Author: David McWilliams
_David McWilliams_
Reading time: 20 minutes
Synopsis
The History of Money (2024) shows us how money has changed over time. It goes from the first kinds of money to when Bitcoin started. This book tells a story of busy trade, strong empires, and very bad money problems. It explains how money has helped people make great progress. It also shows why money is still a weak system that does not help everyone fairly.
What’s in it for me? Learn how money, a powerful but changing invention, has grown.
Money has always been more than just coins, notes, or numbers on a screen. It is a tool people made to solve problems and manage life better for many. Think of old markets or today’s internet systems. Every big step in human progress has been linked to how we use money, trade, and work together.
But at its heart, money is an idea that needs people to trust it. Over the years, this trust has changed. When people believe in money and what supports it, great things can happen. However, when there are fewer resources and countries try to do too much, that trust can disappear. Then, the money becomes almost worthless. When that happens, whole empires fall apart.
This is the story of money. It is a tale that is still changing. It might teach us how to stop the next big money crisis. So, let’s go back in time and see how it all started.
Blink 1 – From bone carvings to ways of borrowing money
To see how money began, we need to travel back to the Congo area of Africa about 18,000 years before Christ. This is the time of the Ishango Bone. It has marks carved into it. These marks might show an early way to count things. It might seem strange, but the ideas of value and trade may be older than towns and villages.
But money, like we know it today, really started to be used in Mesopotamia. This was around 3500 BCE, in the cities of Sumer. Here, the shekel, the first known type of money, was born. This area had good land for farming. So, the money was linked to grain. One shekel was worth one bushel of barley.
Of course, money also brought debt and interest. One of the first names written down in history is a Mesopotamian man named Kushim. He had to pay back a loan of barley. The interest was very high: 33.33 percent each year. This new idea, an interest rate, made money into something that could be bought and sold, with its own price. It connected a society’s current money situation to what might happen in the future. This is important because it shows us that, even then, money was an idea, not just a physical thing. It was based on agreements, weights, and very careful record-keeping. In fact, it might be the first thing people cared to write down.
Then, about 1000 to 600 BCE, money became physical thanks to the Lydians. The Lydians were people who lived in what is now Turkey. They invented coins, and this changed trade completely. These coins were more than just physical money. They changed the economy. It was no longer controlled only by leaders from the top. Instead, it became a flexible system driven by trade, not by one main power.
This idea of a small item that stood for a value everyone agreed on helped people move up in society and created a more complex world. The Greeks always liked clear systems, so they fully used coins. They had their silver tetradrachm coin. It showed the goddess Athena and her owl. This Greek money became the most common coin made in the old world for more than 700 years. It helped the busy city of Athens and its democracy.
The Romans built on these ideas. They notably introduced credit, which means borrowing money. Credit helped the empire turn the lands it conquered into huge amounts of money. People from all parts of society became like investors in the empire’s growth. But as expected, this caused the world’s first credit crisis under Emperor Tiberius. The empire grew more than its supply of valuable metals. Then, prices rose very fast (hyperinflation). This led to the fall of Roman money, and some say, the Western Roman Empire itself.
Blink 2 – Europe learns zero and leaves the Dark Ages
With the fall of the Western Roman Empire, most of Europe went into a time called the Dark Ages. Roman coins had lost almost all their value. The busy trade paths became small and few. So, the area from Germany to Scandinavia and Britain went back to a simple system of trading goods directly and a feudal system (where land was exchanged for service).
Without money to drive things and trade to connect people, learning and social progress stopped. Knowledge was lost, and groups of people lived far from each other. It was a step back to a world where two main powers ruled: the lord and the church (monastery). This economy took money and goods (tithes and rents) from poor farmers who had very little.
Fortunately, new technology helped a lot. The heavy metal plow, invented around the year 1000, helped farmers grow much more food. This new tool made it easier to plow fields. It created a lot of extra food. This freed farmers and helped cities grow.
As luck would have it, the new plow appeared at the same time that much silver was found in Germany. This brought back coins, like the German pfennig. With money being used again, new cities and trade places appeared. The area became strong in business again. The need for plows helped create a strong group of makers, skilled workers, and worker groups. This built a strong base for a new kind of economy.
With trade paths becoming busy again, Sicily became an unexpected center where many cultures met. There, Greek Christians, Arab Muslims, and Jewish businesspeople met and exchanged goods and ideas. This led to more people starting to use Hindu-Arabic numbers, including the very important idea of zero.
Christians had long did not accept the idea of zero. They thought it meant an empty space in philosophy. But using zero was very important. It made it possible to work with big numbers, parts of numbers, and complex money math. Businessmen in Europe soon used algebra (a type of math) to figure out interest rates. And once again, the economy would change, from being controlled by a few at the top to a more open system.
This ability to understand money helped Italian city-states grow, especially Florence. Florence was ruled by groups of merchants. In 1252, it made the pure gold florin coin. This coin became the main money used by many countries. It gave Florence quiet power and great riches. From here, a second big new idea appeared: banking. It included lending money to merchants, a new way of keeping financial records (double-entry bookkeeping), and bills of exchange (a way to pay across distances). But it also included fractional reserve banking. This meant banks could create money that did not exist before. This very important moment separated the state’s money-making (mint) from the total amount of money available. It moved power from kings to merchants and helped Europe enter a new era of learning and art, called the Renaissance.
Blink 3 – Paper promises and risky money bets
At the start of the seventeenth century, money started to take on a new form: paper.
This idea became popular when the Dutch Wisselbank started to use it. Holland was a small country with no natural resources. So, the Dutch Wisselbank’s paper money was not backed by silver or gold. It was backed by the state’s (country’s) trustworthiness. This trust and hope came from Amsterdam being a big center for trade. This was enough to make Holland the richest country in Europe. Britain and Russia wanted to be like Holland. The Bank of England did the same soon after.
Of course, hope can lead to risky bubbles, like the very famous tulipmania event that began in 1636. It was a terrible rush of buying things, hoping their price would rise. Flower bulbs became worth more than houses. But Holland’s system was strong enough to recover fast.
Around the same time, France was also having many ups and downs in its economy. This was partly due to new money ideas from an unexpected person: John Law. Law was a very clever Scottish math expert and a constant gambler. He ran away from England because he was accused of murder. When he landed in France at the start of the 1700s, he became the main financial manager. He started to lower France’s debt.
Law tested the idea of fiat money. This is money not backed by gold or silver, or anything real. Law believed it could be linked to parts of a company. In this case, it was the Mississippi Company, which could trade in French Louisiana in America. This was a deal to trade debt for company shares. It was based on hopes for the New World. It had a bad end, much like tulipmania. For a minute, the rush of activity made the economy lively again. But when the bubble burst, many people lost all their money. France fell into great money problems. This helped cause the French Revolution.
Alexander Hamilton was in America, but he learned from France’s mistakes that caused its civil war. As the first US Treasury Secretary, he made the Coinage Act of 1792. This made the US dollar the official money of the country. He linked it to a trusted currency: the Spanish silver dollar. But more than that, he set up a main national power. He took all the states’ debts and made them into one national debt. He also started a special fund to pay off debts. He acted like the world’s first modern central bank head, helping when no one else would. He wanted a country with free markets and strong, steady money. This plan helped the US become a very strong economy.
Blink 4 – Change, unfair use, and using money as a weapon
In the 1800s, Charles Darwin read Thomas Malthus’s book, An Essay on the Principle of Population. It was a moment of understanding that helped him create his idea of natural selection (where the strongest survive). This, in turn, proved to be a good way to talk about today’s economy. The marketplace, like nature, is hard to guess and complicated. New ideas and companies start. Those that cannot change always fail. It’s survival of the fittest.
The world’s powerful countries needed to change. Their use of the gold standard (where money is backed by gold) was not working anymore. This system, which linked all money to limited things like gold, always made prices fall. And at the end of the 1800s, holding onto wealth that couldn’t last reached a breaking point.
This is best shown by how rubber became a business. When John Boyd Dunlop invented the air-filled rubber tire about 1887, the Anglo-Belgian India Rubber and Exploration Company went to the rubber trees in Africa’s Congo area. They used great violence and unfair treatment against the local workers. These companies were bought and sold by the public. They sent a lot of European money into projects to control other lands. But they were also doing very bad things. The cruel acts in the Belgian Congo were shown to the public. They were in the news and finally led to questioning colonialism.
In many ways, World War I was the final struggle of countries that wanted to control other lands. They fought over the world’s limited resources. Germany thought it was stronger than it was. It paid for its war using public money. German people were sure they would win, right up until they were told Germany had lost. They were surprised and hit hard. The new government (Weimar Republic) suddenly had huge debts to pay (reparations) and prices rising very fast (hyperinflation).
This shock led to social and political disorder that Adolf Hitler and people who loved their country too much used to their advantage. They said that the Raffke, or people greedy for money, caused these problems. They included foreign and Jewish business people. But many Germans were also making money from the bad currency. Hitler and the Nazi party came to power knowing how to weaken a society by using money as a weapon.
Blink 5 – The fragile balance of money not backed by gold
The last big change in money’s history happened after World War II. Many countries stopped using the gold standard and started using fiat money (money not backed by gold). Money was not based on limited resources anymore. Instead, it was based on the trust and promise of the government that issued it, and its tax money.
For the US, the change was completed in the early 1970s. President Richard Nixon needed money for the Vietnam War. The world economy was now free. It grew more boldly than ever before. Fiat money made the world economy grow twice as fast each year.
Of course, this way of doing things has its weaknesses. For example, there are two parts to today’s money system. There is currency, which means real cash and money held by central banks. And then there is finance, which means money lent by private banks. Today, finance – mostly through loans – makes up about 90 percent of all the money. So, when a private bank gives a home loan (mortgage), it is really creating new money from nothing.
This leads to a tricky balance. Private banks want to make money, so they create money when people need it. But the central bank can only try to change the cost of that money by setting interest rates. In the US, the Federal Reserve (US central bank) does not fully control money. This is clearest in the huge, unchecked Eurodollar market. There, trillions of dollars are made outside the country, beyond government control.
This way of creating credit often leads to times of fast growth followed by sudden falls. This is because people’s feelings can change fast. We saw this happen in the 2008 housing market crash. When times are good, low interest rates and borrowing too much make prices of things go up. This creates a lot of excited buying and selling. When the crash comes, borrowing too much makes the problems worse. People lose their money, and it causes a ‘balance sheet recession’ (when many people or companies are in debt).
In 2008, the central bank’s answer was called quantitative easing. This means printing more money to put into the economy. It mostly helped rich people and their investments. It hurt others more. The result has been more unfairness, less trust in banks, and more people listening to angry, dividing words from populist leaders.
This new lack of trust led to cryptocurrency. Cryptos like Bitcoin are a form of private money. But it is a limited amount. It mostly helps people who are already rich. Its price changes very quickly and a lot. All of this makes it not useful as real money. It’s not like other new ideas. It doesn’t solve a true problem.
A better, more natural new idea is M-Pesa. This phone-based system started in Africa. It lets people use and swap phone credit as real money. M-Pesa solved a true problem for millions of people who could not use banks easily. It shows what money’s development is truly about.
Above all else, money is a tool for society. Useful public money (money from governments), not private money like cryptocurrency, has been the strongest tool for human progress and working together for the last 5,000 years.
Final summary
In this Blink to The History of Money by David McWilliams, you’ve learned that money is and always has been a strong tool for human progress. Money changed from old Mesopotamia, where it was linked to amounts of barley, to fiat money today. Fiat money does not depend on limited things like gold. Each step in money’s history shows it is always changing. This leads to new ideas like cryptocurrency and phone money like M-Pesa. But good new ideas must use public money. This is because public money helps trade, new inventions, and future ideas.
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