capitalism first
(2) Neal Stephenson's fictional "Baroque Cycle" trilogy, then
(3) Glyn Davies' "History of Money".

Although Davies never explicitly says so, his historical research makes it very plain that money is NOT merely a passive mechanism for simplifying exchange, storing value, or facilitating long-distance trade. Money does all these things, of course, but it also a complex and evolving social institution much like language. It does its work in a social context that is as often religious and political as financial, and it is deeply interwoven with personal human values and emotions.

It is also interesting to see how regularly and often meta-money -- that is, financial instruments derived or abstracted from other financial instruments -- drives runaway exponential events that become economic disasters and sometime end empires.

[Kevin Carson · Rating 3 out of 5]

If I were rating it for obsessively completionist regurgitation of numismatic erudition, it would get five stars. It needs way less pointless detail, and a lot more critical structural analysis -- especially of the basic unexamined assumptions behind the historical forms actually taken by money and credit.

[Chi Pham · Rating 3 out of 5]

The book is good as a reference: lots of descriptive information, clear categories, but just very dry writing style and no clear argument. This book is perfect when you need to do research, or inquire into a particular history context of a financial event. Other than that, do not expect too much.

[Carl Johnson · Rating 4 out of 5]

Masterful analytical history of money and banking in England from antiquity to the present day.

[knoba · Rating 4 out of 5]

.
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Foreword
Contents
Dedication
Acknowledgements
Preface
1. The Nature And Origins Of Money And Barter
2. From Primitive And Ancient Money To The Invention Of Coinage, 3000-600 Bc
3. The Development Of Greek And Roman Money, 600 Bc-Ad 400
4. The Penny And The Pound In Medieval European Money, 410-1485
5. The Expansion Of Trade And Finance, 1485-1640
6. The Birth And Early Growth Of British Banking, 1640-1789
7. The Ascendancy Of Sterling, 1789-1914
8. British Monetary Development In The Twentieth Century
9. American Monetary Development Since 1700
10. Aspects Of Monetary Development In Europe And Japan
11.Third World Money And Debt In The Twentieth Century
12.Global Money In Historical Perspective
13. Further Towards A Global Currency
Bibliography
Index

[Orkhan Huseynli · Rating 4 out of 5]

A good historical book about the history of Money/ Money creation. Besides interesting historical facts, the book uncovers the primary purpose of money throughout history.

[Kscarritt]

Detailed history - so far ancient history. Very interesting.

[Arley Duarte · Rating 4 out of 5]

Very interesting book, this book give you a general view of many details of actual economic system

[Joe · Rating 3 out of 5]

Has good information but rather dry reading.