Story of Money; 1; Who Invented Money

Thank you. Everything that happens, whether happy sad or comic, when you get down to the solid facts, it's basically economic. The pharaohs built the pyramids, so were told, to prove that they were men of power, rich and bold. The economist takes a different view, and this is his description. They were really built to use up all the unemployed Egyptians, everything that happens, whether happy sad or comic, when you get down to the solid facts, it's basically economic.

Hi, I'd like to tell you about money. You know, in a democracy, in a free economy, it's necessary for all the people to know the ways of money, how it's created, and how it affects the economy. You know, there are not a lot of misunderstandings and half truths about money, and this makes it difficult to have a sound monetary system. How is it that we can invent and create such amazing machines and gadgets like automatic transmissions, electronic computers, and nylon stockings? And yet, we don't seem to be able to invent a good kind of money. Maybe it's because money is too close to us. It's too human. It has that human frailty built right in it. But maybe there's another reason, too. And maybe it's because we don't know enough about how money works,

and how it's put together, and how it's created, and things of that sort. So I'd like to tell you the story of money, so that you, the thinking public, can no more about how these things happen, and as a result, perhaps support national leaders who are trying to create a better monetary system. Money is an amazing thing. We live so close to it all the time. It's something that's as natural and part of our lives that maybe you think I'm just a bit presumptuous to even try to tell you something about it. But after all, you probably have some money right there next to you now in your wallet, or maybe close to your heart here in a fancy billfold, or perhaps it's out in the kitchen under the sugar bowl, or something of that sort. But it's a study which perhaps because we're so much a part of it that we don't know the things that it really represents,

and the way it really takes. As Bob Hope once put it, the long green with the short future. Actually of all the things in the economics book, money is probably the most intrinsically worthless thing that I can think of right now. But it always hasn't been that way. In the past, money was something valuable, something very real, and yet it has developed and changed over the years. Actually, maybe you're feeling rather philosophical about something like money, and you're saying to yourself, well, money can't buy happiness, but maybe I can change that just a bit. I can put it this way. Money can't buy happiness. It just makes being unhappy, so pleasant. But looking at this question of how intrinsically worthless money is today, maybe that is one of the cues to the problems that we have with it. But it hasn't always been that way, and the development of money, certainly can give us some idea of why maybe people still think this way.

But we have to keep in mind how it is changing and evolving all the time. I'm reminded of the story of one race horse, as he said to the other race horse in the stable behind the track, where you please let me win the race today, because if I do, my boss promised me two extra bales of hay and brother, that ain't money. But this question of how money evolved and how it grew and developed has to start somewhere. I suggest, and this is the idea of many authors on the subject, that money evolved out of barter. Now, you know what barter is, that's trading one good for another. We have a lot of barter in our world today. Maybe you've never thought of that. We really do. For instance, when you trade all of your old car for a piece of your new car, this is really barter. But this is what we call impure barter, because this is done knowing the prices of things.

For instance, you might think in terms of trading a pair of shoes for a suit. Well, if we have an ordinary pair of shoes that cost $15 and an ordinary suit that may cost $60, then you could trade four pairs of shoes for a suit. And you'd know how to do this, but you only knew how, because there were prices first to help you figure it out. But what about a world, an ancient primitive world, where people just sensed these things from the difficulties of making things and so forth? This is the world of barter. And it probably worked all right, where they only traded one or two things. But as things became more complicated, what we have here is the difficulty known as the lack of a double coincidence of wants. For instance, suppose that one primitive native wants to trade a spear for a canoe, but the primitive native that has the canoe doesn't want a spear. He wants a bow and arrow, so that the fellow with the spear has to find a fellow with a bow and arrow who wants a canoe, so that he can trade the native for the spear. Well, you can see the problems we get into there, even trying to think of this thing. But it did work in some crude economies.

But telling you about the story of barter is only a means of getting us on further with our evolution of money. And what I'm going to suggest is this, that out of the process of bartering, can you imagine that one particular product is beginning to take on a more popular desirable place? And isn't it possible that this particular product is one that's important to the community? In other words, it might be that in some ancient time we had a nomadic tribal economy that followed the herds, or in some way was beginning the domestication of animals. And maybe in that kind of society, cattle was the center and most important thing. Well, there, perhaps people preferred to trade for cattle because with cattle they could probably trade again, you see. And I'm suggesting that here is the beginnings of money, that this cattle, this cow is taking on what we call a universal acceptability, and this is the beginning of money.

Actually, we have a word in our monetary vocabulary these days, the word pecuniary. And it is a word which supposedly came from the stem of the Greek word peccus, meaning oxym. And so here we have the tie-up between the old times and modern times. Actually, the word pecuniary isn't the only one. We use the stem in another word, you've heard of the word impaccunious. That's sometimes what they use to refer to a college professor. It means that you're just sort of a little low on funds. And then there's another fancy word peculations, which means stealing. So somewhere in this story, cattle got started and we might think of cattle as an early crude idea of money. Now, you have to realize that in a world where we don't have a judge and a policeman and a sheriff, where we don't have contractual arrangements which you can trust, money has to be something intrinsically valuable so that when you trade,

you don't trust the person and the value, you get value and you give value. This is what we call the commodity approach to money in the past. Now there were many other things. I suppose you could say that almost anything has been money in some sense as one society or other has latched onto it. I have a tentative list here of some things which I got a kick out of. For instance, it's suggested at one time that woodpecker scalps were money. I just can't imagine scalping a woodpecker, but maybe they were scarce enough and they had some representation to some society. So this worked. And then we might go to something else here. In the South Pacific, the island of Yap, these people used stone money and this money had a kind of religious significance to them. Also, big heavy slices of stone were the whole board in the middle. Now in some way or other, this represented something to the Yap landers.

It was their stone money, but it certainly is a far cry from things today. You may say your money is weighing down your pocket, but not that much. Next, I've suggested here dried fish. Maybe that's where we get the expression. Can you let me have a fin till next Thursday? And then shells of all kinds have been money. I can suggest calorie shells or the shells which the Indians used to make want them. I'm reminded of a story here of one particularly enterprising New Englander who actually hired Indians to find shells and make them into Wampum for him. It seems that there were blue shells and there were white shells, and you board a hole into the shell and polished it and kept it on a long string. And this particularly enterprising Yankee used this Wampum to buy land from the Indians. Now, it seems that they couldn't have been very sophisticated or they would have known something was wrong here, but at any rate,

he acquired quite a bit of a later expensive land in New England that way. So these things are commodity monies. Things that if you don't use them for money, you can use them for something else. Now you may say, well, what about those shells? I suggest this that they had a religious significance for the Indian. In themselves, you say, and again, it had a commodity significance. Now one of the strange things that happens is this that when something becomes a money product, a money commodity, it may lose its significance and its original function. Now one of the best examples of this is the Chinese knife money. I have a replica here of a Chinese knife, which is designed to try to show the sort of thing that we're developing here. You can see we have a rather nasty looking gadget here and it has a long blade, a handle, and a hole in the end of the handle so that you can hang it on a thong on your waist if you want to carry your money that way. But you see the point is this.

That after this Chinese knife money became significant as money, it wasn't used as a knife. The blade got dull and with a dull blade it wasn't necessary to have the blade anymore. So the blade simply disappeared and we don't have anything left, but the handle you say. And the handle too, of course, had to go its way eventually, and that leaves just the end here. And perhaps that's why Chinese money has a hole in it. And I have an example of Chinese money here to show this. There is a yen. You see they have a yen for money over there in China and I guess we do too sometimes, don't we? And I think we could carry this thing one step further. And that's the fact that if we go any further they'll just be, well what will be left? You guessed it. There won't be anything left but the hole. Now the idea there is this. That that is the evolution of money as I'm trying to paint it here for you. That money has moved from something intrinsically valuable to something completely worthless, a cipher, a zero in the real sense of the word.

Now then, enough of these products that have been used as money in one way or another. Quite soon in the development of this money story, people settled on the one ultimate commodity money. The one type of commodity money which was more desirable than any other. And you've certainly been waiting for it and I certainly guess that you've guessed what I'm going to suggest next. Precious metal, gold and silver. Because gold and silver relative to any of the other commodities that I've talked about is certainly the most advantageous. And there are a number of reasons why precious metal turns out to be the best kind of commodity money. Money which is intrinsically valuable. Now I have a great big chunk of gold here which we're going to take a look at and give you some of the reasons for using it instead of things like an oxen or a cow or something like that.

First of all, gold is more desirable because it's divisible. That means that you can cut this brick in half and there'll be no loss in value. You'll just have two halves you see, whereas if you cut a cow in half, you tend to lose a little bit of its value, especially if you don't have a deep freeze around anywhere. But there are other reasons. Next we could say that the gold or silver is durable. It doesn't rust, it doesn't corrode. All the gold that's ever been found pretty much is still around. And that makes it quite durable. Now then we have another equality here in the form of the recognizable ability of gold or silver. That means that once the gold has been assayed, once it has been set up in such a way that society has accepted it, then we know it's the real McCoy.

Whereas in the case of a cow, you've heard the old expression, don't look a gift cow in the ear or something like that. But it's also possible that the cows won't be uniform and you can't trust what you're getting there. For instance, you might have fat cows or skinny cows, or perhaps the man who has cows up on the mountainside wants to trade downtown in the valley, but he can't because you know the cows on the mountainside have two legs that are shorter on one side than on the other. But precious metals are recognizable in this sense. Then finally we can say that the gold is stable. Now by this we mean that if you want something to be money, you don't want to change all the time. You don't want its value changing all the time. And so gold and silver are like this. Since it's hard to find gold and silver, no one has ever found a way to create it in any significant amounts. The year of the greatest production of gold was I think the year 1897 and because of the cyanide process and because of the discovery of gold and some other parts of the world there was an increase in the supply of 5%.

But gee, that's not much is it? Not compared to perhaps doubling the production of cows, which would certainly reduce their value. So put all these things together, you see, and it gives us a reason why precious metal in the form of gold and silver soon became the most desired commodity money. It seemed to work best. But look, we haven't taken this story very far yet, have we? Because now we have a gold brick here or a silver brick which we've decided is the best kind of money. But what can we do with it? I mean, if you're going to go to the grocery store, you'd have to take a hacksaw along, wouldn't you, and saw off a corner if you were going to buy a pound of top of the round ground twice or something like that. Or you might have the gold in the form of dust in a bag. This has been used in the past. For instance, they say in the western part of our United States when some of those old prospectors came to town. They used to use their gold dust to buy a shot of whiskey at the local saloon. It's even suggested that the bartenders in those days who were short and had thick, stubby fingers were very much in demand because they could get a nice pinch of gold dust there and get a little more for the deal.

But you can see this doesn't work very well. And so, to carry our story one step further, we have to bring the government into the story. Now, we had to get around to the government eventually, but here's how we bring the government into the story. The government, at some point, takes your gold or your silver and strikes it into neat, recognizable discs. And we'll put a rough edge all around this disc so that we can be sure no one clips any of the edge off. And we'll put a picture of the king on the front and perhaps a picture of the castle on the back or whatever we may have. It happens to be a big, ugly-looking eagle here. And this has a very special place on the coin. That's because with the picture of the king and a picture of the castle or the eagle or the queen or the princess, we can tell whether any of the gold has worn off or whether it has been clipped.

You see, you never lived in a world of what we call full-bodied money. By this, we mean that this is worth a dollar because it has a dollar's worth of pure silver in it. It just happens to be struck into a coin to make it somewhat easier to use. We say before the use of this coin that the precious metal circulated by weight and after the use of the coin, it circulated by tail, T-A-L-E. Now then, this business of full-bodied money doesn't bother us at all today, but if this happened to be worn off a little bit here, then in the day of full-bodied money, it wouldn't be worth a dollar anymore, would it? But not so today. We don't care about a thing like that, do we? All we care about is that it's something that we're used to seeing.

Now then, in the past, many evils were perpetrated in the way of clipping and sweating these coins. For instance, sweating coins simply meant that you put a lot of gold coins in a bag and you'd shake them up and down perhaps all day long and dump the gold coins out, turn the bag inside out, take a knife and scrape the fine gold filings or... residue off the inside of the bag. And I suppose, in that way, you couldn't tell anything had happened to any one coin. And then sometimes, when you see pictures of old-fashioned coins, you see that they've been clipped along the edge somewhere. Again, this is a way of debasing the coins. And the sovereigns of the past weren't beyond a little bit of these shenanigans. You know there's nothing new under the sun. And politicians today, you know, are sometimes accused of fooling around with our money. Oh, this has happened for centuries. For instance, the sovereign conceivably could take the gold from you or from me as we brought it to be struck into coins and then he could sneak a little bit of copper in. And then he could give you back as many coins as you expected and keep a few there in his treasury.

This thing was done many times until finally the people got wise to it. Let me give you a special example. You've heard of Henry VIII, of course. Well, he needed a lot of money and note of finance, some of his matrimonial ventures and other things. And so he took people's money and then he took copper coins and had the copper coins plated with some silver. And he had a picture of old Henry on the front there, you see. But as people used these coins, right where his nose was, war off and you could see the copper through it and they weren't fooled anymore. And these coins were called old copper nose coins because of that. So you see, this sort of thing has happened down through the ages. Actually, I've talked a lot about this place of the government coming in. But this happened rather quickly in the development of money. For instance, it suggested that the first coins were created back about 750 BC by King Candlest of Lydia. And as the old lady said who was asked to make ox tail soup, isn't that going back pretty far?

Now, here comes the next step in this development of money through the years. As people began to use these coins, as they began to get used to the idea of a piece of money all separate, their attention was distracted from the stuff in the coin, whether it was gold or silver, whether it was good or bad. And their attention was more attracted to the question of how many coins were there. Now then, it seems that this takes us to another branch in the road in the development of money. Because at this point, people are worrying about the mere quantity of these things. And if the stuff out of which they're made doesn't count, many other things could possibly be money. Then there's another development which we have to keep in mind, and this one's a little harder to tell. You know, when you tell stories like this and try to show great sweeps in the history of people and social institutions, you have to sometimes stretch the thing and piece it together the wrong way to give a fast picture.

But can't you imagine that somewhere people in the use of their gold, in the use of their silver, may have been just a little frightened about keeping too much of it around the house or carrying it with them in their wagon or their chariot. And so at some point they got the habit of storing gold, and they left it with various people who developed a business of keeping gold. And these fellows, one way or another, were intrigued with the possibility of giving out some kind of a ticket. Now, do you see that when someone brings in gold and gives out a ticket that if the ticket gets to be associated with the gold, that the ticket is taking on a money like quality, isn't it? The ticket itself is something that you associate with things that are valuable. You associate it with the man who keeps the gold. This might be a government or it might be some private individual. And so now we start to see whether there's a changing, a breaking away from this commodity-type money into something intrinsically, completely worthless like a ticket. This ticket being this man's promise to give you back your gold. But that promise itself is kind of a nice thing to have and it's taking on a money like quality.

Now, you can call this a piece of paper money or you could call it a check. Actually, the check is one of the oldest things in history. You can find the Phoenicians using something that resemble the check. So again, I can't tell you this story in piece of together perfectly, but I can show you some of the flows and some of the forces that happen to be developing. So we've come a long way, haven't we, from a cow or an oxen or something like that to the times when paper money is usable and is the thing that people accept. Certainly, it has greater advantages that it doesn't wear out because you can always replace it. It's not bulky and heavy and the gold could be replaced with it. Now then, the gold in our story doesn't seem to leave us though. That's the trouble. Because suppose I were to take a poll. Suppose I were to get Mr. Gallup to help me here and we should come out and ask all you folks out there, one question.

No, well, we'll say one question. Why do you think a dollar is valuable? Why do you accept that crumpled up piece of paper? And we might get two answers from you, maybe. One answer might be this. I think the dollar is valuable because I know or I have faith or I've heard that somewhere back in them, our hills is Fort Knox. And they have a lot of gold there and that backs our money up. Would you give me that answer? Maybe you'd give me a more sophisticated answer. Maybe you'd say, I believe the dollar is valuable because I can take this dollar ten feet from here into a store and command goods. Anything I want I can have up to the tune of one dollar, of course. Which answer is right here? This is something we're all puzzling. What makes money valuable? It's something that we have to try to glean a little bit from this story and maybe it's the human side of it. Now then, as we've looked at this, it seems that money has come a long way. Money has come all the way from an asset, which is our big fat, happy looking cow here, all the way to a debt, which is a man's mere promise to pay.

All the way to the other side of this so-called balance sheet here. And that's a long swing, isn't it? It's just as if I stepped over here and took out my pen and just scratched something on here. Like, for instance, I owe you $100. Now, that was easy money to print, wasn't it? That was easy money to print. No wonder our money today is causing us so much trouble. And no wonder it has changed so much from the past. When we have, in the past, something solid you can sink your teeth into, just like Huck Finn did. Ah, like that when he checked the pennies or the coins and the cave. To something intrinsically worthless. Like this amazing piece of paper on which I've just scratched a few words. And yet it's money today. It's the kind you use all the time.

With these things in mind, then, it's no wonder. It's no wonder that people make the decisions they do about money. And it's no wonder that we have so much difficulty controlling our modern money. But looking at this story, perhaps we know a little more about how it has developed. Everything that happens, whether happy sad or comic, when you get down to the solid facts, it's basically economic. Romeo loves sweet Juliet. But each Montague hated each Capulet. The reason there was no wedding with rice and confetti. The two families were rival manufacturers of meatballs and spaghetti. Everything that happens, whether happy sad or comic, when you get down to the solid facts, it's basically economic. I hope I'll see you all again. And the next time we get together, I'm going to talk about how money acts. Money is as money does.

I'm going to talk about how money acts. This is National Educational Television.