History of Money

Continuing my eternal exploration of financial books, I recently finished reading "The History of Money: A Story of Humanity." I think a few people had recommended it to me. I enjoyed the book, but it also served as an indication of just how thoroughly I've been reading in this area. Some years ago every financial fact was new to me; now I find myself increasingly saying "Yes, I know that already... oh, that's another way of looking at it, I suppose... Hm, this seems a lot like this other thing..."

 

In contrast to some of the wonkier and more tightly focused books I've been reading lately, The History of Money is definitely aimed at popular audiences and doesn't presume any prior knowledge. It's a little bit like Investing In US Financial History in that it takes a chronological look through the history and evolution of economic topics, but this book spans roughly 5000 years in time and most of the globe in space, as opposed to just 250 years and one country. It doesn't go into huge depth on any particular incident, but I think its most valuable characteristic is for putting things in context. As one random example, I'd previously read William Bernstein's description of the importance of grain imports to the Athenian economy, so that wasn't a new topic for me; but in THoM you can see how that evolution fit in with the Lydian invention of metallic currency and Roman taxation of the provinces, as one stepping stone on a centuries-long process of evolving money.

This book is mostly a collection of stories, early on stories about nations, later on stories about individuals. I was most familiar with the content earlier in the book and just sort of glided over a lot of it. But as it gets into the 1700s or so I started learning a lot more. In particular, I don't think I've ever read about Talleyrand's role in the creation of French livres and the assignat system. It's very germane to this book, and the author David McWilliams talks through how the confiscation of church property gave the state a solid basis of value for the livre initially (a land-backed as opposed to metal-backed system), but after the revolution the radical government excessively printed paper money which led to hyperinflation. Again linking back to Bernstein, from "The Birth of Plenty" I was familiar with France's lack of faith in banking and how that caused a competitive disadvantage in their conflict with England, but THoM gives a gripping story about particular people and the sequence of events that may make this period more memorable for future recall, as well as directly illustrate the related financial ideas.

The book also kind of normalizes and contextualizes random things I've read or heard over the years. For example, I was already familiar with John Law, but I think that was from some on-off podcast or NPR program I had listened to, while other stories are from economic books I've read. So now I have a better understanding of how John Law fits in with Talleyrand and others.

When picking up this book, I had assumed that it was going to be focused on money in particular: what it is, how it's used, how it's valued, etc. It turned out to be a lot broader, and a lot of the book is about more general economic growth and development. To be fair you can't really write just about money unless you're purely talking about numismatics. Money exists for a reason, it is influenced by the economy and it influences the economy, so you can't easily separate the two. I think the book ends up being roughly half about money-as-money, and half about the economic (and political and social) world growing in a symbiotic relationship with money.

McWilliams mentions that similar developments were occurring simultaneously and independently in the Fertile Crescent, China and central America, but he focused on Western culture like I remember from World History class, with the story beginning in the Middle East and gradually migrating into the Levant, the Mediterranean, and eventually western Europe.

Like I said before, this book is aimed at a popular audience: the language tends to be pretty casual, and overall this doesn't feel as rigorous as other economic books I've read, for better and for worse. He seems to often note correlations and imply causation without demonstrating it. For example, with the decline of the Roman Empire in northwest Europe, metal coinage became very scarce and was replaced with a more primitive bartering and tithe system. He notes that small-denomination currency is required to support city living, and thinks that the decline in the physical supply of money contributed to the de-urbanization of this area. But I think you could just as easily argue the opposite: with the decline of great cities, there wasn't as much demand for small coinage, so people would be more likely to repurpose them for trinkets or jewelry or just reclaim the copper or silver metal from the coins and put them to practical use. Or the decline of cities and the decline of coinage could both be side-effects of other forces (raiders, plagues, etc.). It's interesting to note the correlation, but I wish he would more explicitly question the cause and effect instead of just generally implying that money was responsible for changes and not the result of those changes.

On page 191 he writes "Could Law, with his alleged accomplice Spencer, have encouraged not one but two revolutions?" His theory is that John Law helped inflate the South Sea Bubble, Charles Spencer and other highly placed British nobles corruptly benefited from the bubble, and outrage from the fallout was one of the precipitating factors of the American Revolution. But this is the kind of vague circumstantial suggestion that irritates me, implying something without proving it or thoroughly arguing it.

Or on page 204: "It could be said that suspect money - rather than suspect politics - greased the guillotine, in an environment of food shortages, denunciations and worthless currency." "It could be said that" is one of the classic weasel-word phrases. Is McWilliams saying that the Terror was primarily caused by an unstable currency? No, he's implying it without really standing behind it.

Overall this feels like a book designed for chatter at a dinner party. There are lots of interesting little anecdotes and factoids sprinkled throughout the book. He really loves giving the etymology behind various common words, which were almost all new to me and made me say "Huh!", but they also aren't really important. The stories tend to be sensational whenever possible, focusing on the wilder aspects of peoples' sexual scandals or rivalries or duels: he'd rather repeat some salacious hearsay than a boring fact. Sometimes these stories' connection to money feels extremely tenuous, but the stories do tend to be very entertaining.

The author is Irish and loves featuring Irishmen. I really liked that, it adds good color and personality to the book: I feel like I'm being told an entertaining story by a particular person with their own passions, not a dry account assembled by some committee.

I liked the book more the closer I got to the end, mostly because I learned more stuff that I hadn't known before. McWilliams is a professional economist with experience in both central banks and commercial banks and does know his stuff. This passage from page 266-267 may have been my favorite:

Gold has a fixed supply; if the economy grows, meaning the economy produces more things, the price of those things must fall in gold terms, because the supply of gold doesn't rise in response to the rise in the economy's output. Tethering a currency to gold is inherently deflationary. Falling prices sounds good, doesn't it? We are conditioned to think about prices in this way. It is good if the price of things you buy falls. But this cuts both ways. What if the things you sell, like your labor, also fall against gold? In a period of deflation, whose standard of living rises? The people with gold, of course. That means people in finance, people trading money or speculating on other commodities, those with access to money - the already wealthy. Currencies linked to gold will reward people with savings. Who in the late nineteenth century had savings? The same people who have always had savings: rich people, of course.

I really like the detail and cogent explanation there of how metal-based currency is inherently deflationary. I also really love the connection to the real-world class system. We aren't just discussing some abstract mathematical model, but a reality that has a social impact on our lives. He spends some productive time in this area, including describing how nations have realized after centuries of experience that it is much easier to recover from inflationary periods caused by fiat currencies than from deflationary recessions caused by gold-based or silver-based money.

While less wonky, I also really loved this passage from page 290:

Artists and entrepreneurs are blessed with similar outlooks; the type of minds that make art are also the type that create businesses. Sometimes artists don't see this similarity, schooled in an erroneous worldview that money is bad and poverty is noble, the artist expressive and free but the businessperson boring and conservative. In fact, both artist and entrepreneur see possibilities where others see limitations, bringing the previously unimagined into being. Both artist and entrepreneur have skin the the game, performing on the public stage of jeopardy. The creative - businessperson or artist - has strong opinions and is courageous enough to risk the ridicule of the crowd for their opinion to be heard. Success can only come after the effort has been made, making their entire existence inherently unstable. For both entrepreneur and artist, failure can be brutal and success is often a prelude to future disappointment. But they are driven by self-expression; it's in the DNA of these independent, sometimes unreasonable, often difficult sorts. Both the artist and the entrepreneur can suffocate when shackled by a boss, a wage, or an insurance premium. From a macroeconomy perspective, artists and entrepreneurs both create demand where no demand existed previously. The new products they offer create their own demand - and this is the key to all economic evolution.

The context for this passage is McWilliams' description of James Joyce's time living in Trieste, and how Joyce started a business to open Dublin's very first movie theater; we think of business and art as opposites, and I love how this passage draws them together. I think it's overstated: he uses "entrepreneur" and "businessperson" interchangeably, I think the argument applies to the former but not the latter. But the idea that "creation" is the main thing really resonates with me, as opposed to expanding or reproducing some existing thing.

This kind of reminds me of Daniel Kahneman's observation that entrepreneurs in particular and successful people in general tend to be more optimistic than the general population, and that optimism is not founded on a rational basis but can influence events towards a good outcome. Passion and a reckless risk-taking attitude can be ingredients for success in starting businesses and creating new art.

And, one last random quibble: on page 358 he writes: "When you buy the shares of a company, the understanding is that your money goes to the company and might be used to buy equipment or finance the expansion into a new market, from which you hope to profit." I don't think that's true. When you buy shares in, say, Microsoft, none of that money goes to Microsoft or can be used by it for anything. Your money just goes to the previous owner of those shares. What you are buying is the right to a portion of the future earnings of that company. (The one case where your money would actually go to the company is in an IPO event, but when is the last time you or anybody you knew bought shares in an IPO?) McWilliams' description here is closer to purchasing a bond issued by the company, in which case your money is going to the company and can be used for expansion; you aren't participating in the share of that additional profit, though, you are only collecting the interest due to you for the loan. 

The book ends with a "further reading" section, I haven't read any of those books before and a lot of them sound really interesting. I get the impressions at least some of those are more rigorous scholarly books, so they may be less readable but more satisfying to me.

So, yeah! I had slightly mixed feelings about this book. I think that for general education and entertaining economic stories it is excellent; for people like me who have already spent way too much time reading about financial topics it has value as a high-level contextualization of the broad sweep of economic and monetary development on planet Earth, which necessarily involved retreading some familiar ground but doing so in a pretty breezable and readable, though sometimes overly light, way.