Money is usually presented in economics textbooks as an
inert substance that emerged naturally as a means of exchange.
One Canadian textbook, for example, informs us that: ‘If there
were no money, goods would have to be exchanged by barter …
The use of money as a medium of exchange solves this problem … All sorts of commodities have been used as money at
one time or another, but gold and silver proved to have great
advantages … The invention of coinage eliminated the need to
weigh the metal at each transaction, but it created an important
role for an authority, usually a king or queen, who made the
coins and affixed his or her seal, guaranteeing the amount of
precious metal that the coin contained.’9
Similar accounts have been provided throughout history: by
Paul Samuelson in his Economics; by nineteenth-century neoclassical economists Carl Menger and William Stanley Jevons;
by Adam Smith in the eighteenth century; and so on. In fact,
the story can be traced all the way back to Aristotle, who wrote
in Politics that the ‘more complex form of exchange [money]
grew, as might have been inferred, out of the simpler [barter] …
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MONEY, MAGIC, AND HOW TO DISMANTLE A FINANCIAL BOMB
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the various necessaries of life are not easily carried about, and
hence men agreed to employ in their dealings with each other
something which was intrinsically useful and easily applicable
to the purposes of life, for example, iron, silver, and the like. Of
this the value was at first measured simply by size and weight,
but in process of time they put a stamp upon it, to save the
trouble of weighing and to mark the value.’
While the story has remained remarkably constant over
the centuries, it is not based on empirical evidence. In fact, as
anthropologists have long pointed out, economies based purely
on barter don’t appear to ever have existed.10 Instead, money
has its roots in a virtual credit system created 5,000 years ago
in ancient Mesopotamia, where debts were recorded on clay
cuneiforms. Amounts were specified in terms of shekels, which
referred to a weight of silver; however, the silver itself did not
usually change hands.
The first coins date to the seventh century BC, in the
nearby kingdom of Lydia, and the idea quickly spread, first
to the Greek cities of coastal Asia Minor, and from there to the
mainland and surrounding islands. By the time of Pythagoras
in the sixth century BC, most Greek city-states were producing
their own coins as a sign of their independence. Since then,
power over the money supply, and the right to dictate what is
legal tender, have been defining attributes of statehood. The
ancient Romans, for example, projected power over distant
colonies through the images of emperors that adorned their
coins.
Indeed, the main motivation for the spread of coin money
appears to have had less to do with the needs of the market
– which historian Michael Crawford calls an ‘accidental consequence of the coinage’ – than with those of the military.11
Money had found its killer app, and it was war.
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115
Atomic money
Coinage was introduced at a time when the largest expense
of Greek rulers was the mobilisation of huge armies. Coins
served as a device for payment, but also as a tool to both motivate the troops and control the general public. Soldiers and
mercenaries were paid using metal that was mined or plundered; they spent the money on things like food and supplies;
and the state then demanded some of the coins back as taxes.
The fact that the general public had to get their hands on
money in order to pay taxes, for example by feeding or housing soldiers, solved the logistical problem of how to maintain
the army.
The system was perfected by Aristotle’s former student,
Alexander the Great.
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