UNESCO_Courrier - Fortunes of Money (1990)

7/27/2019 UNESCO_Courrier - Fortunes of Money (1990)

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THE FORTUNES OF NONEY


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encounters We invite readers to send us photographs to be consideredfor publication in this feature. Your photo should show

a painting, a sculpture, piece of architecture or any othersubject which seems to be an example of cross-fertilizationbetween cultures. Alternatively, you could send us picturesof two works from different cultural backgrounds in which

you see some striking connection or resemblance.Please add a short caption to all photographs.

The Messenger1980, monotype in oils (40 x 35 cm)by Delia Nimo

Delia Nimo is an Argentine artist whose works have beendescribed by French critic Michel Conil-Lacoste as "X-rays ofliving humanity, clinging to its destiny". Her quest foruniversality in art grows directly from the roots of her ownexperience. She has said that her underlying theme is always"humankind at odds with the world."


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JANUARY 1990 N N

Today there are no moreunexplored continents,unknown seas or mysteriousislands. But while w e canovercome the physicalbarriers to exploration, thebarriers of mutual ignorancebetween different peoplesand cultures have in manycases still no t beendismant led.

A modern Ulysses canvoyage to the ends of theearth. Bu t a dif ferent kindof Odyssey now beckonsanexploration of the world'smany cultural landscapes, theways of life of its differentpeoples and their outlook onthe world in which they live.It is such an Odyssey thatthe Unesco Courier proposesto you, its readers. Eachmonth con tr ibu to rs o fdifferent nationalities providef rom di ff e ren t cultural andprofessional standpoints anauthor ita tive treatment of atheme of universal interest.The compass guiding thisjourney through the world'scultural landscapes is respectfor the dignity of maneverywhere.

9THE FORTUNESOF MONEY

UNCOMMON CO INby Jean-Michd Servet

WHEN COCOA WAS USED AS CURRENCYby Piedad Pniche Rivera 16

MOLLUSC MONEYby A. Flix Iroko 21

DINARS CLUBby Grard Krebs 26

WHEELERS AND DEALERSOF RENAISSANCE EUROPEby Lucien Gillard 32

THE RISE OF TH E GREENBACKby Jan Kregel 17

PROBLEMS AND PARADOXES OF MONEYby Ghislain Deleplace 41

The French economist Marie-Thrse Boyer-Xambeu,professor of economics at the University of Paris VII,

was special consultant for this issue.

4Interview withSEMBENE OUSMANEPoet of the African cinema

45IN BRIEF..

46lo REFLECTIONS

The struggle of dayand nightby Abdol-Hosseyn ZarrinkoubCarnival in Luandaby Domingos Van-Dunem

49MEMORIALA Museum fo r Peaceby Howard Brabyn

50LETTERSTO THE EDITOR

Cover: A miscellany of moneyfrom the collection of theMuseum of t he Par is Mint .Back cover: Money to burn? InSingapore bundles of imitationbanknotes are set ablaze aspropitiatory offerings at funeralsand at Ne w Year.


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Sembne OusmanePoet of the African cinema

Sembne Ousmane is one of Africa'smost notable writers and film-makers.His Borom Saret (1963) was the firstfilm made by an African on a fictionalsubject to be distributed outside Africa.His films an d novels examine the manyfaces of a continent emerging from thecolonial era, at grips with the tensionsof independence an d modernization.

What does it mean to be a film-maker in Africa these days?What are the hopes, diff iculties and challenges?

Whether they are making films fo r the cinema or fortelevision, African film-makers work with images and theyare heirs to the very old but still living tradition of oral storytelling. Images can be considered as a development of theoral tradition insofar as they are addressed to a vast numberof people who, in the ThirdWorld in general and especiallyin Africa, are unable or in some cases do not even have thetime to read. The image is really a short cut.

Let me give you an example. I like to organize travelling picture shows. I go to a village and show a film, andthen we have a discussion about it. As a result of what theaudience has seen, heard and remembered, I find out howuseful I am as the creator of the film. Once the lights goon again, people start to discuss the film. In spite of politicaldifferences and religious divisions, everyone's point of viewis represented, and that's important.

Then I ask them wh y they need artists. I have pu t thisquestion to university teachers and to students in their finalyear of secondary school. The answer seems to be that someof our intellectuals, especially those wh o are politically committed, expect artists to make proposals, to offer solutionsand even, I might add, speaking i ronical ly, to make a revolution for them by proxy. To hear them, you would thinkthat art was meant to provide an answer to all their worries.

Art rather than politics?But art does play a role in politics. Not politics in the

sense of scoring cheap political points, obviously. Peopleare immersed in art and culture from the cradle to the grave.In the African tradition, cinema is something which relatesto human beings in their entirety.Has African cinema developed only recently, with theemergence ofAfrican film-makers, or does it date back tocolonial times?In colonial times, the c inema was a form of entertain

ment fo r foreigners. The black African world was only seenas part of a banana plantation or a coconut grove, or throughstock characters o f loya l houseboys and servants. Now,however, African film-makers are raising real issues.They may not always raise them successfully, but they areraising them nevertheless. People are thus slowly startingto identify with their history and the cinema is becomingsomething real.Would you go so far as to say that the cinema is now themost powerful form of artistic expression in Africa?

Absolutely! African cinema is a form of self-communion.There are many things that we have no t been taught andare in danger of losing: with the c inema, we can safeguardthem and people can see them.Would you say the same of television programmes, whichmay have been produced in another African country oreven on another continent?If a football match is being televised, then people watchtelevision. Otherwise, they go to the cinema! Some serialshave been relatively successful, but the constant cliff-hangingbecomes boring in the long run. In the ten years since wehave had television in Senegal, we have seen Dallas, Dynasty,Shaka....

Do serials like Dallas appeal to the general public?Of course! They represent success and the "American way

of life". They are full of beaut ifu l women in beaut ifu lsettings, full of everything we hate yet dream about. It isdifficult to analyse their attraction in logical terms. Theyhave an immoral side, but morality no longer comes beforeindividual success. In colonial times, the land was occupied,


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but people's minds were free. Even though my relativesmy uncles, for examplemay have been civil servants andmay have worn topees or ties, they returned to the ir ow nculture and their ow n world when they came home to theirfamilies. They still had something to say to their wives andchildren and their neighbours. But television takes possessionof people's minds. Another culture, a completely differentview of things, is brought into the hom e. The modelof society handed down by ou r ancestors is smashedand is replaced by another. That is where the danger oftelevision lies.

Do you think it is completely destructive?Yes, completely, because African society is not bringing

forth a fresh culture to contend with this challenge. We aremore familiar with European fairy tales than with ou r owntraditional stories. There are no traditional story-tellers leftin the towns. Our children go to school and are taught ina foreign language. When they come out of school, they gooff and watch foreign stories with their parents.Bu t a society cannot turn backwards. So what shouldbe done?

The audiences at my travelling picture shows ask me thesame labyrinthine question. In the first place, we must allknow what we want. Naturally, we are all in favour ofindividual freedom, but where do we want to go with thatfreedom and what do we want to do with it? What do youdo with freedom when you have countries that cannoteducate three-quarters of their children, where unemployment is rife, where there is no work, and calamities pourdown on you? Birth is always attended by pain. I was notpresent at the Creation, but when Allah created the world,there must surely have been what we now call a "Big Bang".There must have been an explosion, because nothing canbe accomplished without an explosion. Life is reborn ofdeath. You sow seeds and they decompose; a crack opensup in the earth and they sprout. There is no alternative.For the people, being free means having the right to workand to speak out. We all have to wage our own struggle andto pay for it accordingly.And what do the people say?

They expect somebody to speak out on their behalf. Youknow, black Africa's heritage is a heavy burden. No soonerhad we started to form embryonic states, which were farfrom perfect, than we had to contend with the slave tradein which, incidentally, some Africans took part. For fou ror five centuries, some African chiefs were accessories tothis monstrous trade. After that came colonization, whichis perhaps the worst thing that ever happened to us . Thecolonialists trained some people, but only to occupy subordinate positions, no t to govern themselves. The colonialmaster's presence had become necessary. In the end wefought fo r independence, but we did no t know what it wasor even wh o we were. We had a common territory but


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different cultures. Within each geographical boundary a hostof cultures existed side by side. We are no w creating a freshculture, but it is based on a language which is not our own .That is even more serious.

Is this when art is ts should make their voices heard?Yes. This is where they come into their own. People listen

to them and expect them to speak out. Historically, no othercreative artists have ever carried as much responsibility asnovelists and film-makers. This takes us to the ancientAfrican tradition of the "griot". Everybody knows thatgriots are crazy. Every village has its "simpleton" who daresto say out loud what other people only whisper in thesolitude of their huts. We laugh at him, but we acknowledgethat he is right.There used to be griots; now there are artists, film-makers.Could this handing down of symbols not be a reason forhope? After all, perfect democracy can hardly be expectedto emerge from chaos at a single stroke....In democracy it is up to the people, not the artist, to speakout. In the past, power was wielded by the elders and bywise men. Nowadays the pattern has been reversed. Theelders are no longer the fount of knowledge and no onelistens to them any more. What radio, television and thenewspapers say does no t originate with them. Society isbeing torn apart and people are going crazy as a result. WhatI say is that the only w ay to be happy here is to go crazy.The countries of the Third World face many challenges.Are you one ofthose who consider that these challenges comeprimarilyfrom outside, or do you think that they emanatefrom within the society itself?Outside the continent we have adversaries and we have

allies. I would say that Afr ica's real enemiesits longstanding enemiesare within. If we are to move forward,therefore, we must sort out our own problems and rely principally on ourselves. Basically, we have three priorities: wehave to apply o ur o wn remedies, however l im ited , to ourown problems; we have to develop education; and we haveto provide work for the people.What about freedom of speech?

Speech is a duty in Africa. Every head of a family isexpected to attend village meetings"palavers"to representhis clan or his household. Moreover, he has to speak, if hedoes no t want to be thought of as a coward. But he alsohas to listen. There is a very fine tradition in the "palaver":when a man ha s finished speaking, the oldest memberof the group says "W e have heard what you have said andunderstood what you have no t said". Naturally, nowadays,in a democracy the scale is different. Every citizen hasto express his or her views. The issues are no longer thesame, but the tradition of the "palaver" could perhapsopen up paths and suggest new ways in which people couldorganize themselves.


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TLhHE need for a form of money to serve as a medium of exchangearo se a t a very early stage in history, and ever since then an astonishingrange of objects has been used for the purpose at different times andplaces feathers, shells, cocoa beans, silver, gold, and paper notes, to namebut a few. As t ime went by, the functions of money diversified. A mediumof payment for goods and services, a standard of value and a store ofpurchasing power, it eventually became a convention reflecting people'sconfidence in society.

The subject of money is full of mystery and paradox. It creates, as LucienGillard points out in this issue, "a coherent area within which people havea common yardstick with which to assess their credits and debts". Withinthis area its use gives rise to inequalities. It is a measure of wealth and, bythe same token, of poverty. It became an attribute of state power, but also,through fraud, a means whereby the power of the state was contested.Although a currency is legal tender within fixed boundaries, it is linked byexchange rates to other currency areas and international markets.

Italian bankers in the14th century, fresco by theFlorentine artistNiccolo d i Pietro Gerini,139S.

Often attacked by moralists and rejected by Utopians, sometimes relegatedto a secondary role even by economists but omnipresent in our daily lives,money has contributed, by facilitating trade and boosting economic activity,to certain decisive steps in the history of civilization. In this issue we evokesome milestones in monetary history in the hope that they will help tothrow some light on the role of money in the world today.


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Uncommon coinA variety of unusual objects have beenused since ancient times to finance tradeand cement political and social life

BY JEAN-MICHEL SERVET

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I ECKLACES or bracelets of shells, pearls, teeth,bones or feathers, fragments of stone or metal,pottery, pieces of cloth, and other unlikelyobjects are labelled as "primitive money" inmany museum collections and ethnographical orarchaeological publications.

Other apparently similar objects aredescribed as ornaments or jewellery, althoughthere is no evidence to prove that they were usedfor display rather than as money. Their degreeof preservation, which suggests that they werehighly valued by their owners, together withphysical characteristics indicating a non-utilitarianpurpose, may have led archaeologists and studentsof prehistory to attribute a purely decorativefunct ion to these treasures which in fact were alsoused as money.

Money in ancient civilizationsOver 2,000 years ago, Aristotle observed thatbefore coins were used people gave things thatthey possessed in abundance in exchange forthings they lacked. This practice was known asmetadosis. Ethnologists have described how veryancient yet strongly hierarchical societies usedcomplex exchange systems such as the kula of thewestern Pacific, the hilaba and the malaki ofcentral Africa and the potlatcb of the northwestcoast o f North America.

Money, like relationships involving hierarchyand domination, is thus no t a modern invention.It was a feature of even more ancient civilizationsthan those of the Mediterranean basin, of theNear or the Far East, or o f Central America. Thecirculation of precious objects within and


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Far left: shaped in the formof a throwing knife, this ironobject from the CentralAfrican Republic was onceused as money. Left,wampum, shell beads wovenwith strips of hide intostrings or belts which theNor th Amer ican Indiansused in their dealings withwhi te t raders in the 17th an d18th centuries. Below, objectsused in the Solomon Islandsfo r making shell money.

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between these communities seems to have beenuniversal, and in a sense to foreshadow the functions of money as a medium of exchange and asa u nit o f account.

But in such ancient societies these basic functions had not yet become purely economic. Theywere an emanation of kinship systems and political alliances, beliefs and cults, which influencedthe supply of labour, organized production andjustified the distribution of wealth.

Money, or in this case "palaeomoney", wasthe active instrument of social life. It was usedat times of birth, marriage and mourning, todeclare war and make peace, as compensation forphysical or moral wrongs, and as a means ofpropitiating the gods of fertility and death. Onthe other hand, it was not yet used to pay debtsor wages or to buy goods.

The scarcity and lack of intrinsic usefulnesswhich characterize palaeomoney are typical ofsome modern forms of money. Palaeomoney alsoanticipated the economic and political nature ofmodern currencies, on the one hand by settinga value on different activities and material goodsand thus foreshadowing today's standardizedmethods of payment, on the other by reflectingand reinforcing the hierarchical power relationsbetween individuals and groups.

Bet ter than barterThe exchange systems of these ancient communities were thus much more complex than thatof a simple barter economy.

From very early times, commodities circulated over great distances. Specimens of durablematerials such as amber and obsidian have beenfound hundreds of kilometres from their placeof origin, distances as great as that from southernAustralia to the northern coasts of New Guinea,and from the Black Sea to Poland and theRhineland. As early as the Upper PalaeolithicPeriod (35,000-10,000 years ago), Cro-Magnonman in the Dordogne area of southern France wa s

Above, Melanesian feathermoney consisting of a fibrerope decorated with redfeathers and fragments ofshell. Right, a bundle of ironspikes which was used asmoney in t he Congo (late19th century).


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using shells brought from the Atlantic ocean, 200kilometres away.

At a later stage different societies came tospecialize in the production of a particular itemfor exchange and as a means of payment forproduce acquired from other groups. Examplesof such commodities are stone axes, bars of salt,pottery and bark cloaks. Later still, groupsspecializing in trade emerged within these societies and travelled tens or even hundreds ofkilometres in the course of their activities.

This is far removed from a barter economy,where goods are exchanged directly, without anyintermediate transaction. However, the development of an objective system for measuring valuewas still limited. The price of the goods exchanged was primarily the expression of a socialrelationship between individuals and communities. The marketplace was not yet the drivingforce behind monetary development.

The first coinsThe use of money grew rapidly with the development of states, which managed the surplus wealthcreated by the exploitation of slaves, serfs orpeasants, by long-distance trade or the despoliation of neighbouring peoples. Tributes and taxesbegan to be evaluated and methods of paymentfor trade in markets and ports began to be standardized.

Among the wide range of commodities whichserved as money in ancient societiesthe piecesof cloth and cocoa beans of the Maya and Aztecempires, the cowrie shells and gold of the WestAfrican kingdoms, the bean-shaped ingots of theGreek cities, the iron bars of the Hittites, thebarley and wheat of Mesopotamia, the wheat andcopper of Egypt, the millet and silks of China-coins are of particular interest because their usehas continued to the present day.At first, coins were only one form of metalcurrency. Before coins circulated in China, andeven after they were introduced in the late fourth

Pecuniary portraitsFrom top to bottom: warriorwith two oxen, Macedonianoctadrachm (early 6thcentury BC); silver staterfrom the Mcnde wine-producing region ofMacedonia (5th century BC) ;horse (obverse) and palm tree(reverse), silver tetradrachmfrom Carthage (4th centuryBC); nymph's bead anddolphins (obverse) and four-horse chariot (reverse),decadrachm from Syracuse(c. 400 BC); rams' heads anddolphins, silver stater fromthe Creek city of Pbocis(c. 479-470 BC). 13


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century BC, small-scale replicas of spades andknives were used as money. The first coins werestruck in the seventh century BC in Asia Minorand in Greece, where some cities were still usingbean-shaped ingots. Small silver ingots punchedwith a variety of motifs were used as currencyin India from the same period until coins wereintroduced there in the fourth century BC.

The influence of GreeceThe cities of ancient Greece played a crucial rolein the history of coinage. For centuries the Greeknumismatic tradition wa s widely propagated,either directly or through a complex networkof influences. In the wake of the conquests ofAlexander the Great, whose troops seized precious metal from the treasuries o f Near-Easternpotentates and turned it into coinage, Greek coinswere widely distr ibuted in the Mediterraneancountries.

The Romans, who initially used bronze ingots like those of the Etruscans, minted their firstcoins in the third century BC under the influenceof the Greek cities of southern Italy. Romancolonization led to the use of coinage to an extentunmatched until the European colonial expansionof the nineteenth and early twentieth centuries.

Beyond the eastern frontiers of the Romanempire, between Khorasan and Mesopotamia,the Sasanian dynasty continued a numismatic

Above, gold di-stateradorned with the head of thegoddess Athena issued during

the reign of Alexander theGreat (336-323 BC).

Right, Roman and Byzantinegold coins.

Opposite page,Greek silver stater depicting

the labyrinth of Knossos,Crete (c. 450 BC).


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tradition that displayed a strong Hellenisticinfluence and had been transmitted by theParthians, whose empire (founded between thethird and the second century BC) stretched at itsheight from the Euphrates to Afghanistan. ThisHellenistic tradition also influenced early Islamiccoins, while the Roman tradition was carried onin Christian Europe.

A similar process occurred in India, whichwas subject to waves of Greek influence bothdirect and indirect, from the arrival of Alexander'stroops and contact with the Roman empire toMuslim and European colonization.

Th e ritual significanceof coins

In all these civilizations, coins were no t immediately seen as a monetary instrument superior toother accepted methods of payment, with whichthey long coexisted. Metal discs, more or less well-stamped, could be used in all kinds of ways.When they changed hands it signified more thanjust a commercial transactionit could symbolizean exchange of gifts or even tribute.

The f irst coins of the Greek c it ies were thusnot issued as a direct response to commercialrequirements. Their value wa s too high to payfor everyday goods in the marketplace. In long-

EAN-MICHEL SERVETis a F r en ch econom i s t with

a special interest in"palaeomoney". He is theauthor of Nomismata : tatet origines de a monnaie

(1984) and Idesconomiques sous laRvolut ion: 1789-1794

(1989), both published byPresses Universitaires de

Lyon, France.

distance transactions, carried out largely by sea,the goods themselves were the means of payment.What then was the original function of thesecoins? At first it seems that they were needed indealings within and between the Greek cities, andabove all they had a political and religiousfunct ion.

This dual role was no t however an obstacleto the use of coins in commerce. The meta l ofwhich they were made had itself been the objectof long-distance transactions since very ancienttimes, when trade had important political andsocial overtones. The flexibility allowed byweighed pieces of metal which could be dividedinto small units, and their distribution in societieswith widely different customs, gradually established them as the preferred method of tradingand of paying taxes in the ancient world.

Coins stamped with the images of gods andrulers kept their essentially political function untilthe Roman era, when they were issued to commemorate public games or military campaigns.The sacrificial and ritual significance of coinspersists even today, as when they are buried inthe foundations of buildings and bridges or flunginto fountains and wells as propitiatory offerings,used symbolically to reinforce marriage contracts,or placed in the mouths or hands of the dead sothat they can pay their way in the next world.

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BY P IEDAD PEN ICHE R IVERO

16 When cocoa was


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Above, the Pyramid of Kukulkan at Chichn Itz, oneof the great cities of the Maya-Toltec civilization, northof Yucatn, Mexico.Right, cacao tree (Theobroma cacao). Far right, cacaofruit cut open to show the seeds (cocoa beans).

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It seems certain, then, that the value of mostof the goods in circulation could be expressed incocoa, but was actually assessed in pieces of clothat constant value. Cocoa was used as moneybecause, unlike the pieces of cloth, it could bedivided up as required.

The ancient Mexicans used cocoa to preparechocolate, a ritual drink consumed exclusively byaristocrats and warriors. Most people only hadthe right to pulque, a fermented drink made fromagave. This prohibition strengthened the powerof the aristocracy, since chocolate was supposedto be the food of the gods and to possess magicalproperties.

Aztec 'chocolate soldiers'Perhaps chocolate was associated with the bloodof human sacrifices, notably when the heart wa storn from victims offered to Quetzalcatl, the"plumed serpent", in the Toltec towns of Yucatnand the Valley of Mexico.

According to Mexican mythology, Quetzalcatl, the "gardener of paradise", taught men howto grow cocoa when he lived at the city of Tula.When he left fo r the coast, he buried the "cur

rency" of that timesea-shells, feathers and precious stones. Cocoa then began to be used as currency instead, and was invested with the magicattributes of the god who had introduced it.

The Aztecs were the last masters of the Valleyof Mexico. Their flourishing empire, which dominated all the peoples which had fought for control of the Valley, owed its prosperity to tributerendered by its thirty-eight provinces, amongwhich Soconusco contributed, according to theCodex Mendoza, 400 of the 980 loads of cocoademanded by the state.

The beans were deposited in "cocoa-houses"and then taken to the centres of imperialpower temples and barracks where it is recorded


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PIEDAD PENICHER IVERO ,

Mexican anthropologist andarchaeologist, is a former

s ta ff member of th eanthropology faculty at theUniversity of Yucatn,

Mrida, Mexico. She is theauthor of numerous

publications on the Mayaand Itz civilizations,

including studies on the useof cocoa beans as wealthand a symbol of power.

that the Aztec s old ie rs c on sumed massiveamounts o f chocolate.

Unlike those of the Aztecs, the Maya politicaland mercantile lites overlapped, so that cocoaentered Maya society through trade not tribute.

The circulation of cocoa beans was duplicatedby the production of an equivalent quantity ofcotton squares. Cocoa beans and cotton squaresserved as standards of value fo r al l kinds of commodities including certain areas of land whichproduced cash crops. Slavery came into beingwhen manpower was levied from among thepeasant communities. Men were bought and soldwith cocoa. According to the chronicler Diegode Landa, the Mayas of Yucatn were "Strongly

inclined to trade. They dispatched salt, clothesand slaves to U la and Tabasco, and barteredthem fo r cocoa an d rows o f stones which servedthem as money and enabled them to buy slavesand o th e r f in e stones..."

Thanks to Maya and perhaps even Aztecslaves, the increased productivity of the cocoa-growing regions probably encouraged the circulation of cocoa among the lower classes, stillunder the control of the aristocracy. Several ethnographic chronicles from colonial times confirmthat cocoa was used as an offering and as a giftat weddings and funerals.

What ro le d id cocoa play in the accumulation of wealth? Among the Mayas and the Aztecsdifferent attitudes prevailed, generally dictated bysocial status. In the Valley of Mexico the merchants had to behave with great circumspectionso as not to offend the emperor. Consequently,records the chronicler Bernardion de Sahagn,they were modestly, even poorly dressed. As forthe Pochtec merchants, they were forced by theavarice of the nobility to give up large quantitiesof cocoa as gifts and offerings to temples.

Whereas in the Valley of Mexico the possession of cocoa was a status symbol, among theItzs of Yucatn fortunes in cocoa ostentatiouslydisplayed by rich lords who owned many slavesand opulently decorated palaces also served tostimulate production since they could be investedin commercial farming and the acquisition ofcaptive manpower. This may explain why theSpaniards retained the use of cocoa as money inYucatn, replacing cotton with their own currency,the real, as an indicator of value, but continuingto relate it to fluctuations in cocoa production.

Cocoa was still being used in the nineteenthcentury to pay the wages of workmen in Yucatnand other parts of Central America. This is clearfrom an account by a North American traveller,John L. Stephens, who noted in 1842 that inYucatn there were no copper coins nor anyspecie less than the half real, that the Indiansearned very low wages with which they procuredthe bare necessities, and that cocoa beans werewidely used as small change. 19


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Mollusc moneyCowries and other colourful shell currencieshave circulated in Africa for many centuries

BY A. FELIX IROKO

Left, girls wearing cowrieshell headdresses inKaramoja province,northeastern Uganda.Below, cowries braidedinto a fibre rope fromPapua New Guinea,which was u se d either asornamentat ion or asmoney .

X ROM th e d aw n of t ime to the twent ieth century, many commodities were used as currencyin sub-Saharan Africa. They included metal rodsand bracelets, fabrics, salt, pearls, shirt buttonsand seashells. Of all these mediums of exchange,shells enjoyed the widest circulation.

Cowries, marginellas and olive shells, ofmarine origin, were those most often used.Cowries (Cypraea annulus and Cypraea moneta)are white or pale yellow shells the size of a hazelnut, with a humped back and a ventral opening.They are only found in warm seas, especially inthe South Pac if ic an d the Indian Ocean. Most oft he cowr ies that circulated in Afr ica for over athousand years came from the Maldive andLaccadive archipelagos, south-west of India, andfrom the islands of Zanzibar and Pemba, off theeast coast o f Afr ica.

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Cowries were traded wherever they werefished or collected, and were often carried asballast in Arab, Jewish or European ships sailingfor ports on the African mainland, where theywere sold again.

Marginellas (Marginella) are marine molluscswhose shells, especially those from the west coastof Africa, are small and colourful. They are alsofound in American tropical waters, notably offthe coast of Brazil.

There are more than 300 species of oliveshells. More elongated than cowries, they havean agate-like sheen. The species most commonlyused in sub-Saharan Africa was Olivancillarianana, found off the coast of Luanda which wasa monetary reserve used exclusively by the rulersof the Kongo kingdom until the Portuguesearrived in the late fifteenth century.

Markets fo r shellcurrencies

Until the sixteenth century, the Nzimbu (theKikongo name for Olivancillaria nana) was usedas currency in the Kongo kingdom, marginellashells were used only in the Niger bend, whilecowries were common throughout West Africa,and, to a certain extent, in Central Africa. Beforethe sixteenth century cowries were also used ascurrency in Egypt.

From the sixteenth to the late nineteenth century the cowrie wa s more widely used than anyother form of shell money from Senegal toUganda, from the Sahel to the Slave Coast (Gulfof Guinea). It was seldom used in the Sahara andnever gained ground either in northe rn orsouthern Afr ica.

This was also the period when marginellashells were most widely circulated in Westand Central Africa, where they were used as amedium of exchange among the Ole, Ngilima,Tsambitso, Obaa, Koyo, Eboyi and Akwapeoples of the Congo basin.

Olive shells were always exclusive to theBantu, and do no t seem to have circulated outside the Congo. In order to ruin the rulers of theKongo kingdom, the Portuguese introduced 'other species of olives from the Brazilian coastand cowries from the Indian Ocean. Inevitably,

Dorsal and ventral views of three varieties of cowrie.Above left, the eyed cowrie (Cypraea argus); left, theonyx cowrie (Cypraea onyx); right, t he m o ne y cowrie(Cypraea moneta), which has served as currency in

Africa and elsewhere.


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Above, a dancer at a PapuaNew Guinea festivalbrandishes a shield encrustedwith shell money, atraditional form of wealthwhich features on themodern 5-kina note, right.

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Dinarsclub

The first caliphs created an internationalmonetary system in the seventh century

using coinage that was surprisinglymodern in conception and design

BY GRARD KREBS

IN the time of Muhammad, in the early seventhcentury, the Arabs did not use money. Perhapsthey had no need of i t. Among the nomadic tribesfor which the camel wa s the main yardstick ofwealth, barter wa s the most widespread form ofexchange, while in centres of trade such as Meccaand Medina foreign money such as Byzantinegold or Persian silver coins had to be used forlarge transactions.Between 636 and 655 AD, the first Arabinvasions which wrenched Syria, Palestine andEgypt from the Byzantine empire in the West,and destroyed the Persian Sasanian empire in theEast, brought in vast quantities of preciousmetals. The booty included gold and silver plateas well as coins. But the creation of a new currency

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was of no urgency to Islam in comparison withits paramount goal of waging a holy war.

The new Muslim masters adapted themselvesvery easily to the existing monetary systems inthe conquered regions, and took them over practically unchanged. In the East silver drachms continued to be minted bearing the effigy of the lateSasanian king Khosrow II, although they nowcarried the additional inscription "In the nameof Allah" in Arabic. On the Med i te r ranean seaboard the gold solidus and the bronze follis wereretained in their original forms, bearing the bustor standing figure of the Byzantine emperorHeraclius and his son, or of Constans II . Sometimes an Arabic inscription was added and theChristian symbol of the cross, widely found onByzantine coinage, was dropped.

The accession of the Umayyad dynasty in 661AD marked the beginning of strong administrative control within the Islamic empire. In the fieldof coinage the first steps were taken in Syria andPalestine towards true Muslim themes, almostexclusively on copper coins, on the instigationof caliph 'Abd al-Malik (reigned 685-705). InDamascus, Edessa and Jerusalem coins wereissued showing the standing figure of the caliphwith hands on a sheathed sword and encircled byan Arabic legend.

Birth of the dinarIn 696 AD 'Abd al-Malik introduced a coherentmonetary system throughout the empire whichresponded to both national and international economic requirements.

For major transactions and trade on a largescale, the gold dinar of 4.3 grams began to be used.For the payment of wages and taxes the silverdirhem of 2.8 grams was introduced, and thecopper fais for everyday use. The relative valueof these coins was not fixed but changed according to the price of the three metals. At first thedinar was worth 10 dirhems, but its value appreciated to 14 and even to 20 dirhems at differentperiods. The dirhem itself fluctuated between 16and 24 fais because its weight varied from regionto region.

Top lef t and r ight , silverdirhem issued under thecaliph al-Muqtader (4thcentury AH/10th centuryAD). Above, silver drachmof the Sasanian monarchBahram II (276-293 AD )with busts of the king, hisqueen and the crown prince.

OPPOS ITE PAGEAbove, gold dinar (1stcentury AH/7th century

AD). Below, clockwise fromtop left: Arab Sasanian

drachm (c. 650 AD ) bearingthe inscription "In the nameof Allah"; Arab Byzantinefollis (c. 650 AD); Umayyaddirhem (122 AH/740 AD);altun bearing the name of

the Ot toman sultanSleyman I the Magnificent

(926 AH/1520 AD);'Abbasid dirhem (307

AH/919 AD); follis (c. 690AD) showing the standingfigure of the caliph 'Abd

al-Mal ik .

PRECEDING PAGECamel market , Ca iro.

A camel features on the coin,left, issued during

the 'Abbasid dynasty(3rd century AH/9thcentury AD).

These new coins closely paralleled the foreigncoins which had previously been in circulation.The dinar, heir (and competitor) of the Byzantine solidus, took its name from the Romandenarius. The d irhem was similar in size an d valueto the Persian drachm and the fais (plural fulous)was a direct descendant of the Roman and Byzantine follis.

On the other hand, the design of the newcoinage was revolutionary. There were no moreallegories, no more titles reflecting the glory ofthe ruler, no more portraits. These coins wereIslamic an d therefore their exclusive role was topraise God. Even the caliph's name did notappear on them, and because the Prophet haddisapproved of the representation of human oranimal forms, the sole inscriptions were professions of fa ith in elegant Kufic script.This coinage represented a departure from theMiddle Eastern an d North A f ri can t rad it ionwhich was both figurative and personalized, withportraits of rulers or emblems of cities. Its longevity was to be extraordinary the last coins tobe struck in this t radi t ion were issued in theYemen around 1960. The system was remarkablymodern in the sense that no sovereign state haddef ined its currency so explicity before. TheArabs were the first to mark coins with theirname, place of minting and year of issue, datedfrom the Hegira in accordance with the Muslimcalendar. In the West, the practice of dating coinsonly began to spread widely in the fifteenthcentury.While dinars were minted exclusively in theUmayyad capital of Damascus, dirhems wereissued in many of the empire's leading cities. Thebusiest mints were at Damascus and at Wasit, acity founded in 70 3 in the Tigris valley (northwest of Basra, Iraq). The decentralization of themints, from Spain (Crdoba) to Tunisia, fromAzerbaijan to Afghanistan (Balkh) and Pakistan(Sind region), gives an idea of the vast size of theIslamic empire.

The 'Abbasid dynasty overthrew the Umay-yads in 750 AD, and the development of commerce in the eighth and ninth centuries carriedthe use of coinage even further. Baghdad, the new


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Bargaining with buttonsDuring Bonaparte's Egyptian expedition of1798 the polished buttons on the Frenchsoldiers' uniforms are said to have beenhighly prized in the souks of Alexandria. Themerchants, who were used to seeing nomadscarry their worldly wealth stitched onto theirgarments so that they wouldn't lose it in thedesert this is why so many North Africancoins have a hole pierced in them wantedto be paid with the beautiful shiny pieces ofmetal which adorned the foreigners'uniforms. Delighted at not having to dip intotheir wages, the soldiers hacked off theirbuttons to pay for their purchases.Bonaparte's reaction on seeing his men returnfrom the souk in such a slovenly fashion caneasily be imagined.

Trade and religionIn the twelfth century the gold dinars of theFatimid caliphs of Egypt were so highlyvalued throughout the Middle East,especially by Syrian merchants, that theChristian kingdoms founded in Palestine bythe Cru sa de rs b eg an to issue imitations ofthem. These imitations, the so-called"Saracenic besants", were clumsily producedat first, but their design was graduallyimproved until they were such faithful copiesof the dinar that the horrified papal legatewho accompanied King Louis IX of France(Saint Louis) on the Crusades in 1250threatened those responsible withexcommunication for daring to issue coins tothe glory of Allah for commercial profit. Acompromise was reached. The Saracenicbesant was replaced by another issue whichwa s almost identical to its predecessor butbore a cross and Arabic inscriptions to theglory of the Holy Trinity and the LordJesus Christ.

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Wheelers and dealers ofRenaissance Europe

An influx ofprecious metals from the NewWorld stimulated the money economy bu talso unleashed turbulent forcesBY LUCIEN GILLARD

McLoNEY is generally thought of as a mediumin which prices and values are expressed, a meansof payment and a store of purchasing power. Asthe standard by which the value of traded commodities is measured, it creates a coherent areawithin which people have a common yardstickwith whic h to assess their credits and deb ts .

In sixteenth-century Europe, these areas coincided with national frontiers, beyond whichmoney was a kind of standard-bearer for eachnation. A convenient means of payment, moneyalso promoted the circulation of goods. The spectacular development of production and tradein sixteenth-century Europe is thus generallyassociated with the growth of the money supplyin the form both of commercial bills an d of coinsminted with metal from the Americas.

Finally, as a store of purchasing power,money introduced a new conception of temporality, which made it possible to circumvent muchof the anguish of daily life. Time no longerbelonged entirely to God, but became instead the

2

a . .- '

^

'fSM

y

Left, the fabulous silver minesof Potos in Upper Peru(modern Bolivia) which wereintensively exploited by theSpaniards during the colonialperiod. Engraving by Thodorede Bry (16th century).


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The Weigher of Goldby the Dutch painter

Gerard Dou (1613-1675).

foundation on which people could base theirplans. The notion of money as capital was recognized, as is shown by the debates on interest onloans, on the indexation of debts, on the causesof price rises an d even on the sale of indulgences.Money, therefore, seems to have fulfilled itsfunctions satisfactorily and to have contributedto the strengthening of social ties in RenaissanceEurope. There are, however, two sides to everycoin; money also lay behind such disruptiveforces as monopoly acquisition and exclusion.And the doubling of the population in Europeduring the Renaissance period only served toaccentuate the turmoi l these forces induced.

Debasement of the coinageThe first problems occasioned by money duringthis per iod were related to its issue. Within agiven national territory, the minting and legalvaluation of money wa s the responsibility of thepolitical authorities, a principle adopted, aftermuch vacillation, from Roman law. Despite theseverity of the measures taken against those whocontravened this principle (such as being boiledalive), the official monopoly to mint coins wasvery often contested.

The first frauds were the work o f traffickersin debased coinage which contained less than theofficial quant ity of precious metal, but wasaccepted at the same face value. Debased coinswere to be found everywhere, because mintingtechniques were then too rudimentary to ensurethat every coin wa s exactly the same. Any smartmerchant, money changer, or even tax collectorwould carefully sort through the coins that cameinto his possession and withdraw the heaviercoins from circulation. All he had to do then toget more for them than their face value was tosell them by weight, at a good price, to the goldsmiths or silversmiths. Another method was toshave off minute slivers of the m etal beforeputting the coins back in circulation, banking onthe reluctance of those receiving them to havethem checked against the official standard (theyran the risk of having to bear the expense of theassay if the coin was found to con fo rm to thestandard).Attempts to put a stop to this practice bymilling the edge of the coins an d stamping a circlearound the effigy-head met with little success. Nocountry succeeded in introducing the new millingtechniques, which could have eliminated theseproblems altogether, during the sixteenthcentury. Machine methods for producing coinswere both too expensive an d strongly opposedby the workmen who hammer-struck the coinsby hand in the traditional way. Finding thatsimply having their likenesses engraved on thecoins was not enough to guarantee their authenticity, rulers were gradually obliged to requirethat coins be weighed at each transaction. Theirattempts, by a plethora of prohibitive edicts, toprevent the uncontrolled price-fixing of precious 33


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metals by goldsmiths and silversmiths provedequally ineffective.

More radical contradictions became apparentbetween counterfeiters and what might be termedthe "anti-coin" diehards. Sixteenth-century counterfeiters, that is to say minters of fake coins,tended to specialize in Spanish coins, especiallythe smaller ones which were cheaper to make andmore difficult to check. Meanwhile, many rulersthemselves minted imitations of the coinage ofother countries, so as to keep for themselvesthe minting tax (in the case of small states thatdid not have their own coinage) or to retainsome of the precious metal by minting debasedimi tat ions.

There were some famous examples of counterfeiting. In France, over a ten-year period, supporters of the Pope organized the parallel mintingof coins to undermine the official coinage of theProtestant king. Another such case was that ofthe fake Spanish coins struck from cargoes of precious metals pirated on their way to Europe fromth e Amer icas.

Following the discovery of the Antilles andthe Americas, Spain embarked on the systematicexploitation of the precious metals found there.Twice a year, these metals were brought undermilitary escort to Seville, where the Spanishcoinage was minted. Imports of metal recordedduring the sixteenth century were impressive:around 250 tons of gold and 200,000 tons of

Spanish silver 8-real coinminted in 1597 during the

reign of Philip II.Below, hammer-striking coinsin France at the time ofLouis X II (1462-1515).

silver, amounts equal to a third of total previousstocks. Some historians, however, estimate thatclandestine imports not recorded by the Spanishauthorities and destined for rival mints may wellhave amounted to as much again.

There have also been less complicated formsof coinage abuse. One of these consisted ofindividuals agreeing amongst themselves to usecoins prohibited by royal decree. Periodically,monarchs would decree that a specific coin wasno longer legal tender for trading purposesbecause it was of unacceptable quality. Such coinshad to be taken to treasury offices to be clippedand bought back at their value by weight. Thesedecrees were often ignored by private individuals,who would fix an agreed value for the coins inquestion, particularly when coinage was in shortsupply. This is what happened to small Spanishcoins in France during the second half of the sixteenth century.

An even more common practice was that ofusing authorized coins in trading but at a so-called"voluntary" value, ignoring the value officiallyfixed by the ruler. In those days, and for 200 yearsafterwards, the value of coins was taken frompublic announcements and not from inscriptionson the coin itself. Distrust of the official coinagewas thus increasing and in some regions at certain times the private value quoted for a coincould be as much as double that o f the off icialrate. In these circumstances, the function of

34


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money as a generator of homogenous societieswas seriously compromised.

Among the anti-coin lobby there were twodistinct groups. First there were those who refused to give up barter. Despite the expansion oftrade in goods throughout Europe, barter was stillfavoured by countless rural communities. Alsoanti-coin, in a sense, were those who clung to theprinciple of the weight of precious metals (or evenof salt) as a measure of value, thus excluding fromtheir transactions the intrusion of any money-minting public authority.

This principle could be applied in a numberof ways. A so-called "gold clause" could be included in a fixed-term contract stipulating thatpayment would be made in a certain weight ofmetal or in a certain number of named coins,whatever their official value at the time as a unitof account. This clause, a relic from Roman law,did not disappear for a very long time. In on-the-spot transactions, distrust of the coinage meantthat payment had to be made in raw metal onthe basis of an agreed tariff. In sixteenth-centuryFrance, between a quarter and a third of all transactions were concluded in exchange for goldobjects such as rings or goblets or for gold dustfound in rivers (panning for gold was still practised) or even filed from coins.

Venture tradingIn venture trading between Europe and the restof the world, payment in metal was the onlyprocedure employed. It is true that minted coinswere used for the purchase of silk and spices from

Above, The Usurers byMarinus van Reymerswael(Dutch school, 16th century).Left, early 16th-centuryGerman miniature showsthe banker Jakob II Fuggerthe Rich (right) checking the

books with his chiefaccountant. Fugger's business

interests stretched acrosscentral and western Europe.

LUCIEN GILLARD,of France, is a researcherwith th e National Centrefor Scient i f ic Research(CNRS) with a specialinterest in the history ofmonetary policy and

practice. He is co-author(with Marie-Thrse Boyer-

Xambeu an d GhislainDeleplace) of Monnaieprive et pouvoir desprinces: L'conomie desrelations montai res laRenaissance (1986).

the Orientchiefly the Spanish excellente and theVenetian sequin up to the mid-sixteenth century,and after that the Spanish silver real.

These rather rare coins had certain specificcharacteristics which'made it impossible to substitute others for them. Made of pure metal ata virtually constant weight of between 3 and 4grams, they were difficult to imitate and the headswith which they were stamped guaranteed onlytheir conformity to this standard. They bore nounitary value whatever outside the realm whichstruck them. In trading between Europeancountries these coins were exchanged by numberor by weight in pure metal and they had nomonetary status. In this respect, quite apart fromthe war, piracy and slave trading that accompanied it, the venture trading developed by the Europeans did not act as the cement of a worldsociety.

The same was true of the deposit certificatesthat circulatedwithin the various European countries. These certificates, which were not replacedby bank notes until a century or two later, hadbeen issued from the fourteenth century bycertain bankers against monies deposited in theircoffers. They were the equivalent of a promiseon the part of the banker of immediate paymenton presentation and circulated like cash. 35


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36

The sluggish development of industry and thecrafts was in part the cause and in part the consequence of the monetary practices of the time.Not enough wealth was being produced for thereto be a consensus in society about its distribution,and priority expenditure on wars, land, servicesand imported luxury goods benefited primarilythe non-productive social categories. Productionthus remained basically agricultural. Surpluseswere sold locally or at regional fairs, only at certain times of the year. Entrepreneurs had not yetarrived on the scene and the money dealers symbolized economic activity.

Merchant bankersAmong them were the merchant bankers, whoreached their apogee during the sixteenth century and provide a perfect illustration of the natureof monetary operations at that t ime. Since theMiddle Ages, there had been a redistribution ofgoods and raw materials between the variouscountries of Europe, and luxury goods from theOrient, and this gave rise to an intensive import/export trade concentrated on half a dozenlarge towns at which fairs were held periodically.The need to pay for goods purchased at these fairsgave rise to a specific activity the conversion,at a price, of the various national units of account,that is, money-changing.

Carrying on a tradition dating back to theChampagne Fairs of the thirteenth century, themerchant bankers had the monopoly of the purchase and resale of the ordinary merchants' international debts (bills of exchange). Theyacquired their monopoly by their presence at allthe European fairs, forming a network of agentsthrough which other merchants were obliged todeal. This monopoly led to an agreed evaluationof each international debt expressed originally inthe currency of a single country. In this way,during the sixteenth century, the merchantbankers, from their headquarters in Lyon, createdwhat was in effect a Europe-wide monetarysystem.In determining the international value of thevarious currencies, the merchant bankers inevitably came into conflict with their merchantclients, from whom they extracted a margin ofprofit. They also found themselves in conflictwith rulers, who established official rates ofexchange for foreign coinage that was allowed tocirculate in their respective countries. Many variations and rises in price resulted from these conflicts of interest and these were aggravated byfinancial and banking rivalries within the circleof merchant bankers itself.

Thus, although through its function as a common yardstick of value money created socialbonds, it was also, in practice, a cause of dissension. And though, in sixteenth-century Europe,it had become the new divinity, money, like manin whose image it was created, was still seekingthe limits of its power.

jfHE 'UNITED STatVnsS

v y ;/_ Li i-uj.


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*N ; .,-.

... BES11 I'K Ul< \S1

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V Yr

The rise ofthe greenback

BY JAN KREGEL The US dollar brought order to domesticmonetary chaos and went on to becomethe leading international currency

Left, "The United Statesevoked through thesymbolism of their currency"(1988-1989), three of a seriesof acrylic canvases by IsiaLeviant (born Byelorussia,

1914). Each paintingmeasures 90 x 210 cm .Above, silver coinissued in the state of

Massachusetts in 1787.

I

.YMERIC,

*^m

N the last half of the nineteenth century, theBritish pound sterling ruled supreme as an international currency. Of all its possible rivals, theUnited States dollar1 seemed the least likelyto take its place. The United States was an international debtor of an uncertain quality withouta central bank and without a single unified currency system. The dollar only rose to dominancein the twentieth century as a result of a tortuoussequence of events which led to the creation ofa central banking authority, the Federal ReserveSystem, and to the adoption of the dollar as a liability of the federal government.

The United States Constitution adopted in1789 did not grant the federal government theexclusive prerogative to issue coins and currencywhich wa s enjoyed by the Crown in Europeanmonetary systems. The absence of clear legislation on currency matters created a myriad ofdiverse means of payment virtually without anycentral control or support. In these chaotic conditions, foreign coins circulated as legal tenderuntil 1857, and as late as 1901 an Oregon silvermine was still issuing its own silver coins for"commerc ia l use".

In the aftermath of widespread default of currencies issued by individual states of the Union,they were prohibited from issuing paper money.But nothing prevented them from creating banks, 37


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38

which were free to issue bank notes. The stateof Kentucky, for example, created a private bankof which it was sole owner and proceeded tomake payments with its notes. This individualisttradition in money matters found expressionin "wildcat" banking and the prevalence inthis period of state "free banking" laws whichallowed any individual or association of individuals to open a bank and issue bank notes withoutl icence or contro l .

The absence o f a national bank meant thateven the federal government had to undertake itsfinancial transactions either through privatebanks or in specie (coin or bullion). In 1840,President M art in Van Buren inst ituted th e"Independent Treasury System" which handledgovernment transactions through nationwide sub-offices. Since the Treasury was not a bank, andcould not issue notes, all government receipts andexpenditures had to be made in gold or silver.Expenditures in excess of taxation could not befinanced except by issue of government debt subscribed in gold.

The Civil Warand the first greenbacks

Many currency arrangements of the latenineteenth century can be traced back to the needto f inance the Civil War of 1861 to 1865. TheTreasury first issued "demand notes" which werenot legal tender, but were convertible into gold.But the weak gold reserves of the Treasury soonled to the suspension of convertibility of thesenotes. Thereafter the war effort was financed byan issue of "United States Notes", based onnothing more substantial than the faith and creditof the government. They were popularly called"greenbacks", the name by which the UnitedStates dollar is still known throughout the world.

The issue of greenbacks had been limited to$433 million, so in the face of increasing difficultyin borrowing and of rising expenditures Treasurysecretary Salmon P. Chase decided to apply "freebanking" on a national scale. The National BankAct of 1863 allowed any group of five personsto form a "National Banking Association"and issue "National Bank Notes" in an amountequal to their holdings of federal governmentbonds deposited with the Comptroller of theCurrency.2

To prevent competition from state banknotes, a 10 per cent tax was placed on the latterwhich soon d rove them out o f circulat ion. Thestate banks countered by offering payment services by cheque against deposit accounts, whichproved to be an attractive substitute for NationalBank Notes.

By the end of the Civil War, the multiplicityof means of payment representing the liabilitiesof thousands of state banks had been largelyreduced to greenbacks and National Bank Notes,neither of which were convertible into specie, butthe issue of which was strictly limited. Themoney supply of the United States was thusrigidly fixed, unable to respond to either fluctuations in trade, nor the frequent panics thatresulted from the failures of the unregulated statebanks (two years after the introduction of freebanking in Michigan, for example, all of its fortybanks had failed).

The dollar set firmlyon the gold standard

As the United States was basically an agriculturalcountry, the demands on currency were linkedto the harvest. As crops were sold, farmers' bankdeposits built up in the agricultural regions,leading to a shortage of funds in the urban banksof the east. The National Bank system of smallindividual units had no mechanism to recycleexcess funds, such as was possible in a multi-branch bank. Furthermore, without a centralbank to lend reserves, there was no way ofmeeting these fluctuations apart from sharpchanges in interest rates, or declaring bank failure.Together with the net drain of specie to theIndependent Treasury and the absence of strictbanking regulations, this led to extreme instability and frequent crises.

This instability was attributed by some to alack of specie, an argument exploited by thoseinterested in making silver the basis of the United


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Clockwise from top left:machine for printing

banknotes, USA, 1920;unemployed Americans gather

to barter during thedepression, 1929; $100 note

issued by the ConfederateStates of America in 1864,

during the Civil War, whichpromises to pay the bearer

"two years after theratification of a treaty of

peace"; obverse andreverse of a $20 gold coin

issued in 1899.

States monetary system. A "Free Silver Movement" launched by William Jennings Bryandemanded the free coinage of silver as legaltender. The 1878 Bland-Allison Act provided forTreasury silver certificates which became legaltender in 1886 and the Sherman Silver Act of1890 made the Treasury virtually liable topurchase the entire output of United States silvermines. In 1882 a similar provision was made forgold certificates, but neither measure gave thehoped-for elasticity to the currency.

The system created serious international aswell as domestic problems, for fluctuations in theinternal demands for liquidity could only be metby international gold movements, which in turncreated instability in the international monetarysystem. This was particularly striking in 1893,when the fear that the United States would no thonour its government debt in gold and wouldinstead pay in silver, whose price was collapsingon world markets, led to a massive outflow o fgold and widespread bank failures.

Creation ofthe Federal Reserve system

The outflow was reversed by the Gold StandardAct of 1900, which set the dollar firmly on thegold standard3 and required National Banks toback their note issues with gold. Between 1899and 1910 the gold holdings of the public trebled,as did those of the Treasury. The proportion ofthe world's monetary gold stock held in theUnited States rose from around 15 to 30 per cent,at a time when many other countries (Austro-Hungary, Russia, Japan) were also adopting thegold standard. As the expansion of gold supplieswas slowing, the accumulation of gold in theUnited States caused more difficulties than hadthe previous outflow, largely because once thegold entered the Treasury it could not be drawnout except to finance a balance of paymentsdeficit (the country was then in surplus). Giventhe Independent Treasury System, gold could notb e u se d as the basis to create money or to serveas lending of last resort.

Another banking- crisis in 1907 forcefullyreminded legislators of the need for a nationalinstitution which could respond to fluctuationsin the demand for liquidity in some other waythan by attracting gold from abroad. Such aninstitution was finally se t up by the FederalReserve Ac t of 1913.

The Act divided the country into twelve districts, each with its own Federal Reserve Bank,which began operations on 2 November 1914. Theexisting National Banks were obliged to join the 39


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system by purchasing stock in the Federal ReserveBanks. The latter were author ized to issue a ne wtype of currency, the Federal Reserve Note, legaltender for all debts and the liability of both thebanks and the United States government.

The new note was to replace National BankNotes. The issue was backed by gold to a minimum of 40 per cent, the remaining notes beingissued against commercial paper and other eligibleassets acquired by discount from the memberbanks. This arrangement satisfied the need for anelastic means of payment which could expand andcontract with f luc tuat ions in trade an d the situation of the banking system. A member bank thatwas short of liquidity could acquire it by discounting its assets in exchange for Federal ReserveNotes at it s District Reserve Bank.

The Federal Reserve Board of governors,appointed by the President and based inWashington, D.C., sa t rather uneasily over theFederal Reserve Banks which were own ed andrun by private bankers. It was by no means clearwho was responsible for currency policy, but thebankers clearly had the upper hand.

However, the two prerequisites for the subsequent international dominance of the dollar hadnow been acquired: the massive accumulation ofworld gold stock in the United States, whichobliged the international monetary system tomove onto a gold-exchange standard, and thecreation of a unified national currency issuedby a single authority with lender of last resortcapability.

Gold ingots at the FederalReserve Bank, New York.

JAN A. KREGEL,of the United States, isprofessor of economics atthe Bologna Center, Italy,

of Johns HopkinsUniversity, Balt imore, USA.His publ ished works inc lude

The Reconstruction ofPolitical Economy (1983),Inflation and Income Crisis(1989), both published byMacmil lan, and a numberof articles in th e AmericanEconomic Review an d Th eJournal of Post-Keynesian

Economics .

The position of the United Kingdom wasweakened by the 1914-1918 war, and the dollarentered the inter-war return to gold on a strongerbasis than sterling. Moreover the United Stateseconomy, after a short recession, was to prosperin the "roaring 20s" of radio and automobiles.

The massive movement of investment fundsto the United States, first caused by rapid growthand the stock market boom, then by high interestrates used to try to break the speculative rise onWall Street, severely disrupted internationalfinance and broke the stability of exchange rates.The stock market crash of 1929 brought aboutmassive bank failures, which were far beyond theability of the Federal Reserve to offset, and theconsequent collapse of investment values wasresponsible for a worldwide depression.

The evidence of widespread bank fraudwhich emerged after the Wall Street crashsuggested deficiencies in the supervisory functionof the Federal Reserve Board and in its ability toregulate monetary policy to prevent even well-run banks from failing. A series of measures,including the nationalization of gold, the devaluation of the dollar to $35 per ounce of gold, andthe 1935 Banking Ac t which gave the FederalReserve Board control over monetary policy,finally created a system equivalent in its powersand duties to a European central bank.

Thus the inter-war period strengthened boththe reserve position of the United States and thedomestic financial system. The country was readyto take over London's role as banker to th e wor ldw he n the outbreak of th e Second W orld Warmade the City unsafe and transformed the UnitedKingdom from an international creditor to aninternational debtor . The United States becamethe world's major creditor. Any country whichwanted to buy goods for post-war reconstructionhad to acquire dollars, and the dollar thus becamethe pre-eminent international currency.1. The Spanish peso, or piece of eight, which circulated inthe Spanish and English colonies of America, was known asa dollar by the English-speaking peoples. Familiarity with thiscoin resulted in the designation of the United States monetary unit as the dollar in 1792. The word itself is a modifiedfo rm o f the Germanic word thaler.2. A Treasury official responsible for the design and issue ofNational Bank N o te s.3. On the full gold standard, gold coins ar e in circulation andon demand bank notes can be exchanged for gold. This meansthat a country on the gold standard must keep an adequatereserve of gold to meet demand. On the gold-exchange standarda country keeps its reserves in another currency that is itselfbased on the gold standard. Editor.


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The complex role of the monetary systemin modern societies

BY GHISLAIN DELEPLACE

-t

^. ^ * .

V .


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42

This purely instrumental view of money waspart of a vision of society in which the marketwas the sole regulating mechanism. Its effect wasto leave the monarch, or the state, on the sidelines with no co-ordinating role to play betweenprivate agents, since these were all merchantsnaturally interlinked within a "commercialsociety". It also reduced money to little morethan a vei l that cloaked the exchange of goodsand that had to be pulled aside if the realities ofeconomic phenomena were to be analysed. Anyattempt by the state to take an active hand in themanagement of money was therefore seen as athreat to social harmony, which the laws of competition were assumed to engender automatically.

Thus the progressive "dematerialization" ofmoney i s seen as a means of simplifying the procedures of trade. Some object in common currencywithin a community is used as money. We haveseen this role fulfilled successively by some formof metal, gold or silver bullion, coins, goldcertificates, bank notes, cheques and creditcardsand electronic money is on its way. As aresult of this "dematerialization" process, moneyhas become nothing more than a transfer mechanism with no link to any material object as aguarantee of i ts value.

A form of wealthor a transfer mechanism?

However well it matches up to a view of societythat favours the regulating influence of themarket, this liberal, instrumental conception ofmoney is not without its own paradoxes. Chiefof these is that, leaving aside any question ofintervention by the state, the very nature ofmonetary exchanges makes the existence of"good" money, that is to say an instrument thatproperly fulfils its function as a medium ofexchange, difficult, if not impossible.Unlike barter, in which the buyer of item Xis at the same time the seller of item Y, exchangesinvolving money comprise two distinct transactions which do not take place simultaneously.The vendor first sells Y for money (i.e. he buysnothing), and then uses this money to buy X (i.e.he sells nothing). If money is merely an instrument of exchange, the person involved in thetransaction will not go ahead with it unless it isto his advantage. According to the textbooks, oneadvantage is that it is easier to find a buyer of Yand a seller of X than to uncover the doublecoincidence of a single person wanting to buy Yand sell X .

The problem remains, however, of ensuringthat this advantage is not reduced to nothing bysome impediment that will prevent the individualfrom using the money obtained from selling Yto buy X, or that he may not obtain as much ofX with money as he would have done by barter.For the private individual to choose the monetary exchange methodand it is essential to the

This Austr ian silver thalerstruck in 1780 bea rs th e h ea dof the archduchess Maria

Theresa. Such coinscirculated from the Red Sea

to th e Atlantic.-

liberal, instrumental approach argument that heshould do so it is necessary that the money hehas obtained as a seller remains a store ofpurchasing power throughout the period of t ime thatelapses between the two transactions.

Herein lies the paradox. If the instrumentchosen as money fails properly to fulfil its function as a store of purchasing power (in the sensethat there is nothing to guarantee that this purchasing power will remain constant), those whohold it will be induced to get rid of it as soonas they have received it, or even simply to go backto barter. This is often seen to occur in situationsof hyperinflation.

On the other hand, if the instrument chosenas money fulfils this function well, the private

Checking banknotesin the Bank of England,

London (1871).Opposite page: Top, theFrench numismatist JosephPellerin (1684-1782), whohad a collection of 32,500rare coins. The impact ofinflation in Germany in1923 is i llustrated by the50,000 mill ion mark note(centre) and the childrenpaying fo r their schooling

with food (below).

* Fiat money is money declaredby a government to be legal tenderthough it is not convertible intospecie. Editor

individual will tend to hold it as a form of wealth,taking it out of circulation and preventing it fromfulfilling its other function as a medium ofexchange.

This phenomenon, which ha s becomeknown as "Gresham's Law" (after the sixteenth-century English financier Sir Thomas Greshamwho observed that "Bad money drives outgood"), wa s recognized very early on with regardto metal-based coins. However, it is equallyapplicable to fiat money"" since it is based on thetrust placed in it by business as a store of purchasing power. In the 1930s, the Britisheconomist John Maynard Keynes maintained that"liquidity preference" wa s the main reason why amonetary economy was unable to achieve a stablelevel of full employment. At the internationallevel "Triffin's dilemma" (so named for theAmerican economist Professor Robert Triffin)highlighted the fact that, in the 1950s, the UnitedStates was no longer in a position both to ensureworld liquidity and maintain confidence in thedollar as a reserve currency.

It is thus il lusory to consider money asmerely a medium of exchange engendered bymarket forces; and if it is taken as a principle thatbusiness people "choose" to hold money simplyon the basis of an economic calculation, this willincrease the risk of monetary disorder.


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In opposition to the liberal, instrumental theory o f money there is the institutional, interventionist approach, which introduces a number ofinteresting concepts. Money is not an appendagebut the sine qua non of the existence of themarket, and its appropriate managementproduces less disorder and makes it possible toac t favourably on the economy as a whole.

This concept, however, became associatedwith the notion that money is basically createdby the state an d that the state's monetary poweris reflected in the institution of legal tender forfiat money. This was notably the case after theFirst World War. This reduction of money to thestatus of an attribute of state power itself led tosome paradoxical situations, the main one beingthat the history of money is the history of thestruggle of private individuals against this aspectof state power.

Constraints on the monetarypower of the state

This situation had ar isen before with metal-basedmoney. In the sixteenth century, this money didnot circulate as stamped gold or silveringots but as coins, the minting of which was themonopoly of the monarch and to which heattributed a legal value in units of account. Goldand silver were not commodity money; theybecame metal coinage by royal decree. Privatebusiness was unceasingly hostile to this legallyfixed circulating value and instead adopted"voluntary values" which were usually higher.The depreciation of the currency that resultedbecause in practice the uni t of account represented less gold or silver than officially maintainedwas effectively a form of inf lation, which wentto show that the monarch could not simply regulate money as he thought fit.

The monetary power of the state was thussubject to two important constraints. Firstly, thedecisions taken by private business had theireffect on the creation of money, both on thesupply side (the impossibility of ensuring rigorouscontrol of the minting of metal coinage; the relative autonomy enjoyed by the banks in the fieldof fiat money), and on the demand side (thevolume of money created being ultimately dependent on the decisions of individuals as to whetherto bring their gold to the min t o r to bor row fromthe banks). Secondly, the attitude of privateindividuals with regard to the circulation of currency could express their resistance to public control of the currency and lead to its internaldepreciation (inflation) or external depreciation(a fall in the exchange rate).

If these two conflicting views of money areconsidered together, it can be seen that moneyis neither a form of merchandise (with its ownintrinsic value) nor an attribute of state power.Rather, it is a prerequisite for the existence ofmarkets and the expression of a certain socialcohesion that enables the state to fulfil its 43


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44

functions. A monetary regime is a set of rules ofconduct specific to a given society.

Wha t then is th e d iffe re nc e b etw ee n th emoney of the past and that of today? It is oftenstated that modern money is fiat money, whereasthe money of the past was commodity money;that the metal-based money of the past had itsown intrinsic value regulated by the mechanismso f th e metal market while the "dematerialized"money of today is based solely on the confidenceinspired by the state, which imposes its legaltender. Such an assessment is inadequate. No

of a lender of last resort. This "banks' bank" , orcentral bank, plays a dual role. On the one handit acts as a clearing house for payments betweenbanks and to this effect sets the bank money ratein terms of the national monetary unit. Contraryto what is generally thought, a franc, a dollar ora pound issued by one commercial bank is notthe same as that issued by another. The acceptance of cheques drawn on this or that bankand thus the use of bank deposits as money-implies a system of compensatory paymentsorganized by a central body.

monetary economy can exist without some formof abstract unit of account, and this can perfectlywell coexist with a metal-based coinage.

Money todayModern money can, however, be defined in termsof two characteristics of a bank-based monetaryregime. Firstly, the banks' issuing functionenables a certain category of people, the entrepreneurs, to obtain money on the basis of apromise offuture activity. Even though bank creditis today made available to people of all economiccategories, there is a .fundamental differencebetween those in particular wage earnerswhocan borrow on the strength of income receivedin the past (or the probability that they will continue to receive such income in the future), andthose the entrepreneursto whom credit isadvanced on the basis of a planned trading projectthe success of which (on which repayment of theloan depends) is uncertain. This credit issuingfunction of the banks thus introduces an elementof social discrimination. It is, however, a factorthat promotes economic dynamism, since, asKeynes observed, " it allows entrepreneurs to goahead with assurance".

Secondly, the banking system is hierarchicalin organization, with the activi ty of the secondrank of banks being dependent on the existence

Looking into the strongroomat a major French bank.

GHISLAIN DELEPLACE,of France, is professor of

economics at the Universityof Orleans. He is th ea u th o r o f Thories duCapitalisme (Maspro

publishers, Paris, 1979) andco-author (with Marie-

Thrse Boyer-Xambeu andLucien Gillard) of Monnaie

prive et pouvoir desprinces: L'conomie desre lat ions montai res laRenaissance (1986), an

English version of which iscurrently being prepared fo r

publication.

On the other hand, the central bank guarantees the other banks against defaults on loans,which are a risk inherent in t he loan mechanismsdescribed above, by allowing these banks torefinance such loans in central bank money. Thismethod of insurance, while certainly not automatic, tends through its effects on inflation andthe exchange rate to spread over society as awhole the burden of the consequences of thefailure of some entrepreneurs to meet their obligation to repay loans. Nevertheless, as we seetoday, it provides the system with a degree ofelasticity which tends to prevent the multiplication of bankruptcies.

These character is t ics demonstrate that theorigins of the modern monetary system predatethe time when it supplanted metal-based coinage.To find them we have to go back to the sixteenthcentury and the relationship between metalcoinage minted by monarchscentral moneyand the bills of exchange that the Italian merchantbankers circulated throughout Europe bankmoney.

The yardstick of social intercourse, moneyis the embodiment of the rules that make possiblethe complex interplay of economies. Paradoxicalin nature since it appears to be the consequenceof the economic activity of which it is a prerequisite, it is hardly surprising that money isboth a matter of practical concern and a sourceo f theoretical debate.


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IN BRIEF IN BRIEF IN BRIEF

BARCELONA'S GREATA R CH IT E CT ON FILMThe first pri ze in the 2ndLausanne International Festival o fArchitecture and Town PlanningFilms was awarded to Gaudi byManuel Huerga (Spain 1988,35 mm black and white,57 minutes). The film covers themajor events in the l if e andtimes of the great Barcelonaarchi tec t Antonio Gaud i(1852-1926).

MUMMIFIED ENZYMEScientists at the University ofTubingen, Fed. Rep. ofGermany, have shown anenzyme extracted f rom thecerebral t issue of a 3,100-year-old mummy to be in perfect"working order". A controlexperiment proved that theactivity of the enzyme was no tdu e to bacterial contaminat ion.

EUROPEAN LITERACY PRIZECREATEDOver a hundred Europeanartists and intellectuals recentlyattended a meeting held at Blois(France) on the invitation ofFrance's minister o f culture an dcommunication, Mr. Jack LangThey decided to convene anofficial meeting in Paris later thisyear to discuss the " fr eedom o fmovement of cultural property"an d to create an annua lEuropean literary prize whichwill be awarded for t he f ir sttime in Glasgow (UK) in 1990.

ADVICE TO AN AUTHORThe noted Alger ian writer KatebYacine, whose novel Nedjma(1956) had a powerful influenceon North Afr ican l i teraturewritten i n F rench, died inOctober 1989. One story abouthim illustrates the position ofth e wri ter in societies whereilliteracy is widespread. Yacinewas once stopped in Sidi BelAbbes by an old man wh o saidto him: "I t appears that you're awriter. If y ou are , then sit downan d listen to me."

NEXT STOP JUPITEROn 18 October 1989 th eAmerican space shuttle Atlantislaunched the spacecraftGalileo on a 6-year voyage ofsome 3,900 mill ion kilometres.By July 1995 Gali leo will benear enough to Jupiter toco ll ect de ta il ed informationabout the planet and its 16known satellites. Th e datatransmitted during the voyageare expected to be of majorimportance In Increasing ou rknowledge of the universe.

KASPAROV CRUSHESCOMPUTERWorld chess champion GarriKasparov, of the USSR, hasdefeated Deep Thought, ahigh-powered computer createdby graduate students atCarnegie-Mellon University inPittsburgh, USA. In the firstof 2 games, the computerretired after Kasparov's 52ndmove and 20 hours of play.In the second Deep Thoughtsurrendered after 37 m ov esand 2 hours. The computercan analyze a possible700,000 positions per secondand 5 to 20 moves ahead byeach side. "It's a good player,"said Kasparov, "but withoutposition and experience."

NEW D IR ECT ION FO RBERLIN PHILHARMONICTh e I ta li an mus ic ia n C la u di oAbbado has succeeded Herbertvon Karajan, wh o died on 16July 1989, as music director ofth e Berlin Phi lharmonicOrchestra. He was e le c ted tothis prestigious post last Octoberby a secret ballot of theorchestra's 120 mus ic ians .

GENET ICS ANDHUMAN R IGHTSA seminar on the geneticheritage and human r ights washeld in Paris in October 1989.It was organized by theEuropean Commission, theUniversity of Paris VII (Jussieu)and the European ResearchUniversity, in collaboration withUnesco, the French NationalInstitute o f Health a nd Medic alResearch (INSERM) and theFrench ministries of researchand technology and of foreignaffairs. A broad range of issuesrelating to genetic researchwas discussed by biologists,medical doctors, philosophers,jurists and researchers in thehuman sciences.

F RENCH RESEARCH BODYCELEBRATES50TH ANNIVERSARYFrance's Nat iona l Cen tre fo rScientific Research (CNRS),founded In October 1939, hasreached ts half-century.With a budget of over9,000 million francs, some26,000 employees (researchers,engineers, technicians andadministrators), 1,300laboratories (wholly owned o rassociated), the CNRS hasco-operation agreements with55 overseas ce nt re s a n d isEurope's biggest researchinstitut ion.

PSYCHIATRY ANDTHE ENVIRONMENTOver 4,600 psychiatrists from81 countries took part in the8th World Congress ofPsychiatry (Athens,12-19 October 1989). Theparticipants recognized theimportant role played by theenvironment, as well as bygenetic factors, in mentali l lnesses an d the i r t reatment.

WORLD PEACE ANDSECURITYIn a recent interview with th eParis dally Le Figaro, theSecretary-General of the UnitedNations , Mr . Javier Prez deCullar, evoked the role of theSecretary-General. "I cannotfight alone," he said. "Memberstates mus t help me. All I haveIs mora l force. Political an dmilitary force He with theSecurity Council."

SOUTH /SOUTHCO-OPERATIONRepresentatives of heads of stateand governments of 15 LatinAmerican, African and Asi anc ou ntrie s m e t o n 6 an d 7Novembe r 1 98 9 in G en ev a todiscuss the basis of a plan ofact ion for South/South cooperat ion. A summit meetingwill be held In May 1990,probably in India.

T HE S PE CT RE O F SEVESOOver 13 years after thecatastrophe at Seveso, nearMilan, laboratory analysescarried ou t recently by theUniversity of Missouri, USA, haverevealed t h e accumu la ti on o f a 'tonne of the highly toxicchemical dioxin in th e subsoi l ata chemical factory in the regionof Cengio, north of Genoa. TheItalian government has askedthe Istl tuto Superlore di Sanit, apublic health research institute,to carry ou t an independentanalysis and proposes to invitethe World Health Organizationto examine th e results.

BAN ON INTERNATIONALIVORY TRADETh e 7th conference of CITES(the Convention on InternationalTrade in Endangered Species)ended on 20 October 1989 atLausanne with a consensusdecision for a to ta l ba n on th einternational tr

UNESCO_Courrier - Fortunes of Money (1990)

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