The History of Currency, Back Where It Began

As Greece and Europe struggle to produce a successful currency—and a successful political order—they are repeating more history than then know. What should they learn from it? What would success or failure look like in the long term?

Aegina Island, 2012. “Nikthestoned,” Wikimedia.

Following the January elections that brought the left-wing Syriza party to power, Greece has been locked in high-stakes negotiations with European governments and institutions over its finances, its debts, and ultimately over the Euro, the currency it shares with eighteen other members of the European Union. Both sides have a great deal a stake, economically and politically. Those stakes are rooted in the very current realities of the post-2007 crisis and the difficult project of European union. But they also have an extremely long history, which influences the actors even when they may not realize it. As long as there has been a Greece and a Europe, currencies have been the most powerful tools and symbols of government; they have, indeed, been inseparable from government itself, not always in helpful ways. Both Greece and the Eurozone do realize that they cannot have, or be seen to have public success without a successful currency. Indeed, the rewards for such achievements have been great, and have shaped the history of the world. But there have also been many cases where the too eager or ill-considered pursuit of a strong currency has led to disaster, and others where circumstances have overwhelmed the best policy. European leaders may or may not be able to avoid these dangers, but they should at least be aware of them.

Standing in Piraeus, the port of Athens, on a clear day one can just make out on the horizon the birthplace of currency. The island of Aegina is now a busy, pleasant, and fairly modest resort, but for over a century it was the economic powerhouse of late archaic and early classical Greece. According to a legend that may in fact be true, the Aeginetans were the first to make coins of silver, sometime at the end of the 600s b.c.e. Before that, coins had been struck from electrum, a natural alloy containing varying proportions of gold and silver. Quite possibly, they served much more as labels for the individual alloy, and thus the value by weight, of a given nugget than as units of value in themselves. The silver “staters,” whether invented or just perfected on Aegina, were something quite different. They took a well-known and long-established item of exchange and turned it into the abstract expression of a community’s economic power. Marked with a sea turtle on the obverse and a kind of abstract pinwheel suggesting sails on the reverse, they reminded all who held them of the seaborne commerce that brought both the coins and valuable goods for which they could be exchanged to many corners of the Mediterranean world. They were also a symbol of the Aeginetan polis, the set of law, institutions, and gods that bound those traders together—and of the powerful navy that stood behind them. Ancient historians listed Aegina as the last to hold the “thalassocracy,” that is, naval predominance in the Eastern Mediterranean, before the outbreak of the Persian War. (Did. Sic. 7.11) By the 400s, this invention had transformed the Mediterranean world, and no currency was more widely accepted and more widely imitated than Aegina’s.

But as wealthy and powerful as Aegina had become, it was still just a small island. On the horizon lay Athens, whose goddess was an Olympian deity rather than an obscure nymph. Athens had its own coins, whose obverse displayed Athena herself. On the reverse were the gifts she had bestowed on her city: olives representing agricultural wealth, an owl representing wise government, and, behind them, the silver of the coin itself, mined at nearby Laurion in Attica. And of course Athens had its own navy. In 458 b.c.e., in the course of the devastating Peloponnesian War, the Athenians defeated the Aeginetan fleet, invaded the island, besieged its capital, and ultimately reduced it to subjection. The sea-turtle of Aegina’s coins became a land-dwelling tortoise and despite Athens’ subsequent reversals, they never travelled very far from their home again: the Athenian “owls” became the standard of currency until the age of Alexander the Great, a generation later.

What should the Greeks and their neighbors have learned from this story, then and now? Certainly history offers some simple lessons—useful innovations are rewarded, the powerful tend to get their way—but they are seldom lessons that need much teaching. But when examined carefully it also reveals some patterns in society that have endured for 2500 years. The first is that with Aegina’s success, constructing and supporting a useful currency became one of the most important, and one of the most popular tasks of government. Sparta alone held out against the innovation for a time (its allies tended to use the Aeginetan money), but in the end it fell to the less squeamish Macedonians, and it had no successors. Since then, history has been full of leaders who counted the repair of the currency among their signature achievements. Constantine the Great legalized Christianity in the Roman Empire, and also replaced it decayed coinage with the gold solidus. Charlemagne built the first great European empire, and also replaced his moribund currency with the system of pounds, shillings, and pence that would remain in use up to the French Revolution (and, in neighboring Britain, well beyond). Queen Elizabeth I began her legendary reign by settling the question of Protestant religion, securing her borders—and recoining her money, which her predecessors had savagely devalued. When Franklin D. Roosevelt took office at the depth of the Great Depression, his first act was to decouple the dollar from gold, so that it would be available and useful to Americans. For these leaders and many others, providing stable, useful, and highly visible money was a cornerstone of their success.

Governments, classically, provide legal frameworks within their territories, and armed protection of their borders. And from the citizen’s perspective, if either of those are needed, something has already gone badly wrong. Welfare provisions are a somewhat later development, and they too are often provided as a response to misfortune. Currency is in constant use, and when it changes hands very often people are getting what they want. Rulers and governments have often been ingenious in taking advantage of the propagandistic opportunities this provides: Julius Caesar, for one, was a pioneer in putting his face on the coins as he took over the Roman Republic. Coins, bills, and even abstract units can also evoke characteristics with which all leaders want to be associated: purity, strength, nobility, stability, desirability. And as the Aeginetans were the first to discover, a well-received currency is a powerful tool for economic expansion, which can pay off in ships, guns, and influence as well as in a higher standard of living. Britain’s cultivation of the Pound Sterling after 1688, supported by the great infrastructure of gold, notes, and the Bank of England and underwriting in its turn the British Navy, the British Empire, and the Industrial Revolution, is perhaps the classic example.

But a symbol and a tool of governmental strength can also be a symptom of and a contributor to its weakness. The landbound tortoise of Aegina was a dramatic example, but British governments of the twentieth century experienced this acutely and painfully as well. Taking too literally the idea that a strong currency meant a strong country, they put the British Empire back on the gold standard prematurely after World War I and kept it there in ways that prolonged the Great Depression.  Allergy to devaluation led to crippling austerity in the wake of World War II, and to the humiliating failure of the “exchange rate mechanism” in 1992, when George Soros became “the man who broke the Bank of England.” But such mistakes did not prove fatal. Britain has its problems, but strong institutions and a bit of luck have left both Britain and the pound in a generally favorable position.

Because the most important lesson that the history of money teaches is that, while a well-managed currency is an important part of a strong and successful state, a successful currency is also necessarily the product of a successful state. The same institutions that repress fraud and counterfeiting, set and maintain monetary policy, supervise banking and commerce, and so on also preserve law and order, conduct diplomacy, collect taxes, and enable military power. There tends to be little demand for the currency of a collapsing state, and collapsing states are seldom able to create the kind of currency anyone would want. I have studied the monetary history of sixteenth-century France in detail, and it provides an instructive example. Successive governments tried to shore up a weakening currency strengthening the legal and administrative institutions that oversaw it. This difficult process scored some real successes, but when civil war engulfed the country it all fell apart—only to be restored with startling swiftness once the wars abated and the monarchy’s institutional strengths and strong legitimacy could once again be brought to bear. Greece and Europe claim a consensus on building the strong, popular institutions that have been lacking on both the national and E.U. levels. If they can pull that off, the Euro will not quite take care of itself, but it will be eminently salvageable with great benefits all around. Trying to create a strong Euro without a strong Europe and a strong Greece, though, is a recipe for disaster. Only Aegina has every been able to build a strong state on a strong currency rather than the other way around, and it has been a fishing village since the Peloponnesian War.