Money a story of humanity

 

                          INTRODUCTION

 Money falling from the sky Imagine money falling from the sky. 

Would you slip a tenner into your pocket before you told anyone? Chances are, most of us would trouser a few notes rather than inform the authorities.

 This was the reaction Hitler was banking on when he planned to drop millions of pounds all over Britain at the height of the Second World War. Hitler understood what happens when money loses value. He lived through the hyperinflation of the Weimar Republic and was aware that money is a weapon like no other. Money can destabilise a country, a view he shared with his ideological enemy Vladimir Lenin, who observed that the easiest way to undermine a society is to ‘debauch its currency’.

compromising the war effort. In July 1942, Hitler’s new weapon cranked into production. It was to be the greatest forgery the world had ever seen. A telegram was sent to the commandants of concentration camps calling for printers, engravers, artists, colourists, typesetters, paper experts and former bank officials. The operation also needed mathematicians and code breakers to decipher sterling’s numbering sequence. A most desperate cohort of traumatised, emaciated men limped into Sachsenhausen from camps all over the Third Reich. These 142 souls were tasked with breaking the Bank of England.

Economists take the fun out of money. A highly emotional substance, money can be transgressive, sexy, dangerous, mind-altering. Money is power, it is domination but it can also be liberation. Money buys independence. Money motivates us and releases human energy, and what we do with the energy once we have it is up to us. Some want to spread the possibilities of money around, others want to hoard it for themselves. Money doesn’t impose on human morals; it amplifies them. If a person believes greed is good, they will behave accordingly with money. If they believe in equality and human rights, they may use money to achieve these objectives. The point is that we imagine money into being, money changes as we change, and money changes us.

                   A magic tool 

Money is an ingenious technology that humans invented to help us negotiate an increasingly complex and interrelated world. Imagining money as a tool or a technology is not how we usually think about it. It’s not that we don’t think about money; we do, and probably more than we’d like to. We need money to live and, because of this urgency, we rarely have the luxury of thinking about money in any other way. If you don’t have enough cash, you worry about how you might get more. If you have loads of it, you worry about making sure you don’t lose it. Most of us would like a bit more money, and if we could figure out an easy way of getting it, we’d probably go for that option. Money buys freedom: the essential promise which makes it so attractive is that, armed with money, you can change your world by gaining more control over your life.

The more complex our societies, the more engrained money became. Early civilisations that adopted money acquired a competitive advantage over others, leading to innovations that radically changed the story of modern humanity. We will see that money is a disruptive technology, and that new forms of money continuously up-end old systems in an ongoing mon-etary evolution that triggers economic, social and political evolution in a feedback loop.

                 Plutophytes 

Over the past 5,000 years, money has profoundly altered humanity and our relationships with each other and with the rest of the planet. It is arguably the defining technology of Homo sapiens. We have co-evolved with money: we have shaped money, but money has also shaped us. Anthropologists often refer to humans as a ‘pyrophyte’ species, one that is shaped by fire.4 The thread linking the observations in this book is that in the course of the last five millennia we have become – and apologies to the linguistic purists as I made this word up – a plutophyte species, meaning a species that has adapted to and been adapted by money. For 400,000 years, the technology that most influenced human development was fire; the contention of this book is that the crucial technology shaping humanity in the last 5,000 years has been money. We were a pyrophyte species but we have gradually become a plutophyte species. This book is about the relationship between a curious ape and a wondrous technology.

The central property of money – that of representing universal value, understood and accepted by everyone – is one of the foundation stones of organised societies today. Money has proved to be one of the most seductive and enduring ideas of the past five millennia. Over time, all other ways of organising complex human societies – whether it be land-based feudal systems, aristocratic hierarchies or communist nirvanas – have ultimately been replaced by societies that are based around money.

 From hunter-gatherer to data       gatherer 

You, dear reader, are about to embark on a romp with an economist who, it’s fair to say, has grown a bit sceptical of his own tribe’s ability to tell the story of money. We will look at many of the cultures that played a role in the development of money and observe how each one innovated with it. We will see that proficiency with money coincided with other innovative breakthroughs such as writing, numeracy, law, democracy and philosophy. This co-evolution prompts the question: was money the reason for other developments or did these other developments lead to the evolution of money? What was the chicken and what was the egg?

We will see that each breakthrough in the application of money – such as the rate of interest, the introduction of coins, or the use of balance sheets – led to further innovations, one development acting as a launchpad for another. The stories in each chapter are necessarily selective, focusing on innovations in money that I believe help to explain the link between money and human progress, one following from the other and each nudging forward the story of civilisation. This is a book written in Dublin by a white, almost pink, Irishman. If it were written by somebody else, somewhere else, the stories would be different and equally valid. I hope you will find the stories I have chosen as lively and interesting to read as I found them to write.

                                 PART  1

               ANCIENT MONEY

          1 MONEY IN THE BEGINNING 

                 A Stone Age blockchain?

 in the Royal Belgian Institute of Natural Sciences in Brussels lies the Ishango Bone, which dates back to around 18,000 BCE. It was discovered on the banks of the Congo in 1950, roughly a century after European colonists first became excited about the commercial possibilities opened up by the then largely uncharted river. Running through Central Africa, the Congo River was and still is the life blood of the region. It has acted as a trading superhighway for millennia.

To get over this, could our African ancestors have developed a rudimentary form of trade for which they needed accounting? As the human story begins in Africa, it should not surprise us if the story of money begins there too. Amid the conjecture, what we do know is that these Africans were counting. The Ishango Bone is an extremely early recording technology, and if these ancestors were counting in order to trade, it was human beings who were likely to have been the base currency. Slavery was money’s original sin.

                         Eve’s kitchen

 Archaeologists, anthropologists, biologists and ancient historians have emphasised how much of our domestication as a species was dependent on fire. James C. Scott, the American anthropologist, goes further, calling us a fire-adjusted or ‘pyrophyte’ species.2 Our bodies changed as we adjusted to fire, our environment was changed by fire, and the animals we hunted and lived with were also altered by fire. Although still nomadic, the range of our hunting and gathering became tighter as we used fire to ensure that more and more nutrients were available with ever less effort.3

The evolutionary impact of fire is hard to overstate. Fire meant we could cook. Food is energy, and increasing the variety of food you can eat means more energy. Before fire, humans had subsisted on raw animal and vegetable matter. Fire gave us a diet that was much easier to digest: cooking does much of the chewing and digestion for us, delivering more calories with less effort. Cooking also took on a social dimension as eating around the hearth anchored the tribe. We can visualise our ancestors gathering around the fire, cooking, chewing, chatting, warming themselves, flirting, exchanging gossip, gazing at the stars, imagining the universe and telling stories.

                Population explosion 

Around 12,000 to 9000 BCE, farming emerged in the Fertile Crescent, Central America and China.5 There is no evidence that these peoples learned from each other; each civilisation must have figured out farming in response to some greater elementary force. That greater force was global warming.

As the temperature rose and the ice caps melted, we experienced a sudden profusion of life. The world got warmer and wetter, and people started to live around places where they could make food grow most intensively. This didn’t happen overnight; it probably took thousands of years, with hunter-gatherers foraging and hunting, while doing a little side-hustle in farming. Part-time farming was likely the norm for millennia, until we got better at it. Remember, the name of the game is energy. How much energy can we derive from farming, how intensively can we cultivate this energy and how stable can we make this source of energy? Bit by bit, grains became a more stable source of energy.

Demographers of the ancient world put the planet’s human population at around 4 million in 10,000 BCE. Five thousand years later, that population had only increased to 5 million, the growth slowed by devastating pandemics. The nomadic immune system, which the farmer inherited, was unprepared. It took many generations of evolution to build immunity.

             Coping mechanisms 

As we settled, our communities became larger and more complicated, yet some of our hunter-gatherer traits stayed with us. One such trait is what anthropologists call social capacity. British anthropologist Robin Dunbar, when trying to understand why various primates had differently sized brains, wondered whether the size of the primate’s social group correlated with its brain size.6 It turns out brain size does correlate with group size: 

the neocortex, the part of our brain that deals with complex thinking and reasoning, grows in primates relative to the number of fellow primates they are likely to live with. Brains evolve to handle the number of social contacts we are going to have. Humans, foraging for the vast majority of our existence in small bands of nomads, have brains that evolved to deal with small groups. The arrival of agriculture and domesticity meant that, quite suddenly in evolutionary terms, over only a few thousand years, we were living in much larger communities. The human brain needed tools – or technologies – to make sense of this new complexity.

For the hunter-gatherers, nature’s challenges of food and shelter were the problems of small groups. The problems of domestication, on the other hand, were the problems of large groups, or what we might call organisational challenges. Health, wealth, distribution, dealing with strangers, trading with outsiders and coping with many people living cheek by jowl – these are complicated conundrums.

Grain had a number of characteristics that changed humans and human organisation profoundly. It could be grown, harvested and then stored, thus generating a surplus of energy that could be doled out over time. We reap what we sow. Crucially, with a grain surplus, the community could construct a system of value based around an easy-to-understand unit of measurement – a quantity of grain. A specific amount of grain corresponded to something else such as a day’s work for a labourer, establishing a relationship between the price of food and the price of everything else.

Grain-based money propelled humankind from a world determined by the natural technology of fire towards one driven by a human technology, money. The Promethean baton was being passed. This would not happen overnight, but the direction of travel was mapped out.

                           2 

          BY THE RIVERS OF BABYLON

 Sleepless nights 

More than 5,000 years ago, in Mesopotamia – the place, according to the Greeks, where Zeus and Prometheus created humans – a man called Kushim took delivery of a batch of barley, most probably to make beer.1 He borrowed it for a specific timeframe: the contract specified that Kushim had two and a half years to pay back the loan. At an annual interest rate of 33.33 per cent, which was normal in Sumerian times, Kushim was on the hook.2 Two and a half years gave him time to brew the beer, sell it, generate revenue and settle his costs, pay back his loan and start again. But obviously things could go wrong. It’s not difficult for us to appreciate Kushim’s financial anxieties. Could he get the beer made in time? Would he be paid? What rate of penal interest might apply if he failed? Given that it wasn’t unusual in ancient times for the borrower himself, or his children, to be collateral, it’s fair to say the stakes were high.

Imagining Kushim’s sleepless nights and his financial troubles makes him feel like one of us. The fact that he was being charged interest also implies that money had, by this time, evolved to such an extent that – even though it was something that stood for something else – it had become so valuable as to have its own price, completely divorced from anything real. With debt came the notion of the value of time, and with this came the concept of the price of money: the rate of interest.

               The price of money 

The rate of interest turned money into a commodity itself, which could be traded, lent and borrowed with its own price. The development of the rate of interest was an enormous leap forward because it allowed us to connect our present economic reality to some imagined future scenario. If the interest rate is too low, a lender won’t lend to the future, and the commercial journey of investment in tomorrow stops. But if the rate is too high, a realistic borrower won’t back themselves, and investment will fall. Without investment in tomorrow, there’s no innovation and little progress. The rate of interest allowed people sufficient comfort to lend and sufficient incentive to invest with the borrowed money, so income flowed back and forth between borrowers and lenders. The rate of interest isn’t merely a price; it is also a code, a mini-encyclopaedia of information about the person we are lending to, the chances of success, the risk in the region, the competition in the market, the technological infrastructure, and a whole host of other variables.

The rate of interest was revolutionary: for the first time, a borrower could use income from the future in order to spend in the present. This innovation was essential to getting income flowing and preventing money from being hoarded by those who had it, making it available to those who wanted it, like our hero Kushim. Imagine being able to get your head around the value of time, in a society still coming to terms with understanding natural phenomena like why the sun rises and sets. What the Sumerians lacked in practical understanding of the natural world they made up for with their comprehension and use of abstract thinking.

Hostage to the vagaries of harvest and the rhythm of the natural world, plagued by hunger and disease, Sumerians involved themselves in a high level of mental abstraction about the value of time in an environment where concepts such as risk, reward and probability were everyday concerns. In terms of money, our ancestors were surprisingly modern. For example, Sumerians deployed not just simple interest but compound interest, whereby the amount of money owed grows exponentially over time.3 Is it any wonder Kushim was worried?

         Weights, writing and money 

Kushim’s barley racket is interesting enough in itself. But Kushim has another distinction: his is the first recorded name in human history. The first person whose name we know and whose life we can speculate about was not some powerful king or a wise man with a direct line to the gods. He was a run-of-the-mill hustler, our friend Kushim. In a document written in cuneiform, which pre-dates the great Sumerian Epic of Gilgamesh by many hundreds of years, Kushim is recorded as running his own home-brew outfit at some point between 3400 and 3000 BCE.

For much of economic history, money was all about weights. People traded all sorts of stuff with each other – barley, oil, cattle, beer – and the amount owed was expressed in a weight. In Mesopotamia, the shekel was established as early as 3000 BCE, and it pertained to a bushel of grain.4 Depending on conditions such as the harvest, the amount of grain in a shekel varied. The value of the shekel – which means ‘weigh’ in old Hebrew – fluctuated.

• The price of one gur of barley is one shekel of silver. 

• The price of 3 qas of pure oil is one shekel of silver. 

• The price of one sut and 5 qas of sesame oil is one shekel of silver. 

• The price of 6 suts of wool is one shekel of silver. 

• The price of 2 gurs of salt is one shekel of silver. 

• The price of one hal seed is one shekel of silver.7

By the time we hear about Kushim, an entire legal system had built up around property rights. Farming without property rights is tricky, and money allows those property rights to be made liquid and be given a value. Sumerian law was largely commercial, underscoring how central property rights, legal disputes and the legal profession were in society. Cuneiform, early writing, emerged to keep tabs on commerce.

 Writing, laws and money emerged in response to urbanisation and political complexity. Of all these technologies, money was arguably the most beguiling and most useful because it made so many other things possible.

          Money and numbers 

In these ancient Mesopotamian cities, as commerce increased, people needed to know who owed how much and to whom. Ledgers were essential. Someone had to take notes, to ensure the city could follow the debt carousel. The more Sumerians traded, the more fluent they had to be in basic calculations; a trader who can’t add up won’t last long.

The Sumerians developed the number sixty as their base. This choice was a technological innovation because money and trade demanded a number that was divisible by a huge variety of smaller numbers (and 60 is divisible by 30, 20, 15, 12, 10, 6, 5, 4, 3 and 2). For Sumerians, sixty was a magic number. Today, an echo of the ancient Sumerians is seen in the fact we have sixty seconds in a minute and sixty minutes in an hour. The trading bazaar required pragmatism over elegance: if you didn’t grasp basic calculations in a monetised society, the chances of getting ripped off soared. The introduction of money forced people to think numerically.

                                   3 

          FROM CONTRACTS TO COINS 

Was Midas framed? 

Midas was a poor but unusually generous king of a parched land called Phrygia, through which flowed the River Pactolus. A great man for taking in strangers, Midas, despite his straitened circumstances, opened his door to visitors. One stranger who ended up at his table was Silenus, the foster father of Dionysus, the god of good times, late nights and general debauchery. As was his way, Midas laid out the red carpet for the stranger, offering him all that he had from his meagre supplies. Impressed by this spontaneous generosity, Silenus, himself fond of a jar, recounted to Dionysus the story of this poor yet charitable king. In recognition of his no-questions-asked hospitality, Dionysus granted Midas one wish.1

A jovial god of forgiving disposition, Dionysus took pity on Midas, remembering his earlier humility and generosity, and told him to bathe in the nearby Pactolus. (The river has long since dried up, but it’s believed that this took place in central Anatolia, close to Mount Tmolus.2) According to legend, as an overjoyed Midas bathed, ridding himself of gold, the river turned a glittering, yellowish colour, flowing with precious metal, thereby allowing Midas to become wealthy without the inconvenience of everything he touched turning to gold. The successors to Midas’ land, the Lydians, were blessed with a gold supply that the legend put down to the munificence of Dionysus.

This chapter is about that transformation. It’s about symbolic money. From accountancy and an era of debts settled every so often, we are going to move into a system that uses coins for day-to-day trading. During this time, society progresses from grain in a warehouse to coins in your pocket. With coins, commerce, money and transactions shift from being centred on one-off clearing events to becoming a part of everyday life.

      Top-down versus bottom-up 

Although we have many variations, there are two main ways of running the economic show. One is ‘top-down’, where the Big Man at the summit commands the economy to behave in a certain way, and controls the process from start to finish, according to an all-encompassing plan. Ancient economies tended towards the ‘top-down’ approach. Power in great civilisations, like Sumer, flowed from an elite class of rulers and warriors, advised by a druid or priest caste. At the bottom, the peasants worked the land, paying rents and tithes upwards. Trade was mandated to a small number of anointed and licensed wholesalers, best thought of as a commercial caste – like Kushim, who we met in the last chapter, in Mesopotamia.

The embryonic Lydian market economy connected more people more efficiently and in a much less rigid fashion than the bureaucratic economies that preceded it, allowing a small empire to out-trade, out-think and outwit its much larger neighbours. From around 700 BCE and culminating with the reign of its king Croesus, which began around 560 BCE, the Lydian Empire flourished, introducing and continuing to innovate with coins: standardising them, creating a centralised mint run by the state, and introducing smaller denominations that brought ever more people into the web, thereby stimulating commerce.

Herodotus describes these profit-oriented, free-wheeling artisans as having the same customs as his own civilised Greeks, except that they did not ‘prostitute their female children’.9 Commerce and coinage appear to have elevated the status of Lydian women, who could trade alongside their male counterparts. In a world where women were rarely more than chattels, Lydian women had the right to refuse a husband and select their own. Without overstating the case (remember these were societies characterised by mass slavery), these early signs of minor female emancipation emblematise the liberating power of money.

                      Money’s magic

 Before the Lydian Empire, the amount of money available in any kingdom was a result of the foundational crops and conquest. With their revolutionary coins, the Lydians broke the link between nature’s seasonal cycles and money, creating an autonomous supply of gold tokens. Breaking the link between money and some agricultural energy-based anchor like grain may have raised some philosophical questions for the Lydians. For example, what actually is money? Can there be useful and wasteful money? Is profit legitimate? Can there be too much money? Whether the Lydians were asking these questions, we just don’t know, but they are questions we still struggle with today and, as we will see, they definitely plagued the great Greek philosophers, inheritors of this wonderful Lydian innovation.

              Standardised money 

Before the introduction of Lydian gold coins, trade was cumbersome and slow. Gold pieces had to be verified by weights and moneychangers. Imagine how much time this took – the palaver of scales, weights and the like. Obviously, between traders there was a complicated system of debits and credits. Millennia before, the Sumerians had introduced interest, putting a price on money and a value on time. The Lydians inherited this system, but they went one better. At first, coins were issued by the king, but before long they were also minted by individual goldsmiths and traders who fashioned their own coins based on weights and purity. As coins came into Sardis from far and wide, Lydian goldsmiths melted them down and restamped them, leading to competing currencies. Different currencies caused friction as traders didn’t immediately know what each coin was worth.

King Croesus (c. 560–c. 546 BCE) oversaw the expansion of the Lydian state from a small mercantile community, hemmed in by the Persians to the east and the Aegean to the west, into the first empire based partly on wealth and commerce rather than exclusively on war and conquest.12 A state monopoly on money created two distinct players in the new monetary economy: there was the ‘issuer’ of money – the state – and the ‘users’ of money – the people. You and I are users of money, not issuers. You might love to be an issuer, and believe me, my children think that I am one, but we are not. We are users. Users try to save, accumulate and, most critically, budget. We can run out of money. We regularly do. We work to get it, exchanging hours of our time for money.

                The law of one price

 Along with business connections, money also enhanced the Lydian gene pool. Unlike top-down economies of the past, people didn’t always have to marry within the tribe. Coin-based dowries allowed strangers to marry each other, have families with members of other tribes and bring more people into contact with each other. Money bled into every area of society: religions accepted money as gifts, art and culture were valued with money, and disputes were settled with money. A person found guilty of a theft no longer had to be stoned to death for retribution. They could simply pay a fine.

The promise of status, gifted by money, is one of life’s habitual motivators. But to acquire status required a new way of thinking and a new skill. You needed to understand money. Rather than telling a story about how the gods had empowered you to lead, you needed to be able to count. Numeracy nudges us towards rationality because numbers demystify the world. A world mediated by money constitutes a great leap forward, a personal, social and intellectual revolution that spawned an entirely new way of organising society, based on money. Coins and basic numeracy mark the very beginnings of a shift that would take centuries, from the celestial to the rational. But if the Lydians kicked off this process, their neighbours the Greeks, masters of logic, took to it with a gusto that had never been seen before.

                           4 

    MONEY AND THE GREEK MIND 

From mythos to logos 

Born 12 miles from Athens into a family of minor Athenian aristocrats during the years of the Peloponnesian War, Xenophon (c. 430–c. 354 BCE) was described by Diogenes as ‘a man of great modesty and as handsome as can be imagined’.1 Unlike richer philosophers, his family’s income relied on the success of farming rather than the wealth from extensive land or slave ownership. Having to earn his monthly crust was probably influential in his thinking. A budget tends to focus the mind, but so too does the responsibility of leading men in battle.

If Anabasis reveals Xenophon the geographer, his other work, Oeconomicus, written with the same attention to detail, unveils Xenophon the economist. Oeconomicus is the first economics book ever written. Our word economics comes from this word, deriving from the ancient Greek words for ‘home’ (oikos) and ‘to manage’ (nemein), and literally translated as ‘household management’.

                          Silver owls 

The Greeks built an immense empire, based in Athens and loosely connected by trade, a common culture and a common currency, the Greek tetradrachm. Unlike the earlier Persian Empire, which had been agriculture-based, relying on grain surpluses, the Athenians, even at the height of Greek culture, couldn’t feed themselves.4 They depended on imported grain. As they rarely sought to conquer vast tracts of agricultural land, the Greeks had to come up with a way to coax others to grow crops for them. Up until Greek civilisation, we don’t see large population increases that were not also sustained by huge agricultural surpluses. Even those fledgling retailers, the Lydians, held a large fertile land mass. Yet between 480 and 450 BCE the population of Athens rose by around 80 per cent, from approximately 30,000 to 54,000.5 How did they do it?

               Power of money 💵