Coined: The Rich Life of Money and How Its History Has Shaped Us
Grand Central Publishing, 336 pp., $28
On June 22, 1775, the self-declared Continental Congress issued $2 million in bills of credit to fund its incipient war of liberation against Great Britain. These bills, known as “Continentals”, did not represent the colonies’ first experiment with paper notes; the Massachusetts Bay Colony had done the deed in the 1690s. Yet the Continental issuance represented paper money on a far more ambitious scale. The notes, designed in part by Benjamin Franklin, exhibited the likenesses of Revolutionary patriots and the inscription “The United Colonies.” Yet backed by the vague assurance of “future tax revenues” and beset by chronic inflation, the Continentals were anything but a steely store of value.
The cheeky British didn’t help matters by issuing counterfeit Continentals to debase the currency. In 1777, $1.25 of Continentals got one dollar of hard money; four years later it required $100 in Continentals. As George Washington lamented, “A wagonload of currency will hardly purchase a wagonload of provisions.” Alexander Hamilton, later on the first Treasury Secretary, wrote about the dangers of what we now call “soft money”—paper instruments not convertible into hard assets:
Indeed, in authorizing Congress at all, to emit an unfunded paper as the sign of value, a resource, which, though useful in the infancy of this country, and indispensable in the commencement of the revolution, ought not to continue a formal part of the Constitution, nor ever, hereafter, to be employed, being, in its nature, pregnant with abuses, and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of Government and to the morals of the people.
Congress ceased issuing the Continentals in 1779, but many states continued printing their own money until it was prohibited in Article I, Section 10 of the Constitution. This set the course for the U.S. dollar to begin as “hard money”, essentially coins made from precious metals or, as in this case, paper backed by them. So the dollar started out as hard money, but it didn’t stay that way for long.
Benjamin Franklin’s dream of a unified paper currency was eventually realized, although not as money backed by land. The conversion from hard to soft occurred during the Civil War, when President Lincoln desperately needed funds to finance the exorbitant expense of sustaining the Union war machine. Lincoln pursued soft money despite his understandable fear that such an action could lead to economic chaos. He signed the Legal Tender Act of 1862, which called for the Federal government to issue non-convertible paper money—or greenbacks, for the green ink used in printing—and required them to be used for all debts public and private. When all was said and done, Washington issued more than $500 million to allow it to cover its wartime expenses. The Civil War was prosecuted by steel, gunpowder, and paper. With the Union victory in 1865, many believed that the Federal government would retire the greenbacks. Instead, the government now had the authority to borrow money, which served as the basis for the embrace of soft money in later eras, including ours.
In his timely, illuminating, and frequently humorous book, Coined: The Rich Life of Money and How Its History Has Shaped Us, Wall Street financial analyst Kabir Sehgal takes the reader beyond the early American experience on a biological, historical, psychological, anthropological, and theological whirlwind to get at the heart of the evolution and meaning of money, how it shapes us—and how we shape it. Seared by the 2008 financial crisis, when he witnessed well-educated and compensated Wall Street colleagues hoarding bundles of greenbacks, Sehgal decided to dig deeper into what turned into this ambitious, eclectic, yet widely accessible survey of this ancient topic.
Sehgal is upfront that his book is a synthesis of other scholarship and thus plows little new soil. He nonetheless argues that the traditional definition of money—a medium of exchange, a unit of account, and a store of value—is incomplete. Relying on examples both modern (Bitcoin) and ancient (cattle were used as an early type of money), he shows us how money has shaped our world and how it will do so in the future, often in ways that are difficult to detect. Sehgal, a talented jazz bassist, uses a multidisciplinary approach to tell his story, embodying Duke Ellington’s adage, “no boxes.”
Money is of course a human invention, but all organisms from “sea urchins and algae to birds and flowers” rely on exchange to sustain life on this planet. In the natural world, energy functions as a currency. The human species also possesses an innate desire to exchange (my freshly killed meat for your berries). Over time, we recognized that exchange increases our ability to survive. It took millions of years for this evolution to occur, but by the Neolithic era (10,000 BCE to some time between 4,500–2,000 BCE) man’s bigger, more sophisticated brain increasingly relied upon cooperation and symbolic thought. This development led to the first forms of proto-money, such as grains, which facilitated exchanges. Salt, for example, went from simply being an ingredient for preserving food to an item that allowed its owner to obtain more of something else.
Over the centuries perishable goods were replaced by more lasting currencies like weapons and jewelry. Humans also gained the ability to turn money into symbols of value imbued with emotion and culture. Sehgal asks the reader to consider at what point we agreed that you could “exchange a piece of paper for a loaf of bread.” His answer is that it took millions of years in what was a remarkable evolution of man’s increased ability to think abstractly to the point where “we no longer had to see or touch the source of value.”
The use of metal as money originated in the area comprising ancient Mesopotamia and ancient Egypt around 3000 BCE. Herodotus taught us that the first coinage in the Western world was introduced in Lydia around 700 BCE, in what is today Turkey. Coins were one of the first mass-produced items in history. The Greeks started making coins in Athens around 546 BCE during the rule of Peisistratus, who used the funds to pay mercenaries and to fund his grand building plans, including the Parthenon. The unit of account for the coins was the drachm, from the Greek word “to grasp.”
The Roman Empire minted coins to keep pace with the exorbitant spending of some of its rulers. Emperor Nero, for one, ruled during an economic downturn, and in the year 62 CE he enlarged the supply of coins to fund public works, in a move one scholar has called the “New Deal for Romans.” Nero also understood that his coins “were more than just minted metal” but rather a propaganda tool. Early Nero coins bore a likeness of the emperor at age 16, when his reign began.
Given that the Chinese had refined the art of papermaking over several centuries and are believed to have invented ink, block printing, and movable type long before these things came to the West, it is not surprising that paper money emerged in China in the 10th century under the Song Dynasty. In 1170, the state honored the huizi, a paper currency that had initially circulated among merchants (that is, a medium of exchange) but was also becoming a unit of account. Prices once listed in coins were increasingly listed in huizi. One advantage of paper currencies like huizi is that, unlike specie such as gold bullion, they helped societies trade more efficiently.
Sehgal deftly shows us how man’s ability to imbue emotion and culture into the physical design of money over the centuries made a difference. Take the U.S. “double eagle”, $20 gold piece made between 1907 and 1933 and renowned the world over for its beauty. President Theodore Roosevelt desperately wanted to unite the nation around triumphant symbols of American greatness. The redoubtable Roosevelt described the U.S. coins designed by Charles Barber as “atrocious hideousness.” So in 1904, Roosevelt wrote the Treasury Secretary, asking whether “it would be possible, without asking permission from Congress, to employ a man like [sculptor Augustus] Saint-Gaudens to give us a coinage that would have some beauty?” The Rough Rider explained to his Treasury Secretary that this design project was his “pet baby”, even if he appeared to be a “crack-brained lunatic on the subject.”
The first double eagle had actually been designed in 1849, but was criticized as showing an “imperfectly formed” eagle that looked “ashamed of itself.” Saint-Gaudens’ reimagined double eagle required seven blows from the press to create the stunning relief of Liberty holding a torch in one hand, an olive branch in the other, and soaring eagle on the back. Roughly 5,000 of the MCMVII double eagles are still around today. A 1933 double eagle once owned by King Farouk of Egypt (who had purchased it for $1,575) sold at auction for $7.6 million in 2002—the highest price ever paid for a rare coin.
In 1947, Paul Samuelson published Foundations of Economic Analysis, which became the intellectual base for the rational market theory. Even today, legions of Economics 101 students learn about Homo economicus, the self-interested, rational actor choosing freely among a host of options to maximize individual utility. Problematically, this Samuelsonian orthodoxy was ignorant of what was actually happening in the brain and thus made erroneous assumptions about how the mind thinks about money. In fact, psychologists have long known that our choices are not just rational and irrational but also conscious and subconscious. The subconscious operates on autopilot to make financial decisions even when we think we’re not doing anything of the sort. This explains why we tip waiters more when we’re exposed to sunshine (weather affects our mood).
It might have taken the worst financial crisis since the Great Depression, but some former true believers in the rational market theory have at last been mugged by reality. Writing in 2013, the Yoda of rational market thinking, Alan Greenspan, acknowledged, “Most economists don’t base their theories on people’s actual behavior. They study idealized versions of human behavior, which they assume is optimal in achieving gains.” Sehgal takes this analysis a step further in his descriptions of how we think about and use money—social norms and cultural rituals—as it appears that everyone has his own idea of money. Thus, a dollar bill isn’t simply paper with green ink. It’s what you place (or don’t place) in collection bowl at church, or what you stick or don’t stick in a stripper’s g-string, or how you tip or don’t tip a rude waiter.
Today we know better that the brain processes thoughts about money in remarkable and myriad ways. The thought of expected gain, for example, stimulates the nucleus accumbens, part of the brain’s reward center. Brain scans of study participants about to receive a dose of cocaine are almost indistinguishable from someone about to receive money. One study examined how participants who donated money experience increased levels of oxytocin—the supposed “love hormone” created in the brain and emitted into the bloodstream in breastfeeding women or in people who give hugs. By contrast, the thought of losing money activates the amygdala, the “fear center.” According to Stanford neuroscientist Brian Knutson, “We very quickly found out that nothing had an effect on people like money—not naked bodies, not corpses. It got people riled up. Like food provides motivation for dogs, money provides it for people.”
Moving to the theological realm, Sehgal shows how religious figures like Laozi, Buddha, Jesus, and Muhammad implored their followers to give up the false material life for the greater wisdom and spirituality to be found in a more ascetic life. That is, less is more when it comes to money. Believed to be a deity among some Taoists, Laozi warned, “He who is attached to things will suffer much.” Eight of the ten parables in Matthew’s Gospel relate to money or wealth. Or in Mark’s account, “For whosoever will save his life shall lose it but whosoever shall lose his life for my sake and the gospel’s, the same shall save it. For what shall it profit a man, if he shall gain the whole world, and lose his own soul?” (Mark 8:35-36) Remarkably, some scholars believe that money itself may have helped create religions as it rose in importance in society.
Seghal cites Harvard political philosopher Michael Sandel’s concerns that market values have wittingly and unwittingly penetrated aspects of society formerly immune from such influences—the lamentable Skyboxification of American society. In 2013, Pope Francis voiced similar fears, “We have created new idols. . . the worship of the ancient gold calf . . . has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose.” In Sehgal’s reckoning, how we use money reveals our values. Here in America, this might be best seen in the cultural value we place on the shopping pilgrimage of Black Friday. Just look at the often-empty rows of the cushy “Lexus Club” seats behind home plate in Yankee stadium. Markets first, apple pie later—if, that is, it trickles down.
Sehgal concludes Coined by looking at the future of money through two distinct “bull” and “bear” scenarios. In the bull case, money becomes increasingly “digital, invisible, and intangible.” New digital currencies like Bitcoin help create an ever more integrated, cooperative, and prosperous world. Contrasting this beatific vision is the bear world—characterized by the hoarding of valuables, the return of commodity money, and the lack of any official entity to issue soft money. This, he says, is where the world might have been headed in the wake of the 2008 financial crisis before the global financial authorities intervened. In other words, Ron Paul’s economic philosophies in action.
While well worth reading, Coined is not without its faults. For one, some of Sehgal’s “more than 700,000 miles to 25 developing nations” on-the-ground reporting seems a bit forced at times. Does he really need to travel to the Galapagos to snorkel with an American marine biology graduate student (“Rachel met me at the dock, wearing a Carolina-blue UNC baseball hat”) to describe symbiotic relationships? Was the Bronx Zoo closed?
In the end, Sehgal’s biggest takeaway might be that it’s really not about the money, stupid. Yet given that Wall Street is where greed is thought to be good, why in hell is this idealistic, Grammy-award winning jazz musician wunderkind working at JP Morgan? The answer, or perhaps the lack of one, might help explain our times as much as anything.