A HISTORY OF

Studium Generale WUR

Wageningen, 30 October 2018

Joost Jonker

University of Amsterdam/IISH Contents

• Money, an introduction

• Three phases

• Conclusions Money, an introduction

• Three requirements :

• Stable value, relative scarcity, trust

• To fulfill three functions :

• Means of exchange, gauge of value, store of value Money, an introduction

• Money a convention

• Anything meeting requirements can serve as money if we agree on it : shells, dolphin teeth, squirrel pelts, coco beans, cigarettes...

Money, an introduction • Trust lodged in :

• The preciousness of the material

• The social cohesion of a community

• The power of rulers

• Any two of these three Three phases, 1: standards

• From earliest times until 1914

• Oldest forms ingots of scarce metal: copper, , , ... Three phases, 1: commodity standards

• Oldest forms scarce metal ingots : copper, bronze, gold, silver...

• Coinage appears about 3,000 years ago

• Stamped lumps of : , silver, gold

• Big , so small circulation from Efesos, 6th-7th century BCE Stater from Miletos, 6th-7th century BCE

Puranas, Karshapanas or Pana from India, 6th century BCE Three phases, 1: commodity standards

• Oldest forms scarce metal ingots : copper, bronze, gold, silver...

• Coinage appears about 3,000 years ago

• Stamped lumps of precious metal: electrum, silver, gold

• Big coins, small circulation

• seized as sovereign right : stamped with authority Roman gold aureus, 2nd Century CE Gold , India, 6th Century CE Gold dinar minted at Damascus, 7th Century CE Three phases, 1: commodity standards

• Advantages :

• Coins worth their weight in metal

• Fixed and recognizable value

• Stable exchange rates between coins and countries Spanish silver dollar, 1797

British gold sovereign, 1817 Gold 10-guilder piece, Netherlands 1933 Three phases, 1: commodity standards

• Drawbacks :

• Cumbersome for both large and small transactions

• Clipping and counterfeiting popular pastime Quinten Metsys, The money changer and his wife (1514) Three phases, 1: commodity standards

• Drawbacks :

• Cumbersome for large and small transactions

• Clipping and counterfeiting popular pastime

• Monetary policy impossible

• Sovereigns untrustworty, always debase coins Three phases, 1: commodity standards

• Solutions :

• Technology ( presses, ribbed sides, edge lettering)

10 stuiverstuk, Zeeland, 1613 10 stuiverstuk, Holland, 1761 Three phases, 1: commodity standards

• Solutions :

• Technology (mint presses, ribbed sides, edge lettering)

• Parliamentary control over minting and money circulation

• Central banks set up to manage

• Licensed to issue paper money Chinese Jiaozi , 11th Century BCE Swedish Riksbank note, 1666 Three phases, 1: commodity standards

• First forms in , 12th-13th century

• Europe late 17th century

• Based on trust in repayment : fiduciary money

• Essentially a promise to pay backed by silver or gold

Three phases, 2: fiduciary money

• From 1914 until 1971

• War ends

• Gold concentrated in central banks, no longer in circulation Three phases, 2: fiduciary money

• Gradual acceptance of money as managed (Keynes)

• Backing rests on trust in government

• Economic mismanagement can wreck Reichsmark note, July 1923

Zimbabwe dollar, 2008

Reichsmark note, October 1923 Three phases, 2: fiduciary money

• Bretton Woods links Western currencies to gold via US dollar

• Macro-monetary flexibility boosts post-war growth

• Constraints on US economic policy ends system, 1971 Three phases, 3:

• From 1971 until now

• Money no longer backed by anything at all

• Strong exchange fluctuations upset international

• Monetary policy from technical management into political football

• Efforts to reboot economy boost everywhere Three phases, 3: fiat money

• Governments from solution to key problem

• Stable money depends on social and political balance

• Calls for a return to gold

• Suspicion against state inspires alternatives like Conclusions

• Money is a convention

• Acceptance depends on ability to fulfill three functions

• Fiat money culmination of 5,000 years evolution

• Balance between parliament and independent the best bet for stable currency Alternative currencies

• A regular occurence throughout history :

• Local scarcity of

• Emergency situations

Alternative currencies

• the newest manifestation :

• A world currency

• Circulating freely without governments or banks

• Trust lodged in supposed power of abstract and diffuse community to check production and use Alternative currencies

• Must meet at least two criteria to fulfill three functions :

• Relative scarcity, stable value, trust

• Means of exchange, gauge of value, store of value

• So far, only relative scarcity possible

Alternative currencies

• Fallacies and drawbacks :

• Abstract community diverse and unable to control

• Growing use will dampen strong fluctuations

• Ideal vehicle for thieves, speculators, and money launderers

• Transactions still very slow and very expensive

• Fools and their money...