History of money II

When I was younger my favourite type of reading after science fiction was history and I don't know how many histories of the Roman Empire I read. I tried to understand how a civilization that was so powerful in its day could collapse. From its beginning in mythological legend to its historic demise at the hands of Germanic invaders, Rome is an engrossing story, one that begins in dreamtime and ends in collapse and ruin, a real life tragedy. The histories I read were primarily popular narratives which emphasized the doings of armies and emperors, and each writer had his own particular explanation for why it fell. One common theme running through many of the accounts was the debasing of the currency. Debasement means, of course, that the precious metals used in the coinage are diluted with metals of lesser value, mainly copper. While the historians all had different theories about what caused the debasing they all agreed it was a bad thing.
But let's back up a little and ask why the currency was always and ever under pressure to be debased. The short answer is that the emperors needed money to pay off their debts and they incurred their debt in order to pay the legions. The long answer then as now is that there is never quite enough money in the system to finance expansion. In recent times the desire to pump more money into the system has led to orgies of canal and railroad building in the nineteenth century, dotcom bubbles in the twentieth, and a mortgage bust in the twenty-first. In Roman times it was the army that kept the commerce routes open and made everything else possible. It was the Roman army that built the roads, the aquaducts, the port facilities, and the strongholds at the edges of the empire. Within the empire thus protected a rule of law was enabled to flourish. It was possible for a Roman trader to travel from Syria, through North Africa, across to Iberia, and eventually make his way to the borders of the wild Picts in the north of Britain. He could then continue on back to Gaul, crossing the Alps to Italy, take ship to Greece, Asia Minor and back to Syria, buying, selling and trading all the way. Language was no problem as long as he spoke Latin or Greek. The coinage of Rome was good wherever he went and he was protected by Roman law. It was thanks to this Pax Romana that Paul of Tarsus was able to spread his message, whether through personally visiting the newly founded churches or using the Roman postal system to convey his epistles along the roman roads or in Roman ships.
Try to imagine what it would be like to shop if the smallest denomination was a thousand dollar bill. That was roughly the case in the early days of coinage. It was good for large items like the purchase of land and slaves but not much good for buying a loaf of bread. I think this may have been another one of the pressures leading to a debasement of currency. As money became more common, smaller and more numerous economic transactions could be conducted with it. And money is much more convenient than barter so when more money is in circulation trade will increase. Economic activity migrates from the home to specialized shops and tradesmen. Penelope no longer weaves her husbands winding sheet in the palace loft. She buys it from a cloth merchant, to the detriment of literature perhaps, but she has more time for politics. Everybody wins. I think.
This is why the money supply has grown almost continuously in the centuries since coinage was invented. When it does fail, as it did at the end of the empire, so does civilization as we understand it. In Europe a dark age lasting centuries followed. Long distance trade virtually ceased. People could only consume what was produced locally. Civic life ceased. When money slowly came back into circulation it allowed central monarchies to begin to reduce the strength of local military warlords. Money expands the reach of economic activity. People become richer. Taxes flow into government coffers. The prince who adapted to the monetary model prospered and grew powerful, his court turning into a magnet for impoverished knights and lesser nobility who now owed their standing to the largesse of the prince.
In Italy the Renaissance was ushered in by merchant princes like the Medici in Florence who had the wherewithal after hiring mercenaries to fight their incessant wars to commission works by Leonardo and Michaelangelo. A mania took hold among them to amass collections of Greek and Latin manuscripts.
It was during the Italian Renaissance that pieces of paper began to replace coin. This is a major milestone in the evolution of money. Promissory notes, letters of credit, and many other instruments were invented to reduce the ever present danger of robbery in a world no longer protected by a central authority. The political of Europe was hopelessly fragmented with every jurisdiction issuing its own coinage. This provided an opportunity to money changers in Italy who took on the chore of converting one currency to another while taking a commission for themselves. As they accumulated capital they were able to get in the business of advancing loans. The Church prohibited interest at the time so the money changers had to be rather creative in how they earned income from loans. These money changers soon realized that it wasn't necessary to ship coin every time a commercial transaction took place. An entry in a book would do the job quite well. Before long entries in books represented by pieces of paper in circulation, backed by the reputation of the banker, substituted for real gold and silver. Our word 'credit' comes from the Latin word for belief. Money was distancing itself from a connection to gold and silver and becoming a figment of the bankers imagination. This marked an enormous increase in the money supply available for economic activity but it also made it difficult for the non banker to comprehend. In essence, banking had become a kind of priesthood. Our modern banking and currency system is in direct descent from those Florentine money changers.
Even after all these years the priesthood is still prone to making catastrophic blunders but because the system has grown more and more arcane, fewer and fewer people understand it. Cast loose from its gold and silver moorings when the world's major economies went off the gold standard, money became a purely imaginary construct. Those who grasp its dynamics can grow fabulously wealthy and are able to influence world events- even going so far as precipitating a money market crash in order to propel a favoured (malleable?) candidate into the most powerful political office in the world. A trimmer was a name applied to a person who trimmed the edges off coins and saved the gleanings to his own profit. The art of trimming has come a long way since the old days.