Ivory

The tusks of elephants are composed of ivory, a substance much in demand throughout history for its durability and beauty. The demand for ivory has nearly become the downfall of elephants, which have been decimated in large numbers for the sake of their tusks.

The role that ivory has played as money is rather limited in spite of the fact that its aesthetic qualities and durability give it some of the same attraction as precious metals. In mountain villages on the island of Ili Mandriri in the Indonesian archipelago islanders used ivory as a store of value and mark of social status. An individual’s social standing was a function of the number and size of ivory tusks that he or she owned. It appears that not too far in the murky past ivory also served as a medium of exchange. In the post–World War II era the islanders stilled used ivory as the main form of bride money.

Before the arrival of Arabian traders, tribes in Uganda cut ivory discs that served as a favored form of money. Although anyone was free to cut ivory discs, no one could kill elephants or possess ivory without the king’s permission, and cutting ivory discs required special skills possessed only by a few people. In effect, the king had a monopoly on the supply of ivory discs.

During the time of German colonization of equatorial Africa fines were set in ivory, eventually leaving the colonial administration with a large stockpile. There is also evidence of an ivory monetary unit in Gabon. In Loma a 100-pound chunk of ivory represented a monetary unit for large transactions, but it was a fictitious unit and in reality represented an assortment of European goods. In the Nama tribe of southwest Africa, ivory represented a stable export, and acted as a medium of exchange.

Ivory has functioned as money primarily in Africa. Famous African explorer John H. Speke, who discovered Lake Victoria as the source of the Nile, mentioned the use of ivory as money in his book The Discovery of the Source of the Nile. Henry M. Stanley in his book In Darkest Africa tells of treasuries of ivory and his own use of ivory to pay for services rendered by tribes. He also wrote of raiding parties that captured slaves mainly to exchange the slaves for ivory. Ivory might have acted as money on a grander scale if it had commanded more religious significance for the Africans, or if the foreign ivory demand had not been so high relative to the domestic demand.

Iron Currency

Although iron currency has been regarded as primitive for 2,000 years, it survived into the modern period. Iron spits circulated as money in Greece before the advent of silver currency, and Sparta remained on an iron currency standard throughout the golden age of Greece. Sparta’s iron currency was deliberately intended to make the accumulation of monetary wealth awkward.

Julius Caesar’s writing, Gallic Wars, mentions an iron currency in Britain. Unfortunately, the texts of the various manuscripts of Caesar’s work are not consistent, and scholars have split on the meaning of the text, some claiming the iron currency was iron rings and others that it was iron bars. Archeological evidence seems to have decided the issue in favor of iron bars. No iron rings have been found from that time period but other iron objects, including iron bars, have been discovered. These iron bars were apparently unfinished sword blades.

The monetary unit for this currency seems to have been about 11 ounces of iron. Some pieces weighed as little as one-quarter of the standard unit, and others as much as four units. It is possible that the value of the bars was determined by length rather than weight.

During the nineteenth century iron bars were circulating as money in the Congo. Europeans complained about the high transportation cost of these bars. Apparently, it took one man to carry just 8 shillings’ worth of money. The iron bars came in lengths of one foot and were extremely heavy. One of the Congo tribes, the Bakongo, were particularly noted for coveting these iron bars.

Iron hoes have circulated as money in regions of India, Africa, and Indochina. Iron hoes were the smallest monetary unit in the Bahnars at one time. During the nineteenth century, iron, mainly in the shape of hoes, circulated in the remote areas of Sudan. The Chiga of western Uganda made hoes their unit of account without making use of them as a medium of exchange or store of value. In Portuguese East Africa a hoe standard replaced a cattle standard, and some hoes circulated only as currency and were never used as agricultural implements. In the French Congo, iron bars, shovels, hoes, blades, and iron double bells played the role of currency. In mid-nineteenth-century Nigeria, 40 iron hoes could buy a slave.

Iron is not as immune to the elements as the precious metals and does not have the same aesthetic appeal. It does not seem to have had religious significance, such as did silver and gold. Nevertheless, it is a very practical metal, making it attractive as money in societies that have not mastered metallurgy to the same extent as the industrially developed societies.

International Monetary Fund

The International Monetary Fund (IMF), is a supranational lending institution whose primary mission lies in furnishing short-term credit for countries suffering balance of payments deficits. Balance of payment deficits occur when a country’s outflow of money from transactions with foreign countries exceeds its inflow. Like its sister institution, the World Bank, the IMF was born of the Bretton Woods Conference. That 1944 meeting of international monetary officials put foreign exchange markets under a system of fixed exchange rates—a system that lasted until 1971. The IMF began operations in 1946 and in 1964 it founded its headquarters in Washington, D.C. Although the mission of the World Bank lay in financing development and reconstruction projects, the IMF bore responsibility for loaning foreign currency reserves to countries on a short-term basis.

An excess of imports and investment in foreign countries relative to exports and domestic investment financed by foreign investors causes an excess outflow of a country’s currency. This leads to currency depreciation in foreign exchange markets unless some type of market intervention occurs. A country can prevent currency depreciation by borrowing foreign currencies from the IMF and using these foreign currencies to purchase its own currency in foreign exchange markets, increasing the demand for its own currency and arresting its depreciation.

The funds of the IMF come from subscriptions of member countries, which contribute on the basis of such variables as national income and foreign trade. In 1946 member countries numbered 35, but by 1998 the number had grown to 182 countries. Soviet bloc countries did not join the IMF until after their transition to market countries. The United States has the largest quota of contributions and in 1998 contributed about 18 percent of all IMF funds. Each country contributes sums of its own currency, which serve as the IMF’s lending capital. Out of these funds the IMF might make foreign currency loans to countries that use the proceeds to buy up excess amounts of their own currency in foreign exchange markets. The borrowing country puts up its own currency as collateral for such a loan.

Perhaps the greatest economic innovation of the IMF during the period of fixed exchange rates was the development of Special Drawing Rights (SDRs), sometimes referred to as “paper gold.” By international agreement the SDRs are exchangeable for other currencies just as gold reserves.

Under the fixed exchange rate system the IMF loaned funds to countries that needed to intervene in foreign exchange markets to maintain the values of their currencies at the fixed rates. Under the floating exchange rate system the industrially developed countries had little need of the resources of the IMF. The IMF turned its attention to the less-developed countries, making longer-term loans to finance balance of payments of deficits, and granting soft loans to the poorest of the world’s countries. These balance of payments deficits allowed these countries to import capital.

The oil price revolution of the 1970s not only pushed the fixed exchange rate system to the breaking point, but also put a heavy burden on the less-developed countries of the world, which responded by incurring large amounts of debt to foreign lenders. During the 1980s high interest rates increased the cost of servicing this debt, and reduced exports to the recession-ridden United States, decreasing the inflow of dollars needed to service this debt. Many of the less-developed countries also turned to inflationary policies at home, further endangering the investments of foreigners. Under these conditions the IMF assumed the thankless task of requiring these countries to follow responsible monetary and fiscal policies as a condition for receiving additional IMF credit. The IMF usually requires policies of high interest rates, depreciated currencies, and smaller budget deficits, translating as less social spending. Private lenders often refuse credit to countries that fail to follow IMF adjustment programs.

The decade of the 1990s kept the IMF unusually busy. The decade opened with Soviet bloc countries making the transition to market economies and needing domestic currencies convertible into hard currencies at stable exchange rates. The IMF provided expertise on the organization of central banks and supplied loans of hard currencies such as U.S. dollars to help these countries stabilize their currencies at stable exchange rates. In 1995 Mexico fell victim to a severe financial crisis, prompting the IMF to extend a record loan of over $17 billion dollars to that country. Toward the end of the decade global financial crisis was placing heavy demands on the resources of the IMF. By the end of 1998 Russia had received over $20 billion in loans, and $35 billion was committed to Korea, Indonesia, and Thailand to assist with the Asian financial crisis.

International Monetary Conference of 1878

The International Monetary Conference opened in Paris on 10 August 1878. The conference was called at the request of the United States, which wanted to push for an international bimetallic monetary system. It utterly failed to live up to expectations. On 23 July 1878 the New York Times had printed an editorial with the heading, “Promoting the Federation of the World,” suggesting that the conference would lead to the establishment of an international gold metric coinage unit and the new coinage unit would inculcate “true notions of the nature and purposes of money.” The idea of an international coinage unit lingered in the background of the conference, partly as a pretext for some countries to attend the conference, but it never surfaced as a goal to be reached.

The seeds for the conference were sown with the passage of the Bland-Allison Act in the United States. This act began in Congress as a free silver act, but passed Congress, over a presidential veto, as an act requiring the Treasury to coin silver up to a fixed amount and asking the government to call an international conference to negotiate a world bimetallic standard. A world bimetallic standard would fix worldwide an official ratio of gold to silver. The United States hoped that if all governments set the same official ratio of gold to silver, the official world ratio would dominate the free market ratio, arresting the plunge of silver values in the free market.

The United States, possessing vast silver deposits, wanted to retain silver as a monetary metal, but the wealthier nations were rapidly shifting to a gold standard. England practiced “imperial bimetallism,” maintaining herself on a gold standard, and India on a silver standard. Germany was selling off silver reserves after the adoption of the gold standard in 1871 and refused to attend the conference. The Latin Monetary Union countries, the largest being France, had ceased the coinage of silver because of its plunging value and were not favorably disposed toward resuscitating silver.

The representatives of the United States, isolated from the outset of the conference, found no crack in the diplomatic armor of the forces arrayed against a revival of bimetallism. A Dutch delegate suggested that the United States might look for monetary allies among the less-developed world (Latin America, Asia, etc.), hinting that the United States might belong with the less-developed countries itself and prompting a United States delegate to ask for a clarification. The European conference delegates offered to let the United States save face by turning the Conference into a series of sessions on coinage and bullion practices around the world, but the United States remained unswerving in its commitment to an international bimetallic standard.

On 28 August 1878 the conference delegates recessed for 45 minutes to let the European delegates reach an agreement on an answer to the American proposal. The European delegates flatly turned down the American proposal, saying that each nation, governed by its special situation, should set its own monetary standard.

The Conference of 1878 dropped the curtain on bimetallism, and by 1880 the world was squarely on a gold standard. The United States, the staunchest supporter of silver among the monetary powers, stood against the adoption of a bimetallic standard unless it was part of an international agreement.

The idea of an international monetary unit surfaced in the late nineteenth century and it is an idea that may yet be realized. Adoption of an international monetary unit would encourage international trade by reducing the risk of changing exchange rates between currencies and facilitating cost comparisons between goods produced in different countries. Europe has already launched a European currency, the euro, to replace national currencies in Europe, and the growth of international trade may push the world toward the adoption of an international monetary unit. Presently, the United States dollar fulfills some of the roles of an international monetary unit.

Interest Rate

The interest rate can be regarded as the cost of money, expressed as a percentage. If the annual interest rate is 10 percent, an individual borrowing $100 for a year pays $10 interest. Decimalized currency systems substantially facilitated the calculation of interest. This is one reason countries rapidly adopted decimalized currency systems during the nineteenth century.

Theoretically, interest rates adjust to a level at which the interest earned on $100 invested in financial assets (for example, corporate bonds) equals the income earned from the ownership of $100 worth of capital goods (for example, tools, machinery, buildings). During the recovery phase of the business cycle interest rates tend to rise as capital goods become more productive, and in the recession phase interest rates tend to fall as capital goods lose productivity.

During early European history, religious authorities regarded charging interest as a sinful means of earning income. Governments either banned interest, or put a legal ceiling on interest rates. In the United States, state usury laws limiting interest rates were common as late as the 1970s. Most of them have now been repealed.

Historically, the highest peaks in interest rates have occurred during wartime. Interest rates reached historic levels during the Napoleonic Wars and during World War I. Wars are often the occasion for heavy government borrowing and high inflation, both of which are enemies to low interest rates. The legacy of the depression and wage and price controls helped keep a lid on interest rates during World War II, but the era of the cold war, from 1946 to 1983, saw the longest upswing in interest rates occurring since the beginning of the eighteenth century.

Governments may act purposely to reduce interest rates as an antidote to depression. In 1998 the Federal Reserve System in the United States acted to lower interest rates to prevent a global financial crisis from spreading to the United States.

Inflation and Deflation

Inflation presents itself as an overall rise in the general price level, meaning that the average level of all prices is rising, rather than the prices of a select few goods and services. A closer examination suggests that inflation is a decrease in the value (purchasing power) of a unit of money, perhaps because of an increase in the supply of money relative to demand. Deflation is the reverse—a fall in the average level of prices. History appears to be inflationary, although episodes of deflation are numerous.

Inflation is measured by the growth rate in price levels calculated as weighted averages of prices of a spectrum of goods and services. In the United States the Gross Domestic Product Deflator (GDPD) measures the price level for all goods and services, including factory equipment and other goods bought by businesses, luxury goods, and goods bought by the government. Another index, the Consumer Price Index (CPI), measures the price level for goods and services that are associated with the basic cost of living, including food, gasoline, utilities, housing, clothes, etc.

Wartime government expenditures can nearly always be counted on to create inflationary pressures, as happened in the United States during World War II. At that time the U.S. government enacted wage and price controls to contain inflation. The price controls were lifted at the end of World War II, but inflation remained a problem throughout the cold war era. Inflation tends to become a problem whenever governments do not want to levy the taxes sufficient to support government expenditures.

Economists often see controlling inflation as a problem in maintaining the value of money, which rises in value, as the money supply is restricted. In the 1980s a prolonged reduction in the growth of the money supply ended the inflationary inertia in the United States economy.

A slow steady rate of inflation that is easily anticipated causes less disruption than high inflation rates showing substantial volatility. Inflation in the range of 300 percent annually or higher is called hyperinflation. This brand of galloping or runaway inflation is often associated with the complete breakdown of society.

The last quarter of the nineteenth century saw deflation in the United States and several European countries. Deflation puts a burden on debtors, who find it harder to earn money to repay debts that remain fixed in value as wages and profits fall. In the late nineteenth century debtor hardship attributable to deflation fueled a populist revolt in the United States that nearly propelled William Jennings Bryan to the presidency. Bryan decried the gold standard as “crucifying” mankind on a cross of gold. The supply of gold was not keeping pace with rapid increases in production due to technology, causing the supply of goods to increase faster than the supply of money. Prices fell and Bryan proposed to increase the coinage of silver, adding to the money supply and easing deflationary pressures.

Indian Silver Standard

During the last quarter of the nineteenth century, when the world was abandoning bimetallism in favor of the gold standard, India adapted its silver standard to a modified gold system that held gold reserves to maintain the value of an entirely silver coinage.

The Indian currency system had always attracted the curiosity of the British. In 1772 the eminent economist Sir James Steuart advanced a recommendation to the East India Company “for correcting the defects of the present currency.” John Maynard Keynes wrote his first book, Indian Currency and Finance, after serving on a committee studying India’s monetary system.

A bit of the impression India’s nineteenth-century monetary system left on contemporary British observers may be gleaned from a quotation of A. J. Balfour, later prime minister of England:

What is the British system of currency? You go to Hong Kong and the Straits Settlements, and you find obligations are measured in silver; you go to England, and you find that obligations are measured in gold; you stop half way, in India, and you find that obligations are measured in something which is neither gold nor silver—the strangest product of monometallist ingenuity which the world has ever seen—a currency which is as arbitrary as any forced paper currency which the world has ever heard of, and which is as expensive as any metallic currency that the world has ever faced, and which, unhappily, combines in itself all the disadvantages of every currency which human beings have ever tried to form.

(Chown, 1994)

Between 1835 and 1893, India practiced what in the United States was called free silver, a silver standard that allowed anyone to bring silver to the Indian mint for coinage. Only two coins were struck, the silver rupee and the silver half rupee, and only silver coins were legal tender. Gold was not legal tender and the mint did not strike gold coins.

As long as the European bimetallic system remained a viable monetary system, preserving a constant ratio of silver to gold of about 15.5 to 1, the Indian system functioned with a stable exchange rate between the silver rupee and Britain’s gold pound sterling. India’s silver rupee equaled 22.39 pence under Britain’s gold standard. After Western trading partners began shifting over to the gold standard in the 1870s, the value of silver fell, adversely affecting the terms of trade of countries on the silver standard, mainly China, India, and Japan. Prices of both domestic and foreign goods rose in India, putting in a squeeze the household budgets of civil servants and other groups on fixed incomes.

In an effort to raise the value of the silver rupee, the government suspended the private coinage of silver in 1893, hoping to manage the supply of silver currency and maintain its value in gold. The value of the silver rupee modestly climbed relative to gold to a rate of 1 shilling and 4 pence per rupee, or 15 rupees per British sovereign. The government stood ready to redeem silver rupees and paper rupees in gold at an official rate of 1 shilling and 4 pence in gold per rupee. The silver coinage now wore the aspect of a token coinage whose value was supported in the same manner as the value of paper rupees was supported. India became a gold standard country but its only circulating coinage was silver.

The limitation on Indian coinage of silver, coupled with high Indian interest rates needed to support the rupee internationally, depressed economic conditions in India and led to further calls for currency reform. In 1898 another government commission studied the problem and recommended that India bolster its gold reserves and issue gold coinage. These new reforms failed to bring monetary relief to India and in 1912 the British government formed the Royal Commission on Indian Currency and Finance, including among its members John Maynard Keynes, who would later become the most famous economist of the twentieth century. Keynes wrote a book on Indian currency in which he recommended that India remove gold coins from circulation and concentrate gold holdings in a state bank that would use the gold as reserves to support bank notes.

Indexation

Indexation is a method of controlling the income-redistributing effects of inflation.

Inflation is a decrease in the purchasing power of a unit of money. Households and businesses that supply commodities, credit, and raw materials under long-term contracts have revenues and incomes that are fixed regardless of what is happening to other prices. In an inflationary environment, revenues from long-term contracts diminish in real terms; that is, in real purchasing power.

Redistributive effects of inflation significantly harm important players in the economic system. With inflation, savers and lenders find their wealth losing value while in the hands of other households and businesses. The real losses to savers and lenders occur because their wealth is defined in terms of a unit of money that steadily, perhaps rapidly, buys less. Debtors stand to gain windfall profits from inflation that can reduce the value and burden of a debt, or, under hyperinflation, even eliminate a debt in practical terms.

Governments are suspected of generating inflation as a means of canceling vast public debts too large to service. In the aftermath of World War I the German government, shouldering a vast public debt from wartime expenditures coupled with war reparations, fueled an episode of hyperinflation that rendered its pubic debt null and void. The United States government emerged from World War II with a sizable public debt, perhaps removing government incentive to aggressively combat an inflation problem that continued until the early 1980s.

A system of indexation protects households and businesses whose wealth and income are at risk from inflation. Under indexation, escalator provisions automatically administer inflation adjustments to sources of income and assets fixed in money terms by contract. In the United States Social Security benefits automatically receive inflation adjustments geared to the Consumer Price Index, a limited application of the principle of indexation. Under a full-blown system of indexation, checking accounts, savings accounts, long-term and short-term bonds, mortgages, wages, and long-term contracts receive periodic adjustments to keep pace with inflation.

Some economists propose limited forms of indexation, applying only to government bonds and taxable income. This limited indexation automatically increases the maturity value of government bonds at a rate equivalent to the inflation rate, and withholds from government tax revenue paper profits due only to inflation. With limited indexation, government is spared the temptation to generate inflation as a means of canceling public debt, and levying a hidden tax.

As inflationary momentum increased during the 1970s prominent economists, such as Nobel Prize– winner Milton Friedman, proposed that the United States adopt a system of indexation. Brazil implemented a broad system of indexation, and Israel and Canada adopted indexation systems on smaller scales. Proponents of indexation felt it would lift the burden of forming accurate inflationary expectations and moderate economic fluctuations caused by discrepancies between actual and expected inflation. Strong anti-inflation policies often induce a bout of high unemployment because expected inflation remains high after the actual inflation rate has fallen. Indexation should moderate the high unemployment that often accompanies disinflation. Critics feel that the adoption of a system of indexation is equivalent to giving up the fight against inflation, and observe that inflation has often accelerated in countries practicing indexation. The United States never adopted indexation, and as other countries enacted market-oriented reforms, systems of indexation began to lose favor as another form of government interference.

Independent Treasury (United States)

From the 1840s until 1863 the Independent Treasury, as it was called, divorced the government’s fiscal operations from private sector banks. It accepted payment for public obligations—taxes—only in gold and silver specie and treasury notes, and operated its own depositories around the country. The Independent Treasury did not accept bank notes, and did not hold deposits in commercial banks. Its own depositories were separate from state banks.

The Independent Treasury was born of the freewheeling banking environment that flourished after the demise of the Second Bank of the United States. At first, the Treasury tried to supply a modicum of regulatory discipline by holding Treasury deposits in state banks and requiring special specie reserves for those deposits. The Treasury found, however, that its own deposits could be held hostage to overly aggressive lending policies of state banks, and on occasion the Treasury could not withdraw its funds. During this time gold and silver specie commanded a reverence in the eyes of a public that distrusted banks, bank notes, and even corporations themselves. Large segments of the public saw bank notes as a sham scheme of the “moneyed interests” to exploit the unwary, and the proponents of the Independent Treasury were “hard currency” people who wanted the government’s business separated from banks and corporations.

The Sub-Treasury Act of 1840 became law during the presidency of Martin Van Buren, a staunch advocate of the hard currency policies that marked the presidency of his predecessor, Andrew Jackson. Daniel Webster stood flatly opposed to the bill, remarking on 12 March 1938 that “[t]he use of money is in the exchange. It is designed to circulate, not to be hoarded. To keep it that is to detain it is a conception belonging to barbarous times and barbarous governments” (Chown, 1994). Opponents of the bill saw it turning the Treasury into a hoarder of gold and silver, and throwing the private sector into a deflationary spiral. Banks held gold and silver specie to act as reserves for the redemption of bank notes. If the government began absorbing gold and silver specie, banks would be forced to contract the supply of circulating bank notes.

After heated political combat, Congress enacted the Sub-Treasury Act on 30 June 1840. It provided that in the first year one-fourth of public obligations, that is, taxes, should be paid in specie, and by 1843 100 percent of public obligations should be paid in specie. In 1843 Congress repealed the first Sub-Treasury Act.

In 1846 Congress enacted a second Sub-Treasury bill. This bill required that government offices accept only gold and silver specie and treasury notes (nonlegal-tender paper money issued by the Treasury) in payment of public obligations. The Independent Treasury System lasted in some form until 1920. As early as 1863, however, the Treasury began to hold deposits in commercial banks.

In its pre–Civil War phase, the Independent Treasury proved that the fears of some of its critics were well founded. Problems arose because Treasury tax collections did not coincide with government expenditures. When tax collections rose above government payments, specie left private banks, and entered Treasury depositories, forcing banks to contract bank note circulation. When government payments overtook tax collections, specie flowed into the banking system, and banks issued more bank notes. The ebb and flow of specie from Treasury depositories imparted a cyclical motion to the supply of circulating bank notes, and acted to destabilize the economy. After the Treasury was allowed to maintain commercial bank deposits, the Treasury learned to conduct the government’s fiscal operations without rocking the banking system.

The Independent Treasury System represents another episode in the paper money drama that would eventually define the terms on which the public would come to accept paper money. It represented a phase in which societies had come to accept precious metal coins, something that could not be taken for granted in ancient societies. Despite the acceptance of precious metal coins, feelings about paper money ran high, and suspicion about paper money gained ground quickly in hard times. Distrust of paper money left a social seam, often hidden, but always threatening to rip open and become a power force in political life.

Inconvertible Paper Standard

An inconvertible paper standard is a monetary standard based on paper money, either bank notes or government currency that cannot be converted into any commodity or precious metal at an official rate. Inconvertible paper money is called fiat money and it bears a face value that may or may not be expressed in metallic terms.

The inconvertible paper standard evolved directly from precious metal standards. Originally paper money circulated as something resembling warehouse receipts representing titles to ownership of gold or silver safely secured with a goldsmith or bank. Exchanging titles of ownership was less risky and costly than physically transporting precious metals. From those warehouse receipts evolved bank notes, ancestors to the contemporary Federal Reserve Notes and other bank notes of modern central banks.

War and other national emergencies often forced governments to put heavy claims on domestic gold and silver reserves, and in turn governments granted banks the privilege to suspend convertibility of bank notes into precious metal. England suspended convertibility during the Napoleonic Wars and the United States suspended convertibility during the War of 1812 and the Civil War. Suspended convertibility was invariably attended with some currency depreciation, but often the patriotic fervor of war helped maintain some monetary order. Government assurances of return to convertibility at war’s end also helped protect currency values from a wave of inflation.

Two famous cases of paper money fiascoes occurred toward the end of the eighteenth century, the hyperinflations of the American and French Revolutions. France had already had one paper money disaster early in the eighteenth century with the episode of John Law’s bank. The memory of these episodes acted as a constant reminder of the monetary insanity lurking beneath the surface of an inconvertible paper money standard, and encouraged governments to accept inconvertibility only as a temporary measure.

Between 1866 and 1881 Italy apparently made good use of inconvertible paper money to assist in the financing of economic development. The episode was called Il Corso Forzoso, or “forced currency,” and it was accompanied by a modest depreciation of the lira of 10 to 16 percent. Nevertheless a new government felt the need to promise a return to convertibility, which was accomplished in 1881.

By the beginning of World War I the world was on a gold standard. Countries banned the export of gold, suspending convertibility for international trade, and the right of domestic convertibility was rarely exercised. At the end of the war returning to an international gold standard became an important goal of the world’s major trading partners.

The world was on a gold standard in the early 1930s when worldwide depression shook the foundations of the international monetary system. It was during this era that inconvertible paper standards became virtually universal among the world’s major trading partners. These countries went on inconvertible paper standards for domestic purposes but remained on a gold bullion standard for international purposes. In the United States private citizens could no longer convert dollars into gold, and private ownership of gold for anything but industrial purposes was illegal. The United States and other countries continued to redeem domestic currency into gold at the request of foreign central banks. After 1971 the world’s major trading partners went on inconvertible paper standards for international as well as domestic purposes, severing the last ties with convertibility.

Icelandic Saga Money

During the medieval era the Icelanders were among the most literary people in Europe and left a written record in sagas that mirrored the manners, morals, and practices of their time. These sagas tell of blood feuds resolved with the payment of rings, usually silver rings, and of a monetary standard of cloth.

The cloth was called wadmal, spun from sheep wool and woven on handlooms. Virtually every Icelandic farm had the wherewithal to make its own wadmal. Values, including taxes, were expressed in units of wadmal, a piece of cloth 1 ell long and 2 wide. An ell was approximately the length of an arm.

Wadmal came in two standard qualities, a plain white cloth that carried the least value, and brown or brown-striped cloth that traded at a higher value. The term wadmal continued into the modern period as a measure of value for land. Early evidence shows that 120 ells of wadmal equaled 1/3 mark of silver, but after 1280 cloth had appreciated to 96 ells of wadmal to 1/3 mark of silver. The term mark, the monetary unit of account in modern Germany, originally referred to a length of cloth, but evolved into a measure of a certain weight of silver.

Large transactions brought into play metal rings, mainly silver and gold rings in later times. One account describes them as massy rings of gold with other rings hanging from them, suggesting that they were not intended to be worn on the finger. In Icelandic sagas rich persons generous with their wealth were ring givers, or breakers or scatterers of rings. In the Icelandic epic, Burnt Nial, the hero was known as “He that lavisheth rings in largesse,” a reference to his generosity. Those who despised wealth were described as haters of rings. Before the arrival of silver and gold, segments of spiraled rings of metal were cut off, weighed, and passed as money.

References to chiefs or heroes distributing rings as acts of generosity can be found in the English medieval epic, Beowulf, and in Percy’s Reliques of Ancient English Poetry. Ring money figures largely in the monetary history of Denmark and Sweden.