Monetary Tales from the Farthest Shore

The second bank by the sea

My music playlist has nearly stagnated for years and, depending on your age, maybe yours has too. Evidence suggests that (partly) because of mind shenanigans, our musical palette does not quite expand past the age of 30. I think that something similar goes for gaming. I am still fond of those (pc) games from my late teen – early adult years and stay happily ignorant about the newer ones. Those single player games immersed you through substance over eye-candies. Some in-game scenes remain pure gold after all these years. Like that dialogue, when one of my younger siblings was delving in a fictional setting resembling the Caribbean during the Golden Age of Piracy. (Escape from Monkey Island. I preferred RPGs. Nowadays, only books – like this one.)

At some point, the protagonist, a witty swashbuckler, visited the Second Bank of an island called Lucre. “What happened to the First Bank of Lucre?”, he inquired. “Nothing”, said the bank teller, “It was our public relations department’s idea. They felt that being called the ‘First’ bank didn’t project an image of experience”. At the time I thought it as just a funny anachronism. Later, I recognized a jab to brand marketing practices and the corporate-speak more generally. But it was also the scheme of a “fledgling” first banking institution versus a “trustworthy” second one that almost held a real-world analogy. 

Some kind of a theory

There is a rich discussion on the origins of money, its form and the proper control of it, as well as a few historical cases of either state or private currencies thriving – or failing. Hard. In the thick of it, we talk about two positions. From the one hand, the “economics textbook” approach proposes that money emerged in the realm of private economic relations, to minimize transaction costs and facilitate trade. (Francisco d’Anconia would approve.) Here be a decentralized, bottom-up acceptance of the medium of exchange. This view sits well with the classical liberal dichotomy between the civil and state spheres, which can be expanded to envision a very limited role for the state in monetary affairs. From the other hand, the “anthropological – historical” position articulates that trust on money comes mostly from the sovereign’s guarantee, marked by the sign of God and/ or Emperor. This top-down explanation is more receptive to the state control of money, rhyming with the monetary power as a prerogative of the ruler and an expression of sovereignty. 

Beginning with some important judicial decisions in the second half of 19th century, the official assertion of state power over money came in the 20th century. Per the Permanent Court of International Justice, in 1929, “it is indeed a generally accepted principle that a state is entitled to regulate its own currency”. You know, the norm of modern national monetary monopolies. There was a time though, when things were more colorful and less unambiguous. From the 13th century onward to the Golden Age of Piracy and beyond, it was only normal for different monies of various issuers to flow from one territory to the other. Reputable currencies required not only a resilient authority backing them, but also a nod by society and custom. This kind-of-synthesis of the two positions outlined above rung especially true in the case of the young Greek state in 1830s – 1840s. (For this section I draw from the comprehensive “History of the Greek State 1830 – 1920”, by George B. Dertilis [the 2017 Crete University Press edition, in Greek. An extended version, under a different title, is forthcoming in English in 2021/22]. Btw, on Mar. 25 we celebrate 200 years from the Declaration of the Greek Revolution versus the Ottoman rule, an [underrated?] event with connotations of nationalism and liberal constitutionalism.)

Over there at the (Balkan) shore

As the new state needed to break free from all the institutions of Ottoman Empire, its hastily assembled first Bank of Issue sought to introduce a new national currency (the Phoenix). The impoverished, ravaged and cut off from international debt markets nascent state reflected bad upon the Bank. The government tried to force public’s trust via legislation. By decree, payments from/ to the state coffers would include a mandatory percentage of the new banknotes (later the percentage was set at 100%). Revenue from state natural resources – present and future – would back the currency. The administrative magic did not do it. The public actively tried to avoid the Phoenix banknotes, in favor of traditional silver/ gold coins. Bank and currency failed to crowd out the foreign monies and ultimately went out of business. A few years later, the overall environment had improved somewhat and a more vigorous state established the second Bank of Issue. Another new national currency, the Drachma, was already circulating in – copper – coins along with the foreign ones. 

The second Bank received an exclusive charter of issue and undertook the task to roll-out the Drachma banknotes (silver/ gold coins would follow) and, in doing so, integrate the fragmented Greek countryside to a more cohesive national economy. Up until then, the local markets had operated as loosely hierarchical oligopolies. At the bottom of the chain, each small village or group of villages was dependent on a merchant-money lender who held monopsonistic power over the (tiny scale) agricultural production and, at the same time, monopolistic power in cash and credit. These rural businessmen depended on the respective merchant-money lender of the nearest town for brokerage. Next in line was the merchant-money lender of the nearest city, usually with access to international trade routes. You get the picture. These informal networks contained competition among neighboring lesser merchant-money lenders and promoted trade through a complex web of transactions (involving forward contracts, insurance premiums and bills of exchange, among others). (The official site for the anniversary features a fancy piece about the first attempts to establish a national bank as well. It includes a few names and dates, while noticing the “exploitative” networks and the “primitive” credit system .I find its lack of nuance disturbing somewhat misleading.)

Becoming one with the forces

The Bank opted to tap and complement the existing disjointed market forces, in order to gently nudge them. It channeled its primary tool, lending in banknotes, to the local money markets, firstly, to a limited number of large merchant-money lenders, later to the middle ones. (According to the Bank’s ledgers, these clients usually chose respectable job titles, such as “Banker” or “Broker”. Others, a bit blunter, went by the Greek equivalent of “Usurer”.) This lending – apart from being short-term, relatively safe and profitable – enabled the Bank to gradually assume a leading position, without the need to deep dive at the specifics of each end-user of the market. The soft, indirect entry in the century-old customary networks lowered the cost of money and contributed to the integration of the national economy. The transition was not always smooth, with the occasional episode (people switching from banknotes to metallic coins, the Bank returning the favor by aggressively cutting back lending, the government setting compulsory percentages etc  – you know the drill), but still, the stakeholders’ incentives aligned. Society at large recognized Bank and currency, with the system reaching a workable equilibrium

The merchant-money lender of old was finally phased-out by regular bank lending in the next decades. Further underpinned by a cozy relationship with the state (always a valuable client, usually a partner, sometimes even an opponent), the Bank acted as a quasi-central banking institution until 1928, when the charter was transferred to the newly found Bank of Greece. The Drachma continued as official legal tender (albeit with numerous conversions) until the end of 2001.

Nightcap

  1. Plague and empire in the early modern Ottoman realm Rafael Nieto-Bello, Not Even Past
  2. Racist dreams and repentant racists Irfan Khawaja, Policy of Truth
  3. Pandemic death narratives in Mexico and the U.S.A. Rafael Luévano, LA Review of Books
  4. Why I hate Shakespeare Michael Huemer, Fake Noûs

Nightcap

  1. The beguiling, troubling future of work Diana Pho, Wired
  2. “College is a distraction for most kids” Rick Weber, NOL
  3. Indonesia in the Cold War Ben Bland, War on the Rocks
  4. Pandemics in the Ottoman Empire Isacar Bolaños, Origins

Nightcap

  1. On press freedom Chris Dillow, Stumbling & Mumbling
  2. Remembering David Graeber Nicholas Haggerty, Commonweal
  3. Selling the revolution to Iran’s next generation Suzanne Maloney, WOTR
  4. How Europeans viewed the Turks Margaret Meserve, TLS

Nightcap

  1. Liberals, race, and empire Pankaj Mishra, Huffington Post
  2. The false promise of liberal order Ben Scott, Interpreter
  3. The Ottoman Empire and their Aztec alliance Ian Morris, NY Times
  4. Interview with a recently purged CCP boss Lily Kuo, Guardian

Nightcap

  1. Sexuality and the law in the Ottoman Empire Shireen Hamza, JHIblog
  2. Was World War II the last colonial war? Branko Milanovic, globalinequality
  3. Seattle’s hard-Left secessionist movement has claimed its first territory Christopher Rufo, City Journal
  4. The Israeli political crisis: ideology or ethnicity? Ori Yehudai, Origins

Nightcap

  1. Ottoman bird palaces Atlas Obscura
  2. Ottomanism, Nationalism, Republicanism (the 1960s) Barry Stocker, NOL
  3. Liberalism and sovereignty Edwin van de Haar, NOL
  4. Why not world government? Michaelangelo Landgrave, NOL

Nightcap

  1. Interpreting the Ottoman Empire Michael Talbot, History Today
  2. Throw your testicles (medieval Europe) Tom Shippey, LRB
  3. Gold standards, fiat money, and resource costs Larry White, Alt-M
  4. On sovereignty versus empire Michael Anton, Modern Age

Nightcap

  1. Great analysis of Turkish-Saudi cultural war Semih Idiz, Al-Monitor
  2. Trump has reminded the West why it preferred US hegemony Janan Ganesh, Financial Times
  3. The “Redemption Arc” of criminal justice Maria Farrell, Crooked Timber
  4. The new map of Saturn’s moon, Titan, explained Caleb Scharf, Scientific American

More Arabs in the US? Yes, please!

I hope y’all had a chance to check out Ussama Makdisi’s essay on Ottoman cosmopolitanism from one of the nightcaps a few days back. It was excellent, and serves as good complement to Barry’s work on the Ottoman Empire here at NOL.

It’s especially good for a few reasons. First, it has a useful explanation of the mandate system that London and Paris experimented with. Second, it’s comparative and brings in lots of different modes of governance. Third, there is an interesting discussing about citizenship (consult NOL for more on citizenship, too). Lastly, it explains well why the Arab world continues to wallow in extreme inequality and authoritarianism.

Makdisi represents a shift in thinking in Arab circles away from victimization and towards self-determination and responsibility: no longer are the French and British (and Jews) to be reviled and blamed for everything that’s wrong with the Middle East. There is a shift towards internationalist thinking. The Americans now play a positive role in what could have been (and still might be) a freer Middle East. The British and French have factions now and some of them were supportive of Arab voices, some of them not. Arab scholars are finally benefiting from the American university educational system, probably because there are so many Arabs studying in the US now.

Makdisi’s piece is not a libertarian interpretation, but it’s a start.

Nightcap

  1. Ottoman cosmopolitanism Ussama Makdisi, Aeon
  2. American racism Coleman Hughes, City Journal
  3. WTO arrogance John Quiggan, the Conversation
  4. Chinese Antarctica David Fishman, Lawfare

Nightcap

  1. Can Ottoman nostalgia be a good thing? Peter Gordon, Asian Review of Books
  2. Ottomanism, Nationalism, Republicanism Barry Stocker, NOL
  3. What is global history? One good answer (and one not so good answer) Krishan Kumar, Times Literary Supplement
  4. The world without the moon Caleb Scharf, Life, Unbounded

Nightcap

  1. How the Arabic language spread Barnaby Rogerson, History Today
  2. Post-Ottoman ethnic cleansing Christopher Kinley, Origins
  3. Legal decentralization and the Ottoman Empire NOL
  4. Fear of a gold planet Larry White, Alt-M

Nightcap

  1. The Ottoman origins of capitalism (pdf) Kerem Nisancioglu, Review of International Studies
  2. The book on Marx that Arendt never finished Geoffrey Wildanger, Boston Review
  3. An insider’s perspective of the Algerian War Lincoln Krause, War on the Rocks
  4. The racing cheetahs of the 1930s Jennifer Noonan, Damn Interesting

Nightcap

  1. Shaka Jacob Ivey, Age of Revolutions
  2. Stalin Jeremy Friedman, Modern Age
  3. Saladin Jason Burke, Spectator
  4. Shakespeare Geoffrey Marsh, TLS