Franke Book Review: A History of Money
by Mark Franke
We think of money these days as anything but tangible. Venmo accounts, credit and debit cards, ACH transfers—we don’t really touch “real” money anymore. And so we can’t appreciate its importance in the development of civilization and our comfortable standard of living.
“The History of Money: A Story of Humanity” (Henry Holt and Company 2024, 367 pages plus notes, $26 hardcover at Amazon) is a mostly irreverent, frequently enlightening and sometimes witty story of western civilization tying key advances to concurrent advances in the role of money. And get this: It is written by a former central banker.
David McWilliams walks the reader through key points in history where something changed for the better, either along with a monetary change or due to that change. The book is organized chronologically like a freshman survey course in western civilization which makes it easy to read, put down and then pick back up without losing the context.
McWilliams posits several overarching premises that support his story. For example, he links the emergence of money, writing and standardized weights as providing the foundation for economic development in the third century before Christ. He also provides an interesting definition for interest as putting today’s price on tomorrow, the key to monetary development.
We begin in Asia Minor, today’s Turkey, where coinage first developed. Remember King Croesus of Lydia? He established coinage as a state monopoly, enhancing his historical reputation for personal wealth. McWilliams then moves to ancient Athens, an economy based on trade with the need for a standardized valuation system. Rome is next in our story, a continental empire with the need to pay its far-flung troops. Civilization had clearly moved beyond barter.
At this point credit enters the story. Imperial Rome ran on credit and Emperor Tiberius’ attempt to manipulate the credit market was disastrous. Even more disastrous was the coinage debasement of the third century AD when the standard Roman coin was reduced to about five percent silver. Many historians point to this as a major cause of the fall of Rome.
I enjoyed McWilliams’ recounting of the Middle Ages. It was my favorite period in grammar school history class as we learned about the invention of the iron plow, the new importance of towns, and the rise of the merchant and artisan classes. McWilliams adds one more advance—the appearance of the town clock that made time exact. Time is money as we modernists are wont to say.
The High Middle Ages brought even more good things. Numbers changed from the awkward Roman numeral system to the Arabic/Indian ones with the critical addition of zero. This allowed for more accurate accounting in trade transactions with double-entry bookkeeping. Algebra made its appearance in the West at the same time.
The stage was set for an understanding of the time value of money and professional banking. Where else can McWilliams go with his story than Dante’s Florence, the banking capital of the world? Its florin was the internationally accepted currency since its gold purity was carefully controlled. Banking brought about letters of credit, the medieval version of the checkbook, and bills of exchange, a forerunner of paper currency.
McWilliams then takes us through the early modern age with Guttenberg’s printing press, a must for the circulation of paper money. His take on the Age of Exploration is an interesting one. He sees it as marking a bifurcation of old money, gold and silver mined in the New World, versus the new money based on credit. Enter the Dutch.
How could such a small nation sitting in a swamp have been so successful against its larger neighbors? The world’s first central bank was established in Amsterdam to facilitate exchange of multiple currencies and to support worldwide trade. Those pesky Dutch seemed to be preternaturally brilliant at seeing the next big thing.
Until the tulip craze, that is. In early demonstration of Alan Greenspan’s “irrational exuberance,” it took an open market in securities to provide the structural support for this. A booming market soon became a bust. Not to be outdone, John Law followed with his Mississippi Company’s sale of worthless stock as a means of redeeming French royal debt and then by the Brits with their South Seas bubble. Human greed will always find its outlet.
When he turns to America, McWilliams documents two things that I didn’t know — the British effort to circulate counterfeit Continental currency during our War for Independence (not that the Continental needed help in its race to worthlessness) and the friendship that developed between Alexander Hamilton and the Frenchman Talleyrand, resulting in Hamilton’s learning to not repeat the inflationary financial mistakes made in Revolutionary France.
McWilliams continues to offer chapters of important points in human history but as he nears our current day, the connection between his key events and money’s role in it seems to weaken. His chapters on European colonialism in Africa and the building of the Suez Canal are two cases in point.
He covers America’s struggle with the gold standard after the Civil War, leading up to William Jenning Bryant’s “Cross of Gold” speech, explained as cleverly hidden in the “Wizard of Oz” parable. His chapter on the Weimar Republic’s hyperinflation is summarized well but some of the others seem sidebars at best.
He concludes with discussions of post-WWII currency regulations, the financial crisis of 2009 and the emergence of cryptocurrency, but I didn’t find these as interesting as his early chapters, perhaps only because I have lived through most of this. But there was one anecdote I found amusing as well as enlightening. When the Republic of Ireland went off the gold standard, shrewd Irishmen crossed the border to Northern Ireland and loaded up their trunks with inexpensive booze as a hedge against expected devaluation of the Irish pound. Shrewd indeed, so long as the hedge commodity stayed corked.
McWilliams is an unabashed advocate for the fiat money system, finding it better for adapting to new monetary needs more quickly a commodity-based regime. A little bit of inflation, built into a fiat system, is a good thing to his way of thinking. I recall hearing the same thing from my Keynesian economics professors. But have no delusions about his devotion to central banks as all-wise arbiters of the money supply. He may have been a central banker himself in the past, but he much prefers a system that is bottom-up in terms of monetary expansion rather than the centralized top-down one and its bag of tricks such as quantitative easing.
McWilliams concludes by declaiming money as the defining technology of humanity. Maybe, but I am reluctant to credit money as the enabler of an increase in literacy, reduction of poverty and sustainable human fertility rates.
Money is one of those things that people use but don’t think about other than in terms of what it will buy. Economists go to great lengths to define it and explain its efficacy but that can just complicate things. McWilliams describes money, in the modern credit-based economy, as based on trust among people who don’t know each other. That’s a good description but I like James Ledbetter’s definition better. In his book “One Nation under Gold,” he defined money simply as transferrable credit.
I should admit to enjoying McWilliams’ snarky writing style but I have a few minor nits to pick. Cicero was hardly just a “windbag” and I don’t understand his assertion that Christianity rose as a counterbalance to coinage. The cultural backsliding after the fall of Rome was not quite as bad as McWilliams describes it, at least in my opinion. And I really found it difficult to follow his argument for the influence of biological Darwinism on what he calls “evolutionary economics.”
Still, I don’t begrudge the time I spent reading this book or the time spent writing this review. The snarky style makes it fun as McWilliams romps through monetary history. Economics doesn’t have to be the dismal science. McWilliams helps correct that epithet.
Mark Franke, M.B.A., an adjunct scholar of the Indiana Policy Review and its book reviewer, is formerly an associate vice-chancellor at Indiana University-Purdue University Fort Wayne.
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