History Matters: Making Money

Americans like to think of the dollar as king, but in the history of currency, that honor probably belongs to the humble cowry. A type of mollusk shell common in the shallow waters of the Pacific and Indian oceans, the cowry was used as money as early as 1200 BC in China. There, the first pictograph meaning “money” depicted a shell. The most widely and longest-used currency in history, cowries were exchanged in Africa into the mid-20th century.

Our ancestors also used everything from amber to zappozats (decorated axes) as money, including eggs, feathers, ivory, jade, kettles, cattle, pigs, quartz, rice, thimbles, peppercorns and even vodka. The “shekel” was originally a specific weight of barley, much as the British pound represented a pound of silver. Roman soldiers were paid in salt, giving us the word “salary.”

Real coins were introduced about 640 BC in Lydia, Asia Minor. Lydians stamped small pieces of “electrum,” an amalgam of gold and silver, as a guarantee of purity. The Greeks quickly adopted the idea, spurring commerce across the Mediterranean.

The Greeks also began the practice of money changing, converting between the many new currencies. Money changers’ counters—banca in Italian, from which we get the word “bank”—were often set up near public buildings such as temples, from which Jesus famously drove them.

Paper money dates from a shortage of copper for coins during the reign of Emperor Hien Tsung of China (806-821 AD). Paper money proved tempting to overproduce, however, and China suffered bouts of hyperinflation. After 500 years of use, in 1455 China abandoned paper money for almost a century.

Penny for your thoughts

Coins came to England with the Romans, but after the Romans’ departure, fell out of use for nearly 200 years. When the Saxons began to mint silver coins again, they created the “penny,” possibly named after Penda, a minor king. (Alternatively, the word might derive from the pans into which molten silver was poured for coins.)

Pennies proved useful in paying the Danegeld (“Dane debt”) imposed by the Vikings who arrived soon after. The Danish King Cnut collected 20 million pennies, which he used to pay his armies, and English coins became common in Scandinavia. In 9th century Ireland, those who refused to pay the Vikings’ “tax” got their noses slit—the origin of the phrase “pay through the nose.”

Coins were useful but bulky— those 20 million pennies must have filled several Viking longships—so more convenient options arose. Merchants traded “bills of exchange,” essentially a paper form of barter. In 12th-century England, this notion became the “tally stick”: a piece of wood with notches representing money owed, typically taxes, which could be sold much like today’s T bills. Eventually the treasury began issuing tally sticks not backed by actual taxes.

Goldsmiths also weighed in, issuing notes backed by the gold in their vaults. The success of this scheme—some goldsmiths became the forerunners of leading English banks—inspired “banknotes,” privately issued money. At least theoretically, banknotes could be converted into gold or silver upon demand at the bank (which made them less valuable with distance from the issuer).

This “gold standard” continued even after the Bank of England was granted the sole right to issue banknotes in 1694, and it was adopted globally between 1888 and 1913. In practice, by the time the United States abandoned the gold standard and switched to “fiat money” (unbacked by any assets) in 1971, it could actually redeem only about 0.5 percent of dollars into gold.

From clams to cash

The first popular currency in America was a cousin of the cowry—the wampum, made by Indian tribes such as the Iroquois out of clamshells. Strung like beads for convenience and ornamentation, wampum was adopted by European arrivals. Massachusetts declared wampum legal tender in 1637. In 1760, J.W. Campbell opened a factory in New Jersey for drilling holes in wampum and stringing the shells together, which operated for 100 years.

Other colonies traded with what was at hand—in Virginia’s case, tobacco. Because exchanging the actual leaves was cumbersome, in 1727 Virginia issued “tobacco notes”—certificates against the harvest stored in warehouses—as legal tender.

Colonies also issued more conventional paper money, beginning with Massachusetts in 1690, which printed notes to pay soldiers returning from an expedition to Quebec. Banks created their own currency, too. Among those hired to print money for the Pennsylvania Land Bank was Benjamin Franklin, whose face would one day adorn the United States’ $100 bill.

Britain put an end to the paper-money boom in 1764, banning the colonies from printing their own currency. That ban helped goad Americans to seek independence—which in turn led to printing more paper money to pay for the Revolution. This early “Continental” currency rapidly devalued, falling to a thousandth of its face value by the war’s end and inspiring the phrase, “Not worth a Continental.”

In 1792, the newly independent nation chose the dollar for its currency rather than the familiar pound, both as a patriotic rejection of Britain and because of the popularity of Spanish coins by that name. The word “dollar” derived from “thaler,” a silver coin first minted in Bohemia in 1519. It came to be applied to the Spanish peso, which circulated widely in the Americas because of Spain’s appropriation of gold and silver from the Aztecs and Incas. The Spanish peso and similar Portuguese eight-real coin both also were called “dollars,” and divided into eighths for making change—thus the pirates’ “pieces of eight” as well as “two bits” (two eighths making one quarter). The United States set up its first mint in Philadelphia in 1794, but the Spanish dollar remained legal tender until after the Gold Rush, in 1857.

After President Andrew Jackson quashed the Second Bank of the United States, states chartered their own banks in a financial free-for-all. By 1859, one guide listed 9,916 banknotes issued by 1,365 different banks.

The “greenback,” issued to help pay for the Civil War, was the United States’ first true national currency. It introduced that now-familiar color to US money, as well as a complex design to thwart counterfeiters. The dollar was slowly on its way to becoming the world’s leading currency—though we still have a long way to go to catch the cowry shell.

• Banks that cranked out money and then moved on to find new suckers were called wildcatters. Dollars from bankrupt issuers were known as broken notes.
• The dollar shrank about 25 percent to its current size in 1929, when the system of portraits on the front and monuments on the back was also introduced.
• According to one theory about the origin of the dollar sign, it represents the superimposed initials U and S.
• The largest US denomination ever circulated was the $10,000 bill, bearing the likeness of Salmon P. Chase. Larger bills having been withdrawn to prevent their use in illegal transactions (such as the drug trade), the top denomination is now $100.

Timeline

• 1519: Silver thaler coined in Joachimstal, Bohemia
• 1694: Bank of England forms, begins to issue paper money
• 1792: United States adopts the dollar, subdivided into 100 cents
• 1833: Jackson ends federal deposits in the Second Bank of the United States
• 1865: Secret Service is created to combat counterfeit money
• 1873: Silver dollar dropped as the standard of value
• 1900: Gold standard officially adopted
• 1913: Federal Reserve established
• 1950: Diners Club is the first charge card
• 1971: Gold standard dropped
• 2000: Confinity and X.com merge to form PayPal

From the January 2012 issue of Family Tree Magazine

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