Encyclopedia of Money by Dipen: 2012

Saturday 30 June 2012

Yen

The yen is the money of account for Japan, comparable to the dollar for the United States. By the 1990s the Japanese yen had become a major international currency, sharing the stage with the U.S. dollar, the German mark, and the ECU as determinants of international monetary values.

The Shinka Jorei (New Currency Regulations) of 1871 established the yen as the monetary unit in Japan. The Japanese derived the word yen from the Chinese word yuan, which meant “round thing,” a reference to the U.S. and Mexican dollars that dominated East Asian trade at the time. The act set the yen equal to 0.05 ounces of gold, making the official Japanese price of an ounce of gold equal to 20 yen. At the time the official United States price of an ounce of gold was $20.67. The yen was intended to be equivalent to the Mexican dollar, the standard unit in Asian trade at the time. The yen began life as a decimalized currency; one-one-hundredth of a yen was called a sen, and one-tenth of a sen was called a rin.

Yeltsin’s Monetary Reform in Russia

Russia opened the 1990s in monetary chaos, manifested by soaring inflation, and a currency, the ruble, that had long been shielded from the free-market forces of foreign exchange markets. In foreign exchange markets, currencies are bought and sold with other currencies, as when Japanese yen are purchased with United States dollars.

Under economic reforms, prices, unfettered from state controls, took off, creating a ruble shortage that left some workers unpaid for months. Wages and pensions rose, and the Russian government cranked up the printing presses on a round-the-clock basis. For the month of July 1992 alone, the government printed up more rubles than the Soviet Union government had printed up in its last 30 years. To expedite the process, the government increased the largest denomination of the printed ruble from the 200-ruble note to the 1,000-ruble note. Coins also became available in higher denominations. Inflation reached its peak in 1992 when monthly inflation rates ran 15 percent, and prices increased 200 percent over the year.

In 1993 the government begin to step on the monetary brakes, but in ways that threw the country into deeper confusion. In July the government invalidated all rubles issued before 1993, and gave people only a few days to convert the old rubles into new rubles. It also put a limit on the number of old rubles that foreigners could convert into new rubles. Citizens could convert up to 35,000 old rubles into new rubles, and if they held additional rubles, these had to be put into savings accounts for six months. By the end of 1997 annual inflation had fallen to the 12 percent range, and the government announced a plan to lop off three zeros from the ruble. Effective 1 January 1998, in what was essentially an accounting reform, 1,000 rubles became 1 ruble, and all prices, balance sheets, debts, etc., were adjusted accordingly.

Yap Money

The inhabitants of the island of Yap, one of the Caroline Islands in the central Pacific, adopted large, thick stone wheels for money, a primitive medium of exchange that survived into the post–World War II era. The inhabitants called this from of money fei. A study of the operation of this system of currency reveals interesting insights into the nature of money that are relevant for modern monetary systems.

The stone wheels ranged in diameter from a foot to 12 feet and the larger stones were virtually immovable. The hole in the center of the stone wheels varied with the diameter of the stone, and the smaller stones could slide over a pole and be carried. The stones were quarried from Palau, about 260 miles away, and sometimes from as far away as Guam. Stones could serve as fei only if they were made of a fine, white, close-grained limestone.

World Bank

The World Bank, officially the International Bank for Reconstruction and Development, is the largest provider of development assistance to middle-income and low-income countries, directly financing projects and coordinating development assistance from other agencies. It also serves as a clearinghouse of ideas for promoting economic development, and publishes statistical data and research on the state of the world economy.

Aside from negotiating a fixed exchange rate system for international trade, the Bretton Woods Conference of 1944 organized the World Bank under the auspices of the United Nations. The delegates of the Bretton Woods Conference had in mind financing the reconstruction of war-torn Europe and Japan, and the development needs of the poorer areas of the world. On 25 June 1946 the World Bank opened his headquarters in Washington, D.C.

Member countries, now numbering more than 180, purchase stock in the World Bank, which also raises capital by selling bonds in private capital markets. Member governments guarantee the bonds, reducing the interest rate that investors demand and lowering the cost of capital to the bank. The United States is the largest shareholder and the president of the World Bank has always been from the United States.

Wizard of Oz

The book The Wonderful Wizard of Oz, by L. Frank Baum, is one of the most famous of American children’s stories and the inspiration of a movie classic that is shown annually on television in the United States. What is often lost in the movie is that the book, published in 1900, incorporated allegorically an important monetary debate in the United States in the 1890s.

The book was written against the background of the free silver movement in the United States. From 1880 until 1896 the United States saw the average level of prices fall by 23 percent, a strong downdraft of deflation that worked a severe hardship on debtors, mostly farmers of the South and West. The bankers and financiers concentrated in the Northeast benefited from the deflation. One proposal for mitigating the hardship of deflation was to supplement the money supply, then tied to the gold standard, with silver, creating a bimetallic standard of gold and silver to replace the gold standard. Under a bimetallic standard both silver and gold could be minted and circulated as money. The infusion of silver would put an end to deflation by increasing the amount of money in circulation.

Wildcat Banks (United States)

During the pre–Civil War era, wildcat banks, although technically legal, abused the bank note-issuing authority of state banks by issuing bank notes or paper money under circumstances that discouraged or rendered impossible conversion into gold and silver specie. The wildcat banks emerged in a banking system that allowed each bank to issue its own bank notes, which legitimate banks stood ready to redeem into gold and silver specie. As security for outstanding bank notes, state banking laws required banks to own federal or state government bonds, and keep them on file at a state auditor’s office. The First Bank of the United States and the Second Bank of the United States had helped maintain an honest currency by forcing western banks and country banks to redeem their bank notes in specie.

In 1833 the demise of the Second Bank of the United States left the banking system without an important safeguard against the temptation of bankers to issue bank notes in excess of their reserves. Bank notes from distant localities circulated at varying discounts, depending upon the likelihood of redemption into specie. Newspapers published lists of good notes and bad notes, and periodicals appeared that were exclusively devoted to the values of bank notes.

Whale Tooth Money in Fiji

The case of whale tooth money on the island of Fiji shows how a commodity can become a symbol of wealth in a collectivist society in which most trade in goods takes the form of gift exchanges, omitting the need for a common standard of value. To the people of Fiji the polished ivory teeth of the sperm whale commanded a ceremonial value and sacredness that put them beyond the realm of a fixed value compared with other goods. The idea of pricing a wide range of goods in terms of whale teeth would not have occurred to the Fijians.

Wendish Monetary Union

From the mid-fourteenth century to the mid-fifteenth century the Wendish Monetary Union maintained and guarded a common monetary standard for cities of the Hanseatic League. The Wendish Monetary Union ranks among the first of the European examples of monetary union, a distant ancestor to the contemporary European Monetary Union.

The Hanseatic League was an association of north German towns, mainly maritime towns and inland towns engaged in foreign trade, that dominated Baltic trade during the fifteenth century. The league negotiated trade concessions and monopoly privileges from foreign countries such as England, Norway, and Russia, often at the expense of local merchants. The league operated self-government trading compounds, called kontors, at trading centers such as London, and these kontors were shared by the merchants who were citizens of Hanseatic towns.

Wampumpeag

Wampumpeag was a famous currency used by the American Indians, particularly but not exclusively along the eastern seaboard, and became widely accepted by the English colonists. The name of the currency, a bit of a mouthful, was usually shortened to wampum. The peag meant “beads” in the language of the Indians, and the wampum referred to the white color of the beads. The most common color was white but some of the beads were black. Wampum rose to the status of legal-tender currency in 1643 when Massachusetts set the value of the white beads at eight and the black at four to the penny for sums no more than 40 shillings. In 1649 Rhode Island set the value of black beads at four to the penny, but reduced the value in 1658 to eight to the penny regardless of the color of the beads. White beads, however, were taken in payment for taxes at six to the penny. As the white man with improved tools learned to manufacture wampum at a faster rate, the supply increased, and in 1662 Rhode Island ended the acceptance of wampum for payment of taxes.

Wage and Price Controls

Wage and price controls freeze wages and prices at a certain point in time, and perhaps establish procedures for gradually adjusting wages and prices. Episodes of hyperinflation and wars have most often laid the groundwork for the enactment of programs of wage and price controls. Inflation is rising prices, but also can be defined as a decrease in the purchasing power of a unit of money.

In 1793 the government of the French Revolution initiated a system of price controls that became known as the Law of the Maximum. A decree of 29 September 1793 empowered district administrations with the authority to set commodity prices at rates one-third higher than the levels of 1790. The decree granted municipal authorities the responsibility for setting wages at 50 percent higher than the 1790 level. In 1794 the Committee on Provisions issued an enormous schedule of the national Maximum, or price list. Each district added transportation costs, 5 percent profit for the wholesaler and 10 percent for the retailer, and then published a catalog of prices. Hoarding commodities to avoid selling at controlled prices was punishable by death. Despite the government’s involvement in the forcible requisitioning of supplies, the controlled economy of the Revolution broke down. In December 1794 the government suppressed the Law of the Maximum.

Virginia Tobacco Act of 1713

The Virginia Tobacco Act of 1713 created the most advanced form of a commodity monetary standard found in the American colonies. Under the provisions of the act planters brought their tobacco to public warehouses, where it was weighed, graded, and stored. The planters received paper notes that were titles of ownership to the tobacco, and these notes circulated as money. Any recipient of these tobacco notes had the option of claiming the tobacco and taking possession of it.

The American colonies, struggling with a shortage of precious metal specie for transacting business, turned to several expedients, including allowing certain commodities to be acceptable in the payment of debts. Several of the northern and middle colonies had a whole list of commodities that could be used in the payment of debts at prices mandated by the government. The colony of Virginia, however, relied almost exclusively on tobacco as a medium of exchange to compensate for the shortage of specie. The government accepted tobacco in the payment of taxes and government officials and the Anglican clergy received payment in tobacco.

Virginia Colonial Paper Currency

In the last half of the eighteenth century the colonial government of Virginia was the last of the colonial governments to have recourse to paper currency. Paper money was not completely new to Virginia because tobacco notes, essentially warehouse receipts for stored tobacco, had circulated as money since early in the eighteenth century. Later, however, the Virginia colonial government issued fiat paper currency that was declared legal tender.

The circumstances that pushed Virginia to the paper currency brink were hardly rare in the history of paper money. Robert Carter Nicholas, a member of the House of Burgesses at the time but not a friend of paper money, explained the rationale as follows:

Money, the acknowledged Sinews of War was necessary, immediately necessary; Troops could not be levied and supported without it; of Gold and Silver, there Was indeed some, what Quantity I do not know, in the Hands of Individuals, but The Publick could not command it. Did there not result from hence a Necessity Of our having Recourse to a Paper Currency, as the only Resource from which we Could draw Relief?

(Brock, 1975)

Venetian Ducat

During the late Middle Ages the Venetian ducat became the preferred international currency, sometimes referred to as the dollar of its time, a reference to the dominant role the United States dollar played in post–World War II international trade. By the fifteenth century the prestige of the gold ducat of Venice made it the standard for currency reform in Muslim and Christian nations of the Mediterranean. The Mamluk ashraftil, the Ottoman altun, and the Portuguese and Castilian ducat were based upon the Venetian ducat.

Venice first minted the gold ducat in 1284 at a weight and fineness of 3.5 grams of virtually pure gold (0.997 fine), a standard of purity and fineness that would be maintained until the end of the Venetian Republic in 1797. Gold coinage had disappeared in Western Europe after the eighth century, and the Italian city-states were the first European governments to renew coinage of gold. Florence and Genoa first struck gold coins in 1252, and Venice minted its ducat at the same weight and fineness as the Florentine florin, a coin that commanded the prestige of an international currency before it lost credibility when the Florentine government minted issues of lighter weight. The florin also suffered from inferior imitations issued by other governments. The Venetian ducat clearly superseded the florin in the fifteenth century as the international currency par excellence.

Velocity of Money

The velocity of money is the average number of times per year that a unit of currency (e.g., U.S. dollar, Japanese yen, German mark, etc.) is spent on goods and services. From a theoretical perspective a percentage change in the velocity of money can have the same impact on prices or other economic variables as an equivalent percentage change in the money supply.

Sir William Petty (1623–1687) may have been the first writer on economics to describe the velocity of money. He advanced the plausible view that the velocity of money was determined by the frequency of people’s pay periods. The famous philosopher John Locke (1632–1704) wrote on monetary economics and referred to the ratio of a country’s money stock to its trade, a concept bearing a marked resemblance to velocity. By the mid-twentieth century, the concept of velocity was a cornerstone of monetary economics, which is the study of the relationship between the money supply and prices, interest rates, and output.

Vellon

Originally, vellon was a mixture of copper and silver that became widely used for subsidiary coinage in Spain in the sixteenth, seventeenth, and eighteenth centuries. Over its history vellon took several forms. Calderilla, an early type of vellon, contained a variable but modest amount of silver, and was coined mainly in the sixteenth century. Another type of vellon, rich vellon, was coined mainly in the seventeenth century and contained a token 6.95 percent of silver. A pure copper vellon containing no silver or metal alloys also appeared in the seventeenth century.

Vellon was coined into units of maravedis, ranging from 1/2 maravedi to 12 maravedis. The maravedi was a large Moorish coin that emerged as the smallest unit of account in the Castile monetary system.

Variable Commodity Standard

Under a variable commodity standard a currency is officially redeemable in a certain amount of a commodity, such as gold, but the authorities may vary the redemption rate, depending upon other economic conditions. If the commodity is gold, the monetary authorities would vary the amount of gold the central bank stood ready to buy and sell for a unit of currency (e.g., a dollar) to maintain the value of the currency.

One of the legacies of the inflation-ridden 1970s and early 1980s was a renewed search for an inflation-proof currency. Issues surrounding the formation of the European Monetary Union and the planned development of a single European currency, focused additional attention on schemes of monetary reform. In the late 1980s numerous proposals for monetary reform surfaced that incorporated the concept of a variable commodity standard. The common theme in these proposals was the idea of a currency whose value is tied to a weighted basket of goods. The emphasis was on a currency not convertible into a fixed weight of gold, or other commodity, but convertible, at least indirectly, into a weighted basket of goods.

Value of Money

The value of money has to do with the purchasing power of a unit of money. One approach to the measurement of money value is to look at its precious metal equivalent. Under a gold standard, a dollar should be worth approximately a dollar’s worth of gold. Under a gold coin standard, the value of a dollar could drop below a dollar if the government reduces the gold content of its coinage relative to its face value. Under such circumstances it might be appropriate to say that a dollar is worth only 75 cents or 50 cents, based upon the value of its precious metal content.

Despite the widely hailed virtues of precious metal backing for money, the amount of precious metal a unit of money can buy is not the essential factor to individual consumers, who have to think of the cost of things they must buy to maintain themselves and their families. Furthermore, under an inconvertible paper standard such as that of the United States, where even the metallic coinage is token money, the value of money is divorced from any precious metal connection. The true measure of money value must be measured in terms of its purchasing power.

Vales (Spain)

Vales were Spanish paper money notes issued in the late eighteenth century and the Napoleonic era, the first paper money issued in Spain. During the last half of the eighteenth century, the gold and silver mines of Spanish America supplied the lion’s share of the world’s precious metals, and mints in Spain and the Indies struck most of the coins. Vast gold and silver resources were of little avail when war interrupted the flow of trade with the New World, compelling Spain to turn to the issuance of paper money.

War between England and Spain, the major colonial powers in the New World, broke out in 1779. Charles III, king of Spain, refused, perhaps out of fear, to raise taxes to fight the war. Also a history of defaults and bankruptcies damaged the ability of the Spanish government to float bond issues. A royal decree of 20 September 1780 authorized the issuance of 16,500 vales, each with a face value of 600 vellon pesos and bearing 4 percent interest. A syndicate of Dutch, French, and Spanish merchants had offered to extend funds to the Spanish government in return for interest-bearing notes that passed as legal-tender money.

Usury Laws

Usury laws either prohibit payment of interest on loans or set a maximum interest rate that lenders can charge. Historically, the medieval Catholic Church disapproved of charging interest on loans. As late as 1950 Pope Pius XII felt it necessary to reassure people that bankers earn their livelihood honestly. In the late medieval period the Church began to relent, allowing certain forms of credit involving the payment of up to 5 percent interest.

In the early history of France, the French crown often forced subjects to loan money to the crown at zero percent interest. Businesses worked around the Church’s prohibition on interest. In 1311 Philip the Fair (IV), drawing a distinction between usury and trade loans made at fairs, set a maximum of 2 1/2 percent interest for commercial loans between fairs. (The annualized rate of this maximum equaled about 15 percent.) In 1601 Henry IV for reasons that were unclear issued an edict putting a 6 1/4 percent legal ceiling on interest rates. The edict was widely disregarded, but his government probably saw it as a way of promoting commerce. Under the regime of Cardinal Richelieu the crown issued a royal edict (1634) further reducing the legal rate of interest to 5 5/9 percent, citing the evil effects of high interest rates that allow people to live on interest income instead of engaging in commerce.

Tzarist Russia’s Paper Money

Of the European countries only Sweden beat Russia to the punch on the issuance of government-sanctioned paper money inconvertible into precious metal. Perhaps it is no accident that Russia first saw paper money under Catherine the Great (1762– 1795), whose wars broke the power of Turkey and made Russia a player among the powers of Europe. The first issue of paper money, called roubles-assignats appeared in 1768 to help finance the first Turkish war. Russia termed its paper money assignats before the French issued their own more-famous assignats during the French Revolution, which fueled one of the great hyperinflation episodes in history.

The government created two note-issuing Assignation Banks to issue the notes. The supply of assignats swelled as Catherine fought a second Turkish war and wars with Sweden, Poland, and Persia. For the first two decades the bourse exchange rate between assignat rubles and silver rubles traded close to par. Toward the end of the century the assignat rubles were trading at a 30 percent discount, and fluctuated around that level until the Napoleonic struggles increased the government’s dependence upon paper money. By 1811 a silver ruble equaled 3.94 assignat rubles. The victory over Napoleon brought some improvement in confidence but the trading range remained between 3 and 4 assignat rubles per silver ruble for the following three decades.

Trial of the Pyx (England)

The Trial of the Pyx was a public trial or test of the purity of gold and silver coins that began in the thirteenth century and continued into the present day. In 1982 Queen Elizabeth II and Sir Geoffrey Howe, chancellor of the Exchequer, attended the Trial of the Pyx in celebration of a custom marking its seven-hundredth anniversary. The oldest extant writ ordering a trial came at the behest of Edward I in 1282. Although similar tests were conducted at regional mints, the most meticulous and thorough tests were held for coins struck at the Royal Mint in London.

To conduct a trial a specified sample of coins of each denomination was set aside and stored in leather bags identified by the month of coinage. In 1485 a sample consisted of 10 shillings from every 10 pounds of gold and 2 shillings from every 100 pounds of silver. These leather bags were put in a chest, or pyx, hence the name “Trial of the Pyx.” The pyx was locked with three keys, one held by the warden of the mint, a second by the comptroller, and a third by the master-worker. The crown could call for a trial every three months, but the trials were much less frequent.

Treasury Notes

Treasury notes were interest-bearing treasury bonds that circulated as money in the pre–Civil War era in the United States. The notes were not legal tender but were accepted for payments owed the federal government, including tax obligations.

For the first two decades of its existence the new government of the United States steered clear of the issuance of government notes that circulated as money. The hyperinflation of the American Revolution remained a thought-provoking memory of the dangers of paper money, and Alexander Hamilton stood as a staunch opponent of Treasury issues of paper money.

By the War of 1812 Congress was in the hands of people without firsthand experience of the Revolutionary hyperinflation, and wartime demands for resources pressed hard on government officials. On 30 June 1812 Congress authorized the issuance of $5 million of treasury notes, redeemable within one year, and paying 5 2/5 percent interest. The following years saw authorizations for additional issues, $5 million in 1813, $18 million in 1814, and $8 million in 1815. The notes circulated as money and were acceptable in payment of federal government taxes.

Trapesite Banking

Trapesite banking is the term for private banking that arose during the mid-fourth century in ancient Greece. The trapesite bankers themselves were called trapezitai, and the banking concerns were called trapezai. The Greek word trapeza means “table,” a reference to the moneychangers’ tables of the ancient world. The modern English word bank can be traced to the moneychangers’ bench of the Middle Ages.

Our information about trapesite banking comes largely from speeches delivered in lawsuits arising out of the banking business. No less of a person than Demosthenes, the most famous orator of classical Greece has passed down speeches that shed light on the trapesite banking in his time. The most famous trapesite banker was Pasion of Athens, who came to Athens as an alien resident, and won his citizenship for the value of his services to the city of Athens. In one reference to Pasion’s banking, Demosthenes says: “Of the deposits of the banks, eleven talents were interest-bearing” (Westermann, 1931).

Trade Dollar

In 1873 Congress authorized the coinage of the trade dollar, a special silver dollar coin intended to facilitate trade between the United States and China, and to furnish a market demand for rising silver production in the Western states. At first the coin was legal tender only for up to $5, but Congress later withheld its legal-tender status. The Treasury stopped minting the trade dollar in 1877 and Congress officially discontinued the coin in 1887.

Trade between the United States and the Far East, particularly China and Japan, accelerated around 1869 through 1870, and a popular medium of exchange in the Pacific Basin was the Mexican silver dollar containing 416 grains of silver. The American silver dollar, containing 412 1/2 grains of silver (before discontinuance on 1873), was not competitive with the Mexican dollar. The state of California petitioned Congress to coin a silver dollar containing 420 grains of silver, hoping to draw to California the Chinese and Japanese trade then flowing to Mexico.

Touchstone

Touchstones were stones used to test the purity of precious metals such as gold and silver. Touchstones were also called Lydian stones, after the country of Lydia, the birthplace of precious metal coinage and the first country credited with the use of touchstones. The spread of gold coinage particularly increased the profits that could be earned from adulterating and alloying gold coinage, and touchstones offered an inexpensive and useful test for purity of gold coinage. Both individuals and governments were known to reduce the purity of precious metals by alloying them with cheaper metals.

Temple of Juno Moneta

The temple of Juno Moneta acted as the mint and treasury for the Roman government. From the name of the temple can be traced the English words money, and mint. The Spanish word for “coin,” moneda, also stems from moneta. The month of June gets its name from Juno.

The most important of the Seven Hills of Rome was Capitoline Hill, a modest elevation even when compared to the other six hills, but at the crest of the hill stood the Capitol, the main temple of the empire. The center of the temple belonged to Jupiter Optimus Maximus, the king of the gods, but side chambers honored two other important deities, Minerva, the goddess of wisdom, and Juno, consort to Jupiter, and mother to Mars, the god of war.

Each of the Roman triad of gods came with different surnames reflecting different aspects of their heavenly responsibilities. Juno Regina reigned as the queen of heaven resembling Hera, wife of Zeus in Greek mythology, and looked after the interests of women. Juno Pronuba oversaw marriage negotiations, and Juno Lucina guarded over expecting women. Labor and childbirth came within the province of Juno Sospia.

Temple Moneychangers

The moneychangers in the ancient world made a market in foreign exchange where merchants and traders bought currency of other countries to carry on trade. The New Testament tells a story of how Jesus entered the temple in Jerusalem, disdainfully overturned the tables of the moneychangers, and showed his indignation with the admonishment, “It is written, ‘My house shall be called a house of prayer’; but you make it a den of robbers” (Luke, 19:46). This confrontation between Jesus and the temple moneychangers is another reminder that money in ancient times, particularly precious metal coins, was not embraced with open arms as a means of encouraging trade and securing prosperity. It was more often associated with the dark forces in society. Today, money is regarded as a necessary instrument of exchange in our complex economies, but the idea of moneychangers in the temple still leaves our moral sensibilities in a state of repugnance.

The multiplication of coins minted in various Greek cities, and in Lydia and Persia, created a demand for experienced specialists who were knowledgeable of the diverse weights, quality, and standards of foreign coins. They sat at tables in streets and marketplaces and fulfilled the role of bankers to their customers. In addition to trading foreign currency, they aided merchants in arranging foreign deals, and acted as the custodians of savings entrusted to them.

Temple Coinage in Ancient Greece

Before coinage became a monopoly prerogative of governments, religious temples minted coins in Greece, playing an important role in spreading the practice of coinage to the Greeks. The coinage of money on sacred temple grounds, under the direction of priests, brought to bear the full weight of religion and custom to protect the funds of the mint and assure the quality of the coins.

The famous religious shrines of ancient Greece and Rome acted as treasuries, including the temple of Athena at Athens, the temple of Apollo at Delphi, and that of Juno Moneta at Rome. Even the later Roman Republic, famous for clever statecraft, used shrines as repositories of public funds. The gold statutes in the Parthenon and the bullion in the temple treasury were part of Athens’ monetary reserve. Thucydides, in his famous Peloponnesian War, puts these words into the mouth of Pericles regarding the resources of Athens:

Apart from other sources of income, an average revenue of six hundred talents of silver was drawn from the tribute of the allies, and there were still six thousand talents of coined silver in the Acropolis…. This did not include the uncoined gold and silver in public and private offerings, the sacred vessels for the processions and games, the Median spoils, and similar resources to the amount of five hundred talents. To this he added the treasury of the other temples. These were by no means inconsiderable, and might fairly be used. Nay, if they were ever absolutely driven to it, they might take even the gold ornaments of Athene herself, for the statute contained forty talents of pure gold and it was all removable. (Thucydides, 1952)

Tea

The eminent Zen scholar, Daisetz T. Suzuki, in his book Zen and Japanese Culture, observes that “If tea symbolizes Buddhism, can we not say that wine stands for Christianity?” Commodities having religious significance have a propensity to take on the characteristics of money. Gold was often considered the metal of the gods and a favored gift to religious temples. Therefore it should be no surprise that tea surfaced as money in geographical areas where Buddhist culture exerted a potent influence.

In nineteenth- and early twentieth-century Tibet, which was a virtual citadel of Buddhism, sheep served as a measure of value, but Tibetans used tea as a medium of exchange. Tea bricks and sheep also acted the role of money in Sinkiang.

In the nineteenth and twentieth centuries tea bricks displaced sheep as currency in inner Asia, and particularly Mongolia. During the nineteenth century the Chinese paid Mongolian troops in tea bricks. Consumers went to the market with a sackful or cartload of tea bricks. A sheep cost between 12 and 15 bricks, and a camel between 120 and 150 bricks. Between 2 and 5 bricks could purchase a Chinese pipe. Credit transactions were negotiated in tea bricks, and reports were heard of houses purchased with tea bricks. In Burma a tea brick was the monetary equivalent of a rupee and circulated as such.

Tallies (England)

In England tallies were wooden sticks that functioned as instruments of credit and exchange in public finance. The Exchequer (treasury) began using tallies in the Middle Ages, and by the humor of history the use of tallies survived into the early nineteenth century.

A tally was a wooden stick with notches denoting various sums of money. A notch the length of a man’s hand denoted 1,000 pounds, while a notch the width of a man’s thumb denoted 100 pounds. A simple V-shaped notch represented 20 pounds. The handle of the tally remained notchless. In a credit transaction, the notched segment of the wooden tally was split lengthwise down the middle and the handle remained with one half of the tally. The creditor kept the larger half with the handle, and the debtor kept the smaller half, called the foil. The two halves would match or “tally.” The tallies were assignable, meaning creditors could transfer ownership of tally debts to third parties. In this connection tallies circulated as money.

Tallies entered into the British public finance system in two ways. First, a citizen owing taxes to the government might hand the Exchequer a tally, signifying a debt of taxes. The government would use the tally to pay for goods and services. The recipient of the tally presented it to the taxpayer who had the other half (the foil) and demanded payment. A second use of tallies in public finance occurred when the government issued tallies in payment for goods and services. In this instance the government was the debtor, and tallies originating from the government could be used in payment of taxes. Originally the government pledged future tax revenue from specific sources earmarked for redemption of these tallies. Later the government issued tallies to be redeemed from the general revenue. Tallies used as an instrument of government debt paid interest.

Taler

The taler was originally a German coin equal to three German marks, but the word taler became a common name for currency that, in various guises, appeared in other languages and countries. The English word dollar evolved from taler, as did the Italian tallero, the Dutch daalder, and the Swedish and Danish dalers.

The first talers came from Jachymov, now a small village in the Ore Mountains in the western part of the Czech Republic. At the opening of the sixteenth century Jachymov fell within the Holy Roman Empire and was administered under German authority. In 1516 the local ruler, Count Hieronymus Schlick, found a silver deposit close to his home. As early as 1519 Count Schlick, without official sanction, began minting silver coins in his castle, and on 1 January 1520 he received official approval to operate a mint. Minting silver into coins was probably more profitable than merely selling silver. Between 1534 and 1536 King Ferdinand I ordered the construction of an imperial mint in Jachymov. The building housing the imperial mint served as a museum as late as 1976.

Tabular Standard in Massachusetts Bay Colony

During two separate periods of rapid inflation, the Massachusetts Bay Colony put in practice a tabular standard in which debts payable in shillings were adjusted for changes in the purchasing power of the paper currency. Under the tabular standard, a 100 percent rise in the price level meant debtors owed twice as many shillings as they had borrowed. Without the protection of a tabular standard, the money that came back to creditors in repayment for loans had less purchasing power than the money they first loaned out.

The first experiment with a tabular standard occurred in 1742, when the legislature authorized a new issue of paper currency. At the same time the legislature enacted a so-called equity law, requiring the repayment of all debts of five years duration and contracted after March 1742 at a rate of 6 2/3 paper shillings to an ounce of silver. The most innovative portion of the law, however, empowered justices of the Massachusetts courts, in adjudicating disputes involving debts paid in paper currency, to “make Amends for the depreciating of said Bills from their present stated Value,” which was 6 2/3 shillings to an ounce of silver. That is, the justices could force debtors to pay more than 6 2/3 shillings to an ounce of silver to compensate creditors for the erosion in purchasing power of their money while it was loaned out. (Creditors often do not fully anticipate inflation and do not charge enough interest to compensate for inflation.) Every six months the purchasing power of the new bills was adjusted according to “the Rates that said Bills then commonly pass at in Proportion to Silver and Bills of Exchange payable in London.”

Symmetallism

Symmetallism is a type of monetary system in which a standard monetary unit is equivalent to a fixed number of ounces of gold, coupled with a fixed number of ounces of silver. The standard monetary unit becomes equivalent to a bundle of two precious metals, combined in a fixed, unchanging proportion. As an illustration, the dollar might be set equivalent to 0.0242 ounces of gold, plus 0.3878 ounces of silver. The term symmetallism seems to have been coined by Alfred Marshall, a prominent economist around the turn of the century who proposed a symmetallic system as an answer to world monetary woes. Symmetallic systems were not without precedent, however, because the ancient kingdom of Lydia is credited with striking the first coins from a metal called electrum, which was a mixture of gold and silver found in a natural state.

Swiss Franc

Over the years Switzerland developed a legendary reputation for financial probity, helping to lift the Swiss franc above the crowd of national currencies and become a symbol of strength and monetary soundness. Internationally, it is a favored currency for hoarding money, partly because Swiss banking secrecy laws protect the anonymity of depositors in Swiss banks. International pressure has steadily eroded away some of the protection of anonymity afforded to depositors in Swiss banks, particularly for depositors engaged in criminal conduct.

In 1848 Switzerland adopted the French monetary system, preferring a coherent application of the decimal system. Switzerland had first tasted the French system during the Napoleonic era when France conquered Switzerland and turned it into the Helvetian Republic.

In 1860 Switzerland debased its subsidiary silver coins to prevent the exportation of its silver coinage. In 1865 Switzerland was one of the countries attending a conference in Paris that led to the formation of the Latin Monetary Union. Switzerland argued for the adoption of the gold standard and conversion of silver coinage into subsidiary coinage. The union agreement, however, provided for a bimetallic standard based on gold and silver. Switzerland, along with France, Italy, and Belgium, agreed to mint gold pieces only of 100, 50, 20, 10, and 5 francs. The union members agreed to mint a fully weighted 5-franc silver piece, but lower denomination silver coins became subsidiary coinage with reduced weight. Under the union agreement, coins from each country circulated freely in other union countries. After Germany adopted the gold standard in 1871 the Latin Monetary Union broke down, and the member countries adopted the gold standard.

Swiss Banks

Swiss banks enjoy a worldwide reputation for protecting the identity of depositors. This important characteristic helped Switzerland grow to one of the world’s major banking centers in the twentieth century. Another factor contributing to the growth of Swiss banking is Switzerland’s position of neutrality. On 20 May 1815 the Vienna Congress established the permanent neutrality of Switzerland among the European powers—a position the superpowers of the world honored through two great wars in the twentieth century.

Switzerland was not a pioneer in early European banking. Geneva was the first of the Swiss cities to become a banking center. By 1709 Geneva boasted of a dozen bankers who left a name in Swiss financial history, and Louis XIV floated loans in Geneva to finance his wars. Geneva bankers kept close ties with France and remained involved in financing French public debt until the end of the nineteenth century.

Basel developed a significant banking industry only in the nineteenth century. In 1862 the Basel Register listed 20 banks, 9 of which were exclusively devoted to banking.

Sweden’s Paper Standard of World War I

During World War I Sweden sought to weaken the link between gold and domestic currency in an effort to tame inflationary forces. Sweden’s policy was unprecedented, considering that the gold standard usually receives strongest support from those quarters where inflation is most feared. The nineteenth century had seen several countries abandon a silver standard to avoid currency depreciation, reacting to the depreciation of silver relative to gold, which was a stronger metal monetarily and clearly the preferred bulwark against inflation.

Sweden had adopted the gold standard in 1873. A gold standard country must stand ready to buy and sell gold at an official price in its own currency. A country’s commitment to sell gold at an official price in its own currency puts a strict limit on the volume of paper money issued, acting as a guard against the issuance of inflationary levels of paper money. When a country suspends gold payments, as often happens during times of fiscal stress, such as wars, the country expects to see its currency depreciate, and domestic prices go up.

The other side of the gold standard is the commitment to buy gold at an official price, a commitment that Sweden suspended in February 1916. During World War I Sweden supplied war materials and supplies to the belligerents and often received gold in payment. Foreign currencies sold at a discount relative to the Swedish krone, and gold would have sunk in value relative to the krone if the Swedish central bank had not been committed to buy gold at the official price. The influx of gold and foreign currencies would not have created difficulties if Sweden’s opportunities for importing foreign goods had increased proportionately with its accelerating opportunities for export. Wartime conditions, however, favored exports over imports.

Sweden’s First Paper Standard

Between 1745 and 1776 Europe had its first experience with an inconvertible paper standard. Sweden had been the first European country to introduce bank notes early in the seventeenth century, but by the mid-eighteenth century England and France had both made use of bank notes, and France had furnished Europe with its first example of a paper money debacle. Neither England nor France had officially adopted a paper standard when the Swedish government put Sweden on an inconvertible paper standard.

In the eighteenth century Sweden had a parliamentary government, in which two parties vied for power. One party, the “Hats,” identified with the exporting industries, the military, the nobility, and the monarchy, and generally favored policies of foreign expansion and increased influence abroad. By 1720 Sweden had lost its Baltic empire, much to the chagrin of the Hats, who wanted to maintain Sweden as a player in European politics. The other party, the “Caps,” represented agricultural interests, and what might be called the commoners. The Caps’ preference for policies of pacifism earned them the nickname Nightcaps, shortened to Caps, because they supposedly wanted to sleep while the great powers of Europe passed Sweden by.

Sweden’s Copper Standard

Like most European countries, Sweden emerged from the medieval period on a silver standard. In 1625, however, Sweden monetized copper and switched to a bimetallic standard based on copper and silver. As often happened under bimetallic systems, one metal currency drove out the other metal currency, and in Sweden’s case copper currency displaced the silver currency in domestic circulation, putting Sweden on a copper standard. Sweden’s copper standard remained technically in effect until 1776, but its operational importance ended in 1745 when Sweden introduced an inconvertible paper standard.

Sweden turned to a copper standard not because of any perceived commercial advantage, but because copper mining was an important industry in Sweden, and the Swedish government sought to increase the demand for copper. Gustavus Adolphus, king of Sweden from 1611 to 1632, felt that drawing copper into use as circulating money would reduce the supply of copper in world markets and lead to an increase in copper prices. Spain, then the foremost power in Europe, had furnished a recent precedent for the monetization of copper when it debased its own silver coinage with a copper alloy. Vellon was the name given to Spain’s debased silver coinage, which in the first half of the seventeenth century became virtually all copper in content. Spain’s de facto copper standard supplied the first stimulus to the copper industry, causing the Swedish government to look to the copper industry, which it controlled, as its main source of revenue.

Suspension of Payments in War of 1812 (United States)

The British attack on Washington in 1814 unnerved the public’s confidence in a banking system that had overextended itself in the issuance of bank notes. Banks in the Washington area suspended payments on their obligations to redeem bank notes, touching off a round of payment suspensions that spread to every region except New England.

In the early banking system individual banks issued their own bank notes, which they were obliged to redeem in gold and silver coin (specie). Bank customers received bank notes instead of a checking account and checkbook, and each bank held reserves of coin to redeem bank notes, just as a modern bank holds vault cash and other reserves to redeem checking accounts. A suspension of payments meant that banks no longer redeemed their bank notes with specie, putting the United States on an inconvertible paper standard. An inconvertible paper standard is a monetary system based on paper money that cannot be converted into precious metal at an official rate.

The War of 1812 contributed only part of the pressure on the banking system that preceded the crisis. From 1799 until 1811 the First Bank of the United States oversaw the banking system and made sure that individual banks could redeem their bank notes in coin. In 1811 the First Bank lost its charter from the United States government, substantially removing what regulation there was of state-chartered banks. From 1811 to 1815 the number of banks increased from 88 to 208, and the value of bank notes in circulation rose from $23 million to $110 million. The capitalization of the banking system only doubled during the same time, and most states allowed banks to issue bank notes without regard to capital or reserves. The circulation of bank notes had outgrown the supply of gold and silver, leaving the banking system floating on a thin film of public confidence. After the suspension of payments these bank notes circulated at discounted values, usually between 10 and 20 percent, but some notes from Kentucky banks were discounted 75 percent.

Sugar Standard of the West Indies

From the mid-seventeenth century sugar became the reigning monetary standard on the Leeward Islands, and to a lessor extent on Barbados and Jamaica. Jamaica, because of its importance as a naval base as well as a favorite of the buccaneers, was always furnished with a plentiful supply of coins, but nevertheless made use of sugar money. Barbados and the Leeward Islands perennially wrestled with coinage shortages, forcing the expedient of commodity money. Before sugar rose to the forefront, tobacco met the need for a medium of exchange and unit of account in the West Indies.

A Barbados law of 1645 concerning family prayers provided that “whomsoever shall swear or curse, if a master or freeman he shall forfeit for every offense 4 pounds of sugar; if a servant, 2 pounds of sugar” (Einzig, 1966). Fees and wages were also measured and sometime paid in Muscovado or brown sugar at rates established by an act of the legislature. A rate of 10 shillings per 100 pounds of sugar prevailed for a while as the monetary standard of Barbados.

Sugar displaced tobacco a bit later on the Leeward Islands. Laws enacted in 1644 and 1688 declared that a fine of a 1,000 pounds of good tobacco in a roll awaited anyone found guilty of commerce with the heathen or Sabbath breaking by “unlawful gaming, immoderate and uncivil drinking—or any other prophane and illicious Labours of the Week-days, as digging, hoeing, baking, crabbing, shooting and such like indecent actions” (Einzig, 1966).

Suffolk System

The Suffolk System was the first effort to regulate private banking in the United States. Although banking regulation later became a government activity, the Suffolk System was born of a private initiative that saw a need to regulate country banks.

The Suffolk Bank of Boston first established the Suffolk System in 1819 and in 1824 six other Boston banks joined the system. The Suffolk System required country banks around Boston to deposit reserve balances totaling $5,000 in one or more of the seven Boston banks participating in the system. These reserve balances acted as a guarantee that country banks could always redeem their bank notes in specie.

In the pre–Civil War United States individual banks issued their own bank notes, rather than the current practice of issuing checkbooks or debit cards to accompany checking accounts. In today’s United States economy, only the Federal Reserve System can issue bank notes. Under the banking system in which individual banks issued their own bank notes, financially sound banks could always redeem their bank notes in gold and silver coinage; therefore their bank notes circulated at face value, and were accepted in trade as equivalent to gold and silver coinage or other bank notes. Bankers, however, often fell prey to the temptation to issue more bank notes than was reasonable, considering the bank’s gold and silver coin reserves. This left the public holding bank notes that they could not be confident would be redeemed in gold and silver coin. These bank notes circulated below par and anyone accepting one of these bank notes in trade risked taking a loss. Banks that often had to take bank notes as deposits were particularly vulnerable to sustaining a loss from bank notes issued by overextended banks.

Stop of the Exchequer (England)

In January 1672 Charles II issued a proclamation that suspended payment on tallies and Exchequer orders to pay, an action that became known as the Stop of the Exchequer. The British treasury is called the Exchequer, because during the Middle Ages transactions with the British treasury took place in a room with tables covered by checkered cloth. The modern term check is a derivative of exchequer.

During the reign of Charles II the Exchequer discounted tallies and Exchequer orders to pay to goldsmith bankers, paying interest rates above 6 percent. Tallies were wooden sticks that represented a debt of the government and Exchequer orders to pay were paper orders that were replacing the wood tallies, which were a holdover from the Middle Ages. The goldsmith bankers paid 6 percent interest on near-money accounts (deposits not readily available on demand, such as modern certificates of deposit) in order to raise funds for discounting tallies and paper orders from the government. Tallies and paper orders were similar to some present-day government bonds that are bought at a discount (an amount less than face value), and can be redeemed at face value at some maturity date in the future. The government pledged to redeem the tallies and paper orders in a rotating order.

Standard Drawing Rights

Special drawing rights (SDRs) are a form of fiat international monetary reserves that substitute for gold as monetary reserves in the international economy. The SDR also serves as an international monetary unit of account in the accounts of the International Monetary Fund (IMF).

SDRs were born of a shortage of international gold reserves that arose in the 1960s. Participants at the annual meeting of the IMF in 1967 at Rio de Janeiro drafted an agreement to issue SDRs. Member countries ratified the agreement in 1969, and the first allocations of SDRs came forth in 1970. Each country received allocations of SDRs proportional to its quota of funds contributed to the IMF. The IMF receives its lending resources from the contributions of member countries, which are assigned individual quotas based on such factors as national income and volume of international trade.

Specie Circular (United States)

On 11 July 1936 President Andrew Jackson issued an executive order, called the Specie Circular, requiring payment in specie (gold and silver coins) for all government lands sold to the public. The government no longer accepted bank notes in sales of government land. The Specie Circular actually came from the pen of Senator Thomas Hart Benton, who unsuccessfully advanced a Senate resolution with the same intent. Jackson and Benton were both “hard currency” advocates, and Benton had supported Jackon’s veto of the rechartering of the Second Bank of the United States. As the bank war raged in the Senate, Benton thundered:, “Gold and silver is the best currency for a republic, … it suits the men of property and the working people best; and if I was going to establish a working man’s party, it would be on the basis of hard money; a hard money party against a paper party” (Schlesinger, 1945).

Spartan Iron Currency

In about 600 b.c. Lycurgus, the famous Spartan lawgiver, put into Sparta’s constitution a provision that banned the circulation and possession of gold, silver, or other precious metals as a means of transacting business and replaced these forms of money with an iron currency, variously reported as being in the form of disc or bars. This provision was part of a plan of social reform intended to spare Sparta the evil consequences of wealth concentrated in the hands of a few citizens. According to Plutarch, Lycurgus, after effecting a land reform that spread out the ownership of that wealth, set to work reforming the currency. In Plutarch’s Lives of Noble Grecians and Romans (1952) we read that Lycurgus:

Spanish Inflation of the Seventeenth Century

The seventeenth century almost from beginning to end saw Spain debase its silver coinage with copper and mint vast quantities of copper coins, causing inflation and shortages, punctuated with fits of deflationary policies and solemn promises of currency reform. Ironically, Spain struggled for nearly a century with debasement and inflation after exploiting vast gold and silver discoveries during the sixteenth century. The percent of Spain’s domestic coinage made of copper rose to 92 percent, hardly believable in light of the influx of gold and silver from the New World in the sixteenth century.

At the beginning of the seventeenth century, Spain’s government budget was bloated after years of financing wars and the royal pomp necessary for a great world power. Spain’s revenues from gold and silver mines in the New World began trailing off, and the Spanish crown turned to minting copper coins to pay for heavy government expenditures. Spain’s dependence on foreign treasure had perhaps already sapped vitality from domestic industries, rendering inflationary policies tempting in an economy that could not generate sufficient tax revenue to finance its government.

Spanish Inconvertible Paper Standard

Spain stood aloof from the classical gold standard that brought monetary order to the world from the 1870s until 1914. In 1883 Spain abandoned convertibility of bank notes into precious metal and never returned to a metallic standard, even in the aftermath of World War I when most of the world’s trading partners adopted a gold exchange standard.

In 1868 Spain adopted a bimetallic standard along the lines of the Latin Monetary Union. Like the union Spain fixed the official ratio of silver to gold at 15.5 to 1. In 1874 the government conferred upon the Bank of Spain a monopoly on the issuance of bank notes. The value of silver fell as the world turned to the gold standard, raising the free market ratio of silver to gold to 18 to 1 by 1876. Gresham’s law set to work in Spain. Because gold could buy more silver abroad than in Spain, gold flowed out and silver displaced gold as domestic currency. Gold currency decreased from 1,131 million pesetas (the monetary unit of Spain) in 1874 to 736 million in 1883. Gold reserves in the Bank of Spain increased substantially until 1881, and then dropped precipitously in 1883.

The suspension of convertibility in 1883 may have been triggered by an international financial crisis, including a stock market crash in France and a deteriorating balance of trade for Spain. When Spain’s gold reserves dropped to 60 percent of their 1881 level the government suspended convertibility.

Solon

(ca. 630–560 b.c.)

Solon was a sixth-century Athenian lawgiver and poet who, according to a literary tradition, changed the Athenian monetary standard in an effort to extend relief to debtors. Subsequent research has cast doubt on the populist nature of Solon’s monetary reforms, but the thrust of his reforms nevertheless eased the burden on debtors. He redeemed land that had been forfeited for indebtedness and freed citizens enslaved because of debt. His laws forbade loans that subjected the borrower to enslavement in case of default. In the life of Solon in Plutarch’s Lives of Noble Grecians and Romans (1952) can be found the following passage, referring to Solon’s monetary reforms:

Though some as Androtion, affirm that the debts were not canceled but the interest only lessened, which sufficiently pleased the people; so that they named this benefit the Seisacthea, together with the enlarging their measure, raising the value of money; for he made a pound, which before passed for seventy-three drachmas, go for a hundred; so that, though the number of pieces in the payment was equal, the value was less; which proved a considerable benefit to those that were to discharge great debts, and no loss to the creditors.

Social Dividend Money of Maryland

More than half of the first paper money issued by the colony of Maryland flowed into the economy as a social dividend, equivalent to a gift to each inhabitant over 15 years of age. Historically, the major sources of paper money have been banks that issued it on the strength of promissory notes, and governments that issued it to finance government expenditures. Often governments have issued paper money during wartime when demands upon government spending are particularly heavy. Maryland’s first experiment with paper money was unique for that era because its colonial government issued paper money solely for the purpose of stimulating the private economy, without feeling pressure to finance a portion of the public sector’s budget.

Like other American colonies Maryland struggled against a shortage of currency that kept the colonial economy on a tight leash, limiting trade to what could be transacted with a limited money supply. England made no special provision to supply the colonies with coins and currency, and the colonies had to get by with what could be earned from trade with the rest of the world. To infuse additional coin into the local economy, the Maryland legislature in 1729 granted a 15 percent reduction in import and export duties if they were paid with imported gold or silver.

Snake

The so-called snake was a coordinated policy among European Community (EC) countries to constrict exchange rate variations between member countries to a narrower band than allowed by the International Monetary Fund (IMF). It was the first stage toward the monetary unification of Europe, a goal that appears now within reach with the introduction of a European currency unit, the euro. The snake system began in March 1972 and remained in operation until January 1979 when the European Monetary System (EMS) replaced the Economic and Monetary Union (EMU). The EMS and its predecessor, the EMU, were agreements of cooperation in monetary affairs between members of the EC. The EMS took a further step toward monetary unification with the introduction of the European Currency Unit (ECU).

Slave Currency of Ancient Ireland

Although ownership of slaves represented wealth in slave-holding societies and slaves were popular subjects for barter, ancient Ireland made slave girls, called kumals or ancillae, a unit of account for measuring the values of goods and services. A legendary king in ancient Irish literature owned a chessboard, and each chess piece was said to equal 6 kumals in value. Queen Maeve, a figure in an epic poem dating from before the Christian era, boasted of a chariot worth thrice seven bondsmaids. During the fifth century in Ireland, St. Patrick wrote in his Confessions: “You know how much I have paid out to those who were judges in all the regions, which I have often visited; for I think that I have given away to them not less than the price of fifteen humans” (Einzig, 1966). The wording suggests that St. Patrick did not pay in slaves, but was using slaves as a standard of value for reckoning what he did pay. St. Patrick would not have used slaves as a means of payment. Under his guidance the Hiberian Synod decreed that retribution for the murder of a bishop or high prince demanded either crucifixion or payment of seven ancillae. The decree also required that if blood money was paid in specie, one-third must be in silver, a clear indication that ancillae were only a unit of account, and not a tangible means of payment.

Slave Currency

Slaves often served as a form of wealth in primitive societies, making slaves a suitable medium of exchange, particularly for large transactions.

In the modern era Africa provides the most evidence of the use of slaves as money. In the nineteenth century a slave was the unit of account in the Sudan. A standard unit was defined as a slave that met certain measurements. The value of a slave was equivalent to 30 cotton pieces, 6 oxen, or 10 dollars. In the Bagirmi country of equatorial Africa a slave of medium qualities, defined as a standard slave, served as a standard of value for large transactions. The prices of better slaves were some multiple of the standard slave. Wealth took the form of “heads,” and a successful slave raid depreciated the value of the standard, causing the prices of commodities expressed in slaves to rise. In Ghana slave payments were made for large transactions, and slaves served as a standard of value. In Guinea slaves were the favored unit of account in large transactions, and kings charged European ships port dues ranging from 7 to 12 slaves, depending upon the number of masts on each ship. In Nigeria slaves ran a close second to cowries as the prime unit of currency. A report in the late nineteenth century said of the slave: “He has been the cheque book of the country and has been necessary for all large payments. Unfortunately he has a trick of dying while passing from hand to hand” (Einzig, 1966).

Silver Purchase Act of 1934 (United States)

Under the Silver Purchase Act of 1934 the federal government purchased large quantities of silver and issued silver certificates, significantly adding to the United States’ monetary base. The act marked a renewed emphasis on silver as monetary metal, reversing a trend to demonetize silver, which had been evident since the late nineteenth century.

The deflation of the 1930s created fertile conditions for another silver movement, an echo of the nineteenth-century free silver movement. The monetization of silver appeared as a means of increasing the money stock and reinflating prices while remaining committed to precious metal money rather than fiat paper money. After the depression-driven tumble in prices of all commodities, precious metal monetary standards of any stripe held little charm for governments. The silver-producing interests, however, still had sufficient political clout to advance silver as a partial answer to the woes of economic depression.

Silver Plate

The silver plate that adorned the dinner tables of European nobility was treated as monetary reserves and frequently played that role. To help pay for the Seven Years War (1756–1763) Frederick the Great of Prussia requisitioned the silver plate from the royal palaces. He sent it to the melting pots at the mint, and minted it into 600,000 thalers at a rate of 21 thalers per Cologne mark of fine silver, rather than the usual 14 thalers. King Louis XIV of France also sent the royal plate to the mint to pay his troops.

In 1536 Henry VIII sent 20,878 pounds sterling of plate to the mint to furnish money urgently needed to pay troops. Later, in the last of the French wars, Henry VIII disgorged another 10,020 pounds sterling of plate for coinage, again furnishing money to wage war. Henry also confiscated vast amounts of ecclesiastical plate and sent it to the mint.

Silver

Silver and gold were the most aristocratic of the monetary metals. Silver owes its chemical symbol, Ag, to its Latin name, argentum, meaning “white and shining.” Ancient artisans found silver malleable, resistant to oxidation, and beautiful. It is one of the most reflective of all metals, under favorable conditions reflecting about 95 percent of the light striking its surface. The use of silver for ornaments, jewelry, and a store of wealth stretches into the mists of ancient history. In the Book of Genesis, Abraham, after returning from Egypt, is described as very “rich in cattle, in silver, and gold.” The laws of Moses put a silver value on men, cattle, houses, fields, and provisions. Silver seems to have been in greater use than gold as a monetary metal among the ancient Hebrews, but gold possessed greater religious significance. Hiram, king of Tyre, furnished gold for decoration of the Temple of Jerusalem.

Siege Money

During a siege coins and precious metal invariably go into hiding, in secret hoards, and cities under siege have often turned to a form of fiat money, usually paper money.

In 1574 the Spanish laid siege to the city of Leyden in the Lowlands. The city needed all the metal it could muster to manufacture arms, and even collected the metallic coinage to contribute to the effort. The burgomaster of Leyden issued small pieces of paper to take the place of coinage. These scraps of paper money predate by nearly a century the permanent introduction of paper money in Europe.

Several cities issued siege notes during the wars of the French Revolution and Napoleon. In 1793 the royalists in Lyons, France, revolted and took control of the city. The republican forces laid siege. The royalists printed crude notes on cardboard with the expression “The Siege of Lyon” and distributed them as money. In the same year Austria laid siege to the German town of Mainz, then under French control. The French authorities printed up a paper currency with the expression, “Siege de Mayence Mai 1793 2e de la Rep. France.” In 1796 the city of Mantua in Italy issued a siege currency when the city came under siege by Napoleon. Colburg, Prussia, issued siege currency in 1807 under the pressure of a Napoleonic siege. Also, several Italian cities issued siege currencies during the uprisings of 1848.