Money History

8/3/2019 Money History

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A brief history of money



Where all begins

1792 - 1750 BC: Money and banking originates in Babylonia out of

the activities of temples and palaces which provided safe places for

the storage of valuables. Initially deposits of grain are accepted and

later other goods including cattle, agricultural implements, and

precious metals.



The Code of Hammurabi includes laws governing banking operations - all

carved in stone!

640 - 630 BC The earliest coins made in Lydia, Asia Minor, consisted of

electrum, a naturally occurring amalgam of gold and silver .



640 - 630 BC: Athens issues bronze and silver coins.

The Athenian public hoards silver coins which, as a result, quickly

disappear from circulation, leaving only the inferior bronze ones

According to Demosthenes 10% is the normal rate of interest for run-of-

the-mill business. For risky business such as lending for shipping rates

of between 20% and 30% are normal.



390 BC The Gauls attack Rome

The cackling of geese in the capitol, where the city's reserves of money

are kept, alerts the defenders. The grateful Romans build a shrine to

Moneta, the goddess of warning, and from Moneta the words money

and mint are derived.



1095-1270: The Crusades

The need to transfer large sums of money to finance the Crusades

provides a stimulus to the re-emergence of banking in western

Europe.



The functions of money

measure of value

medium of exchange

store of value



Money throughout the history of the world

Shells

Live stock

Precious stones

Skulls

Pearls

Wheat

Feathers

BrassSilver

Gold

Paper money



Gold !



Gold as money

widely accepted

divisible easy to measure

easy to carry

non-perishable (although it wears out)

impossible to forge



Macro-economic equilibrium

Requires that the demand for money equals the supply of

money



Demand for monetary gold

is a function of economic needs

an expanding economy needs extra money

the demand for monetary gold competes with the

demand from the industry (i.e., electronics, medicalequipment, space research etc.)



Supply of gold

Is a function of natural resources

Nature doesn¶t care if the PM wants to increase the

money supply



250 AD: Nero debases the gold and silver coinages.Twenty years

later, the silver content of Roman coins has fallen to only 4%



270 AD: Aurelian issues new, nearly pure coins, using

gold from his eastern conquests

He raises the coins¶ nominal value by 2½ times hoping in this

way to stay ahead of inflation.

This "reform" sends inflation soaring.



1542-1551 The Great Debasement

Henry VIII debases the coinage of England as a means of raising

revenue.



1560 Elizabeth I begins the reform of England's debased coinage

Thomas Gresham, after whom Gresham's law ("bad money drives out

good") is named, is an influential adviser.

The debased coins are recalled and melted down and the base and

precious metals separated.



Gold as money: A summary

When debasing of coins is prohibited:

Very little incentive for governments to "fudge" with

the money supply

Gold is even deflationary



Paper money

c. 960- Issues of Chinese paper money start to become regular



Paper money

1659 The earliest British cheque is issued This is an order to the

London goldsmiths Morris and Clayton to pay a Mr Delboe £ 400.

Because notes are accepted as evidence of ability to pay they are

a convenient alternative to handling coins or bullion.



1690 - The Massachusetts Bay Colony issued the first

paper money in the colonies which would later form the

United States.



Paper money

1698 Coins form less than half the English money supply

Davenant, a contemporary writer, estimates that the total value of coins

in circulation is less than that of tallies, bills, banknotes etc. Increasingly

the power of money creation is passing from the King, in charge of themint, to the London money market and provincial banks. Political and

constitutional power is also affected by this transfer of financial power.

1704 Promissory Notes Act

This confirms the legality in England of goldsmith's notes as negotiable,

i.e. payable to the bearer rather than to a named person.



Paper money

1832 Capital punishment for forging banknotes abolished in Britain

The maximum penalty for forgery is reduced from death to

transportation for life (e.g. exile to Australia).

1848 Bank of France is given a nationwide monopoly of note

issues

The national bank is given a monopoly of note issuing to fill the gap

left by the failure of numerous local banks. The Bank of France alsobegins to develop a large network of branches in different parts of

the country.



Paper money

was initially a claim on gold

has no natural (intrinsic value), hence acceptance is

backed by guarantees from a central authority

during tumultuous economic periods, drove gold outof circulation

Money History

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