This article was written for the younger audience as part of one of my dear friend and mentor Tyrone Ross’ amazing endeavor to spread financial literacy to underserved communities. If you have not hear of Tyrone or his work, change that right now before reading the rest of this post.
“Financial education with style. With incredible support from GoFundMe backers, we created the pilot episode of a 10-part video curriculum that teaches the basics of financial literacy with a fresh voice. It is accompanied by a curriculum website and PDF handout for classrooms. See all the pilot materials here. Now we want to complete the full curriculum and take the effort to the next level.
We will create a 10-episode foundational video curriculum and mobile website that can be easily taught by teachers in just 20 minutes a week. We’ll work with partners to spread it far and wide on social and in schools.
Learn to Money is a new voice for financial literacy. In addition to our foundational curriculum, we are exploring more social video, podcasts, TV, and editorial content.
To accomplish this we are seeking partners:
Institutional and individual partners to help fund the full 10-episode curriculum, mobile website, and more.
People and brands with big platforms to help spread the word and signal boost the message.
Organizations with distribution channels within public schools to help introduce and provide our curriculum materials to teachers.
That last part is important. HELP TYRONE BRING THIS CURRICULUM TO THOSE WHO NEED IT. Email Tyrone and the team here: [email protected]oney.org
The Brief History of Money
The history of money is one of trust and relationships. Whether the money be metal, paper or even digital, money is a concept that works because society accepts it is valuable. Despite the fact that the physical paper US dollars are printed on may be worth mere pennies, they possess their stated value (i.e. $5, $10, $20, etc.) because we as a society believe that this is their worth.
Just look at how much it actually costs to make the US dollar bills in circulation today:
In this short post we will look at a few major milestones in the creation and evolution of money over thousands of years, and some peculiar examples of currency that drive home the fact that money is worth what society believes its worth. Remarkable, right? It costs the same amount of money to make a $20 bill and $50 bill, but one is worth more than double the other. History repeatedly demonstrates that a currency’s worth is primarily derived from the user’s belief in its ability to act as a store of value and means of exchange, rather than its intrinsic value.
The First Coins
While there is still some debate, the general consensus among historians is that the first example of metal coinage and currency comes from the kingdom of Lydia, located in modern Turkey, in the 7th Century BCE.
Although there had been other earlier instances of merchants and communities using coin like objects as a means of currency, the “Lydian Stater” coins were significant for two key reasons. First, the coins were ‘minted’ and issued by the government, which provided the kingdom’s citizens with a trust in the currency’s value. The coins were also unique in that they were the first to contain a “state seal” or identifier. While this feat may seem trivial, it was critical in that it gave further validity to the currency and helped citizens easily identify the legitimacy of a coin.
Following the birth of metal coinage, another pivotal milestone in the evolution of currency was the introduction of paper money. Research from Columbia University argues that the origins of paper currency can be traced to the Tang and Song dynasties in China:
The Birth of Paper Money
“The use of paper currency was initiated by merchants. To avoid having to carry thousands of strings of coins long distances, merchants in late Tang times (c. 900 CE) started trading receipts from deposit shops where they had left money or goods.
The early Song authorities awarded a small set of shops a monopoly on the issuing of these certificates of deposit, and in the 1120s the government took over the system, producing the world’s first government-issued paper money.”
A century later, the famous explorer Marco Polo detailed his astonishment after witnessing the paper currency system under the Yuan Dynasty:
“With these pieces of paper, made as I have described, he [Khubilai Khan] causes all payments on his own account to be made; and he makes them to pass current universally over all his kingdoms and provinces and territories… wheresoever a person may go throughout the Great Kaan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold…”
Early Bankers, Murder & Dynasties
With the establishment of both metal and paper currencies came the rise of institutions to provide banking services like loans. For example, when most of us hear the word ‘credit’ we think of the credit cards that allow us to purchase goods and services on credit from a company like American Express with the agreement that we will pay back the money spent at a future date (sometimes with interest).
As with most aspects of money and finance, this system is one that operates on trust. The credit card company has to decide whether they can trust you to pay back the money you’ve borrowed, and tools like Credit Scores help determine whether or not you are trustworthy. In fact, historian Niall Ferguson points out that “the root of ‘credit’ is ‘credo’, the Latin for ‘I believe’.”
The rise of banking is best demonstrated by Florence’s legendary Medici family. The Medici family and related Medici bank became one of the most powerful forces in finance by establishing themselves as a large moneylender across Florence and Europe. To illustrate their power and influence consider the fact that two Medici became Queens of France, and there were three Medici Popes.
The concept of credits and debits in banking, however, are not new. The birth of modern banking is found in 15th century Italy. This is also where we derive the modern word “bank”, as the Italian bankers of the day used to conduct their business from a bench – “banco” in Italian. Additionally, if a banker went bankrupt his bench was smashed in half to signal that he could not repay his debts, which is also where we get the term “bankruptcy”: “broken bench” -> “banca rotta” -> “bankruptcy”.
However, money and influence can lead to power struggles, which was exactly what happened with the Medici family. Laura Morreale details the murderous plot by the Medici’s banking rival: The Pazzi Family.
“In fifteenth-century Florence… the Pazzi [family] had capitalized on their noble status and had entered the banking profession, at times to great success. But, by the mid-fifteenth century, their wealth and status was overshadowed by that of the Medici family… Although the Pazzi were related to the Medici by marriage, the Pazzi and other Florentine nobles felt that the Medici’s authority had become dangerously absolute…
The audacious plot to kill Lorenzo and his younger brother, Giuliano, was devised by members of the well-established Pazzi family and their powerful allies. The planned double-murder, now commonly known as the Pazzi conspiracy, is famous both for the very public nature of the crime and for the shocking brutality of its aftermath…
The Pazzis and their accomplices planned the attack for a particular moment in the [church] mass – either at the elevation of the host, or with the concluding words, “ite missa est,” (the mass is ended)…
At the appointed moment, Bernardo Baroncelli, a member of an old Florentine noble family, plunged his knife into Giuliano de’Medici’s chest, uttering the words. “Here, traitor!” Francsco de’Pazzi, a younger member of the clan, followed Baroncelli’s lead, sinking blow after blow into Giuliano’s chest with his dagger…
At that same moment, the two plotting priests raced toward Lorenzo [Medici] and positioned themselves behind him. Flashing his previously concealed weapon, one of the priests pitched forward, grabbed the older Medici brother’s shoulder and thrust a knife towards him. The dagger did not fully reach its target, instead barely scraping the prince’s neck. Lorenzo responded to the affront by securing a short sword from someone nearby. He exchanged blows with the would-be assassin before being swept to safety by his friend Poliziano.”
Who knew boring banking could be so murderous?
Extreme Currencies: Rai Stones
The currency on the Pacific Island of Yap provides an extreme example of how the belief in a currency’s worth outweighs the importance of its intrinsic value. For centuries, the natives of Yap have used ‘Rai stones’ as a form of payment, and store of value. These ‘stones’, however, were actually gargantuan limestone discs that weighed up to 8,800 pounds and stood 12 feet tall. The natives ‘minted’ (mined) their currency on Palau Island, and upon their return to Yap Island the Chief would value each Rai stone in front of the local population. In the same ceremony, locals would then purchase the currency.
The public valuation and purchasing ritual on Yap helped legitimize the currency and encouraged people to trust the value of each stone. Verification of a Rai stone’s worth was so critical that German colonizers in the 19th century forced Yap native’s into abiding by their laws through ‘confiscating’ dissenter’s rai stones by simply marking them with a black ‘X’.
On another bizarre occasion there was a Rai stone lying on the ocean floor – after falling through a canoe en route back to Yap – that continued to circulate in the economy. Even though the stone’s owner never physically saw their Rai stone, it still carried value because the community collectively agreed it held value.
Extreme Currencies: Religious Relics
An even crazier example of wacky “currencies” comes from Medieval Europe, when the trading of religious relics was popular.
In the 12th century, Waltham Abbey declared religious relics “Far more valuable than gold or precious stones, and sweeter than honey”. These relics, ranging from a saint’s tooth to the bones of a martyr, clearly held no intrinsic value. Surprisingly, however, they functioned as a viable form of currency. The trust and widespread belief in each relic’s value became so widespread that smugglers even risked their lives to steal these rare artifacts. In one case, a group of Italian thieves stole the remains of Saint Nicholas (a.k.a. Santa Claus) from a Turkish village.
Beyond thieves and smugglers, relics were even considered valuable by monarchies to the point that the Emperor of Byzantine, Baldwin II, paid off his debt to King Louis IX of France by selling him the ‘Crown of Thorns’ worn by Jesus. The IMF is unlikely to accept similar forms of payment today, the example reaffirms again that the belief in a currency’s value is what drives its worth.
While finance and money can seem like a boring topic, its history is riddled with stories of murder, bizarre currencies, and more. Whether it be rival banking families in 15th century Italy, society’s belief in a currency’s value, or the trust needed between to parties in a credit agreement, it is clear that much of finance comes down to human interaction and trust.
For better or for worse, money is a tool that individuals can use to empower themselves in life by gaining independence and leaving an impact on the world. Understanding this at a young age is a superpower.
 Marco Polo and Rustichello of Pisa, “The Book of Ser Marco Polo: The Venetian Concerning Kingdoms and Marvels of the East”