The Summary of the Ascent of Money : Part 1

The Incas appreciated the aesthetic qualities of rare metals. Gold was the 'sweat of the sun', silver the 'tears of the moon'. Labour was the unit of value in the Inca Empire, just as it was later supposed to be in a Communist society. (P:19)

Atahuallpa soon came to understand what Pizarro was after, and sought to buy his freedom by offering to fill the room where he was being held with gold (once) and silver (twice). In all, in the subsequent months the Incas collected 13,420 pounds of 22 carat gold and 26,000 pounds of pure silver. (P:20)

The Incas could not understand the insatiable lust for gold and silver that seemed to grip Europeans. 'Even if all the snow in the Andes turned to gold, still they would not be satisfied,' complained Manco Capac. (P:21)

The difficulty was that by the time Charlemagne was crowned Imperator Augustus in 800, there was a chronic shortage of silver in Western Europe. Demand for money was greater in the much more developed commercial centres of the Islamic Empire that dominated the southern Mediterranean and the Near East, so that precious metal tended to drain away from backward Europe. The Crusades, like the conquests that followed, were as much about overcoming Europe's monetary shortage as about converting heathens to Christianity(P:25)

During the so-called 'price revolution', which affected all of Europe from the 1540s until the 1640s, the cost of food - which had shown no sustained upward trend for three hundred years - rose markedly. In England (the country for which we have the best price data) the cost of living increased by a factor of seven in the same period; not a high rate of inflation these days (on average around 2 per cent per year), but a revolutionary increase in the price of bread by medieval standards.(P:26)

What the Spaniards had failed to understand is that the value of precious metal is not absolute. Money is worth only what someone else is willing to give you for it. An increase in its supply will not make a society richer, though it may enrich the government that monopolizes the production of money. Other things being equal, monetary expansion will merely make prices higher. (P:26)

Cash in the hands of ordinary Americans accounts for just 11 per cent of the monetary measure known as M2.(P:29)

Money is a matter of belief, even faith: belief in the person paying us; belief in the person issuing the money he uses or the institution that honours his cheques or transfers. Money is not metal. It is trust

inscribed.And it does not seem to matter much where it is inscribed: on silver, on clay, on paper, on a liquid crystal display.(P:30)

But the foundation on which all of this rested was the underlying credibility of a borrower's promise to repay. (It is no coincidence that in English the root of 'credit' is credo, the Latin for 'I believe'.)(P:30)

Without the foundation of borrowing and lending, the economic history of our world would scarcely have got off the ground.(P:31)

There was a good reason why Venetian merchants had to  come to the Jewish ghetto if they wanted to borrow money. For Christians, lending money at interest was a sin. Usurers, people who lent money at interest, had been excommunicated by the Third Lateran Council  (P:34)

Jews, too, were not supposed to lend at interest. But there was a convenient get-out clause in the Old Testament book. In other words, a Jew might legitimately lend to a Christian, though not to another Jew. The price of doing so was social exclusion. (P:36)

In 1 5 1 6 the Venetian authorities designated a special area of the city for Jews on the site of an old iron foundry which became known as the ghetto nuovo (getto literally means casting). There they were to be confined every night and on Christian holidays. Those who stayed in Venice for more than two weeks were supposed to wear a yellow O on their backs or a yellow (later scarlet) hat or turban.(P:36)

Two Medici became popes (Leo X and Clement VII); two became queens of France (Catherine and Marie); three became dukes (of Florence, Nemours and Tuscany).(P:41)


The seventeenth century saw the foundation of three distinctly novel institutions that, in their different ways, were intended to serve a public as well as a private financial function.(P:48)

• The Amsterdam Exchange Bank
• Swedish Riksbank
• Bank of England

a) cashless intra-bank and interbank transactions 
b) fractional reserve banking 
c) central bank monopolies on note issue,

The Amsterdam Exchange Bank (Wisselbank) was set up in 1609 to resolve the practical problems created for merchants by the circulation of multiple currencies in the United Provinces, where there were no fewer than fourteen different mints and copious quantities of foreign coins. By allowing merchants to set up accounts denominated in a standardized currency, the Exchange Bank pioneered the system of cheques and direct debits or transfers that we take for granted today. This allowed more and more commercial transactions to take place without the need for the sums involved to materialize in actual coins. One merchant could make a payment to another simply by arranging for his account at the bank to be debited and the counterparty's account to be credited.(P:48)

Swedish Riksbank in 1656, that this barrier was broken through. Although it performed the same functions as the Dutch Wisselbank, the Riksbank was also designed to be a Lanebank, meaning that it engaged in lending as well as facilitating commercial payments. By lending amounts in excess of its metallic reserve, it may be said to have pioneered the practice of what would later be known as fractional reserve banking, exploiting the fact that money left on deposit could profitably be lent out to borrowers.(P:49)

Bank of England in 1694. Designed primarily to assist the government with war finance (by converting a portion of the government's debt into shares in the bank), the Bank was endowed with distinctive privileges. and from 1742 it established a partial monopoly on the issue of banknotes, a distinctive form of promissory note that did not bear interest, designed to facilitate payments without the need for both parties in a transaction to have current accounts.