The first bankers: Canal-side lenders in 14th century Venice had to hold gold reserves © Bodleian Library/Oxford University

Life as a shopkeeper may never have been easy, as the current switch from cash to cards during the pandemic highlights.

But retailing came with some very specific complexities in mid-19th century America: as the Chicago Tribune reported in 1863, the country’s 1,395 banks had 8,370 different types of notes in circulation.

When a farmer or traveller arrived clutching a bundle of paper money to pay for goods, the cashier needed to consult the hefty Thompson’s Bank Note Reporter to verify if the currency was indeed officially produced by a bank somewhere in the US, another guide to check it was not among the many counterfeits in circulation, and calculate the discount advised for redemption.

Meanwhile, US states employed inspectors to ensure local banks had sufficient reserves of gold and silver to underwrite the notes they had issued. That sparked a mini-industry of deception including spies to keep watch for their arrival and swiftly borrow extra supplies of precious metal so that “one knew not whence it came or whither it was going,” according to one banking commissioner.

As Jacob Goldstein recounts in his entertaining book Money, governments throughout history have taken very seriously the frequent efforts to undermine currencies. A thousand years ago in China, elaborately designed paper money with official seals prominently warned that counterfeiters would be beheaded and informers rewarded.

There was a practical need for effective proxies to replace the direct exchange of gold and other commodities that had inherent underlying value. The highest denomination of Swedish currency in the 17th century, for example, was a two-foot-long copper bar weighing 43 pounds carried on peoples’ backs. In England, melting, remixing or clipping silver coins meant that, as the historian Thomas Macaulay put it, “nothing could be purchased without a dispute”.

Goldstein describes the creation of modern banks — the money-changing “bench sitters” by the Grand Canal in Venice who in the 14th century lent gold and were required to keep a percentage in reserve to reduce the risk of bank runs — and of stock exchanges, who were originally the dealers in overseas trading companies’ stock who stood by Amsterdam’s bridges and recorded transactions in ledger books.

Meanwhile, governments — as well as fledgling companies — began to explore better ways to finance expenditure such as the issue of bonds, seeking always to build trust in their capacity to repay — and often failing. John Law, the Scottish adventurer and gambler, in the early 18th century persuaded France’s regent, the Duke of Orléans, to open a central bank and pioneer the selling of paper financial instruments on a large scale. He built an entire paper-based financial infrastructure that helped fund trade with Mississippi: creating “millionaires”. The system collapsed and Law fled.

Much of Goldstein’s book is well-trodden territory, covered in previous works which he duly credits, from John Kenneth Galbraith’s Money to The Ascent of Money by Niall Ferguson. He could have done more to expand on those areas in which he conducted his own research, including — in a riff on technology and capitalism — exploring the sharply falling cost of generating light over millennia in an analysis by the Yale economist Bill Nordhaus.

There is little on the important role and attitudes of different faiths, such as Judaism and Islam, defining attitudes to money and lending. But overall his strength is historical sweep, from the clay balls recording debts in Mesopotamia 5,000 years ago to decentralised encrypted electronic currencies including bitcoin. He even squeezes in a brief (if inconclusive) reference to the coronavirus pandemic, alongside aspects of modern monetary theory seized upon this year by US politicians Bernie Sanders and Alexandria Ocasio-Cortez as a way to boost government spending.

His style is at times gratingly informal (“Law took all the money and gave France crap in return”). His analysis is also too closely focused around money’s role, leading him to oversimplify complex connections, for example, between Britain’s abandonment of the Gold Standard in 1931 and the ending the Great Depression; or the creation of the euro and German reunification.

Nor is there a strong consistent central thesis, other than a recurring warning that the money we think of today as natural or immutable is likely to be overturned in the future.

The author might have done more, for instance, to explore the risks ahead posed by cyberterrorism, computer crime and the growing reliance on electronic transactions. But as an introduction to how money morphed into the varied forms it has today, Goldstein’s book is a readable place to start. 

Money: The True Story of a Made‑Up Thing, by Jacob Goldstein, Hachette Books, RRP$14.99, 272 pages

This article is part of FT Wealth, a section providing in-depth coverage of philanthropy, entrepreneurs, family offices, as well as alternative and impact investment

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