In effect, a pattern of longer-term investments became the norm rather than the exception. For those with demurrage currency to spare, investing in the cathedrals was likely an ideal way of demonstrating one’s faith while also providing benefits for the community. The medieval cathedrals, still standing today and continuing to receive visitors from around the world, are enduring testimonies to the long-term vision of that former age.
Demurrage-charged complementary currencies also help to explain the particular Central medieval economy. Given that savings were inherently discouraged by demurrage, these currencies would remain in circulation and were exchanged with far greater frequency at all levels of society, in contrast to other forms of money. The greater velocity of circulation (a higher frequency of transactions with the same given coin) enabled the less-privileged classes to engage in substantially more transactions, which significantly improved their standard of living.
THE END OF AN AGE
This Golden Age came to a brutal end at the closing of the 13th century. The plague, otherwise known as the Black Death, is customarily blamed for causing the misery that subsequently befell Europe. Recent findings tell another tale.
Though usually cited as the cause of the later medieval horrors, the outbreak of the plague did not occur until 1347–1349. Yet, the population started plummeting two generations beforehand. Mostly overlooked is the fact that the Black Death was preceded by decades of economic and social devastation.
A major economic crash occurred during the period of 1280–95. A majority of the population, urban as well as rural, ended up being reduced to living at subsistence levels in the last decade of the 1200s. The economic downturn was then followed by widespread famines, epidemics, and extensive loss of life from 1300 onwards, decades prior to the outbreak of the deadly pestilence. From 1315–1322, the noted Great Famine took place. Historian Henry S. Lucas estimates that hunger killed ten percent of Europe’s population.113
Accounts from the period describe the severity of conditions: “So many men and women died every single day from all social classes—wealthy, middle class and poor—that the priests couldn’t bury them fast enough, so that the stench in the air was everywhere.”114 A London chronicle reported that, “the poor people ate for hunger cats and horses and dogs…Some stole children and ate them.”115
Again, all these events took place decades before the first outbreak of the plague. Historian Daniel Power writes, “One needs, I believe, a lot of blindness to describe the outbreak of the Black Death as an accidental and exogenous event. Isn’t it most surprising that this disaster happened only after 60 or 70 years of total misery?”116
It is now known that more than a half century prior to the plague, disastrous monetary changes were implemented.
Political and Monetary Chnges
A historic power shift occurred in Western Europe during the 13th century, whereby the doctrine of “King by Divine Right” was taken to its extreme. Local governments and administrations were overrun by strong, rapidly growing central authorities with commanding kingdoms and large armies. The dual currency system was abolished and replaced by the imposition of a monopoly of royal coinage. King Louis IX of France specified that only royal mints had the right to issue coins in the realm.
Though it would take several decades, the elimination of local currencies eventually became sufficient for the monetary contraction to have an overall economic impact.
The final kiss of death to the “good” monetary period in Central medieval France came in 1294–98 when, in preparation for war, King Philip IV, resorted to the debasement of royal money to meet his urgent income requirements. Debasement is a process in which the precious metal content of a coin is significantly reduced. By taking this expedient debasement road, and by doing so on a huge scale, Philip IV set into motion severe inflation and economic disaster.
In practical terms, these monetary changes of centralization and debasement resulted in a double economic hit—monetary contraction followed by inflation. With the abolition of the local currencies, there was now complete dependency on the official, centrally issued coinage. The debasement in the late 1290s resulted in massive inflation. Existing contracts or monetary agreements became, in effect, meaningless. A modern parallel would be the Great Depression of the 1930s, in which the money supply shrank, followed immediately by hyperinflation, as occurred in 1920s Germany and in 1970s Brazil.
The medieval economic crisis led to a general societal breakdown and decades of famine and death. The physical weakening of the population was sufficiently extensive to render conditions ripe for the plague to become one of the worst pandemics in all of history. The Late Middle Ages that followed were indeed dark.
As Guy Bois explains: “This depression would be a long one—it would last one and a half centuries; it would be painful to a degree that we still have difficulty imagining. No aspect of social life would be protected from this collapse.”117
Although a few local currencies managed to survive until the 18th century, the medieval experiment with complementary currencies would not be repeated on such a scale. Complementary currencies never again reached the critical mass needed to significantly impact the standard of living of Western society.
Twice and Thrice Upon A time
Support for the role played by monetary paradigm in the realization of this Golden Age, as well as its demise, is offered by a nearly identical scenario found in another ancient civilization—Dynastic Egypt.
Egypt enjoyed one of the highest standards of living of the ancient world. Its economy afforded Egypt the capacity to be the first known civilization to offer assistance in the form of foreign aid to other societies. Like its medieval counterpart, Egypt had a dual monetary system, with long-distance currencies much like our own national currencies, together with demurrage-charged local currencies that enabled local exchanges among the working classes. Unlike the Central Middle Ages, however, Egypt’s economy and dual monetary system endured not hundreds but thousands of years. The end of this age, like that of medieval Western Europe, coincided with the introduction of a currency system similar to today’s national currencies, which was imposed on the Egyptians by the conquering Romans.
Another example of an unusual economy and monetary system that dates back to the medieval period, but which continues in part to this very day, is found in Bali. Though its monetary system has undergone changes in recent decades, Bali maintains at least some of the traits found in Central medieval Europe and Dynastic Egypt. The economies, monetary systems, and societal conditions of Bali, the Central Middle Ages and Dynastic Egpyt offer important insights about how we might improve conditions in our world today, and are therefore the subject of further investigation in Part IV of this book.
CLOSING THOUGHTS
The complementary currencies of the Central Middle Ages came and went without any awareness of their role in shaping the investment patterns that created a Golden Age. Yet, when local currencies disappeared, cathedral building also stopped. What changed? It wasn’t people’s faith: there is no evidence that Europeans were less devout in the 14th century than in the 12th.
In this light, the Central Middle Ages revealed two important characteristics of money: its value-nonneutrality and its potential for addressing large-scale social issues. It is only a millennium after the fact that are we beginning to understand how local currencies, particularly those using demurrage, induced long-term investment and cooperative behavior patterns that benefited both the local economy and the entire population, regardless of socioeconomic levels.
CHAPTER SEVEN - A Change of View
We take a handful of sand
from the endless landscape of awareness around us
and call that handful of sand the world.
~ROBERT PIRSIG
It is not simply that our banking and monetary systems are centuries old that makes them problematic. It is the fact that these two systems are the key replicators and propagators of a set of be
liefs, perceptions, and objectives that do not accurately reflect many of the core values, conditions, and requirements of our current age.
The creation of these two influential systems was part of a massive wave of change that swept over Western European society during the 1700s, from secularization, democratization, and the creation of new nation-states, to commercialization, the rise of a middle class, and more. The Industrial Age and its new socioeconomic order were accompanied by novel beliefs and perceptions regarding the world and humanity’s place in the cosmic scheme of things. That emerging worldview—Modernism—has informed our ways of being and doing from then until now.
Today, we are in the midst of another period of transformation, perhaps the most profound in human history. Our understandings, realities, many collective beliefs and objectives have shifted dramatically, particularly in recent decades. Yet, the same systems and institutions that helped shape society from the 1700s, continue to function in similar fashion to this day, and enforce outmoded ways and means that no longer accurately reflect present-day thinking and requirements.
There is an obvious need and a growing consensus from around the world for reform. But we must ask ourselves how this is to be pragmatically accomplished. How do we transform our systems and institutions to better reflect our core values and today’s changing realities?
We examine below how the conditions, objectives, and limited understandings of a former age coalesced into a single dominant worldview; how that set of perceptions influenced our economic tenets and practices; and the consequences upon our world of those activities born under the influence of Modernism.
We begin with a brief look at societal conditions in Western Europe following the demise of the Central Middle Ages, the reaction to which gave root to the modernist perspective.
SEEDS OF CHANGE
The late medieval and premodern periods from the 1300s to 1600s involved dramatic reversals to the widespread economic prosperity and social progress enjoyed throughout much of Western Europe during the Central Middle Ages.
The economic downturn of the late 1200s led to centuries of extreme hardship for the masses and concentrated wealth for a privileged few, with little or no opportunity for upward mobility. With the rare exception of a small, developing urban middle class of burghers, the overwhelming majority of people were born into and remained trapped in poverty.118 The late medieval status quo maintained its sociopolitical and religious repression through an authoritarian Church and titled upper class. This class system was supported by the prevailing belief of a universal order in which, just as the planets and sun rotated around the Earth, one’s station in society’s pecking order was fixed at birth and remained constant throughout one’s life.119 The underlying pretext for this social order was rooted in the old notion that man was, “A stranger to himself, incapable of self-knowledge; thinking himself good and virtuous, but in reality full of pride and disordered loves.”120 In essence, the populace was deemed incapable of governing itself and, for its own worldly good and eternal salvation, must submit to religious authority and the supposedly divinely ordained rule of monarchy.
Mounting tensions and calls for religious and social reform eventually found support in the form of a new technology—the printing press. The Ninety-Five Theses of Martin Luther in 1517 and other works of dissent were disseminated in the vernacular of the masses and helped bring about the Protestant Reformation. Printing also led to the publication of new scientific journals. Inventors and researchers could now share findings and learn from one another as never before. This led to an epoch of unprecedented discovery—the Scientific Revolution.121
In 1543, Nicolaus Copernicus placed the Sun, not the Earth, at the center of the solar system. The works of Galileo, Johannes Kepler, Isaac Newton, and others followed. Of more lasting importance than any particular finding, however, was the establishment of a new, more reliable method of inquiry. The late scholar Joseph Needham noted that, “During the Renaissance in the West, in the time of Galileo…the most effective method of discovery was itself discovered.”122
For centuries, life’s mysteries had been defined by the process of “Revealed Truth,”—presumed direct communication from the divine. The medieval world was widely perceived as “inhabited by angels and demons, spirits and souls, occult powers and mystical principles. Some medieval scientists spoke about the ‘soul of a magnet’ as easily as they spoke about its mass.”123 Scientific inquiry changed all this.
Investigation and the acquisition of knowledge could now be approached through observable, empirical data, experimentation, and the testing of hypotheses. Conclusions were reproducible and often enjoyed precise mathematical backing. Kepler’s findings on Mars’ elliptical orbit, for instance, were accompanied by nine hundred pages of computations. Newton’s laws of motion and universal gravitation were supported by another of his inventions—calculus.124
The implications were profound and extended far beyond physical principles and planetary motions. An exquisite order to the natural universe was being uncovered, not by revelation, but by scientific inquiry. Evident, as well, was the considerable ability of people to think and reason far beyond medieval notions of humankind’s fallen state.
Copernicus’ heliocentric theory, for example, raised the seditious question: Could humanity’s place in the great order of things also be mutable? Doubts mounted regarding the supposed infallibility and presumptive authority of the church and nobility. Hope and confidence grew that critical thought could be applied to other domains, and to the formation of a more just society governed by and for the people.
Western society was at the dawn of a comprehensive transformation.
The Advent of Modernism
New discoveries and abhorrence of past societal conditions contributed to sweeping changes in Western Europe with the Age of Enlightenment.125 Pioneered by such intellectual leaders as John Locke, Voltaire, Jean-Jacques Rousseau, Adam Smith, Benjamin Franklin, and others, modern society emerged in a whirlwind of brilliant philosophy and a noble outpouring of revolutionary ideas. Its nascent worldview—Modernism—underscored a dedication to freedom, reason, critical thought, and a new sense of humanity’s place in the universal order.
Ideas led to demands and, on occasion, rebellion. In 1688, England’s Glorious Revolution curbed the power of the king, produced a Bill of Rights, and ushered in modern parliamentary democracy, making that country’s government the first model of Enlightenment thought. Other independence movements and constitutional reforms followed in America, France, and elsewhere. To help insure against past abuses, measures such as the separation of church and state were constitutionally enshrined.
The emergence of this new age and social order was enabled by a new monetary system, and accompanied by a new social science—economics—which provided a technical foundation and school of thought for money’s dissemination.
Monetary and Commercial Changes
Sociopolitical change was accompanied by historic banking, monetary, and economic reforms. As mentioned, the central banks of Sweden and England were formed in the 1600s.126 Each bank obtained the exclusive right to create paper money as legal tender in exchange for its commitment to provide the funds required by sovereigns and governments. These measures brought about the institutionalization of the fiat-based, interest-bearing, bank-generated, national currency system in use today. Though the immediate purpose of the structural monetary changes in both Sweden and England was to raise sufficient funds in preparation for war (against Denmark and France, respectively),127 these reforms eventually enabled many of the changes that defined this age.
The new nation-states and the Industrial Revolution required enormous capital investments for improvements to infrastructure, including the construction of roads, canals, railways, large factories, and expanding urban centers. Increased trade and colonization by maritime nations also required large sums of money for shipbuilding and exploration.
To help stimulate private inves
tment into these novel and often risky financial ventures, a new business entity was created—the joint-stock company—“which limited the liability of investors to the extent of their personal investment without endangering their other properties.”128 New commercial laws and civil arbitration facilities were established as well, to also help ensure investments and economic progress.
Another key monetary issue was standardization. Up until this period, a myriad of trading currencies were in use, including ducats, florin, noble, guinea, and grosh, but they lacked a standard of value. An essay in 1717 by Newton purportedly inspired the founding of the gold standard, which fixed a unit of account to a precise weight in gold.129 Among its many advantages, the gold standard greatly facilitated international trade.
Economic matters were given extensive consideration during the Enlightenment. Its leaders were not just philosophers, but pragmatic businessmen who understood that ideals such as inalienable rights and the pursuit of happiness must include economic and financial reforms. Property rights, free trade, and enterprise were seen as vital interacting pieces in a holistic drive towards the liberalization and maturation of society. Voltaire said, “Where there is not liberty of conscience, there is seldom liberty of trade, the same tyranny encroaching upon commerce as upon religion.”130 Adam Smith argued that with each individual and nation free to improve their own economic position, and with economic systems designed to encourage and utilize the best skills of all, everyone in society benefited.
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