Money: Why understanding its origin is important today – 2

Origin of Coinage

(Extracts from “Money: Whence it came, where it went” by JK Galbraith)

Metal was an inconvenient thing to accept, weigh, divide, assess as to quality in powder or chunks, although more convenient in this regard than cattle. Accordingly, from the earliest known times and more likely somewhat before, metal was made into coins of predetermined weight. This innovation is attributed by Herodotus to the kings of Lydia, presumably in the latter part of the eighth century B.C.

It seems possible, based on references in the Hindu epics, that coins, including decimal division, were, in fact, in use in India some hundreds of years earlier.
Debasement of Roman Coinage

As early as 540 B.C., Polycrates of Samos is said to have cheated the Spartans with coins of simulated gold.

With the passage of time and depending on the financial needs of rulers, their capacity for resisting temptation, which was generally modest, and the private development of the speculative arts, coinage had a highly reliable tendency to get worse. The Greeks, notably the Athenians, seem to have resisted debasement out of a rather clear understanding that this was a short-run and self-defeating expedient and that honesty was, at a minimum, good commercial policy. After the division of the Roman Empire and the reassertion of Greek influence at Constantinople the bezant was for several centuries the world symbol of sound money, everywhere as acceptable as the gold it contained.

By contrast, the history of the highly developed coinage of Rome itself, as legend has sufficiently established, was one of steady debasement, beginning, it is commonly supposed, in consequence of the financial pressures of the Punic Wars. In time, this had the effect of converting the empire from a gold and silver to a copper monetary standard. By the time of Aurelian the basic silver coin was around 95 per cent copper. Later its silver content was brought down to 2 per cent. In time it would be asserted that the debauchment of the currency caused the downfall of Rome.

This historiography – the tendency to attach vast adverse consequences to monetary behaviour of which the observer happens to disapprove – is one which we will find frequently to recur. It should, needless to say, be regarded with the utmost suspicion.

Gresham’s Law

In the ancient and medieval world the coins of different jurisdictions converted at the major trading cities. If there were any disposition to accept coin on faith, it was inevitably the bad coins that were proffered, the good ones that were retained. Out of this precaution came, in 1558, the enduring observation of Sir Thomas Gresham, previously made by Oresme and Copernicus and reflected in the hoarding of the good Roman coin, that bad money always drives out good. It is perhaps the only economic law that has never been challenged, and for the reason that there has never been a serious exception. Human nature may be an infinitely variant thing. But it has constants. One is that, given a choice, people keep what is best for themselves, i.e., for those whom they love the most.”