Monday, June 21, 2010

Common Cause, Part III: Trade Coins

In the previous posting we made the rather strong statement that any political organization that does not promote the general welfare of its citizens, especially by implementing a program of widespread direct ownership of the means of production, has failed in its principal duty to maintain and protect the common good. Additionally, the financial system, including the currency, must provide the means for those who qualify to become owners. Both of these tasks, of course, are directed toward equality of opportunity, not results.

The problem is that, while there have been few States that adequately protected and maintained basic human rights, even fewer financial systems have provided democratic access to the money and credit system. This has been the case ever since the idea of money became formalized in standardized currencies.

The Beginning of Common Currencies

Throughout history, there have been what we might term "informal currency unions." This is due to the predominance of a particular unit of currency in a region. While sometimes used as a means of enforcing economic imperialism, just as often it has been adopted for convenience.

An informal currency union might be said to exist whenever a currency becomes widely acceptable outside the borders of the region or economy for which it was primarily issued. Frequently this is because a region using foreign currency has no sound currency of its own. It can also be a case of genuine economic or political imperialism, benevolent or otherwise.

One of the earliest such arrangements was in the ancient Greek world, first within the Æginetan direct sphere of influence, and, after conquest by Athens, reaching far beyond it. The "Turtles" of Ægina were struck in large quantities and are considered the first trade coin by many authorities. Due to its navy and merchant marine, the sea turtle was the badge of the city and was featured on its coinage. Later, after Ægina's defeat by Athens, the land tortoise took the place of the sea turtle. Technically, of course, all coins are "trade coins" when they serve as a medium of exchange, or "trade." The later Athenian "owl" coinage became recognized virtually everywhere in the pre-Roman classical world and accepted as standard — the owl being the symbol of Athena, the patron goddess of the city.

The development of the Æginetan informal currency union was quite natural. The coinage standards of European Greece during the period preceding the conquests of Alexander were largely dependent on three sources of silver: Ægina, Corinth and Athens. (J. G. Milne, Greek and Roman Coins and the Study of History, Chicago, Illinois: Obol International, Inc., 1980, 81.) The Laurion mines outside Athens were not only a valued national resource, but also credited with saving the city from the Persians. Themistocles expended the revenues from silver mining in the construction of a fleet of triremes (galleys with three banks of oars). After a series of disastrous Persian land victories, the Athenian fleet was able to lure the Persian fleet into battle at Salamis, ending the Persian threat for some time. ("Aristotle," The Athenian Constitution, 22.7; London: Penguin Books, 1984. Most modern scholars attribute this work to an anonymous student of Aristotle); N. K. Rutter, Shire Archaeology: Greek Coinage, Aylesbury, Buckinghamshire, U.K.: Shire Publications, Ltd., 32-34.)

The weight of the Drachma (the usual unit of currency) at other Greek City States was, for all practical purposes, determined by each one's connection with one of the three great silver markets. Thus, a city that happened to be in the Æginetan commercial sphere would use the Æginetan "turtles" that came to it in the course of trade. When occasion or necessity demanded a domestic coinage, existing foreign coins would be overstruck before new planchets were prepared to the same standard. (Milne, op. cit., 81.)

The further a city was from the ultimate source of its currency would determine how much reduced the local standard was from the original. This was due to the normal wear and tear that occurred in the course of a coin's life. The further it traveled, the more it would be worn, and, hence, the local standard would differ from the original by that amount. It is possible, then, to trace ancient commercial spheres of influence by weighing specimens of a local coinage, adjusting for the reduction in weight due to distance, and come to a conclusion as to the influence under which the local city carried out trade and commerce. The differing standards throughout the Greek world, except for those in Asia and some of the hinterlands, can be explained in this manner. (Ibid., 81.)

The Æginetan standard was the earliest. Its basic coin was the Didrachm (two Drachmæ) of a little over 180 grains. This was later supplemented by the coinage of Corinth, which entered competition with its Stater of three Drachmæ. The Corinthian Stater weighed in at about 130 grains, resulting in a Drachma of approximately 42 grains. This meant that a Corinthian Drachma was less than half the weight of the Æginetan Drachma. The Drachma of Corinth was so close in weight to that of the Babylonian commercial shekel that the Asian weight was probably the original source of the standard. (Ibid., 81-82.) Corinthian Staters feature Pegasus, Bellerophon's winged steed (Corinth being the chief contender for the horse's birthplace from a spring of water), as the badge of the city.

Although it came later than the others, the Athenian or Attic standard soon gained a position of preeminence. This was probably due as much to the political prominence of the city as to its economic strength. Coming as it did late upon the scene, and intruding, so to speak, upon an already existing system, tracing the origin of the Athenian Drachma is consequently more complex.

Several cities in the Eubœan League were striking Staters to the Corinthian standard before the end of the seventh century. Instead of the Corinthian "triple Drachma" denomination, however, they followed the Æginetan lead and made a Didrachm their basic coin. (Ibid., 83.) This is not difficult to understand when we consider that Greek currency systems did not originally include the coinage Drachma as a weight, but as a currency denomination. Since it functioned solely as a term of value, a city could assign any number of Drachmæ to a specific weight of metal. This is much the same way that there are a multitude of different "dollars" floating around world currency markets in our day, making it necessary to specify whether one refers to the standard of Australia, Canada, Hong Kong, or the United States before determining the currency's objective value, whether in terms of commodities or other currencies.

Plutarch credits Solon, the legendary lawgiver of Athens, with initiating the economic reforms which put the coinage and society on a sound basis. If Plutarch is to be relied upon — and there is no good reason to suppose that he cannot — Athenian society and the economy were in chaos. As he described it,
. . . the disparity of fortune between the rich and the poor, at that time, also reached its height; so that the city seemed to be in a truly dangerous condition, and no other means for freeing it from disturbances and settling it to be possible but a despotic power. All the people were indebted to the rich; and either they tilled their land for their creditors, paying them a sixth part of the increase. . . or else they engaged their body for the debt, and might be seized, and either sent into slavery at home, or sold to strangers; some (for no law forbade it) were forced to sell their children, or fly their country to avoid the cruelty of their creditors; but the most part and the bravest of them began to combine together and encourage one another to stand to it, to choose a leader, to liberate the condemned debtors, divide the land, and change the government. (Plutarch, "Solon," Lives of the Noble Grecians and Romans, Translated by John Dryden, New York: Modern Library, 104.)
The only man acceptable to the multitude of parties was Solon. He was chosen Archon, and granted the power of arbiter and lawgiver. Reforms, pleasing to no one but just to all, were set in motion immediately. The first thing he did was cancel all remaining debts, and mandate that no one, in the future, should be able to take the body of a creditor in security for a debt. (The Athenian Constitution, 5-12.)

Lest unilaterally canceling debt come across as violating the property rights of lenders, and thus an injustice, a short explanation is in order. Lending in ancient times was rarely for what we would term productive purposes or investment. If someone borrowed money, it was because he needed funds for food, clothing, or shelter. As Aristotle explained in the Politics, charging interest on such a loan is considered a grave injustice. This is because the proceeds of the loan are not expended on something that generates its own repayment. (Aristotle, Politics, 1258a38.) That is, the loan is not used to purchase a self-liquidating asset. A charge on a non-productive loan is called usury (in our day usually confused with all interest or high interest). Debtors frequently paid as interest charges many times the original amount of the loan without ever reducing the principal. The universally excoriated usurer thus committed a double injustice.

This is contrasted with interest charges on a productive loan, that is, a loan of money expended on an asset or project which generates its own repayment. Interest charges on such a loan are nothing more than the lender's rightful share of profits accruing to him as the result of his participation in production.

The second measure implemented by Solon was to devalue the currency. Plutarch credits this, too, as a measure to relieve debtors by cheapening the currency, as was demanded by Populists in late-nineteenth century America with the campaign for free coinage of silver. The standard had been 73 Drachmæ to the mina, which Solon raised to 100, and then made the monetary weight equal to the commercial weight. (Plutarch, op. cit., 106.) A Drachma in trade thus had the same mass as a Drachma in currency. This was similar to the effort in Britain in 1797, which attempted to make the weight of the copper coinage conform to the avoirdupois system of weights and measures, so that a penny weighed exactly one ounce, and so on. (C. C. Chamberlain and Fred Reinfeld, Coin Dictionary and Guide, New York: Bonanza Books, 1960, 33.) Allowing for 5 per cent. seiniorage (or "agio") to cover mint expenses, a talent of silver (6,000 commercial Drachmæ [Rutter, op. cit., 32.]) produced 6,300 Drachmæ in coin, (Milne, op. cit., 83.) most likely in Tetradrachms, four Drachma pieces.

Although all Athenian coins had the same design, it was the Tetradrachm that composed the bulk of the coinage, and was the most widely imitated. The obverse consisted of a wreathed head of the patron of the city, the goddess Athena, while the reverse displayed a pop-eyed owl, a crescent moon, a sprig of laurel and an abbreviation of the city's name, AOE. (The "O" is supposed to be a Theta, but the Greek alphabet isn't included in the available fonts) Although the arts advanced radically during the centuries in which the "owls" were minted, the basic design never changed, remaining archaic in style. This was reflective of the widespread acceptability of the issues, for any change in design might have engendered suspicion of a change in weight or purity. Athena's wreath, the laurel sprig, and the crescent moon were all in commemoration of the victory at Marathon, fought under a waning moon, and which marked a high point of Athenian prestige and power.

The "owls" did, indeed, achieve a wide circulation. Barclay V. Head, in his massive survey of Greek coinage, Historia Numorum, (Barclay V. Head, Historia Numorum: A Manual of Greek Numismatics, Chicago, Illinois: Argonaut Publishers, 1967.) lists copies and imitations of Athenian coins from all over the known world: Syria, Egypt, Persia, Arabia, and as far away as India. These were probably due to the Athenian mint being unable to meet the demand for its extremely popular product, and not necessarily the result of any political domination. (Ibid., 377.)

Ne Plus Ultra

Our next example of an informal monetary union is that of the Spanish Empire, with possibly the widest geographical spread in history. (J. H. Parry, The Spanish Seaborne Empire, New York: Alfred A. Knopf, 1979.) The Spanish "Piece of Eight," has the unique distinction of achieving a firm place in both romance and economic history. As any reader of Robert Louis Stevenson's novel Treasure Island is aware, every dead man's chest must be filled with Pieces of Eight, as Cap'n Flint, Long John Silver's parrot, quickly informs all and sundry.

Unlike the basis of other informal currency unions, the Spanish coin was not accepted because of its unchanged design — it was changed many times over the centuries. Nor was it solely on its specific origin: many mints in diverse locations issued the Eight Reales, from Spain herself in Europe, to Potosi and Mexico City in the New World. It was not due exclusively to its specific weight and fineness, either. A number of countries attempted to supplant the Spanish dollar by matching or bettering its purity and weight, especially in the oriental trade: Denmark, (Denmark's "Piastre" coinage of 1771 (Craig 78) is an obvious imitation of a Spanish or Mexican Pillar Dollar) Japan, Great Britain, and the United States all tried unsuccessfully to compete with the coin. There was just something about it that made that specific coin preferable to all others.

Because of its domination of international trade, the Piece of Eight was the basis of the new official currency of the United States under the federal constitution of 1789. The United States does not, therefore, have a decimal system for its coinage, but a quasi-decimal system. The United States mint products are half-dollars, quarter dollars and dimes, not fifty, twenty-five and ten-cent pieces. That is also why one still occasionally hears a quarter referred to as "two bits," a "bit" being slang for a real or "royal," the eighth part of a Piece of Eight.

Even Great Britain succumbed to the strength of the Spanish dollar to support its venerable pound sterling toward the end of the long coin shortage in the eighteenth and early nineteenth century. As an emergency measure, Spanish dollars and half dollars were countermarked with a small head of George III, usually over the effigy of Charles III or Charles IV of Spain. The countermarked dollars passed current for four shillings, nine pence, causing some merriment at "Farmer George's" expense when wags quipped that you had two kings not worth a single crown (crown being the five shilling denomination).

A later issue by the Bank of England in 1804 consisted of the Spanish coins restruck as five shilling dollars. The Bank of Ireland followed suit two years later with six shilling bank tokens overstruck on pieces of eight, the shilling in Ireland being worth somewhat less than the shilling in England, despite the presumption that they were the same country since the 1800 Act of Union. (The Exchequers were not merged until 1817, thereby creating a common currency for the United Kingdom.)

Coined silver was for centuries a major export of New Spain and, later, the Republic of Mexico. This lasted until the end of the nineteenth century, when domestic and international economic and political conditions combined to displace the Piece of Eight from its seemingly unshakable position. From 1910 to 1914 the United States of Mexico briefly produced a trade coin to the previous standard. This was the stunning "Caballito" ("Little Horse") Peso. The effort was not a success — except with coin collectors and admirers of fine art.

The Maria Theresa Thaler

Another informal currency union, and the final one to be considered, is that which resulted from the use of the Maria Theresa Thaler as an unofficial trade dollar in many areas that lacked a stable domestic currency. To this day, many people throughout Arabia and Africa hold to the Austrian coin as a standard of value with recognized and unquestioned weight and fineness. In tandem with the British sovereign, another coin of recognized weight and purity (.2354 of a Troy ounce of gold, .917 fine), the Maria Theresa Thaler has served as a workhorse currency in areas too troubled or undeveloped to provide a sound monetary system. It is the sole surviving example of the southern German monetary reform of 1753, which established the Convention Thaler as the basic monetary unit in Austria and the southern German states.

While some may not consider the design particularly attractive, the Thaler is readily recognizable and, after more than two centuries, has no need to justify its existence. The coin's longevity and persistence are remarkable, particularly considering the efforts that many governments have made to eliminate it from their economies over the years. This is understandable in view of the unfortunate link of money and currency to national sovereignty, but no less regrettable, particularly as such an orientation assists in obscuring both the meaning and utility of a social good that should only be a standard medium of exchange and a store of value.

The Thaler, however, continues to be recognized and valued. I recently saw a German "Heimatfilm," Solange noch die Rosen blueh'n (1956), in which the hero receives one as a tip. He is later seen explaining what the coin is to a young boy, telling him that it is, "Ein' Maria Theresa Thaler — silber," apparently to be preferred over the copper-nickel, aluminum or paper products that flood normal commercial channels.

According to the Standard Catalogue of World Coins, about three-quarters of a billion Maria Theresa Thalers have been minted since 1780, the first year of regular issue. With the date frozen, the coins have been restruck in Vienna, Prague, Milan, Venice, Günzburg, London, Paris, Brussels, Kremnitz, Karlsburg, Rome, Bombay and Florence. A glance over the listings for various countries reveals that they have been used as official (or at least tolerated) currency in the Azores (countermarked as 1,200 Reis by the Decree of June 14, 1871), Djibouti (current as a Ryal in the nineteenth century), Mozambique, Hejaz and Nejd provinces in Saudi Arabia, and Yemen. Other countries, such as Oman, have minted coins to the same standard, while Italy, in 1918, manufactured an obvious imitation as a "Tallero" for Eritrea.

The largest circulation, however, has been distinctly unofficial. English novelist Evelyn Waugh inserted the Maria Theresa Thaler into his fictional "Empire of Azania" (obviously Zanzibar), partly to show the economic shambles that colonialism had left behind, partly as a way of demonstrating the superiority of the sensible native peoples (who accept the Thaler) over the "Europeanized" ruler (who pushes worthless currency on the population), and partly to give a touch of reality to an otherwise very imaginative piece of unreal estate. (Evelyn Waugh, Black Mischief, New York: Little, Brown and Company, 1977.)

I have heard it asserted that Western companies operating in northern Africa and Arabia purchase the Thalers to pay native workers. The coins are confiscated by the local government, melted down, and sold as bullion. The bullion is bought by various mints, which use it to make Maria Theresa Thalers. Western companies purchase the Thalers, and the cycle continues. A less than distinguished fate for an otherwise distinguished coin.

All in all, "informal" common currencies and monetary unions have served useful purposes, and may yet serve others. They are a graphic demonstration that a country need not surrender its national sovereignty in order to achieve a sound and stable currency if that goal happens to be beyond the immediate power of the State. It is always possible, of course, for one country to come under the economic dominance of another, and from there, as Henry C. Adams pointed out, to come quickly under political domination as well. (Henry C. Adams, Public Debts, An Essay in the Science of Finance, New York: D. Appleton and Company, 1898, 25.) That is not, however, an automatic result of a common currency or a monetary union. The main question, as in many other things, is not what is done, but how one does it — and whether it empowers ordinary people, or only a financial or political elite.

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