Alexander the Great (356-323 b.C.) is widely and rightfully acclaimed to be a pivot for Western civilization. The military academies thrive on him; but economists have been more reserved: “What has he done for us – lately?” The attitude reports more on the insight and culture of economists than anything else – though better than the bankers: “Alex? Who?.”
Alexander had probably the best head start in history: The best education money and politics could buy, a well trained army and – he inherited a gold mine. It is important to understand that money was a solid foundation for everything Alexander did – and never far from his attention.
It has been a mystery to military historians how he could keep such a large army in the field for so many years – and keep it supplied. The answer is indeed very simple: He paid.
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He was indeed helped by the confiscation of the Persian war chest, which fell into his hands around the time of the Battle of Issus (333 b.C).
This treasure had been hoarded by the Persian rulers to the extent that in the Persian Empire there was hardly any cash. This must have meant that the Persian economy must have been reduced to a mere barter economy, which – although better than nothing – is primitive and very inefficient.
The mere appearance of liquidity must have been a major boost to the economy wherever the Greek sandals hit the dirt. Nothing encourages suppliers more than prepaid good prices. These prices would have been inflated; but again considering the previous lack of cash: Gold would have been severely overvalued in relation to commodities.
The current equivalent is the enormous amounts of liquidity in China in the form of US sovereign bonds – and yes – gold. The problem with any frozen capital and liquidity is that their value is largely fictional until it is spend. Just imagine what would happen if China started spending their fortune! The result is foreseeable: Hugely raised prices on the commodities China wants to buy.
It would be inflation; but there is more to it than that: It would break the inflation mould of the starting position. The composition of the weights of the index would be put on its head: Rising prices AND rising volume for significant parts of the index:
If China spends money it will be primarily on food – and with China improving their diet and paying real money the index composition will indeed be toppled.
Alexander did far more than merely spending more money than any other person have ever done before and since. He redefined the currency.
First he bought all the silver the greedy could lay their hands on by the simple expedient of raising the price of silver in relation to gold. That brought out the private hoards – such as they were. By the very central hoarding of gold in central hands the value of gold in relation to everything else was a matter of conjecture: Nobody could value gold properly in relation to silver, as there was no gold to be had: Gold had become as illiquid as the fortunes of king Midas: He had all the gold in the world; but he couldn’t eat it.
If taxes are to be paid in gold, then you have to pay an awful lot of silver to make up for the gold shortage: One of the dangers of a bimetallic standard.
Having bought all the bad money (silver) at an exaggerated price for silver, which at any significant exchange volume wasn’t at all exaggerated – but a fair evaluation of silver – Alexander proceeded to re-coin the silver.
It is often forgotten that the mere liquidity of a currency is a value in itself – in its own right. The RMB might be very valuable; but that is a moot question, when you can’t pay your bills with it.
The re-coining of silver brought some sense of order to the incredible mess of ancient coinage: Every single city state had their own coins:
1) In bronze, silver (and some cases gold).
2) In different denominations – different weights, shapes and sizes.
3) Different relative valuation of the different precious metals.
To this day Middle Eastern goldsmiths have an important function of converting private savings – hanging on the wives – to a common standard. Nobody has ever complained about money changers poverty. The mere process of making assets liquid is a value onto itself.
The Alexandrine tetra drachma was for centuries more or less the standard which everything was measured against. To this day the coin is – if not common – then not particularly rare. Of course most of it has been melted down in the passage of time.
Indubitably the mere existence of an immediately recognizable currency of a set standard had an impact on trade. The avoidance of haggling over the relative value of different unknown coins and their relative merit would have cut out significant amounts of “banking” by shysters in the market place – al needing their cut.
The point isn’t trivial, but the founding reason for banking. In Scandinavia Middle Eastern coins are regularly found in money caches. The interesting part is that some of these coins have not been minted in the Middle East, but somewhere else: Some texts on found coins are pure gibberish – not that the stated silver content is necessarily lower. A standard has its own value – it provides liquidity.
This leads us to the present day. The debates over the survival of the Euro have yet to rise to the level of Alexander.
Greece might be kicked out of the Euro; but that overlooks the central issue: Greek bonds value depends on the probability that they will be serviced on time.
The Chinese want to trade in their currency – apparently not realizing that their trading partners put the very simple question: “Which of Your currencies do you mean? The RMB You charge for Your exports or the one You are willing to part with for Your imports?”
The incessant inept currency manipulations of the Chinese does not promote commerce, as they presuppose that the trading partners have the insight of self adoring high school students (and in some cases they are right). The mere idea, that the RMB can become a reserve currency is so puerile that it defies reason: China is to my knowledge a net creditor – so the RMB cannot be a reserve currency – by definition.
There has been much propaganda on the cultural differences between China and the West – where the West disregards the culture of China. These profound thoughts are more often than not thrust forward by young female news journalist, that are less preoccupied with informing the public than persuading the viewers that what the generous cleavage reveals is in fact partly usable for feeding babies.
The truth of the matter is that China has yet to reach the financial insight of Alexander the great. The Empire might have a long history; but they don’t seem to have learned terribly much from it.
On the other hand the Western cultures have the Alexandrine revolution imbedded deep in our culture – so deep that it reaches into the unconscious depths of even bankers, whose interest in culture and history stems from the necessity to provide a halfway plausible narrative in court.