Money (13 page)

Now the emperor decreed the game was up: the letter of the old dictator’s law would be enforced. The consequences were chaotic. As soon as the first ruling was made, it was realised with some embarrassment that most of the Senate was in breach of it. All the familiar features of a modern banking crisis followed. There was a mad scramble to call in loans in order to comply. Seeing the danger, the authorities attempted to soften the edict by relaxing its terms and announcing a generous transitional period. But the measure came too late. The property market collapsed as mortgaged land was fire-sold to fund repayments. Mass bankruptcy threatened to engulf the financial system. With Rome in the grip of a credit crunch, the emperor was forced to implement a massive bailout. The Imperial treasury refinanced the overextended lenders with a 100-million sesterces programme of three-year, interest-free loans against security of deliberately overvalued real estate. To the Senate’s relief, it all ended happily: “Credit was thus restored, and gradually private lending resumed.”
¹¹

This first flowering of monetary society in Europe was not to last, however. As the military and political might of Rome declined, so did its rich financial ecosystem. In the late third century
AD
, as Rome’s prize possession of Egypt passed in and out of foreign hands, there was serious monetary disorder, including an inflation in
AD
274–5 when prices rose by 1,000 per cent in a single year.
¹²
After
AD
300, bankers disappear from the records—the social and political stability required to underpin professional finance had, it seems, disintegrated.
¹³
As the institutions of government retreated from the outer reaches of the empire, so, largely, did the institution of money. The effects were most severe in the most remote and marginal colonies. In Britain, for example, the Roman monetary system disappeared completely within a generation of the departure of the legions at the beginning of the fifth century
AD.
For a full two hundred years, coinage was forgotten as a means of representing money despite having
been in constant use for nearly five centuries before then.
¹⁴
Eventually, all over Europe—even in Rome itself—the splendid sophistication of monetary society faded away. Like Greece after the fall of Mycenae, Europe entered its own Dark Age—an age that saw a near-total regression from monetary to traditional society.

The lowest point of Europe’s descent into monetary barbarism: a Roman coin, having lost all monetary significance, reworked as jewellery in a 7th-century British pendant.

(
illustration credit 5.1
)

Near-total—but not complete. While the rich panorama of financial technologies, from the elaborate techniques of high finance to the simple convenience of humble coinage, were forgotten, one ghostly, but vitally important, vestige of Roman monetary society remained: the concept of universal economic value. The recalcification of the fluid social fabric into fixed tribal and feudal relations was virtually
complete. But the persistence in the collective memory of this hallmark of monetary society proved in time to be a stock of intellectual fixed capital which would greatly facilitate the remonetisation of European society. An initial resurgence of monetary society came with the consolidation of the Frankish Empire in the late eighth century. Under Charlemagne, the monetary units of pounds, shillings, and pence were introduced and money was issued on a standard consistent across most of Europe. But this first renaissance proved short-lived, and it was only in the second half of the twelfth century that remonetisation began in earnest, following the relentless logic established nearly two millennia earlier in the Aegean.
¹⁵
Starting in the Low Countries in the last quarter of the twelfth century, feudal obligations traditionally payable in kind began to be transformed throughout Europe into
fiefs rentes
—rents payable in money.
¹⁶
The institution of the
corvée
—under which a lord’s vassals were required to render him service for a certain number of days a year—was replaced with paid labour. Civil officialdom began to function as a professional, salaried cadre, rather than a poor man’s simulacrum of the hereditary nobility. This in turn meant that in jurisdictions where the economy could support it, direct taxation in money was reintroduced for the first time since the Roman era.
¹⁷

The familiar consequences of the monetisation of previously static social relations appeared: the re-emergence of social mobility, the revival of ambition and avarice as prime factors motivating behaviour, and the realignment of aristocratic competitiveness from the battlefield and the jousting lists towards the accumulation and ostentation of wealth.
¹⁸
“Nummus nobilitas”
(“Money is nobility!”) declaimed the poet Hildebert of Lavardin sarcastically, in an uncanny echo of Aristodemus’ complaint that “Money is the man!”
¹⁹
But medieval Europe was a larger, richer, and more powerful forum for monetary society than ancient Greece had ever been. The results of its growth could therefore be both more spectacular and more ridiculous—and so more reminiscent of the excesses of monetary society in the modern age. The aristocrats of the Italian city of Bologna, for example—one of the richest cities of the early medieval
era—devoted their newfound energies to a very modern passion: vying with one another to build the tallest tower. The result was the Manhattan of the Middle Ages: 180 towers, some nearly a hundred metres tall, in a city less than four kilometres square.

The persistence of Charlemagne’s monetary units formed the basis for this extensive remonetisation, but it also gave rise to its chaotic practical organisation. Whereas the original introduction of money to Europe had taken place under the auspices of a unified Roman political authority, its reconstitution was the definition of piecemeal. Since the collapse of Charlemagne’s empire, Europe had lacked a unified political space. With the exception of England, no unitary jurisdiction extended beyond one or two major cities and their hinterlands—and many were very much smaller. So whilst the pounds, shillings, and pence of Charlemagne’s empire were deployed throughout Europe to organise the revived monetary practices of evaluation, negotiation, and contracting, all standardisation was lost. A cornucopia of moneys were issued, corresponding to the enormous variety of jurisdictions which enjoyed the privilege of minting and money issuance—from great kingdoms and principalities to tiny baronial and ecclesiastical fiefdoms. The result was a monetary landscape that appeared superficially simple—since the monetary units of pounds, shillings, and pence were used almost everywhere—but was in reality extraordinarily complex, since the actual value of these units depended on the particular standard maintained by the individual feudal issuer.

This revitalised monetary regime had one especially attractive feature for its feudal issuers. In an age when the imposition of direct taxes remained a logistical and economic challenge for many of them, the levying of seigniorage by the manipulation of the monetary standard represented an invaluable source of revenue. An important feature of the monetary technology of the day made this simple to do. The dominant technology for representing money was coinage, with silver the metal of choice for higher-value coins, and bronze or other less valuable metals and alloys for smaller denominations. But unlike today’s coins, medieval types were typically struck
without any written indication of their nominal value: there was no number stamped on either face—only the face or arms of the issuing sovereign or some other identifying design. The value of the coins was then fixed by edicts published by the sovereign on whose political authority they were minted. This system had a great advantage for the sovereign. Simply by reducing the tariffed, nominal value of a coin, the sovereign could effectively impose a one-off wealth tax on all holders of coined money. A certain coin, the sovereign would announce, is no longer good for one shilling, but only for sixpence. The coin had been “cried down”; or equivalently, one could say that the standard had been “cried up.” An offer might then be made to recoin the cried-down issue, upon presentation at the Mint, into a new type. The sovereign could then in addition levy a charge on the re-minting operation.

Naturally, this process was unpopular with users of the sovereign’s coinage. Fortunately for them, there was one partial, natural defence. High-value coins—minted from silver, for example—had an intrinsic value regardless of the tariff assigned to them: the price at which their metal content could be sold on the open market to smiths and jewellers, or indeed to competing mints. They included, as it were, portable collateral for the sovereign’s promise to pay. This meant that there was a lower limit to the tariffed value which the issuing sovereign could assign his coinage. If a coin was cried down too far, the collateral would be worth more than the credit the coin represented, and holders could sell it to a smith for its bullion value. On the other hand, the alert sovereign could respond by reducing the silver content of the new type when the coinage was re-minted—a so-called “debasement.” It was a recipe for a constant game of cat-and-mouse between the coin-issuer and the coin-user, with even a coin’s precious-metal content, which effectively served as collateral for the creditworthiness of its issuer, always vulnerable to erosion by the predations of the sovereign.

This vulnerability was more than a theoretical risk. Medieval sovereigns had few ways of raising revenue apart from the proceeds of their personal domains: levying direct or indirect taxes was far beyond
most feudal administrative capabilities. Seigniorage was therefore a uniquely attractive and uniquely feasible source of income—and medieval sovereigns happily indulged in it. Under normal circumstances, when seigniorage was levied only on the gradual increase in the coinage supply demanded by a growing monetary economy, the revenues were relatively modest. But when the need arose, a sovereign could raise enormous sums by crying down or even demonetising altogether the current issue of the coinage and calling it in for re-minting off a debased footing. In 1299, for example, the total revenues of the French crown amounted to just under £2 million: of this, fully one half had come from the seigniorage profits of the Mint following a debasement and general recoining.
²⁰
Two generations later, the recoinage of 1349 generated nearly three-quarters of all revenues collected that year by the king.
²¹
When such large sums could be raised, it is hardly surprising that there were no fewer than 123 debasements in France alone between 1285 and 1490.
²²

The remonetisation of Europe over the so-called “long thirteenth century,” from the late twelfth to the mid-fourteenth century, therefore generated two phenomena that would eventually come into conflict. The first was the emergence of a class of individuals and institutions whose wealth was held, and whose business transacted, in money—a politically powerful “money interest” beyond the sovereign’s court. The second was the growing addiction of sovereigns to the fiscal miracle of the seigniorage—a miracle which grew in proportion with the increasing use of money. The more activities were monetised, and the more people were drawn into the money economy, the larger the tax base on which seigniorage was levied. As sovereigns were to discover, this apparently magical source of fiscal financing did in fact have limits. They were not technical, however, but political. At some point, the new money interest was bound to assert itself against the sovereign’s perceived excesses. This point was reached in the mid-fourteenth century. It produced the first work in the Western canon on a topic that was thereafter to receive considerably more attention but become considerably more obscure: monetary policy.

In the summer of 1363, the fortunes of the royal house of Valois—the rulers of the Kingdom of France—were at a low ebb. Seven years previously, the king, Jean II, had suffered a calamitous defeat at the hands of the Black Prince of England at Poitiers, and been led across the Channel as a prisoner. Fortunately for Jean, the medieval understanding of captivity—for kings at least—was indulgent. He whiled away his time in England hunting and feasting with his hosts, enjoying his large court, and lodging on the Thames at the Savoy Palace—then, as now, a byword for high living. In the meantime, his French lands, with his eldest son the Dauphin Charles in nominal command, descended into near anarchy. At last, in 1360, a treaty was struck, under which Jean would return to France to raise a ransom of three million crowns while his second son, Louis, was confined in Calais as surety for the English. Reluctantly, Jean bade farewell to the Savoy and returned to his ravaged kingdom. His hardship was not to last long. In 1363, news reached Paris that Louis had escaped his captors, breaching the terms of the treaty. Jean was overcome by a sudden bout of
noblesse oblige
and lost no time in volunteering to return to his imprisonment in England. He died a year later, and the dilapidated Kingdom of France passed into the hands of the Dauphin for good.