Remember chocolate money? Those beautiful golden foil-wrapped coins? Truth be told, the actual chocolate was never that great, but I remember coveting, hoarding and trading those shiny coins when I was a kid. It was fun to count them up, put in them in piles, jingle them together, and eventually eat them, as slowly as you could. Those coins were precious treasure to a kid at nursery school, but obviously that’s just pretend money, right? Wrong.
I humbly submit that chocolate money is actual real money. It’s what we call a “commodity money”. It’s a thing you could reliably exchange for other things (as I remember it, a gold chocolate coin could buy me 6 sour worms, a mini-box of smarties or the silence of my partners in numerous nursery crimes). Little 5-year-old Georgie lived in a world where chocolate coins were as good as real money because demand for chocolate was pretty reliable in nursery school, so you could buy other things with it, all the time. Also, those gold coins were all the same size, weight and quality, so they were a nice consistent unit of measure, which means that prices can be communicated and agreed – I know how much I can get for five gold coins. Or ten. Or a hundred. Or one (slightly chewed) half-coin.
In that way, chocolate coins are commodity money, joining a long, rich history that includes gold bars, shiny beads, bushels of wheat, peppercorns, cigarettes, cowrie-shells, bags of weed, airtime, heads of cattle and yes, actual gold coins. In the broad history of civilisations, commodity money dates back so far it’s hard to stick a date on it, but it’s probably fair to think of it as “bartering 2.0” – not much of an improvement, but easier to work with than chicken eggs (see “barter is bad”).
Of course, when the stuff your currency is made of is inherently worth something, it’s tempting to cheat a little to make your money go further. Many bushels of wheat had a thick wad of grass in the middle to make weight, a bag of peppercorns might be mixed with gravel, and the reason pirates in movies bite their gold coins is to make sure they’re actually gold, not cheap gilded lead. With commodity money, this kind of adulteration is almost a given, and unfortunately this slows down trade because you have to think carefully about whether you trust the person you’re dealing with.
To come back to the chocolate coin example, there’s also the issue of nibbling. It’s not only small children who think it’s ok to take a little nibble out of the edge of a coin and then try trade it at full value (I traded many a nibbled coin). It’s hard to find old gold and silver coins that haven’t had little bits clipped off the edges – of course it doesn’t help that gold, silver and copper are fairly soft metals, so this was really easy to do. All those little nibbles could add up to quite a quantity over time, and while this was great for dishonest coin nibblers, it was not so great for everyone else who had to deal in coins that were only a fraction of their original weight, all but nibbled away. It’s hard to place the same value on two coins when one is mostly missing – then suddenly one gold sovereign isn’t worth the same as another gold sovereign, and the ‘one price’ system of daily commerce starts to fall apart.
To fight cheating, governments stamped complicated hallmarks on their currency – monarch’s heads, national symbols, country names and dates – things that are harder to forge at home. They also started stamping the now common milling marks around the edges of coins, so that clipped coins would be easy to spot and reject. These are all traditions that carry on even though modern coins are worthless metal.
Paper doesn’t have the reassuring weight and cheerful shiny clinking of coins – just one reason why poker games use chips instead of monopoly money. The trouble comes when you need to pay someone a large amount. A chest of gold coins is a) flipping heavy and b) flipping dangerous to be walking around with down a dark alley. With a rising merchant class, and plenty of people dealing in large amounts of gold coin who weren’t royal enough to have a castle and a large vault, it didn’t take long for people to start storing their gold with friendly folk who could be relied on to give (almost) all of it back on demand – in England’s case, round about the 17th century, these folk were the goldsmiths. Your local goldsmith would take the gold, and give you a receipt so you could come and claim it again – a bit like a dry cleaning receipt. In our chocolate money example, this would be a bit like giving someone a Woolies voucher to go and collect their own gold coins at their convenience. It didn’t take long for people to start trading in paper goldsmith receipts instead of actual gold itself – and paper money was born.
And almost immediately forged, of course. So more hallmarks, watermarks, embossing, stamps and seals had to be added.
Abandoning gold altogether
Governments stepped in to fill the role of goldsmiths, printing paper bills with custom printing presses and maintaining large gold reserves in big vaults (that’s how Fort Knox came to exist). This system ran quite happily until the early 1930’s and was known as “the Gold Standard”. It was basically a guarantee: every dollar carried a solemn promise from the US government that this dollar could be exchanged for 1.5g of gold (nine-tenths fine) from the treasury, and the price of gold was fixed.
It was a nice system, but it couldn’t last – neither the UK nor the US government could hold the gold price completely steady, and as time wore on, growth in trade and the always fluctuating value of gold meant that the United States couldn’t reliably hold enough gold to make good on their dollar guarantee. In 1933 the gold price was allowed to move freely, and in 1971 Nixon put an end to it all, cancelling the right of anyone holding a US Dollar to visit the treasury and demand gold in exchange for that note. The link between precious metals and day-to-day money was severed at last, and the US Dollar became what is called a “fiat currency” – no inherent value, but the long arm of law enforcement compelling everyone to accept these bits of paper as legal tender.
So at last we arrived at cash, the universal fiat currency that can be taken to any store, anywhere in South Africa, and used to buy anything your heart desires. Probably gold chocolate coins.
Photo by: William Warby, Chocolate coins via Flickr. CC by 2.0