The Origins Of Money: Means Of Exchange!

MONEY may feel as solid as the Bank of England, but it is an ever-shifting phenomenon. People have gone from using gold or silver coins through paper notes and plastic cards to the modern practice of “quantitative easing” (QE).

To some on the Republican right in America, this evolution is a rake’s progress, in which QE is a debasement of the currency leading to hyperinflation and economic ruin. 

They want a return to the gold standard, whereby the amount of money would be linked to a country’s gold reserves. Politicians (and central bankers) would be unable to tamper with it.

But in a new book, “Making Money”, Christine Desan, a Harvard law professor, challenges the view of money’s history as a fall from grace. She is part of the “cartalist” school which argues that money did not develop spontaneously from below, but was imposed from above by the state or ruler. 

A sovereign might offer tokens as payments for goods and services, and agree to accept those tokens back to meet taxes or debts. In effect a guarantee from the state, this made such tokens useful for private trade. And governments were able to charge for the service of turning gold and (more usually) silver bullion into coin.

Despite this incentive for the creation of money, the standard medieval complaint was that there was not enough money to go round. The currency was too valuable for everyday trade; back in 13th-century England, one farthing, or a quarter-penny, bought four cups of ale (those were the days). The daily wage was a penny or two.

Modern economists tend to think of money as a real, not a nominal, issue; expanding the money supply may raise prices but not affect the volume of goods and services being traded. But Ms Desan argues that, in medieval times, this was not the case. 

The lack of coins made it difficult to trade. Coin shortages encouraged the use of money from abroad, the author argues. In addition, the coinage was debased by the medieval practice of “clipping” of coins, or shaving off the edges to save the silver. 

All this led to the frequent need to reclassify or re-denominate the coinage. Sometimes it was the monarchs who were pulling off this trick as a way of boosting their own finances. At other times re-denomination also helped to boost activity; an early version of QE.

Nevertheless, every change prompted howls of complaint from the losing parties. Re-denominations also led to tricky legal disputes. When repaying a debt, was the borrower obliged to repay a set number of coins? 

When creditors tried to argue that it should instead be a set amount of silver, the privy council of James I declared that “the king by his prerogative may make money of what matter and form he pleaseth, and establish the standard of it.”   

This attitude underwent a reversal after the Glorious Revolution, which brought William III to power in 1689 with the help of Whig financiers who set up the Bank of England. The king’s creditors naturally had an interest in sound money, and Britain adopted the gold standard, which was to last, in peacetime at least, for much of the next two centuries. 

Over the long run, prices were remarkably stable during this period; over the short run, however, the discipline required by this standard required some short, sharp slumps which imposed considerable pain on the working classes. 

The advent of universal suffrage after the first world war made it impossible for democratically elected governments to impose such costs on their voters; commodity money disappeared and “fiat” money (ie, money that is what the government declares it to be) became the norm.

In essence, history has seen a battle between money’s role as a store of value (which requires a restricted supply) and its role as a means of exchange (which can require the creation of more money). 

This battle is still going on. Ms Desan displays exemplary scholarship in detailing money’s origins, albeit in an academic style that is hard work for the general reader. But her study is worth the effort.


http://www.economist.com/news/books-and-arts/21643036-monetary-systems-have-always-been-imposed-sovereign-means-exchange

The Coin Analyst: U.S. Modern Coins in 2014

As we approach the end of 2013 and the start of 2014, what changes and developments can collectors of U.S. modern coins look forward to in the coming year?

For starters, the U.S. Mint has provided a preliminary online product schedule that focuses on core products by month and does not include specific issue dates.  It also does not indicate when the five-ounce silver America the Beautiful coins are releasing, but since it lists the ATB quarters that carry the carry the same design, and since in recent years the launch of the quarters has for the most part paralleled the launch of the larger coins, buyers have a rough idea of when to expect them.  For the spouse coins as always there is more mystery, though I do not think they will be released as late in the year as in 2012 and 2013 because the design approval process is further along than it was then.

In addition, the Mint will for the first time offer buyers a 10% discount on many core products, including items like annual sets and most silver issues other than commemoratives, if they sign up for a subscription for the product.  Each subscription comes with a separate shipping fee of $4.95, but in most cases it would be worth getting the subscription, especially for the five-ounce silver coins, and provided silver prices stay about where they are.

A lot of collectors are noting in online forums that they plan to subscribe to the five-ounce coins in particular, and the question on everyone’s mind is whether the Mint will have to increase mintage levels because of the additional demand.   But it remains unclear what kind of numbers we are talking about, and whether it is basically the same collectors buying what they would normally buy just doing it by subscription, or if demand will really rise.  It will also be helpful to have one less thing to remember when one subscribes.

This is new territory for the Mint, which is different from other world mints in the way it prices coins.  It prices most issues more competitively than its foreign competitors do.  While it offers a 5% discount to anyone who spends over $5,000 in an order and has a business tax id, other world mints sell their coins on a wholesale basis to dealers, offering far greater discounts.

In terms of new and special issues, the Mint has not said much yet apart from plans to issue a special set or sets of half dollars to mark the 50^th anniversary of the John F. Kennedy half dollar, which will probably be launched in August at the ANA World’s Fair of Money.  There will be no special American silver eagle set in 2014, as the Mint realizes collectors are at the saturation point for those sets, but whether they issue enhanced uncirculated silver eagles as a single coin series instead is still a possibility.  I am sure there will be some exciting surprises during the year too.

Designs for the ATB issues have been finalized and are receiving positive reactions from many collectors, but designs for the spouse coins and the American platinum eagle coins are still being reviewed.  The Commission on Fine Arts has made a recommendation for the platinum coin, and I personally find it disappointing.  Modern designs have to be compelling and display great artistry, or they simply will not appeal to most buyers and sales will remain sluggish, as they have recently.  I also think the spouse designs are decreasing in artistic quality based on the 2013 spouse medals I received recently.  The earlier coins had good obverses and somewhat weaker reverses, but now the reverses frequently show generic flowers that do not seem to have anything to do with the spouse being honored.  I honestly cannot even imagine any other major world mint issuing such poor designs that have so little detail, such one dimensionality, and such a lack of originality.  It is these very mediocre and uninspired designs that draw collectors away from modern designs and towards classic designs.  Our artists and the committees that make recommendations simply must do better.

The 2014 baseball coins with an obverse shaped like a baseball glove and reverse that looks like a baseball plus a first-ever domed shape should be popular with collectors and baseball fans.  I would not plan on more low mintage commemorative issues in 2014, though I am unsure how well the Civil Rights Act 50^th anniversary coins will do.

Who knows what will happen to metal prices in the coming year, but after the lackluster performance of 2013, I think many coin buyers are going to be cautious in 2014 about adding to their bullion and collectible holdings.  I personally plan to be more selective than ever, and I suspect many other people feel the same way.  But it is also possible that if metals go even lower, that will stimulate greater demand for coins, as buyers pick up what they consider to be bargains.

Finally, I think in 2014 the Mint needs to reexamine its approach to mintages and order fulfillment.  It has gone too far in the direction of producing coins to demand, and after taking orders for coins that are made to demand, it then takes far too long to ship orders.  The mint to demand approach is producing coins that have little aftermarket value, which like poor designs, will drive away buyers, as they have little perceived scarcity.

The Mint seems to still be reacting to the situation in 2011 when many buyers were unable to purchase a 25^th anniversary silver eagle set because of the combination of a 100,000 mintage and no household limit.  The prevalence of coins and sets with no mintage limits is leading to a growing chorus of criticism that too many of the coins the Mint issues will not be widely sought in the future.  There is no reason why mintages cannot be set at realistic levels and combined with some order and household limits, even if they are not full-proof, allowing for a fair distribution plus a coin that is not so common.  The Mint is in danger of losing more sales and customers if it does not start doing this again.   It is true that the Mint, as officials have pointed out, is not in the business of creating modern rarities, but collectible coins should be made in limited quantities.  Otherwise, they are closer to bullion.

http://www.coinweek.com/modern-coins/coin-analyst-u-s-modern-coins-2014/