Money Before Territorial Currencies

If territorial currencies originated with the rise of the Westphalian state system, one would expect to find their origins in seventeenth century Europe. To be sure, leading European theorists of state sovereignty such as Jean Bodin did begin to advocate the creation of uniform, exclusive currencies in the early modern era. ^[11] Moreover, Hendrik Spruyt argues that the consolidation of the sovereign state during the period leading up to the Westphalian age involved important monetary transformations such as the centralization of coinage and the creation of standardized units of account. ^[12] But these developments did not lead to the creation of fully-fledged territorial currencies. Before the nineteenth century, monetary systems in Europe - as well as elsewhere in the world - differed from the territorial model advocated by Bodin in three respects.

First, foreign currencies and domestic currencies commonly circulated alongside each other. The kinds of reforms described by Spruyt, for example, did little to stop foreign coins from being used frequently within each political jurisdiction. In many instances, this practice was even endorsed by the state which set a rate at which foreign coins should be accepted vis-a-vis domestic coins. ^[13] At the very high levels of the economy, various forms of paper money issued by foreign merchants and banks were also commonly used within domestic monetary systems. ^[14] These kinds of practices ensured that a large proportion - sometimes the majority - of the currency used in a country was of foreign origin.

Second, although Bodin advocated that a single uniform form of money be used by the inhabitants of each state, the poor majority of the population had few links to the formal monetary system endorsed by each state in the pre-nineteenth century period. This partly resulted from the simple fact that many of the poor did not have recourse to a monetary economy of any kind. ^[15] But even those who did use money on a regular basis employed monetary instruments that had only a loose and uncertain link to the official money used by the more wealthy in each country. Such monetary instruments included non-metallic commodities as well as petty coins made of copper, bronze or other base metals which were issued privately by local tradespeople. These forms of money were not easily convertible into the silver and gold coins issued by public authorities and their circulation was often limited to small rural areas or a few blocks within a larger town. ^[16] The state also made little concerted effort to ban these "local currencies" used by the poor and initiatives to replace them with government-issued petty coin were only partial. When petty coins were issued by state authorities, the coins were usually poorly made and had no clear relationship to silver and gold coins. ^[17] Indeed, the authorities who produced such petty coins often did not consider them to represent "real" money.

Third, despite Bodin's call for a uniform and homogenous state-issued currency, even the official money of each country did not meet these criteria before the nineteenth century. The coinage may have become centralized, but the silver or gold coins in circulation were rarely of uniform quality. Not only were old and worn coins left in circulation without being regularly withdrawn, but also the product of official mints within the country varied considerably from mint to mint, from year to year, and even within a single coining session. As paper money increasingly began to be issued in the leading economic powers during the eighteenth and nineteenth centuries, the lack of uniformity in the formal monetary system only grew. Many institutions - from various levels of government to a multitude of private banks - began to issue paper notes, and the denominations and appearance of these different forms of paper money varied considerably. So too did their "quality" and thus the degree of their acceptance across the economic space of each country. ^[18]

Compounding the lack of uniformity in the official monetary order were two further features of monetary life before the nineteenth century. One was the large-scale counterfeiting of both paper money and coins. ^[19] The other was the commitment of most states to maintain "full weight" silver and gold coins in circulation whose assigned value was equivalent to the value of the metals they were made of. Under this kind of coinage system, a change in the market value of gold or silver would cause enormous disruption to the domestic monetary system as one or other of the dominant coins quickly disappeared from circulation. This kind of system also ensured that the relationship between the value of gold and silver coins was not stable over time but rather was subject to alterations in market conditions and official regulations.

To cope with the lack of uniformity in the domestic monetary system - made worse, of course, by the presence of foreign money and various forms of inconvertible token coins - abstract units of account were often used to value the various forms of money in circulation. These "ghost monies" were meant to simplify economic transactions by providing a single accounting unit within each country's territory. Indeed, only at this abstract level were early modern European states able impose some degree of uniformity over the monetary system within their territory. ^[20] But even in this respect, they were not always successful. Their orders that the official ghost money be employed were not always followed and several such units of account were often used within each country. ^[21] Moreover, many observers in the pre-nineteenth century period felt that the ghost monies only further contributed to the currency confusion by creating yet another monetary instrument that had to be used. ^[22]