One topic missing from historians’ analysis of the West’s transition from a physical gold and silver based money system to a fiat money system is the defining events that facilitated and enabled this transition. One can find no detailed and critical political / historical assessment of this transition, and it would be not for lack of effort. The transition is always presented as if it is prima facie the refined and evolved state of things that warrants no investigation other than superficial praise followed with dogmatic platitudes. But has this transition away from the “barbarous relic” money system actually made mankind more refined and evolved, or has it instead plunged mankind into an even more heightened and efficient state of barbarism?
One encounters additional blank pages when searching for any attempt at correlating the evolution and spread of fiat money to the prevalence and severity of war. A collective learned silence descends when attempting to identify why it is, as money evolves, that war become more ideological, destructive, widespread, and prolonged. We are all familiar with the endless adulations describing the global spread of “democracy”, but why is it so many are unwilling converts and it became imperative to spread “democracy” via war and regime change? And closer to home, as our own nation “evolves” from a Constitutional Republic into pure “democracy”, how is it we as “citizens” feel more and more disenfranchised rather than empowered despite even greater doses of “democracy” at home?
This essay attempts to identify the defining events that facilitated and enabled the West’s transition to a fiat based money system, examines cause and effect between the evolution of money and the prevalence and severity of war, and binds together money evolution with the history of warfare by demonstrating cause and effect between money’s evolution, the rise and necessity of endless war, and the inevitable transition from “citizens” to subjects.
Physical Money, the Limits of War, and the Ancient World
For centuries following the Dorian Invasion, the Greek peninsula in the context of contemporaneous civilizations was of minor influence. Limited wars between city states, the rise and fall of tyrants within these city states, a Lawgiver here and there, and a steady outflow of residents to the Mediterranean and Black Sea colonies were the main stories for 600 years until a rich silver deposit was discovered in southern Attica. The wealth derived from these mines was initially distributed to the citizens and used for the great public building projects we see still standing today. The flow of silver was also used to not only hold the Persians at bay and confine them to Ionia – and thus preserve Western Civilization as we know it today – but to also purchase slaves to work the silver mines, purchase imported goods, produce manufactured wares for export, commission triremes to transport manufactured wares, and hire highly paid rowers to man the triremes. Trade and prosperity flourished and the Greek world rose quickly in the context of comparative global civilizations, all due to the abundant supply and liberal distribution of silver.
Then in 483 BC, soon after the discovery of a particularly rich silver deposit, the Athenian archon Themistocles convinced his fellow citizens to commission 200 triremes to fight the Persians and in 479 BC the Greek confederacy defeated Persia once and for all at the Battle of Plataea. Rid of the Persian menace, fresh off defeating the world’s most formidable military force, and armed with 200 triremes with nothing to do, that silver now went more and more into Athenian empire building throughout the Aegean. The cycle of conquest funded with silver was set – newly mined silver went into funding expeditions of conquest, tribute was extracted from the vanquished and flowed into Athens, and the combined silver from mined and tribute went to defending the city against jealous rivals and towards mounting even larger expeditions of conquest to extort even more tribute. That is, until the reliable source of silver from the mines began to run out.
Just as silver mining output went into decline, and the tribute became harder and more expensive to extract, in 415 BC the Athenians made the disastrous decision to invade Syracuse at an eventual loss of 10,000 hoplites, 30,000 oarsmen, and over 100 triremes. Thousands of captured Athenians held as prisoners of war were ransomed by the Syracusians at great expense to their families and effectively drained nearly all Attica’s surplus financial resources. Most poor Athenians, unable to raise a ransom, permanently lost heads of household to enslavement and death in the Syracusian quarries. Revolts from tribute paying vassals immediately followed and tribute dried up, and in 404 BC these accumulating losses saw Athenian empire and Aegean hegemony ceded to Sparta. Thus when the silver ran low, the empire was lost as limited resources were concentrated more and more on defending against Attica’s immediate neighbors. And that is the main point– when a nation in the ancient world could no longer fund wars of empire with physical money, it could no longer prosecute wars of empire and thus some form of peace attempted to descend. It is as if a law of economics was at work and in a sense, the exhaustion of silver supplies was ancient empire’s built-in self-destruct mechanism.
We also learn from ancient Attica between the victories over Persia, to the rise and loss of empire, to its eventual defeat by Philip II and incorporation into the Hellenic League, that as the wealth of Attica rose and then declined, the reason its citizens fought wars changed. Although the Greek city states are referred to by historians as democracies, of practicality only Greek men of means could participate in government to the extent they could afford the time required to build influence. The average Greek man had to work and earn a living and had no time for civics until a tyrant needed overthrow or war threatened from outside aggressors. What we observe before the Persian Wars is a nation of modest means and substantial freedom where citizens fight for kinfolk, land, and shared history with their alternatives being death, confiscation, and enslavement. This is the nature of defensive war, embodied in that which the Athenian / Spartan coalition fought to defeat the Persians. As Attica increased silver production and extracted more tribute via empire, we see a change in the reason for fighting war, with war then assuming a mercenary objective for many of its citizens. Citizens were now incentivized to fight wars of conquest with high pay when there was no immediate threat from outside aggressors and instead of citizen soldiers defending kinfolk, land, and shared history, citizens became hired rowers and hoplite combatants. Thus, as war transitioned from defensive to offensive as wealth increased, a citizen’s motivation for participating in war transitioned from patriot at the start of empire, to mercenary by choice at peak empire, to mercenary by necessity after the collapse of empire.
Ancient defensive wars continued until the threat was eliminated, the food supplies or health of the combatants were exhausted, or one side was vanquished. Ancient mercenary war, on the other hand, generally continued so long as there was ample silver. It was as if silver could conjure armies and armaments at will until it ran out, and then in that instant these same armies and armaments dissolved away. For a powerful ancient nation that had not been subject to invasion for some time, the mercenary incentive became the primary reason citizens fought wars, as all wars, absent any outside threat, became wars of conquest. As Attica’s wealth and influence waned between the end of the Peloponnesian War and its defeat at the hands of Macedon, more and more of its citizens turned to mercenary expeditions commanded by whomever was paying. Eventually many formerly powerful cities were depleted of its fighting fit men and lay open to conquest from outside aggressors and tyrants within. Combined with sustained decline in silver production and its resulting decline in foreign influence, after the final conquest at the hands of Macedon we find Attica’s transition complete – nearly all wars were henceforth fought by mercenaries on campaigns unrelated to Attica as the resulting collapse in trade due to depleted silver resources left few other means for young men to earn a living.
When there is total collapse of resources, and then influence, the citizens then become nothing more than mercenaries, and it was these legions that made up the entirety of Alexander’s forces. But as mercenaries, they fought for pay, in physical money, and maybe for a bit of glory thrown in – but they did not fight for ideals.
Rome’s history initially followed a similar path to that of Attica regarding why its citizens waged war in its early days – immediate enemies necessitated over 450 years of continuous defensive war and civil uprisings to fend off or overthrow foreign rule. The small state of Latium despite all odds managed to eventually defeat its surrounding aggressors, and when it realized it was a truly formidable fighting force it decided to put an end to outside aggression once and for all. Thus began a protracted series of conquering wars throughout the Italian peninsula. But Latium had no silver mines and their system of physical money extraction from the vanquished differed from the Greek system of tribute. Rome instead integrated its vanquished states and, with the exception of Carthage, granted select families Roman citizenship, contracted many of these families as magistrates to maintain internal order on behalf of Rome, and enacted a system of tax farming on the provincial non-citizens. It was this system of taxation that played the same role as the silver mines of Attica, and the more territory Rome conquered the more taxes it could collect to embark on further wars of conquest.
Once Roman territorial expansion had engulfed both Iberia and Anatolia, it controlled the only sources of gold and the richest silver mines in the Mediterranean. From about 200 BC to 230 AD, this gold and silver, together with ever increasing tax collection from its expanded portfolio of conquered and integrated provinces, funded a standing professional army with career soldiers paid in silver. Rome had entered its period of “endless war”, funded by supplies of gold and silver obtained from mining, conquest, and taxes. However, the immense size of the Roman standing army – about 450,000 troops under Severus in 211 AD – and the tremendous cost of endless war guaranteed expenses always exceeded income to the imperial treasury. So starting around 60 AD the Romans embarked on a policy of currency debasement and pay raises for soldiers that triggered severe price inflation for basic goods and plunged much of the populace into poverty but did not slow the pace of endless war. The inflation suffered by the people financed the continuous prosecution of endless military campaigns as the only wages that increased in step with Roman inflation were those paid to soldiers. It was empire regardless of cost at this point. Mutinies, civil wars, border incursions, and insurrections were now added to the expense of wars of conquest and endless war didn’t end until 410 AD when the Visigoth king Alaric sacked a nearly bankrupt Rome. But by that time the empire’s boundaries and tax base and mine holdings had shrunk so considerably that Rome could not finance a defense against the German invaders, and thus we see again another example of ancient empire’s self-destruct mechanism at work – the process of building empire depletes the resources of the nation, and the depleted resources preclude securing that empire indefinitely. Thus all ancient wars of conquest were ultimately futile.
Unlike the early days of Roman conquest, during their period of endless war Rome dropped the property ownership requirement for military service and the ranks were opened up to landless peasants. We observe in this period a shift in the allegiance of the soldiers away from the state – whereby the state represents the combination of kinfolk, land, and shared history – towards allegiance to the generals who commanded and paid their respective legions. But as professional soldiers, they fought for pay, in physical silver, held allegiance to the general who paid them, and maybe received a bit of glory thrown in here and there – but they too did not fight for ideals.
Transition to Fiat Money, Constant War, and the Rise of the Freemen
After the wave of German invasions subsided and with their annexation of the Western Roman Empire complete, the conquering Teutonic armies continued the core Roman system of allegiance to the generals. The state, as embodied in the king and his noble lieutenants, now existed as the means of extorting revenue to wage war so to secure territorial boundaries and prerogative for the ruling class from a wholly disenfranchised populace.
One major German difference to the deposed Roman system was the elimination of citizenship and the establishment of military service obligations upon a class of peasants who were permanently disenfranchised through heredity. With citizenship eliminated by the advent of serfdom, nearly all Western Europe’s inhabitants were subjugated and entirely without rights. These serfs owned little or no property and gained no benefit from existence of the state yet owed taxes and military service to the state. Thus in early medieval Europe the citizen soldier of the ancient Mediterranean was transformed into a servant soldier, who defended only royal prerogative, by the coercion of military obligation and elimination of property ownership inherent within serfdom. With no allegiance to this wholly extractive and inimical state, we observe the medieval rise in peasant allegiance to the Catholic Church, replacing the former allegiance to kinfolk, land, and shared history embodied in citizenship with a surrogate “citizenship” comprised of the “righteous” in the “Kingdom of Heaven”. This marks the beginning of the transition from an outward allegiance to physical things (e.g., kinfolk, land, and shared history) to an inward allegiance towards abstract ideals (e.g., belief, righteousness, piety) and thus lays the collective psychological groundwork for the coming Wars of Ideals in the 18th through 20th centuries.
This new relationship between absolute rulers and abject subjects, together with the collapse of intra-European trade, the loss of gold and silver mines, and the cessation of upward mobility significantly reduced the amounts of physical money going into the royal Germanic treasuries across Western Europe. Although war continued unabated, its scale and severity never reached the intensity and wide distribution of the Roman Empire and these reduced scale conflicts prevented the establishment of vast, lasting empire by the various Germanic sovereigns. Thus Europe entered a phase of “Balkanization” into petty fiefdoms connected through confederations of language and culture, held loosely together by the descendants of the invading Germanic tribes and the machinations of the new Papal Empire.
But not all was plague, malnutrition, and misery. The European medieval period saw great technological advances in agricultural production – e.g., three field crop rotation system, ridge and furrow, horse replace ox, the horse collar, iron ploughs and horseshoes, et cetera. Over the centuries after western Roman collapse, as these improved farming methods spread, a reliable crop surplus was produced and slowly, trade throughout Western Europe revived. It was this trade revival that underpinned the eventual rise of the class of freemen within the Third Estate, and it was these freemen that built cities throughout formerly rural Western Europe that provided central hubs for the practice of trades, crafts, and commerce. Fewer serfs were needed to produce agricultural surplus so people began to fill these cities, and we see some freemen transition into rentiers and creditors whereby the physical money derived from rents could support a new form of pseudo-money in the form of credit “produced” independently from the sovereign.
Along with increasing prosperity of the growing class of Bourgeoisie / Burghers / Borghese and craftsmen rose the increase in the tax base, not only for the state but for the Catholic Church which by the 13th century had established itself as Europe’s first Federal state as it held taxation jurisdiction via tithes over the entirety of Roman Catholic Europe. For the first time we observe a multi-tiered taxation system where paying taxes to the state keeps the mortal physical body from going to jail, and paying tithes to the Church keeps the immortal spiritual soul from going to purgatory. Thus the physical / spiritual duality of rule in Europe is established for future exploitation by the proponents of 19th and 20th century ideal based “revolution”.
It is no coincidence that this period of increased population, trade, and tax take saw the reformation of powerful super-states – Spain, France, Britain, Sweden, and Papal – as the revived flow of taxes in physical gold and silver could once again pay soldiers to fund wars of conquest, put down rebellion, and for the first time since the fall of the Roman Empire, fund the commission of Navies. Colonial conquest and wealth extraction consolidated this growth and wealth of super-states.
As the wealth generated from proto-industrialization and colonialization grew, the rentier, creditor, and now merchant classes grew to be the wealthiest freemen in Europe, and this class together with other nobles were the core providers of credit to the sovereign needed to fund its wars and growing opulence. As the sovereign grew to rely more heavily on credit to prosecute these projects of ego, it commissioned proto- central banks within its administration serving to facilitate its credit needs and its needs alone. Some in this new creditor class began to serve full time as “executives” to the crown forming the genesis of the modern “central banker”. Royal defaults on its domestic creditors were common, as it was royal prerogative to default, so these nascent central banks had to turn more and more to cross border lending agreements with the nascent central banks of other countries. Thus by the end of the 18th century, Europe had “evolved” into another phase of endless “Classical” war but this time, funded not by silver but by credit provided by cross border proto-central banks managed by a nascent “central banker” class drawn from the increasingly wealthy and powerful rentier / creditor / merchant pool that grew to maturity out of the freemen of the medieval period.
It did not take long for these nascent central bankers to realize the power that the extension or withholding of credit and setting of interest rates granted to those in control of credit. But if it weren’t for the intervening sovereign, the power this credit held would be tantamount to the power to choose winners and losers in war and opulent society. The prime example before these nascent central bankers was the conquest, subjugation, and material strip mining of entire overseas civilizations using almost nothing but credit. So if this model of conquest by credit could work in faraway foreign lands, it could also work on European soil and creditors could, potentially, usurp the sovereign. But a direct assault on the sovereign would require a large professional army paid in silver, and these nascent central bankers did not yet fully control the royal treasuries. They needed to create their own army that was paid in credit, and to do that they needed the assistance of the only group that would accept payment in credit – the peasants.
Some description here is warranted regarding the evolution of professional armies in Europe during the transition from medieval to Classical periods. The ancient mercenary Greek hoplite and Roman centurion were close quarter fighters requiring great strength, training, and endurance. One’s rank and pay level was directly contingent upon these qualities. For the most part, this relation between physical strength and pay rate carried into the medieval period up to the advent of cannon – physically fit peasants of fighting age were hired and provisioned as substitutes to fight in place of the wealthy freemen. As the technology of the instruments of war advanced, many military occupations transitioned into technicians who were increasingly responsible for the maintenance, transport, and operation of cannon, muskets, and siege engines. Physical strength played less of a factor as weapons technology advanced. Thus the professional armies of the Classical period were “democratized” and peasants with no special physical attributes comprised the bulk of military campaigns. And still, these mercenary substitutes held allegiance to the paymaster, and were paid in silver as were their predecessors in antiquity.
This traditional payment in silver was a great obstacle to the nascent central bankers who had eyes on usurping the sovereign. But as they did not command the amounts of silver required to mount a successful revolt, some other form of payment had to be devised and a new class of soldier created that would fight against his sovereign for this new form of payment. The democratization of Classical armies left no scarcity of supply of soldiers, but their demands for payment in physical silver did. Thus enter the series of religious and later, democratic wars that would sweep across Europe as cover for the usurpation of the sovereign by these nascent central bankers…