Trying to Make Money Work, in the Place It Was Invented

The birthplace of currency: Aegina Island, 2012. Wikimedia.

Greece has recently been locked in high-stakes negotiations with European governments and institutions over its finances, its debts, and ultimately the Euro, the currency it shares with eighteen other members of the European Union. Both sides have a great deal a stake, economically and politically. Those stakes are rooted in the very current realities of the post-2007 crisis and the difficult project of European union. But they also have an extremely long history, which influences the actors even when they may not realize it.

As long as there has been a Greece and a Europe, currencies have been the most powerful tools and symbols of government; they have, indeed, been inseparable from government itself. Both Greece and the Eurozone realize that they cannot succeed without a successful currency. Indeed, the rewards for strong currency have been great. But there have also been many cases where the too eager or ill-considered pursuit of it has led to disaster, and others where circumstances have overwhelmed the best policy. European leaders may or may not be able to avoid these dangers, but they should be aware of them.

Standing in Piraeus, the port of Athens, on a clear day one can just make out on the horizon the birthplace of currency. The island of Aegina is now a busy, pleasant, and fairly modest resort, but for over a century it was the economic powerhouse of late archaic and early classical Greece. Supposedly, the Aeginetans were the first to make coins of silver, around the end of the 600s b.c.e. Before that, coins had been struck from electrum, a natural alloy containing varying proportions of gold and silver. They likely served more as labels for the individual alloy, and thus the value by weight, of a given nugget than as units of value in themselves.

The silver “staters,” invented or perfected on Aegina, were quite different. They took a well-known and long-established item of exchange and turned it into the abstract expression of a community’s economic power. Marked with a sea turtle on one side and an abstract pinwheel suggesting sails on the other, they reminded all who held them of the seaborne commerce that brought both the coins and the valuable goods for which they could be exchanged to many corners of the Mediterranean world. They were also a symbol of the Aeginetan polis—and of the powerful navy that stood behind them. Ancient historians listed Aegina as the last city to hold the “thalassocracy”—naval predominance in the Eastern Mediterranean—before the Persian War.

But as wealthy and powerful as Aegina had become, it was still just a small island. On the horizon lay Athens, whose goddess was an Olympian deity rather than an obscure nymph. Athens had its own coins, which displayed Athena herself on one side, and the gifts she had bestowed on her city on the other: olives representing agricultural wealth, an owl representing wise government, and, behind them, the silver of the coin itself, mined at nearby Laurion. And of course Athens had its own navy. In 458 b.c.e., the Athenians defeated the Aeginetan fleet and ultimately subjugated the island. The sea-turtle of Aegina’s coins became a land-dwelling tortoise, and they never travelled very far from home again. Athenian “owls” became the standard of currency until the age of Alexander the Great, a century later.

But Aegina’s success with currency left a lasting legacy. It convinced people that one of the responsibilities of government is to protect the currency. Since then, countless government leaders have counted the repair of the currency among their signature achievements. Constantine the Great legalized Christianity in the Roman Empire, and also replaced its decayed coinage with the gold solidus. Charlemagne built the first great European empire, and also replaced his moribund currency with the system of pounds, shillings, and pence that remained in use up to the French Revolution (and, in Britain, well beyond). Queen Elizabeth I began her reign by settling the question of Protestant religion, securing her borders—and recoining her money, which her predecessors had savagely devalued. When Franklin D. Roosevelt took office at the depth of the Great Depression, his first act was to decouple the dollar from gold, so that it would be available and useful to Americans. Providing stable, useful, and highly visible money was a cornerstone of many leaders’ success.

Governments provide legal frameworks within their territories and armed protection of their borders: from the citizen’s perspective, if either of those are needed, something has already gone wrong. Welfare provisions, a later development, are also often provided as a response to misfortune. Currency is in constant use, and when it changes hands very often people are getting what they want. Rulers and governments have been ingenious in taking advantage of the propagandistic opportunities this provides: Julius Caesar, for one, was a pioneer in putting his face on the coins as he took over the Roman Republic. Coins, bills, and even abstract units can also evoke characteristics with which all leaders want to be associated: purity, strength, nobility, stability, desirability. And as the Aeginetans discovered, a well-received currency is a powerful tool for economic expansion, which can pay off in ships, guns, and influence as well as in a higher standard of living. Britain’s cultivation of the Pound Sterling after 1688, supported by the great infrastructure of gold, notes, and the Bank of England and underwriting in its turn the British Navy, the British Empire, and the Industrial Revolution, is the classic example.

But a symbol and a tool of governmental strength can also be a symptom of and a contributor to its weakness. The land-bound tortoise of Aegina was a dramatic example, but British governments of the twentieth century experienced this acutely and painfully as well. Taking too literally the idea that a strong currency meant a strong country, they put the British Empire back on the pre-1914 gold standard prematurely after World War I and kept it there too long, exacerbating the Great Depression. Allergy to devaluation led to crippling austerity in the wake of World War II, and to the humiliating failure of the “exchange rate mechanism” in 1992, when George Soros became “the man who broke the Bank of England.” But such mistakes did not prove fatal. Britain has its problems, but stable government and a bit of luck have left both Britain and the pound in a favorable position.

The history of money shows that artificial efforts to prop up the currency will likely fail. While a well-managed currency is an important part of a strong and successful state, a successful currency is also necessarily the product of a successful state. The same institutions that repress fraud and counterfeiting, set and maintain monetary policy, supervise banking and commerce, and so on also preserve law and order, conduct diplomacy, collect taxes, and enable military power.

The monetary history of sixteenth-century France, which I have studied in detail, provides an instructive example. Successive governments tried to shore up a weakening currency by strengthening the legal and administrative institutions that oversaw it. This difficult process scored some success, but when civil war engulfed the country it all fell apart—only to be restored with startling swiftness once the wars abated and the monarchy’s institutional strengths and strong legitimacy could once again be brought to bear.

Greece and Europe claim a consensus on building the strong, popular institutions. If they can pull that off, the Euro will not quite take care of itself, but it will be eminently salvageable with great benefits all around. Trying to create a strong Euro without seriously tackling the political weaknesses of Greece and the E.U., though, is a recipe for disaster. Only Aegina has ever been able to build a strong state on a strong currency rather than the other way around, and its luck ran out 2,372 years ago.