I’ll give you all I got to give, if you say you love me too

Niall Ferguson, pseudo-academic historian of early-20th century cartoon characters, and muse of this blog, has been very angry about all the people who dare criticize him just because he’s usually wrong about almost everything and routinely ignores facts that contradict his right-wing, white-is-right agenda. His main target has been the hive leader of these uncivil critics, Paul Krugman, ostensibly because Krugman is the boss of everybody on Niall’s enemies list but really because when you’re an aspiring hack pundit you’ve got to punch up to make a name for yourself, not down. As I wrote the other day, Niall wrote a three-part, probably around 8-10,000-word screed on Huffington Post whose operating title was probably something like “YUH-HUH PAUL KRUGMAN DOES TOO SUCK!” where he proudly trumpeted catching Krugman in an error, much the way an infant might proudly hold his/her soiled diaper up in the air in pride at having taken the thing off. Hilariously, the man who three days ago invented a new statistic (Tweets/number of Twitter followers, which is obviously an important indicator of Something) to demonstrate his intellectual supremacy over Krugman and everybody else (not Justin Bieber, though, sadly), and who could previously be found complaining that, for God’s sake, some of his critics have never even written a book, claims to be ranting like this in the name of “humility.”

The error Niall has caught Krugman in is Krugman’s repeated predictions that the Euro would cease to exist, either because the nations (Greece, chiefly) who were being dumped on by the Eurozone would pull out or because German bankers would force high debtor nations (again, Greece) out in lieu of more bailouts. That’s where I would like to turn, because this is not about Niall Ferguson or Paul Krugman (I know, I’m sorry). It is, instead, about the Euro, and why by all rights it should collapse. It’s about why being able to print your own money matters, and has always mattered throughout history, with a short detour into public default and why the one we may be about to experience (or maybe not) would be so unbelievably dumb.

I’ll stick mostly to Islamic history, since that’s what I know (or at least know slightly more than I know most other things). There are two overarching symbols of sovereignty that were historically crucial for any Islamic claimant to power who wanted to be taken seriously outside his extended family (and sometimes even within it): the khutbah, or the right to be mentioned as sovereign in the Friday sermon, the weekly communal worship service for all Muslims, and the sikkah, or the authority to print money. To understand these symbols you have to put yourself in the shoes of a typical villager anytime before the advent of modern means of communication like TV, radio, or even printing. If you happened to live in a city or a town controlled by a relatively powerful regional lord, then you very likely knew who that lord was, but what are the chances you would know, without being told, who your lord’s boss was? If you lived in a smaller village with less contact to the outside world, what are the chances you’d know even the lord of the closest city or fortress? Moreover, why would it matter to you whether you knew it or not? You’re a peasant, probably a farmer but maybe a craftsman; you’ve got enough to worry about making sure your family is fed and you can pay the tax collector when he comes by. Did it matter for whom he was collecting taxes? Maybe on some abstract ethnic or religious level it mattered, but guess what? Even if it did matter to you, there was almost nothing you could do about it anyway. Politics, then even more than now, was the province of the elite.

Now switch roles and put yourself in the place of an emperor ruling a hefty chunk of land at the same time. How do you know what’s happening in all the cities and towns of your empire? There’s no telephone, not even any telegraph, certainly no electronic communications. You’ve got a bunch of appointees running things at the local level, many (even most) of whom might have held the same job for the last guy (or worse, last dynasty) in your position, and virtually all of whom would love to figure out some kind of angle to make some extra money or enhance their personal prestige, at your expense if necessary. You need proof that these local lords were loyal to you, and it better be regular and public so you could feel reasonably sure that if any of them tried any funny business you’d hear about it. Say, why not solve two problems at once by having the local lord publicly proclaim your sovereignty every week in the one venue you could be confident would be attended by almost everybody in every town? That way all those disconnected peasants get to hear that you’re in charge, and they hear it from the mouth of their own lord (or his representative), which means that lord is probably still staying in line. Your local agents can send word if your name is left out of the khutbah, in which case you’ll know that there’s a problem and can act accordingly. The khutbah is frequently mentioned in Islamic history when there’s a rebellion, as in the case of the 14th century Sarbadar revolt in eastern Iran, or a change in allegiance, as when the city leaders of Mecca pledged their loyalty to the Seljuks in ~1070 after having been under Fatimid control. It became even more important after the caliphate was toppled in 1258 by the Mongols, and the 6+ centuries-old political order of the Islamic Empire was undone.

Gold dinar of Caliph Abd al-Malik (d. 705), the first truly new coins minted by the Caliphate
Gold dinar of Caliph Abd al-Malik (d. 705), the first truly new coins minted by the Caliphate

As important as the khutbah was for rulers, both in terms of making sure everyone knew that they were in charge and in terms of checking on the loyalty of their local governors, the sikkah, or right to mint coinage (bearing the ruler’s chosen slogans and iconography) was equally as important to showing the public who was in control and maybe even giving them a little sense of what their king/emperor was all about. The first Islamic coins to be minted were literally copies of Roman and Persian coins already circulating in the Near East. This in itself was a statement that the new empire was not here to disrupt the commercial order of the region; when you mint money the first thing you have to do is make sure it looks like what people know to be money, or else you risk nobody using the new currency. It wasn’t until the reign of the Caliph Abd al-Malik, in the late 7th century, when brand new coinage was struck, and it seems by the text on the coinage (“God the one, God the eternal, He did not beget and was not begotten”) that this was probably done as part of a larger project to separate Islam and Christianity over the issue of Jesus’ divinity (Abd al-Malik, who also constructed the Dome of the Rock in Jerusalem and covered the walls with similar “did not beget/was not begotten” writing, seems to have been keen to emphasize this distinction between the two faiths). Most Islamic coinage is engraved with words rather than figures, but those words generally conveyed the name and ancestry of the ruler as well as Islamic slogans (often the Shahadah, some variation of “There is no God but God and Muhammad is the Messenger of God” or the Bismillah, “In the name of God, the Gracious, the Merciful”) and then something that would express that ruler’s ideology (usually Sunni or Shiʿi; maybe the names of the first three caliphs for a Sunni ruler and the names of the line of Imams for a Shiʿi one, though several post-Caliphate Sunni rulers also honored the imams on their coinage).

It’s easy to see why coinage was such an important symbol of authority; here, like the Friday communal prayer, a ruler can advertise his power and know that the advertisement is going to eventually reach most of his subjects. Now the degree to which a still pre-literate society could read these coins, which if you ask anybody who studies numismatics are hard enough for a literate person to decipher, is debatable, but most people probably knew enough reading to make out the ideological bits (the names of the caliphs and/or imams, for example, or the Islamic slogans), so that even if they couldn’t read the ruler’s name they’d still know that he was a good Muslim and a good Sunni or Shiʿi. If Islamic history isn’t your bag, consider Roman currency, which relied far more on iconography than on written messages but that equally conveyed political messages about who was in power and what they considered important. Republican coins often included the image of Roma, the patron goddess/divine personification of the city of Rome, reflecting the city’s importance. Emperors, taking after Julius Caesar who really began the practice, obviously liked to mint coins featuring their own images. Or consider modern American coinage:


This coin conveys a lot of political information, right? It says that the guy on the front is a very important dude, even if you don’t really know who he is just yet. The symbol looks very impressive on the back, very majestic. Apparently this country that minted this coin, this “United States of America,” they’re big fans of “LIBERTY,” so that tells you something about them. Religious folks too. Hey, if you know Latin, then you also know they seemed to value the unity that came out of their diversity. That’s a lot of information to convey in a little coin that also has to include the date the coin was minted and the currency denomination. Say, that’s information too; now that you know that this bad boy is a “quarter dollar,” you also know that their base currency is probably the “dollar,” whatever that is.

These coins convey that...the Confederacy really won the Civil War? #statesrights
These coins convey that…the Confederacy really won the Civil War? #statesrights

Or, heck, look at the Euro, whose creators, intentionally or not, must have understood the symbolic power of this whole national iconography thing or else they wouldn’t have made them in so many different national variations:

euro coins

But the other reason, apart from the symbolic, why control of currency minting was so important was that it meant you had control over the value of the currency you were minting. In the old days, before “fiat” currency, the value of a coin was often tied to the actual metallic composition of that coin, so in order to cause an inflationary spike that could, say, pull a kingdom out of a period of deflation or, more commonly, make it easier for the sovereign to pay his debts by allowing him to mint more money at less cost, the content of valuable metals (gold, silver, etc.) in a given denomination of coin could be reduced. This process was known as “debasement,” and it was accomplished either by altering the coin’s composition or just flat-out shrinking the size of the coin.

Governments don’t value coins anymore on the basis of the metal inside them, opting instead for a system where the paper or the coin has some intrinsic value assigned by the state, but they do control the amount of currency in circulation, which can have the same inflationary effect. This is a very powerful thing; a country that prints its own money can always print more of it as needed to cover its debts, meaning that it essentially cannot go into default unless it does something stupid, like pegging the value of its currency to some specific amount of another country’s currency, or borrowing so much money that its annual payments on that debt amount to some ridiculously unsustainable percentage of total annual revenues (in the Ottoman case debt service payments were around 60% of the national budget in the 1870s). Incidentally, this is what would make a US default so monumentally stupid, given that we can print our own currency, the dollar is not pegged to anything so we don’t have to maintain some artificial value, and our debt service payments are about 6% of the budget, nowhere near 60%.

What does this have to do with the Euro? Well, implicit in the formation of the Eurozone was the fact that member countries were all going to be voluntarily forfeiting the right to print their own currency (or, more accurately, forfeiting the right to decide how much of it gets printed). In theory, in a European Union whose members are all created equal and whose economies (and public debts) are all intricately tied to one another, that could possibly work. But the European Union doesn’t work that way. Greece, the country most often cited as the prime candidate to leave or be booted from the EU and/or the Euro, doesn’t have anywhere near the clout within the EU that Germany and France have, and Greece’s debt is only Germany’s problem to the extent that German banks own huge chunks of it. Essentially Greece traded away its ability to control its own currency for the promise of integration into an economically and politically united Europe, but while the the currency bit definitely happened, the other stuff is still off in the hazy future. A Greece that was still on the drachma could just print more money to pay those German bankers, and yes, Greece might suffer from inflation over it and that might hurt the Greek public, but they wouldn’t have the rest of Europe foisting draconian austerity measures upon them that most assuredly are hurting the Greek public. The collapse of the Euro would probably be a massive worldwide economic catastrophe, and I am not an economist so I won’t even pretend to know how bad it would be, but how much worse could it be for the Greeks themselves than the status quo is? Maybe before they jumped into the currency union, they should’ve tried to understand why control over currency minting has historically been so desirable.


11 thoughts on “I’ll give you all I got to give, if you say you love me too

  1. This kind of thing happens to academics who cross over into mainstream punditry a lot, though. Bernard Lewis is the best example; he was a really excellent Middle East scholar/historian until people started asking for his opinions about stuff, then he became the ultimate hack.

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