Cut the clutter - The Ascent of Money
-Based on the book by Niall Ferguson
According to Friedrich
Engels and Karl Marx, money was merely an instrument of capitalist exploitation.
I, personally, would not disagree with them too much. Such notions, of a world
without money, existed amongst the European communists as recently as till the 1970s. Yet no communist state, not even North Korea has found practical to
dispense money.
History of Money
Members of Nukak-Maku unexpectedly wandered out of the Amazonian rainforest in Columbia. These tribes were cut off from the settlements, had no concept of money or future. After their emergence, now they live in the clearance outside San Jose de Guaviare. After lifetimes of trudging all day in search of food, they are amazed that perfect strangers now give them all they need and ask nothing from them in return. However, the later tribes lived moneyless since they consumed as and when they found it. Even sophisticated societies like the Inca empire lived without money. Labour was their chief unit of money, as it was supposed to be in the communist society.
Money is a medium of exchange, which has the advantage of eliminating the inefficiencies of barter; a unit of account, which facilitates valuation and calculation; and a store of value, which allows economic transactions to be conducted over long periods as well as geographical distances. To fulfil all these functions, money had to be available, affordable, durable, fungible and portable. The metals such as gold (aureus), silver (denarius) and bronze (sestertius) satisfied all these conditions and so for millennia were regarded as the ideal monetary raw material.
Members of Nukak-Maku unexpectedly wandered out of the Amazonian rainforest in Columbia. These tribes were cut off from the settlements, had no concept of money or future. After their emergence, now they live in the clearance outside San Jose de Guaviare. After lifetimes of trudging all day in search of food, they are amazed that perfect strangers now give them all they need and ask nothing from them in return. However, the later tribes lived moneyless since they consumed as and when they found it. Even sophisticated societies like the Inca empire lived without money. Labour was their chief unit of money, as it was supposed to be in the communist society.
Money is a medium of exchange, which has the advantage of eliminating the inefficiencies of barter; a unit of account, which facilitates valuation and calculation; and a store of value, which allows economic transactions to be conducted over long periods as well as geographical distances. To fulfil all these functions, money had to be available, affordable, durable, fungible and portable. The metals such as gold (aureus), silver (denarius) and bronze (sestertius) satisfied all these conditions and so for millennia were regarded as the ideal monetary raw material.
The earliest known coins date back as long ago as 600 BC and were found by archaeologists in the Temple of Artemis at Ephesus (near Izmir in modern-day Turkey) and were made up of gold-silver alloy known as electrum. Athenian tetradrachm (equivalent to four drachmae; drachmae was the currency used in Greece for a long time), which circulated from 510-28 BC was made up of silver with the head of goddess Athena on one side and an owl on the obverse. It was not until 221BC that a standardized bronze coin was introduced to China. By Roman times (27BC - 1473), the coins were produced in three different metals: gold, silver and bronze. The Roman system of coinage outlived the Roman Empire. By the time Charlemagne (king of franks from 768-814) was crowned Imperator Augustus in 800, there was a chronic shortage of silver in Western Europe. The demand for money (denarius- the standardized roman coin) was greater in the much-developed commercial centres of the Islamic Empire that dominated the southern Mediterranean and the Near East, so the metal tended to drain away from backward Europe. In some parts of Europe, peppers and squirrel skins served as substitutes for currency. To deal with the shortage of money, the Europeans started to export labour and goods in exchange for silver in Baghdad or for African gold in Cordoba and Cairo. Or they could make war on the Muslim world, but it was an expensive affair. To compound their monetary difficulties, the medieval and early modern governments failed to find a solution to what economists have called the big problem of small change: the difficulty of establishing stable relationships between coins made of different kinds of metal, which meant that smaller denomination coins were subject to recurrent shortages.
Francisco Pizarro (1496-1541) crossed
Atlantic to seek his fortune in 1502. He led the first three expeditions into
Peru in 1524. Present-day Spain consisted of the union of two kingdoms, Aragon
and Castile, and Pizarro returned to Spain to obtain the approval to extend the
kingdom of Castile by carrying the royal force to Peru. The sail was set in
December 1530 and after two years they conquered the Incan empire. With the
fall of city Cuzco, the empire weakened and formally disproved in 1563 as they
set the new capital of Lima. The empire was formally dissolved in 1572.
Conquistadors found mountains in present-day bolivia - Cerro Rico, literally the "rich hill", made of solid silver ore. The Incas, however, did not understand Europeans lust for gold and silver. Spaniards, on the other hand, started digging out the metal. Thus, Potosi became the new silver rush city. Between 1556 and 1783, the "rich hill" yielded 45,000 tons of pure silver which were transformed into bars and coins and shipped to Seville.
At Potosi and the other places in the New World where they found plentiful silver, the Spanish conquistadors dug it back to Spain. The way then the money was spent ensured that Spain's newfound wealth provided the entire continent with a monetary stimulus. The Spanish piece of eight (later the dollar) became the world's first truly global currency, financing not only Spanish wars but also rapidly expanding trade of Europe with Asia.
And yet all the silver of the New World could not save Spain's economic and imperial decline. They later found that an abundance of precious metal could be as much a curse as a blessing. This was because they dug up so much silver to pay for their wars of conquest that the metal itself dramatically declined in value. During the so-called price revolution, which affected all of Europe from the 1540s until the 1640s, the cost of food rose significantly. Spaniards had not realized that money is worth what somewhat else is willing to give you for it. Money is a matter of belief, even faith: belief in the person paying us. Money is not metal, it is trust inscribed.
One well preserved token, from the town of Sippar (in modern-day Iraq) dates from the reign of King Ammi-ditana (1683-1647) and states that its bearer should receive a specific amount of barley at harvest time. The similar concept is used in modern-day banknotes which imprints "I promise to pay the bearer on demand the sum of..."
Banknotes were originated in the 7th century China, are pieces of paper which have next to no intrinsic worth. They are also similar to the clay tablets of ancient Babylon 4 millennia ago, promises to pay. Today, despite the fact that the purchasing power of the dollar ahs declined appreciably over the past 50 years, we remain content with the paper money. Not only that, today's money is dominated by "virtual money" that we even cannot see. Cash in the hand of ordinary Americans accounts for just 11% of the monetary measure known as M2.
History of Banking
In ancient Mesopotamia, beginning around 5000 years ago, people used clay tokens to record transactions involving agricultural produce like barley or wool, or metals such as silver. The clay tablets of this period also recorded the details about the repayments on commodities that had been loaned. Under Babylonians, the debt was a bit more complex, the debt was transferrable. Borrowers were also expected to pay interest. Mathematical exercises from the reign of Hammurabi (1792-1750 BC) suggest the existence of compound interest. The underlying foundation on which all of this rested was the credibility of the borrower to repay (thus credit has its root as credo, the Latin for "I believe"). The credit in those times was simply the advances, unlike, the modern ways of credit creation.
The 13th-century Italian town of Pisa suffered from the problem of Roman numerical calculation when they had to deal with seven different forms of coinage. By contrast, the economy of the eastern world (Abassid Caliphate or Sung China) was far more advanced. To discover modern finance, Europe needed to import it and this is where comes the role of a young mathematician called Leonardo of Pisa, or Fibonacci. Fibonacci immersed himself in what called the "Indian method" of mathematics, which later revolutionized the European world. Thus, Pisa and Florence became the commercial centres of Italy. But it was Venice that actually became the lending laboratory for Europe.
Because of the risks associated with lending to a merchant, who's ships were scattered across the globe, the lender needed compensation called the interest. The Merchant of Venice by Shakespeare describes this as well. The credit business was mostly done by Jews, who sat in front of the building once known as the Banco Rosso, sitting behind their tables, and on their benches, banci. The Banco Rosso was secluded, in a cramped ghetto because for Christians, lending money at interest was a sin. Usurer (people who lent money at high-interest rates) were excommunicated. In Florence's Duomo, according to Dante, there was a part of the seventh hell be reserved for usurers.
The loan sharks have a reason to be like Shylock. Despite this people still, approach such loan sharks because of lack of financial institution who would extend a loan to an unemployed or with low credit score etc. But the business of a moneylender is not easy as well. The fundamental difficulty is that their business is too small scale and risky to allow low-interest rates. And with the high-interest rates the defaults are so much more likely that only intimidation ensures people keep paying, in which case, the moneylender becomes a criminal! The moneylenders learn to overcome this fundamental conflict by growing big and powerful.
One well preserved token, from the town of Sippar (in modern-day Iraq) dates from the reign of King Ammi-ditana (1683-1647) and states that its bearer should receive a specific amount of barley at harvest time. The similar concept is used in modern-day banknotes which imprints "I promise to pay the bearer on demand the sum of..."
Banknotes were originated in the 7th century China, are pieces of paper which have next to no intrinsic worth. They are also similar to the clay tablets of ancient Babylon 4 millennia ago, promises to pay. Today, despite the fact that the purchasing power of the dollar ahs declined appreciably over the past 50 years, we remain content with the paper money. Not only that, today's money is dominated by "virtual money" that we even cannot see. Cash in the hand of ordinary Americans accounts for just 11% of the monetary measure known as M2.
History of Banking
In ancient Mesopotamia, beginning around 5000 years ago, people used clay tokens to record transactions involving agricultural produce like barley or wool, or metals such as silver. The clay tablets of this period also recorded the details about the repayments on commodities that had been loaned. Under Babylonians, the debt was a bit more complex, the debt was transferrable. Borrowers were also expected to pay interest. Mathematical exercises from the reign of Hammurabi (1792-1750 BC) suggest the existence of compound interest. The underlying foundation on which all of this rested was the credibility of the borrower to repay (thus credit has its root as credo, the Latin for "I believe"). The credit in those times was simply the advances, unlike, the modern ways of credit creation.
The 13th-century Italian town of Pisa suffered from the problem of Roman numerical calculation when they had to deal with seven different forms of coinage. By contrast, the economy of the eastern world (Abassid Caliphate or Sung China) was far more advanced. To discover modern finance, Europe needed to import it and this is where comes the role of a young mathematician called Leonardo of Pisa, or Fibonacci. Fibonacci immersed himself in what called the "Indian method" of mathematics, which later revolutionized the European world. Thus, Pisa and Florence became the commercial centres of Italy. But it was Venice that actually became the lending laboratory for Europe.
Because of the risks associated with lending to a merchant, who's ships were scattered across the globe, the lender needed compensation called the interest. The Merchant of Venice by Shakespeare describes this as well. The credit business was mostly done by Jews, who sat in front of the building once known as the Banco Rosso, sitting behind their tables, and on their benches, banci. The Banco Rosso was secluded, in a cramped ghetto because for Christians, lending money at interest was a sin. Usurer (people who lent money at high-interest rates) were excommunicated. In Florence's Duomo, according to Dante, there was a part of the seventh hell be reserved for usurers.
The loan sharks have a reason to be like Shylock. Despite this people still, approach such loan sharks because of lack of financial institution who would extend a loan to an unemployed or with low credit score etc. But the business of a moneylender is not easy as well. The fundamental difficulty is that their business is too small scale and risky to allow low-interest rates. And with the high-interest rates the defaults are so much more likely that only intimidation ensures people keep paying, in which case, the moneylender becomes a criminal! The moneylenders learn to overcome this fundamental conflict by growing big and powerful.
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