1932
0
  1. Home
  2. A-Z Publications
  3. Annual Review of Economics
  4. Volume 16, 2024
  5. Article

Annual Review of Economics

Volume 16, 2024

Understanding Money Using Historical Evidence

Abstract

Debates about the nature and economic role of money are mostly informed by evidence from the twentieth century, but money has existed for millennia. We argue that there are many lessons to be learned from monetary history that are relevant for current topics of policy relevance. The past is a source of evidence on how money works across different situations, helping to tease out features of money that do not depend on one time and place. A close reading of history also offers testing grounds for models of economic behavior and can thereby guide theories on how money is transmitted to the real economy.

Keyword(s): identification in macroeconomics, JEL E40, JEL E50, JEL N10, monetary history, monetary policy, natural experiments, policy experiments
Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-091923-040328
2024-08-22
2024-09-04
Loading full text...

Full text loading...

/deliver/fulltext/economics/16/1/annurev-economics-091923-040328.html?itemId=/content/journals/10.1146/annurev-economics-091923-040328&mimeType=html&fmt=ahah

Literature Cited

  1. Álvarez-Nogal C, Prados de la Escosura L, Santiago-Caballero C. 2016.. Spanish agriculture in the little divergence. . Eur. Rev. Econ. Hist. 20:(4):452–77
     [Crossref] [Google Scholar]
  2. Bagehot W. 1873.. Lombard Street: A Description of the Money Market. London:: Henry S. King & Co.
     [Google Scholar]
  3. Bazot G, Monnet E, Morys M. 2022.. Taming the global financial cycle: central banks as shock absorbers in the first era of globalization. . J. Econ. Hist. 82:(3):801–39
     [Crossref] [Google Scholar]
  4. Bignon V, Flandreau M, Ugolini S. 2012.. Bagehot for beginners: the making of lender-of-last-resort operations in the mid-nineteenth century. . Econ. Hist. Rev. 65:(2):580–608
     [Crossref] [Google Scholar]
  5. Bindseil U. 2019.. Central Banking Before 1800: A Rehabilitation. Oxford, UK:: Oxford Univ. Press
     [Google Scholar]
  6. Bolt J, Van Zanden JL. 2020.. Maddison style estimates of the evolution of the world economy. A new 2020 update. Maddison Proj. Work. Pap. WP-15 , Maddison Proj., Univ. Groningen, Groningen, Neth.:
     [Google Scholar]
  7. Bonfatti R, Brzezinski A, Karaman KK, Palma N. 2020.. Monetary capacity. CEPR Discuss. Pap. DP15299 , Cent. Econ. Policy Res., London:
     [Google Scholar]
  8. Bordo MD, Kydland FE. 1995.. The gold standard as a rule: an essay in exploration. . Explor. Econ. Hist. 32:(4):423–64
     [Crossref] [Google Scholar]
  9. Bordo MD, Rockoff H. 1996.. The gold standard as a “good housekeeping seal of approval. .” J. Econ. Hist. 56:(2):389–428
     [Crossref] [Google Scholar]
  10. Bordo MD, White EN. 1991.. A tale of two currencies: British and French finance during the Napoleonic Wars. . J. Econ. Hist. 51:(2):303–16
     [Crossref] [Google Scholar]
  11. Broadberry S, Campbell BMS, Klein A, Overton M, van Leeuwen B. 2015.. British Economic Growth, 1270–1870. Cambridge, UK:: Cambridge Univ. Press
     [Google Scholar]
  12. Brzezinski A, Chen Y, Palma N, Ward F. 2024.. The vagaries of the sea: evidence on the real effects of money from maritime disasters in the Spanish Empire. . Rev. Econ. Stat. In press. https://doi.org/10.1162/rest_a_01223
    [Google Scholar]
  13. Cagan P. 1956.. The monetary dynamics of hyperinflation. . In Studies in the Quantity Theory of Money, ed. M Friedman , pp. 25–117. Chicago:: Univ. Chicago Press
     [Google Scholar]
  14. Calomiris C, Kahn C. 1996.. The efficiency of self-regulated payments systems: learning from the Suffolk system. . J. Money Credit Bank. 28:(4):766–97
     [Crossref] [Google Scholar]
  15. Charotti C, Palma N, Pereira dos Santos J. 2022.. American treasure and the decline of Spain. CEPR Discuss. Pap. DP17020 , Cent. Econ. Policy Res., London:
     [Google Scholar]
  16. Chen Y, Palma N, Ward F. 2021.. Reconstruction of the Spanish money supply, 1492–1810. . Explor. Econ. Hist. 81::101401
     [Crossref] [Google Scholar]
  17. Chen Y, Palma N, Ward F. 2022.. Goldilocks: American precious metals and the rise of the West. Tinbergen Inst. Discuss. Pap. , Tinbengern Inst., Amsterdam, Neth.:
     [Google Scholar]
  18. Christiano LJ, Eichenbaum M, Evans CL. 1999.. Monetary policy shocks: What have we learned and to what end?. In Handbook of Macroeconomics, Vol. 1A, ed. JB Taylor, M Woodford , pp. 65–148. Amsterdam:: Elsevier
     [Google Scholar]
  19. Christiano LJ, Motto R, Rostagno M. 2003.. The great depression and the Friedman-Schwartz hypothesis. . J. Money Credit Bank. 35:(6 Pt. 2):1119–97
     [Crossref] [Google Scholar]
  20. Cipolla CM. 1956.. Money, Prices, and Civilization in the Mediterranean World, Fifth to Seventeenth Century. New York:: Gordian Press
     [Google Scholar]
  21. Cloyne J, Hürtgen P. 2016.. The macroeconomic effects of monetary policy: a new measure for the United Kingdom. . Am. Econ. J. Macroecon. 8:(4):75–102
     [Crossref] [Google Scholar]
  22. Costabile L, Neal L, eds. 2018.. Financial Innovation and Resilience: A Comparative Perspective on the Public Banks of Naples (1462–1808). London:: Palgrave Macmillan
     [Google Scholar]
  23. de Jong H, Palma N. 2018.. Historical national accounting. . In An Economist's Guide to Economic History, ed. M Blum, CL Colvin , pp. 395–403. London:: Springer
     [Google Scholar]
  24. Denzel MA. 2017.. Handbook of World Exchange Rates, 1590–1914. London:: Routledge
     [Google Scholar]
  25. Doepke M, Schneider M. 2017.. Money as a unit of account. . Econometrica 85:(5):1537–74
     [Crossref] [Google Scholar]
  26. Drelichman M. 2005.. The curse of Moctezuma: American silver and the Dutch disease. . Explor. Econ. Hist. 42:(3):349–80
     [Crossref] [Google Scholar]
  27. Dunning T. 2012.. Natural Experiments in the Social Sciences: A Design-Based Approach. Cambridge, UK:: Cambridge Univ. Press
     [Google Scholar]
  28. Edvinsson R. 2012.. Early modern copper money: multiple currencies and trimetallism in Sweden 1624–1776. . Eur. Rev. Econ. Hist. 16:(4):408–29
     [Crossref] [Google Scholar]
  29. Eichengreen BJ. 1992.. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939. Oxford, UK:: Oxford Univ. Press
     [Google Scholar]
  30. Ernst W, Fox D, Velde FR. 2016.. Introduction. . In Money in the Legal Western Tradition: Middle Ages to Bretton Woods, ed. D Fox, W Ernst , pp. 3–17. Oxford, UK:: Oxford Univ. Press
     [Google Scholar]
  31. Esteves RP, Reis J, Ferramosca F. 2009.. Market integration in the golden periphery: the Lisbon/London exchange, 1854–1891. . Explor. Econ. Hist. 46:(3):324–45
     [Crossref] [Google Scholar]
  32. Fisher I. 1911.. The Purchasing Power of Money: Its Determination and Relation to Credit, Interest and Crises. New York:: MacMillan & Co.
     [Google Scholar]
  33. Flandreau M, Galimard C, Jobst C, Nogués-Marco P. 2009.. The bell jar: commercial interest rates between two revolutions, 1688–1789. . In The Origins and Development of Financial Markets and Institutions: From the Seventeenth Century to the Present, ed. J Atack, L Neal , pp. 161–208. Cambridge, UK:: Cambridge Univ. Press
     [Google Scholar]
  34. Friedman M, Schwartz AJ. 1963.. A Monetary History of the United States, 1867–1960. Princeton, NJ:: Princeton Univ. Press
     [Google Scholar]
  35. Guan H, Palma N, Wu M. 2024.. The rise and fall of paper money in Yuan China, 1260–1368. . Econ. Hist. Rev. In press
    [Google Scholar]
  36. Jobst C, Kernbauer H. 2016.. The Quest for Stable Money: Central Banking in Austria, 1816–2016. Frankfurt:: Campus Verlag
     [Google Scholar]
  37. Jordà Ò, Schularick M, Taylor AM. 2020.. The effects of quasi-random monetary experiments. . J. Monet. Econ. 112::22–40
     [Crossref] [Google Scholar]
  38. Karaman KK, Pamuk Ş, Yıldırım-Karaman S. 2020.. Money and monetary stability in Europe, 1300–1914. . J. Monet. Econ. 115::279–300
     [Crossref] [Google Scholar]
  39. Kedrosky D, Palma N. 2024.. The cross of gold: Brazilian treasure and the decline of Portugal. . J. Econ. Hist. In press
    [Google Scholar]
  40. Kenny S, Lennard J. 2018.. Monetary aggregates for Ireland, 1840–1921. . Econ. Hist. Rev. 71:(4):1249–69
     [Crossref] [Google Scholar]
  41. Keynes JM. 1923.. A Tract on Monetary Reform. London:: MacMillan & Co.
     [Google Scholar]
  42. Lucas RE Jr. 1976.. Econometric policy evaluation: a critique. . Carnegie-Rochester Conf. Ser. Public Policy 1:(1):19–46
     [Crossref] [Google Scholar]
  43. Marschak J. 1953.. Economic measurements for policy and prediction. . In Studies in Econometric Method, ed. WC Hood, TC Koopmans , pp. 1–27. London:: John Wiley & Sons
     [Google Scholar]
  44. Monnet R, Velde FR. 2021.. Money, banking, and old-school historical economics. . In The Handbook of Historical Economics, ed. A Bisin, G Federico , pp. 335–64. Amsterdam:: Elsevier
     [Google Scholar]
  45. Mueller RC. 1997.. The Venetian Money Market: Banks, Panics, and the Public Debt, 1200–1500. Baltimore, MD:: Johns Hopkins Univ. Press
     [Google Scholar]
  46. Nakamura E, Steinsson J. 2018.. Identification in macroeconomics. . J. Econ. Perspect. 32:(3):59–86
     [Crossref] [Google Scholar]
  47. O'Brien PK, Palma N. 2020.. Danger to the old lady of Threadneedle Street? The Bank Restriction Act and the regime shift to paper money, 1797–1821. . Eur. Rev. Econ. Hist. 24:(2):390–426
     [Crossref] [Google Scholar]
  48. O'Brien PK, Palma N. 2023.. Not an ordinary bank but a great engine of state: the Bank of England and the British economy, 1694–1844. . Econ. Hist. Rev. 76:(1):305–29
     [Crossref] [Google Scholar]
  49. Palma N. 2018a.. Money and modernization in early modern England. . Financ. Hist. Rev. 25:(3):231–61
     [Crossref] [Google Scholar]
  50. Palma N. 2018b.. Reconstruction of money supply over the long run: the case of England, 1270–1870.. Econ. Hist. Rev. 71:(2):373–92
     [Crossref] [Google Scholar]
  51. Palma N. 2020a.. American precious metals and their consequences for early modern Europe. . In Handbook of the History of Money and Currency, ed. S Battilossi, Y Cassis, K Yago , pp. 363–82. London:: Springer
     [Google Scholar]
  52. Palma N. 2020b.. Historical account books as a source for quantitative history. . In History and Economic Life, ed. G Christ, PR Rössner , pp. 184–97. London:: Routledge
     [Google Scholar]
  53. Palma N. 2022.. The real effects of monetary expansions: evidence from a large-scale historical experiment. . Rev. Econ. Stud. 89:(3):1593–627
     [Crossref] [Google Scholar]
  54. Palma N, Reis J. 2019.. From convergence to divergence: Portuguese economic growth, 1527–1850. . J. Econ. Hist. 79:(2):477–506
     [Crossref] [Google Scholar]
  55. Palma N, Silva AC. 2024.. Spending a windfall. . Int. Econ. Rev. 65:(1):283–313
     [Crossref] [Google Scholar]
  56. Pezzolo L, Tattara G. 2008.. “Una fiera senza luogo”: Was Bisenzone an international capital market in sixteenth-century Italy?. J. Econ. Hist. 68:(4):1098–122
     [Crossref] [Google Scholar]
  57. Prados de la Escosura L, Álvarez-Nogal C, Santiago-Caballero C. 2022.. Growth recurring in preindustrial Spain?. Cliometrica 16::215–41
     [Crossref] [Google Scholar]
  58. Quinn S, Roberds W. 2007.. The bank of Amsterdam and the leap to central bank money. . Am. Econ. Rev. 97:(2):262–65
     [Crossref] [Google Scholar]
  59. Quinn S, Roberds W. 2014.. How Amsterdam got fiat money. . J. Monet. Econ. 66::1–12
     [Crossref] [Google Scholar]
  60. Reekmans T. 1949.. Economic and social repercussions of the Ptolemaic copper inflation. . Chron. Egypte 48::324–42
     [Crossref] [Google Scholar]
  61. Reinhart CM, Rogoff KS. 2009.. This Time is Different: Eight Centuries of Financial Folly. Princeton, NJ:: Princeton Univ. Press
     [Google Scholar]
  62. Richardson G, Troost W. 2009.. Monetary intervention mitigated banking panics during the great depression: quasi-experimental evidence from a Federal Reserve District border, 1929–1933. . J. Political Econ. 117:(6):1031–73
     [Crossref] [Google Scholar]
  63. Roberds W, Velde FR. 2016a.. Early public banks I: ledger-money banks. . In Money in the Legal Western Tradition: Middle Ages to Bretton Woods, ed. D Fox, W Ernst , pp. 321–55. Oxford, UK:: Oxford Univ. Press
     [Google Scholar]
  64. Roberds W, Velde FR. 2016b.. Early public banks II: banks of issue. . In Money in the Legal Western Tradition: Middle Ages to Bretton Woods, ed. D Fox, W Ernst , pp. 465–88. Oxford, UK:: Oxford Univ. Press
     [Google Scholar]
  65. Roberds W, Velde FR. 2016c.. The descent of central banks. . In Central Banks at a Crossroads: What Can We Learn from History?, ed. MD Bordo, Ø Eitrheim, M Flandreau, JF Qvigstad , pp. 18–61. New York:: Cambridge Univ. Press
     [Google Scholar]
  66. Romer CD, Romer DH. 1989.. Does monetary policy matter? A new test in the spirit of Friedman and Schwartz. . NBER Macroecon. Annu. 4::121–84
     [Crossref] [Google Scholar]
  67. Romer CD, Romer DH. 2004.. A new measure of monetary shocks: derivation and implications. . Am. Econ. Rev. 94:(4):1055–84
     [Crossref] [Google Scholar]
  68. Santarosa VA. 2015.. Financing long-distance trade: the joint liability rule and bills of exchange in eighteenth-century France. . J. Econ. Hist. 75:(3):690–719
     [Crossref] [Google Scholar]
  69. Sargent TJ. 1977.. The demand for money during hyperinflations under rational expectations: I. . Int. Econ. Rev. 18:(1):59–82
     [Crossref] [Google Scholar]
  70. Sargent TJ. 1982.. The ends of four big inflations. . In Inflation: Causes and Effects, ed. RE Hall , pp. 41–98. Chicago:: Univ. Chicago Press
     [Google Scholar]
  71. Sargent TJ. 2008.. Evolution and intelligent design. . Am. Econ. Rev. 98:(1):5–37
     [Crossref] [Google Scholar]
  72. Sargent TJ, Velde FR. 1995.. Macroeconomic features of the French Revolution. . J. Political Econ. 103:(3):474–518
     [Crossref] [Google Scholar]
  73. Sargent TJ, Velde FR. 2002.. The Big Problem of Small Change. Princeton, NJ:: Princeton Univ. Press
     [Google Scholar]
  74. Sargent TJ, Wallace N. 1981.. Some unpleasant monetarist arithmetic. . Q. Rev. 5:(Fall):1–17
     [Google Scholar]
  75. Selgin GA. 2008.. Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775–1821. Ann Arbor:: Univ. Mich. Press
     [Google Scholar]
  76. Shin H. 2015.. Paper money, the nation, and the suspension of cash payments in 1797. . Hist. J. 58:(2):415–42
     [Crossref] [Google Scholar]
  77. Spufford P. 1988.. Money and Its Use in Medieval Europe. Cambridge, UK:: Cambridge Univ. Press
     [Google Scholar]
  78. Sussman N, Zeira J. 2003.. Commodity money inflation: theory and evidence from France in 1350–1436. . J. Monet. Econ. 50:(8):1769–93
     [Crossref] [Google Scholar]
  79. Svensson R, Westermark A. 2020.. Renovatio monetae: when Gesell taxes worked. . Int. Econ. Rev. 61:(2):821–46
     [Crossref] [Google Scholar]
  80. Ugolini S. 2017.. The Evolution of Central Banking: Theory and History. London:: Palgrave Macmillan
     [Google Scholar]
  81. Vargyas P. 2001.. A History of Babylonian Prices in the First Millennium BC. Heidelberg, Ger.:: Heidelberger Orientverlag
     [Google Scholar]
  82. Velde FR. 2007a.. John Law's System. . Am. Econ. Rev. 97:(2):276–79
     [Crossref] [Google Scholar]
  83. Velde FR. 2007b.. What's a penny (or a nickel) really worth? Chicago Fed Lett. 235a , Fed. Reserve Bank Chicago, Chicago:
     [Google Scholar]
  84. Velde FR. 2009.. Chronicle of a deflation unforetold. . J. Political Econ. 117:(4):591–634
     [Crossref] [Google Scholar]
  85. Velde FR. 2019.. A quantitative approach to the beginnings of coinage. . In White Gold: Studies in Electrum Coinage, ed. P van Alfen, U Wartenberg , pp. 497–516. New York:: Am. Numis. Soc.
     [Google Scholar]
  86. Velde FR. 2020.. Experiments with paper money. . In Handbook of the History of Money and Currency, ed. S Battilossi, Y Cassis, K Yago , pp. 413–29. London:: Springer
     [Google Scholar]
  87. Velde FR, Weber WE, Wright R. 1999.. A model of commodity money, with applications to Gresham's law and the debasement puzzle. . Rev. Econ. Dyn. 2:(1):291–323
     [Crossref] [Google Scholar]
  88. von Glahn R. 1996.. Fountain of Fortune: Money and Monetary Policy in China, 1000–1700. Berkeley:: Univ. Calif. Press
     [Google Scholar]
  89. von Glahn R. 2006.. Re-examining the authenticity of song paper money specimens. . J. Song-Yuan Stud. 36::79–106
     [Google Scholar]
  90. von Glahn R. 2016.. The Economic History of China: From Antiquity to the Nineteenth Century. Cambridge, UK:: Cambridge Univ. Press
     [Google Scholar]
  91. Williamson S, Wright R. 2010.. New monetarist economics. . In Handbook of Monetary Economics, ed. BM Friedman, M Woodford , pp. 25–96. Amsterdam:: Elsevier
     [Google Scholar]
/content/journals/10.1146/annurev-economics-091923-040328
Loading
Understanding Money Using Historical Evidence
Annual Review of Economics 16, 571 (2024); https://doi.org/10.1146/annurev-economics-091923-040328
/content/journals/10.1146/annurev-economics-091923-040328
/content/journals/10.1146/annurev-economics-091923-040328
Loading

Data & Media loading...

  • Article Type: Review Article

Most Cited Most Cited RSS feed

This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error