Money is a vital carrier of economic and political information: coins or banknotes typically not only convey the currency metrology of the polity where they were issued but also bear the image of eminent personalities associated with the history of the polity in question. Whether it be kings, prime ministers, scientists, authors, or emblematic flora and fauna—money imagery can tell us much about the mind-set of the place where it was issued, and about the evolution of monetary sovereignty therein.
By no means linear, the evolution of money can nevertheless be roughly abstracted into six main stages: nonmetallic or commodity based; metallic protocurrency (hacksilver); coinage; bills (paper); fiat (bills without metal backing); and virtual (electronic). Money has taken both material and *digital forms to convey information about the value of goods. Intertwined with these discrete stages one invariably finds tension between private-order and state-issued (chartalist) currency, where the former derives from the need to facilitate trade and the latter is primarily aimed at enriching the rulers’ coffers (seigniorage). To this day, one cannot determine with certainty which of these two exigencies catalyzed the emergence of money to a greater extent.
In ancient Sumer, barley volume units had famously been used to project monetary value onto other commodities. However, of the three oldest premodern centers of urban civilization—pharaonic Egypt, the Indus valley, and Mesopotamia—it is believed that only in the latter had silver ingots (hacksilver) and weights been systemized into semi-uniform currency. This is despite the fact that metallurgy as such was developed for other purposes in all three. Notably, metallurgy was developed autochthonously in pre-Columbian South America, but metal seldom acquired monetary-exchange qualities there.
Arguably inspired by Mesopotamian hacksilver, the earliest form of coinage was made of an alloy of gold and silver (electrum) and was struck by the Greek city-state of Lydia in present-day Anatolia around 650 BCE. Striking a coin involved hammering a plain coin-sized disk between two dies so that the coin was imprinted on front and back with the inverse of the patterns that had been cut into the dies. Greek-style coinage, which was round in shape and incorporated not just script and numerals but also a rich vein of animal and anthropomorphic imagery, then diffused across Europe, North Africa, and the Levant. Following Alexander the Great’s conquests (336–323 BCE), Persian and later Indian currency also broadly evolved from metallic protocurrency into round struck coinage, and Greek impact may have played a critical role in that transition.
Chinese civilization appears to have broadly transitioned from cowrie and metallic protocurrency (e.g., “knife money” or daoqian) into round coinage predominantly cast from bronze around the fourth century. Yet foreign impact is much harder to establish in this setting, as contemporaneous Greek-style coinage has not been excavated in China proper as yet. The case for “separateness” is perhaps plausible on technological grounds too. While bronze metallurgy itself was not developed endogenously in pre-imperial China, the fact remains that Chinese coinage was cast rather than struck, that is, it was formed by pouring the molten metal into a mold to produce the patterns on the coin. Not only was the production technique quite different from the European preference for striking coins; Chinese coins were also virtually devoid of anthropomorphic imagery until the late nineteenth century.
That gold and silver were hardly ever made into coinage in premodern China suggests a key difference in the evolution of coinage in the rest of Eurasia, which may have had to do with the relative endowment of low-lying metal deposits. Mining-technology factors are moot, as are explanations more “institutional” in nature: after all, low-value cast bronze coinage, as well as the strict regulation of copper mining, held a particularly strong appeal in traditional Chinese statecraft.
In *early modern Europe, the use of precious-metal currencies, on the back first of African gold and later of Mexican silver, afforded the state greater seigniorage potential. This occurred in conjunction with improved minting technology—first horse powered, and from 1788 steam powered. By contrast, Chinese statecraft arguably entertained a much stronger prejudice against the very notion of the state profiting from currency. Otherwise put, better minting technology was sought by early modern European polities to differentiate sanctioned currencies from forged or foreign ones. In the Chinese setting, however, incentives to improve the quality of coinage were less compelling because bronze coinage possessed a priori lower seigniorage potential.
Early coinage in the Islamic world was predicated on Sassanid prototypes in much the same way that early medieval European coinage still harkened back to Roman designs. While gold and silver as well as bronze were employed across the Islamic world with local variations, anthropomorphism was largely stamped out in the eighth century. In that sense, both Islamic and Chinese coinage could be described as expressively frugal. Within the Islamic world, Mughal coinage was of particularly high quality thanks to advanced craftsmanship, yet steam-powered mechanization of minting caught on only in the early twentieth century.
This was all part of a much wider global progression through which the notion of money had initially been all but synonymous with coined metal, then augmented with paper bills (ca. eleventh century CE in China, seventeenth century in the West, nineteenth century in the Ottoman Empire), and has more recently become associated with much more abstract constructs such as public debt, the nation-state, or transnational monetary unions. Ordinarily, paper bills had been backed against metal reserves (i.e., bullion or specie) in private or state coffers. But, especially at times of war, bills could be issued without reserves. For example, the assignats issued during the French Revolution to ward off bankruptcy were initially backed by the church lands seized by the revolutionary government; but as more and more assignats were issued between 1790 and 1796, they depreciated precipitously.
Following the establishment of the Bank of England in 1694 as a lender of last resort, early modern Western currencies started to gradually shed their conceptual metallic anchorage. But, *epistemologically, the linkages between metal and money had been fraying earlier as evidenced, for example, in Nicholas Oresme’s (1320–82) exhortations against the scourge of medieval debasements, and his calls for an unadulterated currency belonging with the public; Jean Bodin (1530–96) similarly envisioned money creation as the prerogative of the sovereign at a time when privately owned mints were not uncommon.
Between the 1870s and the 1930s, following the discovery of new gold deposits in California, Australia, and South Africa, the gold standard was adopted by the world’s advanced economies, whereby paper bills became mostly of public-order, fiduciary nature. Namely, they were partially backed against gold reserves in state coffers and could be fully redeemed in principle.
Following the deflationary upheavals of the Great Depression, and the ravages of World War II in Europe, the gold standard articulated into a gold-exchange international mechanism. Known as the Bretton Woods system, after the town in New Hampshire in which delegates from the Allied nations gathered in July 1944 to formulate rules for international monetary standards, that mechanism was administered by the United States with the price of gold fixed at US$35 per ounce. Subsequently, the US dollar became the most widely used foreign currency around the world.
However, the fixed price of gold became increasingly difficult for the United States to maintain because it rendered the US dollar rigid vis-à-vis the government budget balance or the bullion reserves. On the other hand, other countries devalued or revalued their currencies, including major economic powers such as the United Kingdom (in 1967), Germany, and France (both in 1969). As a result, President Richard Nixon severed the tie between the US dollar and gold in 1971, thus abolishing the Bretton Woods system and ushering the fiat stage in its currency, where the state rather than metal would become the ultimate guarantor of all forms of money.
Although previous phases in which currency inconvertible to metal had been recorded in different parts of the world—Marco Polo’s or Ibn Battuta’s impressions of China under Mongol rule might perhaps spring to mind right away—never before had full-blown fiat money been so universally and sustainably accepted, and never before had the inconvertibility of currency into specie seemed so unquestionable as in our age. In the face of Irving Fisher’s dire predictions in the late 1910s, even celebrated free-marketeers such as Milton Friedman and Anna Schwartz would come to conclude by 1986 that government monopolies over currency in the developed world were to remain in effect. It is this consensus among economists that has all but relegated “free banking” to historical trivia. Namely, the late nineteenth-century notion that private banks are more responsible than state institutions when printing money as a form of debt no longer carries much weight.
What was to be enduringly unique after the collapse of the Bretton Woods accords is, however, of great magnitude: For the last four decades we have grown accustomed to think of and value money virtually inextricably from the nation-state as its ultimate arbiter, whereas through much of the previous twenty-six-hundred-odd-year period, money ultimately implied base or precious metal mostly in the form of round metal coinage or in the form of metallic reserves backing notes. The premodern insignia of rulership on coinage had represented, in that context, a guarantee of metallic quality much more than of value par excellence.
Today, however, if one were to look beyond the most basic quantity-of-money index in any OECD country—the M1—one would quickly realize the increasingly abstract nature of money. That is to say, in highly urbanized modern societies, the great bulk of current wealth is embodied in electronically digitized interbank flows, partially backed by central-bank guarantees. Only a fraction of the “money” thereof actually circulates in tangible form as banknotes, let alone as subsidiary coinage.
Against this backdrop, the most recent stage in the evolution of currency can be traced to the spread of the *World Wide Web in the late 1990s. This led to the creation of private-order computer-generated currencies such as the Bitcoin (est. 2008) that are highly speculative in nature and completely unbacked by central banks. It is estimated that around two million people around the world currently own Bitcoins, but virtual currencies have also been accused of being computer-chip-disguised Ponzi schemes. Whether they signal a historical rebound of “free banking” or perhaps a further sustainable abstraction of money as a whole remains to be seen.
Niv Horesh
See also bureaucracy; coins; commodification; computers; digitization; governance