The History of Money

The gist of his argument is this: where money—and financial innovation—is present, all sorts of valuable stuff occurs that doesn’t occur where money—and financial innovation—is absent.

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The history of financial innovation maps pretty neatly onto the history of art, for instance—at least as art history is conventionally understood. Every traveler who has made a pilgrimage to the shrines of Western civilization—ancient Greece, Renaissance Florence, seventeenth-century Holland—has, into the bargain, without knowing it, toured the history of financial innovation. Every great art boom appears to have been triggered by the invention of some version of the credit default swap.

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Trust naturally becomes a central theme in these pages. The various inventions in money and finance—coins, balance sheets, double-entry accounting, reserve currencies, paper money, central banks, mortgages, and so on—are each an expression of a species of trust that appears to have the ability to survive no matter how badly it is abused.

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At the same moment that the Dutch created their famous tulip bubble, for example, they also invented the perpetual bond—a loan that is never repaid. “Can you imagine,” asks McWilliams, “how much trust in money there must be in a society for people to finance a loan that they know is never actually going to be repaid and yet consider this to be a prudent form of saving?” It’s as if we’ve all tacitly agreed that financial trust, even if it will often be betrayed, is too valuable to abandon.

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Cryptocurrencies are obviously the latest twist to this tale. Born of mistrust of governments and banks, they have ended up replicating the same sort of need for trust, and violating that trust in all the usual ways. McWilliams sees what’s happening right now in the history of money as a war for the right to be trusted. “A major battle in the years to come,” he writes, “will be between private money issued by private entities and public money issued by the organs of the state in the name of the citizen.” Whatever the future holds, McWilliams is worth trusting on the subject. Someone needs to be.

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

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1919, Lenin is reported to have said that he had a plan to annihilate the power of money in order to destroy what remained of the old Russian state following the October Revolution of 1917: Hundreds of thousands of rouble notes are being issued daily by our treasury … with the deliberate intention of destroying the value of money … The simplest way to exterminate the very spirit of capitalism is therefore to flood the country with notes of a high face-value without financial guarantees of any sort. Already the hundred-rouble note is almost valueless in Russia. Soon even the simplest peasant will realise that it is only a scrap of paper … and the great illusion of the value and power of money, on which the capitalist state is based, will have been destroyed.1

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Hitler and Lenin may have been on opposite sides ideologically but they both understood the phenomenal power of money: undermine money and you undermine the fabric of society.

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Hitler worked on the basis that most British folk would stuff a few notes under the mattress. He would enlist the people Napoleon famously dismissed as a money-obsessed “nation of shopkeepers” against themselves. By bringing this counterfeit money into circulation all over the country, inflation would rip through the system, particularly as so much of Britain’s economic resources were directed at the war effort. Only a small amount of consumer goods and essentials were being traded, and therefore prices would be volatile. In such conditions of privation, the cascade of new money would drive British prices skyward, triggering panic. Hitler hoped that the previously quiet and obedient British would experience a fire in the theater moment. They’d freak out and the ensuing chaos would upend their Blitz spirit, compromising the war effort.

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The concentration camp forgers printed £132,610,945 of fake sterling notes, equal to about £7.5 billion or $10 billion in today’s money.2 Dropping these notes over Britain would require squadrons of German bombers that were available to Hitler when the plan was hatched in May 1942, but by the time the forged notes were ready in 1943, the war situation had changed.3 Germany was losing on the battlefield, the Luftwaffe’s resources were stretched in Russia, and the war effort couldn’t spare the planes to handle the mass airdrop.

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Money can be more powerful than religion, ideology, or armies. Mess with money and you mess with far more than the price system, inflation, and economics—you mess with people’s heads. The story of Hitler’s forgery illuminates the power of money.

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As miracles go, it’s an impressive one. We all believe in it, and therefore it must be real. But is it real? In fact, money is abstract and is only given value as long as the rest of us (or enough of the rest of us) believe in it. Money, like faith, is a product of the human imagination.

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The most exciting aspect of money is what it does to us: how it changes us, what it enables us to do, and how it brings out our deepest urges—some good, some appalling.

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

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Today, whether we like it or not, our entire world revolves around this strange, invented notion that Lenin described as the “great illusion.” Introduced thousands of years ago, money is at the center of modern culture—a universal language understood by rich investors living in high-tech Silicon Valley and struggling rickshaw drivers in Old Delhi. People living thousands of miles apart, who don’t understand each other’s language or customs, understand money and speak to each other through it. Money is a force that dictates the flow of people, goods, and ideas around the globe. Our efforts and talents are assessed by it; so too is the future. As we will see, one of the earliest characteristics of money was putting today’s price on tomorrow. What is the rate of interest other than the price of time, expressed by money? When you take out a…

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Money defines the relationship between worker and employer, buyer and seller, merchant and producer. But not only that: it also defines the bond between the governed and the governor, the state and the citizen. Money unlocks pleasure, puts a price on desire, art, and creativity. It motivates us to strive, achieve, invent, and take risks. Money also brings out humanity’s darker side, invoking greed, envy, hatred, violence, and, of course,…

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Money is an ingenious technology that humans invented to help us negotiate an increasingly complex and interrelated world. Imagining money as a tool or a technology is not how we usually think about it. It’s not that we don’t think about money; we do, and probably more than we’d like to. We need money to live and, because of this urgency, we rarely have the luxury of thinking about money in any other way. If you don’t have enough cash, you worry about how you might get more. If you have loads of it, you worry about making sure you don’t lose it. Most of us would like a bit more money, and if we could figure out an easy way of getting it, we’d probably go for that…

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Given money’s central role in our lives, we rarely think more conceptually about it. We don’t stop to ask ourselves relatively simple questions such as: What is money? Where does it come from? Can it run out? Can we generate more of it? Maybe this absence of conceptual questioning is a measure of the true success of money. As long as it’s flowing, making the world go…

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Each of us has heard the mantra that money is the root of all evil, yet money is also an instrument of peace. Rather than kill their neighbors for food and property, the newly sedentary farming societies learned to trade using money. Money provided an alternative to, as opposed to a reason for, war. When we can exchange with each other and with different tribes at negotiated prices, why bother fighting?

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

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For 400,000 years, the technology that most influenced human development was fire; the contention of this book is that the crucial technology shaping humanity in the last 5,000 years has been money. We were a pyrophyte species but we have gradually become a plutophyte species.This book is about the relationship between a curious ape and a wondrous technology.

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Unlike other technologies, money is ephemeral. It resides in our heads, representing value, but it is intrinsically valueless. For money to work, a leap of mental abstraction is required. Counterintuitively, money is valuable not when it is scarce but when it is abundant. In this sense, money resembles another wondrous human technology: language. Both money and language are crowd phenomena. Like language, the more people who use money, the more valuable it becomes. In the same way as dialects are subsumed into larger, more useful languages, various forms of money, originally conceived to trade within small groups, are subsumed into larger, more useful, and more adaptable forms of money, the most prominent of which is now the United States dollar.

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

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We will look at many of the cultures that played a role in the development of money and observe how each one innovated with it. We will see that proficiency with money coincided with other innovative breakthroughs such as writing, numeracy, law, democracy, and philosophy. This coevolution prompts the question: Was money the reason for other developments or did these other developments lead to the evolution of money? What was the chicken and what was the egg?

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Money’s darker side is revealed by European colonization when the interests of money were pitted against human dignity—and, lamentably, money won. We will examine the link between money, liberal thought, and intellectual progress in the nineteenth century, moving from Darwin’s theories through to modernism and up to the present day.

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Along the way we will meet Kushim, the first person whose name has survived in written form; Xenophon, the world’s first economist; the emperors Nero and Vespasian; and Jesus himself. We will swerve into the worlds of Dante, Fibonacci, Gutenberg, and Peter the Great, and spend time with Jonathan Swift, Charles Talleyrand, and Alexander Hamilton, before dropping in on Charles Darwin, Roger Casement, James Joyce, and Judy Garland. Ahead of a date with cryptocurrency, we get to know the world’s greatest forger, join the chaos of the Fox News studios in New York the day Bear Stearns collapsed in 2008, and meet the people who now control global money.

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In Greek mythology, Prometheus was punished by Zeus for giving humans fire, a technology so powerful that Zeus feared we would overwhelm the gods with it. The Greeks recognized that mastery of fire marked a profound shift in the relationship between humans and the rest of the planet. They imagined that humans were created from the four elements: earth, wind, fire, and water. These forces shaped their universe. Around 5,000 years ago we invented another force, a fifth element: money. If fire was the Promethean force of the ancient world, money is the Promethean force of the modern world. The clever ape has shaped the world, for better or worse, in a way that I believe would have been impossible without money.

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The Ishango Bone is a baboon’s femur with a series of notches cut into it. Archaeologists are divided over the artifact’s purpose, but it is speculated that each notch indicates an amount owed by someone to someone else and that together they signify a trade or a set of credits and debits. Indentations in the bone may have been indicators that the trades were paid and therefore canceled or that they were outstanding.1 If the Ishango Bone was indeed a commercial tallystick, its notches also represent the first known example of value, a highly sophisticated concept. Valuing is an exercise in abstract thinking, not least because what I value and the price I am willing to pay for something might be completely different from what you value and what you would be willing to pay for the same item.

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To see how borrowing and lending changes a person’s worldview, consider what the rate of interest does to people’s perception of time. Imagine you are lending to somebody at an interest rate of 10 percent per year for five years. This rate tells us that the money lent has a cost that reflects the risk of you not being repaid and the opportunity cost of not spending that money yourself. The longer the term of the loan, the higher the chance you won’t be paid back because it is further into the future—which by definition is unknowable—and the longer you will have to wait before spending the money yourself. In order to make this worthwhile for the lender, money has to have a price—a cost to the borrower and income to the lender. This price factors in the value of time. To put it another way, a bird in the hand is worth two in the bush.

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The rate of interest was revolutionary: for the first time, a borrower could use income from the future in order to spend in the present. This innovation was essential to getting income flowing and preventing money from being hoarded by those who had it, making it available to those who wanted it, like our hero Kushim. Imagine being able to get your head around the value of time, in a society still coming to terms with understanding natural phenomena like why the sun rises and sets. What the Sumerians lacked in practical understanding of the natural world they made up for with their comprehension and use of abstract thinking. Hostage to the vagaries of harvest and the rhythm of the natural world, plagued by hunger and disease, Sumerians involved themselves in a high level of mental abstraction about the value of time in an environment where concepts such as risk, reward, and probability were everyday concerns. In terms of money, our ancestors were surprisingly modern. For example, Sumerians deployed not just simple interest but compound interest, whereby the amount of money owed grows exponentially over time.3 Is it any wonder Kushim was worried?

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It might not be the most romantic origin story, but one of our most ingenious technologies, writing, came about because of another groundbreaking technology: money. Money was the first thing we wrote about. And by writing about money, we were also writing about weights.

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

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was extremely simple to clear trades because everyone understood the rules, and there was rarely a sudden lack of barley because the granaries stored surplus. If local merchants were dealing with foreigners, they would accept a block of silver in return for goods. As there were no silver mines in the region and there is very little evidence of mining in the area, the trading cities of the Sumerian civilization must have traded their surplus agriculture with foreigners miles away from their homeland in return for silver. How else would they have got their hands on

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The Ishnuna Code of Law, the oldest-known written body of law, thought to be from around the eighteenth century BCE, was found in Baghdad in the area of Tell Harmal in 1945.6 These laws describe values expressed as shekels of silver: The price of one gur of barley is one shekel of silver. The price of 3 qas of pure oil is one shekel of silver. The price of one sut and 5 qas of sesame oil is one shekel of silver. The price of 6 suts of wool is one shekel of silver. The price of 2 gurs of salt is one shekel of silver. The price of one hal seed is one shekel of silver.

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

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Initially, people counted with their fingers, which largely explains the five and ten structure as our base numerals. Many ancient cultures counted using both fingers and toes, with twenty as the foundation. Consider the French word for “eighty”: quatre-vingts. While English speakers call that number “eighty”—eight tens—the French call the same number “four twenties.” Obviously, some tribes knocking around France well before Caesar rocked up must have used base twenty, deploying all of their digits to calculate. Despite countless invasions and new cultures overlaying old ones, the French still use base twenty in their language.

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

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We tend to assume that cash flow models are a new innovation and in our world, every year, smart young people clutching degrees from the best universities are enrolled by banks to come up with financial reports assessing whether a company is under- or overvalued. Their data-driven financial forecasts, based on revenues and costs, form the basis for loan decisions. The first MBAs were offered to students in the 1920s, but the rate of interest in the ancient world spawned financial innovations at a time when people still believed in the gods, sacrificed animals for the harvest, and examined the innards of chickens to forecast the weather. The traders of Sumer possessed a degree of financial sophistication that is hugely impressive.

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Uncovering what could be described as the world’s first-ever spreadsheet, archaeologists found an inscribed tablet from the Mesopotamian city of Drehem dating from around 2100 BCE.9 The rows and columns reveal a stunning early example of financial software. The tablet contains projections and forecasts about an investment in a livestock business. Like today’s investment models, it contains assumptions about births and deaths of animals, allied to projections about fertility, foodstuffs, and other inputs, leading to a specific profit and loss model for the business at the prevailing rate of interest.10 This technology allowed investors to plug in various scenarios, with ratios and formulae, delivering a number at the far side of the model.

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Drehem tablet is a multi-year “model” for a cattle-rearing business, with growth projections based on the cows’ milk yields. In terms of financial planning and spreadsheet analytics, it is not a million miles from the sort of business plan that start-up companies trying to raise capital today might use. This ancient cuneiform model has various high growth and low growth scenarios based on things like animal mortality. If not quite an “earnings per share” model, it’s not far off. The implication of this spreadsheet is that more than 2,000 years before Jesus, the Sumerians were thinking about finance, interest, money, and commerce in a way that could value businesses into…

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Sumerian civilization came up with writing, accountancy, an intricate legal system, and a sophisticated financial architecture, all anchored by the rate of interest. At its core, the rate of interest put a value on time. This was a breathtaking level of abstract thinking leading to a market for capital, financed by borrowers and lenders. The rate of interest took something inert, like silver, and animated it. Under the Sumerians, money came alive, releasing human energy, best encapsulated by Kushim’s risk-taking. With interest, money becomes dynamic: silver as money is worth more…

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Sophisticated as they were, the Sumerians—and their successors in the region, the Babylonians—had created commercial and organizational systems based on contracts. Money was still in people’s heads, but soon it would be in our pockets, and once money got into our pockets,…

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he had no money. The contrast between his royal notions and his diminished coffers meant he saw himself as a source of ridicule and pity. Money could change this. Midas asked that everything he touched might be turned to gold. These days the name Midas is synonymous with shortsightedness, greed, and avarice, but, on reflection, Midas was just a down-on-his-luck, decent skin who needed a break. Unfortunately, he had not thought through his economic experiment. He touched an apple; it turned to gold, rendering it valuable but useless, ornamental yet impractical. His beloved daughter ran up to hug her kind father and she too turned to gold. Realizing his folly, the distraught Midas beseeched Dionysus to free him from this curse.

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

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