Tuesday, May 14, 2013

Early Origins of the Money Game by Dr. Van Tharp

Early Origins of the Money Game

Croesus and Greek Civilization

By Van K. Tharp Ph.D.

When I first proposed writing a series of articles on the money game, I received a complaint from someone who said that most of my focus was on Americans. What about the Europeans or Asians? Well, there were reasons for my emphasis on Americans. First, while I was concentrating on some of the richest people of all time (including the Rothschilds and the Medicis), most of the people on that list prospered in the United States between 1850 and 1910. The period of time after the American Civil War was one of the greatest times for profit in the history of the world. You could make your own rules for playing the game because there was minimal government regulation in American business and no income tax. Those two factors had a huge impact on wealth accumulation. For example, I believe my net worth would probably be about 100 times what it is now if there was no income tax today. In any case, those who played the game well in the US in the fifty years after the Civil War became money giants.

For much of the history of Europe and Asia, one has to consider the impact of royalty on the wealth factor. If you had a significant amount of money in an area that had an all-powerful ruler, then there was a good chance that the ruler considered everything in the kingdom as belonging to him. Thus, if you didn’t play good politics with the royal family, they could take your money away. In fact, royal families would have to be considered part of the money game in old Europe and that’s not a relevant factor today.

Nevertheless, I just finished a great book, The History of Money, which inspired the next three articles in the money game series. These next three articles will not focus on particular people, but on particular eras.

This article will cover the ancient Greeks and the development of gold and silver coins.

The second will be on the money’s impact on the rise and fall of the Roman Empire.

And the third will talk about the impact of the Roman Catholic Church on the money game with a special reference to the Knights Templar.

The Origins of Coinage

Most everyone has heard the phrase “Rich as Croesus.” Well, Croesus basically changed how the money game was played. The ideas of the Lydian kings, like Croesus, paved the way to incredible wealth and to a culturally rich society — the Greek Civilization. So, how did that happen?

Homer portrayed people of combat and heroism and wrote about anger, war, heroism, passion, violence, honor, etc. Money had no place in the poems of Homer because people were only interested in honor. Towns tried to be as self-sufficient as possible so they would not have to trade with neighbors; neighbors could be dangerous.

Somewhere around the seventh century BC, the Lydian people who inhabited the western part of modern day Turkey, recognized the need for a portable wealth. They manufactured coins made of electrum, a naturally occurring mix of gold and silver. These coins were thick slugs about the size of the end of one’s thumb. Each coin was stamped with a lion’s head to guarantee its authenticity and standardized in weight and size to eliminate the need to assess its value each time it was used. This made trading easy and it opened up trade to new segments of the population.

Around 560BC, Croesus ascended the throne in the kingdom of Lydia and things started to change. During his 14 year reign, Croesus created new coins made of pure silver and gold. This created more opportunity for commerce and the invention of the retail market. Rather than having to find the home or shop of a craftsman, you could go to a central market to purchase items there. Anyone could come to the central market and buy or sell items with gold and silver coins.

Coinage also affected traditional societal roles. The Greek historian, Herodotus, was said to have been horrified to find that women could choose their own husbands because they could have dowries to aid them in their selection. In addition, the first known brothels arose around these times as part of the “market.” Women could work in the brothels long enough to secure a dowry big enough to find the husband they wanted. In addition, the Lydians were credited for creating the first gambling games around this time.

Commerce created the fabulous wealth of Croesus. But he also squandered it on two common weaknesses for kings — buildings and armies. It was said that he conquered most of the other Greek cities, after which he built extensively in them. This process eventually led to his downfall. As he considered a campaign against the Persian Empire, Croesus asked the oracle at Delphi what chance he had and was told a great empire would fall. Croesus interpreted the prophecy as a favorable sign that he would conquer the Persians but it was his great empire that would fall.

The Ancient Greeks

After Croesus fell, the surrounding Greeks adopted the Lydian practice of making coins and commerce began to flourish throughout the Mediterranean. Eventually, the Greeks replaced the Phoenicians as the greatest traders of the Eastern Mediterranean.

Coinage offered stability to this trade because it provided merchants with a permanent medium of exchange. Previously, money had consisted of some prominent, but usually perishable commodity. Once money was based upon rare metals, however, these coins provided people with:

Ease of use

Standardization and

A non-perishable way of storing wealth.

At the time, other civilizations had been based on a strong authority supported by a massive army and by wealth collected as tribute. Kinship and brute force were the primary methods for organizing societies.

Money helped Greece organize its society on a much greater scale than was previously possible. Money didn’t require extensive administration, police or military systems. Money especially suited Greece at that time because it was a loose structure of many relatively independent city states.

Those in power saw the advantages money offered them. They could collect money for taxes rather than collect commodities which could perish before they were used. Even crimes could be monetized so if someone committed a crime, they could pay a penalty rather than being killed.

In addition to money providing a medium of exchange for goods, it allowed payment for services. People could work and get paid for doing a service and that service had value. Not only could you buy a loaf of bread, you could also pay someone to clean your house, commission a poem, or obtain sexual services – all because of money. People began to work to get paid rather than being forced to do so.

Money enabled an artistic culture to develop. People could produce a work of art (music, painting, a play, etc) and get paid to do so. Athens became a center for artistic culture and flourished as one of the wealthiest Greek city-states. Interestingly, the basis for most of Athen’s money was silver for which they had an ample supply after discovering rich deposits in Laurium, south of the city.

Politics too started to change as a result of money. The Greeks had to deal with debt and at one point they passed a law canceling it. It didn’t work, but at least they tried. Prior to money, you could only vote if you owned land. But after the development of coinage, having wealth also gave you the privilege to vote. Essentially a great civilization flourished, and the center of that civilization was the marketplace.

Too little was written during that particular era of history to understand how individuals played the money game; however, it was obvious that the rules of the game changed considerably as coinage emerged and evolved. Greece went from a society dominated by honor to one dominated by commerce, in which culture was now able to flourish. Those who had the ability to see what was happening could easily dominate the money game, however, there are insufficient records to know who those people were and how they played.

About the Author: Trading coach and author Van K. Tharp, Ph.D. is widely recognized for his best-selling books and outstanding Peak Performance Home Study Program, a highly regarded classic that is suitable for all levels of traders and investors.

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