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From Ancient Electrum to DigiCash A History of Money and Its Future

From Ancient Electrum to DigiCash A History of Money and Its Future. M onetary H istory refers to: Episodes when the supply of money changed and its impact on the welfare of people Milton Friedman & Anna Schwartz’s Monetary History of the United States

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From Ancient Electrum to DigiCash A History of Money and Its Future

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  1. From Ancient Electrum to DigiCashA History of Money and Its Future • Monetary History refers to: • Episodes when the supply of money changed and its impact on the welfare of people • Milton Friedman & Anna Schwartz’s Monetary History of the United States • The History of Money involves: • How money changed in form and function • Global in scope and span Richard D. Marcus --- September 21, 2002

  2. Money's Ancient History • Silveringots used in Mesopotamia in 2,500 BC • Ch'ing (or Bridge Money)cast in bronze in the shape of miniature tools were widely accepted form of Chinese currency as early as the 10th century BC. • Some of these metallic pieces were still in use in the 2nd century AD. • Commodity monies Shaped like a hoe or hand-tool  • Aztecs used cocoa beans • Others used salt or shells, • Cigarettes used by POWs Richard D. Marcus --- September 21, 2002

  3. The Stone Money of Yap • Yap is in Micronesia - 400 miles southwest from Guam • Huge cartwheel stone money as a symbol of wealth • Used in exchanges between villages, as gifts for honor and tribute, payments for house and canoe building, in arranging marriages, and in exchange for fishing rights. Richard D. Marcus --- September 21, 2002

  4. First Standardized Coins At first, pure gold was too weak for ancient mints. • First true coins, in Lydia (NE Greece) of electrum (mixture of Gold & Silver) • King Croesus of Lydia (560-546 BC) made the first standardized pure gold coinage. • Trade flourished. “As rich as Croesus” Richard D. Marcus --- September 21, 2002

  5. Alexander the Great in silver as Hercules circa 328 BC • The Greeks minted coinage which extended their empire Coin of the God Helios, about the time of the Colossus of Rhodes circa 300 BC from the Island of Rhodes Richard D. Marcus --- September 21, 2002

  6. Julius Caesar's silver denarius in 44 B.C. Roman Coins • Caligulain 39 A.D a silver sestertius • Emperor Septimius Severusin 193-211 A.D. in silver • Incentives for Roman rulers to debasetheir currency by adding alloys or by using lighter weight coins • Copper • And bronze alloys Richard D. Marcus --- September 21, 2002

  7. Chinese note 1368-1399 • First paper money: Ts’ai Lun in 1st Century China • Size of notebook paper • None now still exist • Paper made of rags and mulberry bark • First Western paper money: • Benjamin Franklin • A printer and writer of: “A Modest Enquiry into the Nature and Necessity of Paper Currency” (1729) • The $3 Bill of May 1775 Richard D. Marcus --- September 21, 2002

  8. Fiat Money -- is money that cannot be not converted into coin or specie of equivalent value • Money by ‘decree’ or fiat. • “This note is legal tender for all debts, public and private.” • “In God We Trust” • Present money is fiat money • 1896 Silver Certificate • was payable to the bearer on demand. • “This Certificate is receivable for customs, taxes, and all public dues, and when so received may be reissued.” Richard D. Marcus --- September 21, 2002

  9. What is Money? Economists point to 3 requirements for money 1. Medium of Exchange • Avoids direct barter 2. Store of Value • It keeps its value as in commodities monies like gold, silver, bronze, stone, or shells 3. Unit of Account • Value is measured in money Richard D. Marcus --- September 21, 2002

  10. Money and Hyper-Inflation • Printing paper money and stamps is too easy • Countries increase the denomination or overprint on old designs • Paper money becomes worthless • Examples from 1922-1923 Notgeld hyperinflation after WWI. Richard D. Marcus --- September 21, 2002

  11. Origin of“The Dollar”and • “Dollar” were minted in German valley Joachimstahal, where silver Talerswere worth 3 German marks in 1520. • Spanish silver coinage was the basis of American currency • Spanish milled dollars with the pillars of Hercules or the Straights of Gibraltar above from 1732. • Eight Spanish reales, pesos, or pieces of eight Not: "U" superimposed over a wide "S" - (the US didn’t exist till 1787) Not: Pesos as in PS (This abbreviation isn’t the dollar sign). Yes: “S” (Spanish) with pillars superimposed as two vertical lines. Richard D. Marcus --- September 21, 2002

  12. The Language of Money • Currency comes from “to run or flow” as coins flowed from the Roman state. • Moneycomes from the Roman goddess Juno Moneta, “to warn” against attacks by the Gauls, and is the basis of the words “mint” and “Mark” • Capital comes from “head of cattle,” a form of money • Salary comes from “salt,” an ancient and divisible form of money Richard D. Marcus --- September 21, 2002

  13. Prohibition on Usury • Leviticus 25:36-37 “Take thou no usury…” • Ezekiel 18:37 “He that ... hath given forth usury…he shall surely die.” WHAT’S THE SOLUTION? Create Bills of Exchange • Knights Templar (1095 - 1310) • Don’t carry gold or silver on crusade • Carry paper that gold is on deposit in London and receive silver or gold in Paris or Jerusalem • Temple Banks in London, Paris, and Jerusalem Richard D. Marcus --- September 21, 2002

  14. Italian Merchant Bankers Houses of Peruzzi & Bardi collectors of money for the Pope in 1317 The Medici Exchanged Florins in Florence & Ducats in Genoa or Venice Italian Bankers Venice Florin Ducat 1337 Richard D. Marcus --- September 21, 2002

  15. Colonies issued money backed by pounds And then by Spanish milled dollars “The Continental” became worthless by the end of the Revolutionary war. No paper money in the Confederation or the US for 30 years. Early Colonial Money North Carolina, 1771 1/3rd Dollar Continental in 1776 Richard D. Marcus --- September 21, 2002

  16. Bank Money, State Money, and Scrip • Banks issue notes • Redeemable in gold or silver or US coinage • When banks failed, their money became worthless “shinplasters” • States issued their own currency • Firms print script as payment Mechanics Bank, Tennessee, $10, 1854 Louisiana, $5, 1862 Delaware Bridge Company, $1, 1836 Richard D. Marcus --- September 21, 2002

  17. Old Marks and Francs exchanged for new currencies EURO COINS & BILLS Richard D. Marcus --- September 21, 2002

  18. Money’s Expanding Modes • Personal checks did not replace cash • Credit cards did not replace cash or checks • ATMs increased personal access to accounts 24x7 • Automatic payments • Easy payment of recurring expenses • Purchase of a banking service • EDI - electronic data interchange between firms permits just-in-time purchases of supplies digitally • Clearinghouses, e.g.,Swift for international transactions Richard D. Marcus --- September 21, 2002

  19. Smart Cards • Encoded account information • Money “deposited” on the card • The card is “swiped” to debit expenses • Presently requires “contact” of card with a device • Smart cards have existed for a number of years • Examples • Debit cards • Telephone cards • UWM Panther cards • Photocopy cards Future generation of smart cards will allow more types of transactions. Richard D. Marcus --- September 21, 2002

  20. DigiCash or Cyber Cash • Electronic Money without plastic cards • Electronic transponders such as the I-pass system for toll roads • Telephonic message with passwords • Money Mail replaces wiring money • Banks are offering customers services • PayPal and others similar services • Exist to ease payments of customers on the Internet and eBay auction sites Richard D. Marcus --- September 21, 2002

  21. How Does DigiCash Work? • Open an account at PayPal, for example • Make a deposit by check or credit card • You move e-cash from your PayPal to the account of the recipient • Any private firm can issue a certificate • Much like gift certificates, people would like to receive them • They are the essence of e-coins, which are digital certificates • But private certificates can become worthless! • Convertibility of e-cash is typically into $US. Richard D. Marcus --- September 21, 2002

  22. Anonymity • Cash is anonymous and discrete • Areas with huge black-markets use more cash than checks • Checks and DigiCash leave a paper trail • Preference for personal privacy would lead to a prediction that e-cash will not eliminate other forms of money. • Like the radio after the introduction of the TV, the earlier modes of money adapt to their uses • Governments prefer identified payments • Only if Governments force everyone to use e-cash will it completely displace currency Richard D. Marcus --- September 21, 2002

  23. DigiCash in 20 Years? • ATMs appeared in the 1960s. By the 1980s, most people had access to them. • About one generation • Most people have multiple sources of money now • Cash, Credit Cards, Checking • Most people will have additional accounts, often in concert with their financial institution or mutual fund company to use digital cash in less than 20 years. Richard D. Marcus --- September 21, 2002

  24. Books on Money • Jack Weatherford, The History of Money, Three Rivers Press, 1997. • Best overall book that’s fun to read at $13.00 in paperback. • Glyn Davies, A History of Money: From Ancient Times to the Present Day, University of Wales Press, 1994. • More advanced and over 700 pages at $30 in paperback. • Peter L. Bernstein, The Power of Gold: The History of an Obsession, John Wiley & Sons, 2001. • Emphasis on the Gold Standard and the psychological impact of money on people at $17 or less in paperback. • Alternatively, a great pictorial website on money is: http://www.currencygallery.com/ Richard D. Marcus --- September 21, 2002

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