10
The Scent of Money
IN 1519 HERNÁN CORTÉS AND HIS CONQUISTADORS invaded
Mexico, hitherto an isolated human world. The Aztecs, as the people who lived
there called themselves, quickly noticed that the aliens showed an extraordinary
interest in a certain yellow metal. In fact, they never seemed to stop talking
about it. The natives were not unfamiliar with gold – it was pretty and easy to
work, so they used it to make jewellery and statues, and they occasionally used
gold dust as a medium of exchange. But when an Aztec wanted to buy
something, he generally paid in cocoa beans or bolts of cloth. The Spanish
obsession with gold thus seemed inexplicable. What was so important about a
metal that could not be eaten, drunk or woven, and was too soft to use for tools
or weapons? When the natives questioned Cortés as to why the Spaniards had
such a passion for gold, the conquistador answered, ‘Because I and my
companions suffer from a disease of the heart which can be cured only with
gold.’1
In the Afro-Asian world from which the Spaniards came, the obsession for
gold was indeed an epidemic. Even the bitterest of enemies lusted after the same
useless yellow metal.
Three centuries before the conquest of Mexico, the
ancestors of Cortés and his army waged a bloody war of religion against the
Muslim kingdoms in Iberia and North Africa. The followers of Christ and the
followers of Allah killed each other by the thousands, devastated fields and
orchards, and turned prosperous cities into smouldering ruins – all for the greater
glory of Christ or Allah.
As the Christians gradually gained the upper hand, they marked their
victories not only by destroying mosques and building churches,but also by
issuing new gold and silver coins bearing the sign of the cross and thanking God
for His help in combating the infidels. Yet alongside the new currency, the
victors minted another type of coin, called the millares, which carried a
somewhat different message. These square coins made by the Christian
conquerors were emblazoned with flowing Arabic script that declared: ‘There is
no god except Allah, and Muhammad is Allah’s messenger.’ Even the Catholic
bishops of Melgueil and Agde issued these faithful copies of popular Muslim
coins, and God-fearing Christians happily used them.2
Tolerance flourished on the other side of the hill too. Muslim merchants in
North Africa conducted business using Christian coins such as the Florentine
florin, the Venetian ducat and the Neapolitan gigliato. Even Muslim rulers who
called for jihad against the infidel Christians were glad to receive taxes in coins
that invoked Christ and His Virgin Mother.3
How Much is It?
Hunter-gatherers had no money. Each band hunted, gathered and
manufactured almost everything it required, from meat to medicine, from
sandals to sorcery. Different band members may have specialised in different
tasks, but they shared their goods and services through an economy of favours
and obligations. A piece of meat given for free would carry with it the
assumption of reciprocity – say, free medical assistance. The band was
economically independent; only a few rare items that could not be found locally
– seashells, pigments, obsidian and the like – had to be obtained from strangers.
This could usually be done by simple barter: ‘We’ll give you pretty seashells,
and you’ll give us high-quality flint.’
Little of this changed with the onset of the Agricultural Revolution.
Most
people continued to live in small, intimate communities. Much like a huntergatherer
band, each village was a self-sufficient economic unit, maintained by
mutual favours and obligations plus a little barter with outsiders. One villager
may have been particularly adept at making shoes, another at dispensing medical
care, so villagers knew where to turn when barefoot or sick. But villages were
small and their economies limited, so there could be no full-time shoemakers
and doctors.
The rise of cities and kingdoms and the improvement in transport
infrastructure brought about new opportunities for specialisation. Densely
populated cities provided full-time employment not just for professional
shoemakers and doctors, but also for carpenters, priests, soldiers and lawyers.
Villages that gained a reputation for producing really good wine, olive oil or
ceramics discovered that it was worth their while to specialise nearly exclusively
in that product and trade it with other settlements for all the other goods they
needed. This made a lot of sense. Climates and soils differ, so why drink
mediocre wine from your backyard if you can buy a smoother variety from a
place whose soil and climate is much better suited to grape vines? If the clay in
your backyard makes stronger and prettier pots, then you can make an exchange.
Furthermore, full-time specialist vintners and potters, not to mention doctors and
lawyers, can hone their expertise to the benefit of all. But specialisation created a
problem – how do you manage the exchange of goods between the specialists?
An economy of favours and obligations doesn’t work when large numbers of
strangers try to cooperate. It’s one thing to provide free assistance to a sister or a
neighbour, a very different thing to take care of foreigners who might never
reciprocate the favour. One can fall back on barter. But barter is effective only
when exchanging a limited range of products. It cannot form the basis for a
complex economy.4
In order to understand the limitations of barter, imagine that you own an
apple orchard in the hill country that produces the crispest, sweetest apples in the
entire province. You work so hard in your orchard that your shoes wear out. So
you harness up your donkey cart and head to the market town down by the river.
Your neighbour told you that a shoemaker on the south end of the marketplace
made him a really sturdy pair of boots that’s lasted him through five seasons.
You find the shoemaker’s shop and offer to barter some of your apples in
exchange for the shoes you need.
The shoemaker hesitates. How many apples should he ask for in payment?
Every day he encounters dozens of customers, a few of whom bring along sacks
of apples, while others carry wheat, goats or cloth – all of varying quality. Still
others offer their expertise in petitioning the king or curing backaches. The last
time the shoemaker exchanged shoes for apples was three months ago, and back
then he asked for three sacks of apples. Or was it four? But come to think of it,
those apples were sour valley apples, rather than prime hill apples. On the other
hand, on that previous occasion, the apples were given in exchange for small
women’s shoes. This fellow is asking for man-size boots. Besides, in recent
weeks a disease has decimated the flocks around town, and skins are becoming
scarce. The tanners are starting to demand twice as many finished shoes in
exchange for the same quantity of leather. Shouldn’t that be taken into
consideration?
In a barter economy, every day the shoemaker and the apple grower will
have to learn anew the relative prices of dozens of commodities. If one hundred
different commodities are traded in the market, then buyers and sellers will have
to know 4,950 different exchange rates. And if 1,000 different commodities are
traded, buyers and sellers must juggle 499,500 different exchange rates!5 How
do you figure it out?
It gets worse. Even if you manage to calculate how many apples equal one
pair of shoes, barter is not always possible. After all, a trade requires that each
side want what the other has to offer. What happens if the shoemaker doesn’t
like apples and, if at the moment in question, what he really wants is a divorce?
True, the farmer could look for a lawyer who likes apples and set up a three-way
deal. But what if the lawyer is full up on apples but really needs a haircut?
Some societies tried to solve the problem by establishing a central barter
system that collected products from specialist growers and manufacturers and
distributed them to those who needed them. The largest and most famous such
experiment was conducted in the Soviet Union, and it failed miserably.
‘Everyone would work according to their abilities, and receive according to their
needs’ turned out in practice into ‘everyone would work as little as they can get
away with, and receive as much as they could grab’. More moderate and more
successful experiments were made on other occasions, for example in the Inca
Empire. Yet most societies found a more easy way to connect large numbers of
experts – they developed money.
Shells and Cigarettes
Money was created many times in many places. Its development required no
technological breakthroughs – it was a purely mental revolution. It involved the
creation of a new inter-subjective reality that exists solely in people’s shared
imagination.
Money is not coins and banknotes. Money is anything that people are willing
to use in order to represent systematically the value of other things for the
purpose of exchanging goods and services. Money enables people to compare
quickly and easily the value of different commodities (such as apples, shoes and
divorces), to easily exchange one thing for another, and to store wealth
conveniently. There have been many types of money. The most familiar is the
coin, which is a standardised piece of imprinted metal. Yet money existed long
before the invention of coinage, and cultures have prospered using other things
as currency, such as shells, cattle, skins, salt, grain, beads, cloth and promissory
notes. Cowry shells were used as money for about 4,000 years all over Africa,
South Asia, East Asia and Oceania. Taxes could still be paid in cowry shells in
British Uganda in the early twentieth century.
26. In ancient Chinese script the cowry-shell sign represented money, in
words such as ‘to sell’ or ‘reward’.
In modern prisons and POW camps, cigarettes have often served as money. Even non-smoking prisoners have been willing to accept cigarettes in payment,
and to calculate the value of all other goods and services in cigarettes. One
Auschwitz survivor described the cigarette currency used in the camp: ‘We had
our own currency, whose value no one questioned: the cigarette. The price of
every article was stated in cigarettes … In “normal” times, that is, when the
candidates to the gas chambers were coming in at a regular pace, a loaf of bread
cost twelve cigarettes; a 300-gram package of margarine, thirty; a watch, eighty
to 200; a litre of alcohol, 400 cigarettes!’6
In fact, even today coins and banknotes are a rare form of money. In 2006,
the sum total of money in the world is about $60 trillion, yet the sum total of
coins and banknotes was less than $6 trillion.7 More than 90 per cent of all
money – more than $50 trillion appearing in our accounts – exists only on
computer servers. Accordingly, most business transactions are executed by
moving electronic data from one computer file to another, without any exchange
of physical cash. Only a criminal buys a house, for example, by handing over a
suitcase full of banknotes. As long as people are willing to trade goods and
services in exchange for electronic data, it’s even better than shiny coins and
crisp banknotes – lighter, less bulky, and easier to keep track of.
For complex commercial systems to function, some kind of money is
indispensable. A shoemaker in a money economy needs to know only the prices
charged for various kinds of shoes – there is no need to memorise the exchange
rates between shoes and apples or goats. Money also frees apple experts from the
need to search out apple-craving shoemakers, because everyone always wants
money. This is perhaps its most basic quality. Everyone always wants money
because everyone else also always wants money, which means you can exchange
money for whatever you want or need. The shoemaker will always be happy to
take your money, because no matter what he really wants – apples, goats or a
divorce – he can get it in exchange for money.
Money is thus a universal medium of exchange that enables people to
convert almost everything into almost anything else. Brawn gets converted to
brain when a discharged soldier finances his college tuition with his military
benefits. Land gets converted into loyalty when a baron sells property to support
his retainers. Health is converted to justice when a physician uses her fees to hire
a lawyer – or bribe a judge. It is even possible to convert sex into salvation, as
fifteenth-century prostitutes did when they slept with men for money, which they
in turn used to buy indulgences from the Catholic Church.
Ideal types of money enable people not merely to turn one thing into another,
but to store wealth as well. Many valuables cannot be stored – such as time or
beauty. Some things can be stored only for a short time, such as strawberries.
Other things are more durable, but take up a lot of space and require expensive
facilities and care. Grain, for example, can be stored for years, but to do so you
need to build huge storehouses and guard against rats, mould, water, fire and
thieves. Money, whether paper, computer bits or cowry shells, solves these
problems. Cowry shells don’t rot, are unpalatable to rats, can survive fires and
are compact enough to be locked up in a safe.
In order to use wealth it is not enough just to store it. It often needs to be
transported from place to place. Some forms of wealth, such as real estate,
cannot be transported at all. Commodities such as wheat and rice can be
transported only with difficulty. Imagine a wealthy farmer living in a moneyless
land who emigrates to a distant province. His wealth consists mainly of his
house and rice paddies. The farmer cannot take with him the house or the
paddies. He might exchange them for tons of rice, but it would be very
burdensome and expensive to transport all that rice. Money solves these
problems. The farmer can sell his property in exchange for a sack of cowry
shells, which he can easily carry wherever he goes.
Because money can convert, store and transport wealth easily and cheaply, it
made a vital contribution to the appearance of complex commercial networks
and dynamic markets. Without money, commercial networks and markets would
have been doomed to remain very limited in their size, complexity and
dynamism.
