Preface

Hold a banknote in your hand and look at it as though you had never seen one before. It is a rectangle of printed fibre, worked with a watermark or two and a metal thread, and it is worth almost nothing for what it is: the paper, the ink, the labour of printing it cost a tiny fraction of the figure stamped across its face. And yet with that rectangle you can carry home bread, a book, an hour of another person’s work. The shopkeeper takes it without hesitation — not because he trusts you, for he does not know you, but because he is certain that he in turn will be able to pass it to a third person, who will pass it to a fourth, in a chain that never breaks and whose end no one ever sees. That scrap of paper does not contain value: it carries it, the way a jar carries water without being water. And on the day the chain snaps — it has happened, and this book will more than once describe how — the rectangle reverts to what it has always physically been: next to nothing.

This is the strangest thing about money, and it is the thread that holds the following pages together. The value we handle every day does not sit inside an object. It sits in an agreement: a collective agreement, fragile and formidable at once, that certain signs — a notch in clay, a disc of metal, a signed sheet, today a line in an electronic ledger — may stand in for a wealth that does not yet exist, or that lies elsewhere, or that exists only as a promise to repay. Money, in other words, is a technique for manufacturing value where there was none: the value from nothing of the title is not a clever paradox but a literal description of what happens when a bank opens a line of credit, when a state issues a bond, when a community decides that a sheet of paper is worth a field of grain. It is an alchemy that human history learned to practise by degrees, over millennia of attempts, failures and fresh starts, and that even today no one fully controls.

A debt that walks

For centuries the origin of money was told as a simple, reassuring fable — the one most of us learned at school. In the beginning, so the story goes, was barter: I have grain and want a sheep, you have a sheep and want grain, so we trade. But barter is awkward — wants must coincide, the sheep must be worth exactly so much grain — and so men are supposed to have invented money, a precious metal good for any exchange, to grease the gears of commerce. This is the story Adam Smith placed at the opening of economic science, and it is a tidy one. It is also, almost certainly, false.

The anthropologists and historians who went looking for that world of pure barter never found it, in no place and in no age [Graeber 2011]. In communities without money, sheep are not traded against grain in immediate settlement: what circulates is debt. I give you my grain today; you will give me something when I need it; the village keeps the account in its memory, and that account of mutual obligations is the economy. The earliest written records in history, the clay tablets of Mesopotamia, do not register cash sales: they register credits and debts — how much barley so-and-so owes the temple, by when, at what interest [Goetzmann 2016]. Money, before it was ever a thing you keep in your pocket, was a number in a ledger: the measure of a promise to repay. The suspicion arises, then, that metal coinage is not the origin of money but a late episode of it — a way of making portable, anonymous and transferable to a stranger a debt that had previously lived in the memory of a small community. This book takes that suspicion seriously without turning it into dogma: as we shall see, the question of whether money began as a commodity or as a credit is still open, and it divides scholars with a sharpness whose roots are anything but academic.

The long migration of value

Running through this history is a thread that gives the book its backbone, and it can be stated in a single line: value kept changing house. It came to inhabit ever more abstract dwellings, and with each move it grew at once more powerful and more immaterial.

It began, as we have said, as a sign in a clay ledger — debt measured in barley and in weighed silver. Then, around the seventh century before our era, someone in Lydia had the idea of stamping the king’s seal onto small pieces of metal of guaranteed weight, and coinage was born: value became an object, pocketable, passing from hand to hand without the need to weigh and assay it each time. For more than two thousand years precious metal remained the body of money, and empires rose and fell in part on their capacity to find it, to strike it, and — when they were short of it — to dilute it on the sly. Then came paper: first as a receipt for metal deposited elsewhere, then, audaciously, as a promise of payment worth more than the metal standing behind it, since not every bearer would present himself at once to redeem it. With paper the bank entered the stage, and with the bank the most vertiginous discovery of all: that credit itself is money, that by lending what one does not wholly possess one creates new money out of nothing. From there the step to our own present was long but straight. In 1971 the last link between money and gold was severed, and for the first time in history all the monetary wealth of the world found itself suspended in the void, guaranteed no longer by a metal but solely by the credibility of the states that issue it [Ferguson 2008]. And in recent years the latest move of all: money become code, a shared ledger without a centre, value claiming to rest upon an algorithm instead of an authority.

The reader will watch this migration unfold chapter by chapter, and will discover — on reaching the end — that at every passage money lost something concrete and gained something conceptual, until it dematerialised entirely; but that the underlying question never changed by a hair. Who guarantees that the value is real? Who answers if the promise is not kept? From the Babylonian tablet to the digital wallet, it is always the same question, posed at an ever deeper level.

What this book is, and is not

It is worth saying at once what the reader will find in these pages and what, deliberately, will not be found here.

It is a narrative essay. It proceeds through stories, people and places, because the ideas of economics were not born in the abstract but inside concrete events, and telling them together is the most honest way to understand them: the Florentine banker who makes and unmakes popes, the potter who becomes the richest man in Europe by lending to emperors, the Scottish adventurer who persuades an entire kingdom to print paper on a colonial promise and then drags it into ruin, the American president who one Sunday evening announces on television the end of gold. Behind each of these stories lies an idea — seigniorage, interest, fractional reserve, inflation — and the idea enters the scene when the story gives birth to it, never before.

It is not, on the other hand, a manual. The reader will find here no formulas for valuing a security, no macroeconomic models to solve, no techniques of accounting and, least of all, advice on how to invest one’s savings. When the story touches on one of these matters — and it will — the book will pause to explain the idea in words, and then return to its telling. Where the instruments of finance come from, and why they mattered: that is the business of these pages; how they are used is the matter of another kind of book.

One choice of method deserves to be declared at the outset, for it bears on every chapter. Economics, more than almost any other subject, is an ideological battlefield: whether money should rest on gold or on faith in the state, whether central banks are a safeguard or a danger, whether public debt is a poison or a tool — these are questions fought over for centuries and fought over still, often with partisan passion. This book holds a firm position on how to treat such disputes: it sets them out, it does not arbitrate them. The reader will find each of the great warring schools reconstructed with its own reasons — those who see money as a commodity and those who see it as a credit, those who invoke the discipline of gold and those who prize the flexibility of paper — because each of them, in some season, persuaded first-rate minds, and to understand why it persuaded is more instructive than to pronounce who was right. The same holds for the closing chapter on digital currencies, ground today thick with enthusiasms and with mirror-image contempt: we shall cross it with historical curiosity, selling nothing and demolishing nothing.

How to read this book, and a small caution

No economic training is needed to read this book. The writing proceeds by progressive depth: each chapter opens on a concrete scene — a date, a place, a person — and descends by degrees toward historical and conceptual detail, until it brushes against the questions still open today. Those who wish to stop at the narrative may do so without losing the thread; those who want to press further will find, along the way, the economic ideas in their more precise form as well. Formulas are nearly absent, and the few that appear are always explained first in words; dates, figures and orders of magnitude, by contrast, abound, for they are the salt of this story. Particular sources are flagged in the text and gathered at the end, where a bibliographical essay suggests paths for those who wish to read on for themselves.

A caution, finally, that is also a promise of honesty. The history of money is cluttered with legends too good to be true: the tulip mania that supposedly ruined the whole of Holland, the wheelbarrow of banknotes needed to buy bread in the Germany of 1923, the savage who had no use for gold. These are seductive tales, and this book will tell them — it would be a pity to omit them — but always declaring them for what they are, and then setting them back on their feet in the light of what actually happened. The reader will discover, with some surprise, that the documented facts are almost always more interesting than the myth, because in place of fools and geniuses they put ordinary people grappling with new problems [Davies 2002].

Anyone who has read the companion volume in this same library, devoted to the history of measurement, will sense here a family resemblance, and not by chance: to measure value and to measure a length are close kin, two ways of turning the world into something on which strangers can agree. But anyone beginning here has nothing to catch up on. The story I am about to tell has a beginning all its own — a merchant, a clay tablet, a debt set down in writing — and it reads on its own, from the first sign pressed into mud to the last line of code.