A Short History of Money

Martin Weale
Aim
To consider whether the question What is
Money can be answered.
Brief outline of early money
Fuller account of UK monetary history
Very Early Money
Monetary use of silver in Babylon.
Silver as unit of account very early in 3
rd
millennium.
Silver ingots stamped- by a temple with the image of
its god
Shekel of silver fixed at weight of 180 grains of barley
Both silver and barley were standards of value and
media of exchange
60 shekels to a mina- 60 mina to a talent
Statutory Interest rate of 20% p.a.
Daily wage for a labourer 1/2gm of silver (30p)
But silver probably changed hands by weight
Coinage in Lydia 600BC
Electrum (alloy of gold
and silver) money-
almost like a stamped
ingot
Regular weights- this
one 14 grams
Coins also made in gold
and silver
Greek Coinage
Silver coins
Low-value bronze and plated coinage
introduced in Southern Italy and spread to
Athens.
Widespread use of coinage in 5
th
cent BC
The state probably managed the coinage
Evidence that silver coins changed for more
than their metal content. Low value coinage
enforced by the idea of legal tender.
Roman Money
Silver and Bronze. Gold
gradually introduced as
well
Denarius (silver) 10
bronze asses from 210 to
140 BC
16 asses from 140BC
Under Augustus the
bronze was replaced by
copper
A gold aureus was worth
25 denarii
Money in Asia
Chinese Knife Money 300BC Punched bar. North-west Frontier
4
th
c BC
Late Roman Money
Money was debased in the third century. First
recorded inflation as means of taxation.
Constantine (307-337 AD) introduced the solidus
(4 gm of pure gold), the semissis (1/2 solidus)
and triens(1/3 solidus)
A slave cost 18 solidi- a senator received 100,000
solidi a year and a soldier 6 solidi a year. 1 solidus
bought 200lb of pork.
Low value copper coinage- nummus around 7200
to a solidus but rate varied. Little in between
Money after the End of the Empire
Limited silver minting in 6
th
century
Minting of gold coins (trientes) continued in the
former parts of the empire. Weight gradually fell
to 1.3 gms
Gold was hoarded by the Church and flowed East
because of the trade deficit.
Purity dropped to 14-16 carats and by 7
th
century
to 8 carats (Pure gold is 24 carats)
Eventually the gold was replaced by silver coins at
1.3gms- denarius or penny
British Coinage
Use began before Roman invasion- widespread in
2
nd
and 3
rd
centuries
Ended soon after Roman withdrawal
Gold coin remained in use but was not minted in
Britain until 7
th
century
Coinage disappeared as a result of leakage East
and use by church for plate and ornaments
Following the Frankish pattern silver pennies
appeared
The Penny (1d)
680-700 Oxfordshire 1.21 grams
Pepin cut 240 pennies from one pound (326 gm)
(Roman pound was 329 gm) 1.36gm.
Offa used a Tower pound 350 gms (120 silver
dirhams). System used throughout Northern Europe
1.45gm
1p weighs 3.56gm 5p weighs 3.25gm
Coinage on the continent was lost weight but only
slightly in Britain. In 1200 1d weighed 1.46gs of
92.5% (sterling) silver= 1.35gm pure silver. In Paris
1.04gm of 37.5% silver.
Dynamics of Silver and Gold
Before about 1160 an outflow of silver from Western
Europe- the costs of the crusades and supporting the
crusader states.
England avoided this- probably because of the wool trade
Important new silver mines in Central Europe- Freiberg
near Meissen in Saxony and at Kuttenberg in Bohemia
The need for German mining expertise led to large
migrations of Germans eastwards- a cause of the Second
World War?
This and the declining costs and eventual failure of the
crusades in the Near East led to a silver surplus
Gold from the East returned and gold coin emerged
Why was Money valuable
1. The inherent value of the coinage.
2. The authority of the state
Like the Ancient Greeks there were charges for
minting- lasting until 1666- of 2-12.2per cent.
Recoinage was imposed from time to time- in
Bohemia up to twice a year.
State authority rather than inherent value seems to
have been important from the earliest days.
But which state.
The Problem of Low-value Coinage
A half-penny c1180
(0.72gm)
A farthing 1248-1250
(0.32gm)
1 penny buys five litres
of beer
Reappearance of Gold- the Problem of
the Gold/silver Ratio
1252 minting of gold in Florence
1257 Henry III minted gold coins at 20d with
weight of two pennies (10 to 1 ratio 83.3p/oz).
Undervalued and eventually raised to 24d (12
to 1)
Florentine florin- gold worth 30d but accepted
at 36d
Edward III unable to issue gold coin on the
same basis
Bullion Famine
Silver supplies ran short in the 14
th
and early
15
th
centuries.
Weight of a English penny declined to
0.97gm- mid 15
th
century
0.78gm- late 15
th
to early 16
th
century
Purity remained at 92.5%
Probably also helped the development of
banking in Italy
Inflation under Henry VIII and Edward
VI
Initially coins were minted valuing silver at 18.3p/oz
and gold at 2.081/oz.
Near the end of his reign the price of silver was raised
to 21.7p and gold to 2.50/oz giving a profit to the
mint of 30,000 in 1542 and 84,000 in 1545/6
Continued under Edward VI. By 1551 silver was bought
at 32.5p/oz and minted into coins with a value of
60p/oz. Gold was valued at 3.09/oz. Profit of 1m.
Prices rose 2/3 between 1547 and 1551
Currency was called down
Currency Reform under Queen
Elizabeth
Inflow of silver from America including
captured Spanish treasure.
The price of silver was fixed at 25p/oz.
The worst coin was bought in at an 82%
discount to face value.
Profit of 40,000
Price stabilised but did not fall
The silver price rose only to 27.5p/oz by 1816
Establishment of the Gold Standard
17
th
c. The gold guinea initially worth 1.058
rose to 1.50.
Recoinage in the late 17
th
century improved
the silver coinage and the guinea fell to
1.075.
Newton showed that silver was still too cheap
and reduced the guinea to 1.05
Mint price of gold 4.248
Gold/silver ratio of 17
18
th
century currency
Gold price was still high relative to silver. Gold flowed in and silver
flowed out mostly to India where the silver price was higher. Only
worn silver coinage remained.
Tradesmens tokens and French coin circulated
Eventually in 1816 the price in minted coin was raised to 27.5p
(15.44 gold/silver ratio).
The mint had the power to buy silver at 25.8p setting a lower floor,
but this was never enforced.
In 1792 in the US Alexander Hamilton fixed the ratio at 15 to 1- it
was later raised to 16 to 1.
As far as UK was concerned the mint bought silver at market and
the silver coins were tokens with a face value above their silver
value.
The silver 5p and 10p coinage of 1816 remained current until 1992
when the size of the coin was reduced.
The Bank of England and Paper Money
Paper money first issued in China
Leather money had existed occasionally.
Goldsmiths who looked after peoples gold
started to issue receipts payable to bearer.
The Bank of England was set up in 1694
Paper Money in the 18
th
Century
Most banks issued notes.
Other forms of money also circulated such as lottery
tickets and malt tickets (government notes to be repaid
by a tax on malt).
Banknotes were convertible into coin on demand at
the issuing bank
Poor coinage made low value notes (2 p) attractive.
Notes with value < 1 prohibited in Scotland in 1765
and England in 1775
Further limits on notes below 5 in England
Bank notes were not legal tender
The Bank of England was the only banking
company in England.
Other banks were partnerships limited to have no
more than six partners
London banks did not compete with the Bank of
England at note issue but handled deposits.
Three companies in Scotland- Bank of Scotland,
Royal Bank of Scotland and Clydesdale Bank. All
just about still with us to day
Cheque clearing was set up in 1775
1797-1815 War with France and the
development of Monetarism
Initially a banking stoppage
The government made a special issue of
Exchequer bills to add to credit
It borrowed at 3 % and lent out at 5%
All the money it lent was repaid.
An early example of lender of last resort.
25
th
February 1797 French troops landed in Wales
26
th
February The government stopped the Bank
of England from issuing gold. The gold standard
was suspended.
People were happy with country bank notes
which remained convertible into Bank of England
notes
3
rd
May Bank of England notes became legal
tender
Some ups and downs but the price of gold rose
from 4.248/oz to 4.30/oz in 1799 and 4.60/oz
by 1810.
Ricardo argued that this was because the Bank
had issued too much paper money (the Currency
School)
The Bank said it had only met public demand. The
Banking School argued that over-issue was
impossible because excess notes would return to
the Bank (theory of reflux).
The Return to Gold
The gold price peaked at 5.35 in 1815 at the end of
the War.
Prices fell. In 1816 silver coins were issued at 27.5p/oz-
above the market price.
The silver coins were just tokens- the mint bought
silver at the market price.
Gold was to be legal tender at 4.248/oz
A brief resumption of gold met with resistance because
people were used to paper.
But the gold price rose and coin was exported.
Gold payments were eventually resumed in 1821.
The 19
th
Century Gold Standard
A new ban on low value notes in England and
Wales. 1 notes permitted in Scotland.
1833. Bank of England notes legal tender in
England for amounts of 5 or more.
1844 Bank Charter Act. Fiduciary issue fixed at
14m. Note issue of private banks fixed at 1844
level and right to issue notes was lost if
partnerships expanded.
Scottish joint-stock banks unaffected.
Government authorised extra notes to meet
banking crises in 1847 and 1867
First World War and After
Demand for cash at the start of the war
Treasury issued 1 and 50p notes convertible
into gold
From 1915 gold was withdrawn.
Gold exports were not possible because of
submarine risk
Sharp inflation
1919 gold exports prohibited
Price of silver rose briefly and coinage was
reduced from 92.5% silver to 50% silver.
Gold exports were allowed again in 1925 and
the price of gold remained at the old rate.
But notes were convertible only in large
amounts.
Currency took on the form which lasted until
decimalisation
What is it Worth?

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Building Labourer Wheat Wage Gold Wage Silver Wage