Some commodities are better as money than others. Movie stars would make bad money. Carrying a couple around would be a bother, and you’d have to hack a leg off to make change. Precious metals, however, make good money and have been used that way for more than 5,000 years. Metal commodity money is portioned out by weight. A coin is just a hunk of metal stamped to indicate its heft. From weighing money to making coins is a simple step, but a couple thousand years passed before the step was taken. Nobody trusted anybody else to do the stamping. When coins were invented, the distrust proved to be well-founded. The first Western coins were minted by the kingdom of Lydia, in what is now Turkey, and were made of a gold-silver alloy called electrum. It’s hard for anyone but a chemist (and there weren’t any) to tell how much gold is in a piece of electrum versus how much silver. The king of Lydia, Croesus, became proverbial for his wealth. In China, the weight of bronze “cash” was supposed to be guaranteed by death penalties. A lot of people must have gone to the chair. A horse cost 4,500 “1-cash” coins during the Han dynasty (206 B . C . to A . D . 220) and 25,000 cash during the Tang dynasty (618 - A . D . 907). Kings, emperors, and, indeed, Swedish cabinet ministers have expenses. It is to a government’s advantage to pay for those expenses with funny money. One reason that money violates common sense is that governments do tricky things with it. Another reason that money violates common sense is that we don’t have to use real commodities as money. We can use pieces of paper promising to deliver those real commodities. This is “fiduciary money,” from the Latin word fiducia, trust. In Europe, paper money developed privately in the thirteenth century from bills of exchange traded among Italian merchants and from receipts given by goldsmiths to whom hard money had been entrusted for safekeeping. We still use such private money when we cash a traveler’s check. Public fiduciary money was first printed, predictably enough, in Sweden. Swedish commodity money came in the form of copper plates. Thus, in Sweden, a large fortune was a large fortune. In 1656 the Stockholm Banco began issuing more convenient paper notes. The bank issued too many notes, and the Swedish government went broke—for the same reason that the Swedish government is broke today.
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