In the previous articles of this series we looked at Uruk 5,000 years ago and saw the creation of tokens used for correspondence counting as well as making impressions in clay tablets. It was related to trade. A city of 50 to 80 thousand people, the inhabitants did different things and had to exchange goods – trade. 

Then we jumped forward to 1394 A.D. and saw banks and the exchange of goods and services over much greater distances. But it was not clear who owned the banks and it was not clear who minted the coins, be they copper, silver, or gold. In the last article we observed the slowness of government to act unless highly motivated but also the swiftness of King Philip IV to act when he grew disenchanted with the Knights Templar and the “banking system.”

In Europe, “money” was in the form of coins – copper, silver, and gold. Who issued them was not very clear but the metal content was seen to have value. How much? Let’s take a look at gold, chemical symbol Au (from the Latin aurum), atomic number 79. Today, the price of gold per troy ounce is about $1,300 US and in 2015 there were 186,700 metric tons above ground. To make the math easier, a kilogram is priced at $42,000 or $42 million per metric ton. The “value” of the gold is 7,841,400 million or 7.841400 trillion dollars. With an earth population of about 7.5 billion people, this is about $1,045 per person. The 2017 Federal Poverty Level for a single person household is $12,060 per year or $1,005 per month. Note that this is less than the value of one troy ounce of gold.

Assume everyone is given one troy ounce of gold. How could it be used for trade? If your shopping trip to the supermarket comes to $25, how could you pay for it in gold? Today one pure ounce of silver is about $17 and you need about 76 of them to equal one troy ounce of gold. How about copper? Juggling the numbers a bit, one troy ounce of copper is about $0.23 (23 cents). In the $1,045 per person example, you only need 109 of them for your shopping spree. These coins would weight about 7.5 pounds.

In Part Two of this series we briefly looked at “flying money” used under the Tang dynasty in China. Clearly dealing only in metal coins could be a problem because of the mass involved. So the government started giving merchants paper “banknotes” that could be redeemed for coins at the merchant’s home location. The merchants started using them for trading among themselves. Paper “money” was born.

Shortly before his death in 1227, Genghis Khan authorized paper money (really mulberry bark) backed by precious metals and silk. The significant point is that the paper money was backed up by something perceived as valuable and trust in the government. It was accepted by the people if for no other reason than it provided the mechanism for trade and had “value” beyond the mulberry bark. (Or maybe there wasn’t another option.) Marco Polo reported this phenomenon to Europe around 1300.

The invention of  paper has been attributed to Cai Lun, an imperial official of the Han dynasty (China 202 BC to AD 220) with the earliest paper fragment dating to 179-41 BC.  Papermaking reached Europe perhaps as early as 1085 in Toledo, Spain and was truly in place by 1150. By 1340, paper mills had spread to northern Italy. So in 1390, when Datini sent his order to Prato (see Part Two of this series), paper was easily available to record and send it as well as permit double entry bookkeeping. And the bank could (did) issue banknotes that could be redeemed at the bank for coins, precious metal or otherwise. Loosely speaking this was money, but it was not issued by the government and was not used by the general public.

In 1661, Stockholms Banco, in collaboration with the King of Sweeden, issued the first banknotes. Three years later the bank went bankrupt because it rapidly issued too much artificial money. But in 1695, the Bank of England initiated the issuing of banknotes of 20 to 1,000 pounds (obviously not for the general public). It had to pay for its war against France. Was this money?