The Political Economy of Monetary and Financial Innovation: Introduction and Overview

For a history of thought on inter-governmental competition see Vaubel (2008).

Cf. Rajan and Zingales (2003).

The literature on financial innovation (e.g. Silber 1975: 62) distinguishes between innovation under distress and innovation due to success and slack. In the first case, firms are faced with adversity and innovate under pressure. In the second case, firms have been so successful that they can afford to play and experiment.

In a modern context see Rogoff (1985).

For a recent assessment of this view see Goodhart (1998).

For the same reason, we doubt the view reported and endorsed by Yohei Kakinuma that “the purpose of Lydian coinage was the payment of mercenaries” and that “the use of early coins as a medium of exchange was an accidental consequence of coinage, and not the reason for coins themselves” (p. “15”).

This has also been emphasized by Merkelbach (1992: 15): “Imagine that a Phoenician proficient in writing had sailed to Greece in 800 BC and that, after returning, he had been asked about his impressions of the Greeks. Presumably he would have answered: They live at the fringe of the civilized world and do not know any luxuries and refinements of life; they lie in a deep sleep and can only be pitied. Only two hundred years later a descendant of our Phoenician would have told quite a different story about Greece: The whole country is moving; Greek ships are cruising from the Black Sea to Spain; everywhere they open new cities and trading posts; their goods are modern and attractive; they are building temples of stone and put up statues of a kind which we have never seen before; their paintings show an incredible dynamic; they celebrate spectacular sportive events and perform music never heard before. No other land in the world can compare itself to Greece. How did this miracle come about? … I have the following explanation for this miraculous development of Greece. The Greeks were the first to develop the following two cultural inventions: alphabetical writing and the use of minted money. These two developments together have brought about such an advance as has probably never again occurred in the history of mankind” (p. 15, our translation).

We also find this hypothesis in Howgego (1995: 16): “The cultural background to the spread of coinage was a Greek world in which peer polity interaction operated both unconsciously and through deliberate competition…”.

Schaps argues that coinage did not make much impact on or penetrate deeply into the economies of the Near Eastern inland because the dynasts of the Persian Empire were entrenched and did not, for the most part, owe their power or wealth to money.

“The Greek mercenaries hired by the Persian king were the only dangerous opponents of the Macedonian-Greek army. The Great King owned incredible amounts of gold and silver received as a tribute from the subjugated peoples. But he hoarded the metal and did not mint it into coins and to be used as money. He had the supplied metal melted and cast into big clay (earthenware) jugs. When it had cooled, the clay hull was smashed and the lump of silver put into the treasury. If the Persian king needed silver, he had it chopped from these lumps.

When Alexander conquered the capital Persepolis, the whole treasure fell into his victorious hands. If the Persian king had minted the metal into coins and had hired a threefold number of Greek mercenaries, everything would have taken another course. But the Persians had only changed in a very limited way from a barter to a monetary economy; they had not yet understood that coined money is a first-rate source of power and may decide wars if used for soldiers” (p. 28, our translation).

See, e.g., Ferguson (2008: 52): “Significantly, even as Italian banking techniques were being improved in the financial centres of Northern Europe, one country lagged unexpectedly far behind. Cursed with an abundance of precious metal, Spain failed to develop a sophisticated banking system, relying instead on the merchants of Antwerp for short-term cash advances against future silver deliveries”. Denzel agrees that the imports of metal from America diminished the willingness to innovate in Spain and Portugal.