That said, coinage soon established a firm grip over human imagination; a grip it exerted for many centuries. And although actual currency is less and less important in our monetary transactions these days, when we think of money we still tend to see it as a physical thing.
To this day a British £10 note is printed with the words ‘I promise to pay the bearer on demand the sum of ten pounds’ – a promise which used to mean you could exchange it in a bank for gold to the same value, literally ten gold sovereigns. It was long thought that without that written guarantee there would be no confidence in national currencies.
Indeed the ‘gold standard’, as it came to be known, underpinned even advanced economic systems until well into the twentieth century, with the United States only abandoning it altogether as recently as 1971. But there was a big problem with the gold standard. It was too rigid for complex, dynamic economies – and strict adherence to it led to the miseries of the Great Depression of the 1920s and ’30s.
Even so, coming off gold proved to be a protracted business, and to this day central banks retain large stocks of gold as a bulwark to other confidence measures.
Assuming you were able to succeed in exchanging the money in your bank account for gold, would you know what to do with it? You can’t eat gold after all. And as a metal, it’s not even one of the most useful. Its value lies partly in its relative rarity and the fact that we like the look of it, but largely because we have collectively invested it with a sense of preciousness. Again, it is essentially a psychological thing. If we all decided that gold was dross, it would become so.
We imbue money with its value. The Pacific island of Yap is famous for its huge stone discs – as large as 4 metres in diameter with holes in the middle – which were used as currency back in the 1900s. Mined from limestone on another island hundreds of miles away, the stones were traded for goods. When sold, they remained in the same place, but with a new owner. Economists such as Milton Friedman have used these stone dises as an example of how money can still be seen as valuable if it is declared to be so, despite not being made from a material as useful as metal (fiat money as some economists call it).2 And as he points out, it’s the money we’ve grown up with which feels most real to us. Foreign notes can feel like toy money. But in fact these stones did have an intrinsic value to the islanders. They were considered both to be aesthetically beautiful and to have a religious significance. The story goes that when a storm caused one of these vast stones to fall overboard on a boat journey back to the island, it was decided that the money was not lost, even though it now lay at the bottom of the sea. Mentally it was still money.3 They still believed in it, just as we believe in the value of our £10 notes.
Of course these days if you went into a bank to redeem the promise to pay the bearer the sum of ten pounds, there is nothing they can give you apart from other notes to the same value also bearing promises. More than that, your money in the bank comes in the form of a figure listed on your statement, and you can only have the banknotes as long as lots of other people don’t want to do the same thing at the same time. If that happens – as it did in Britain in 2007 when there was a run on the Northern Rock bank – it quickly becomes evident that banks don’t hold sufficient quantities of cash to pay everyone their money back at once.
In the case of Northern Rock, and the financial crisis that ensued, the Bank of England and the British government had to intervene to prevent the complete collapse of our economic system. How did they do this exactly? Psychology again. The various actions of the Bank and the Treasury somehow ‘restored confidence’. In ways we don’t really understand, we all decided that we would continue to believe in money so that economic life could be maintained.
It’s essentially a confidence trick. As the Bank of England website drily puts it: ‘Public trust in the pound is now maintained by the operation of monetary policy, the objective of which is price stability.’4 The Bank is exerting its mind over money.
No wonder that the stuff itself, in its various physical manifestations, fascinates us and exerts a power over the mind. As we’ll see, we even consider money of the same value differently, depending on its form.
THE POUND IN YOUR POCKET
In the 1980s the psychologists Stephen Lea and Paul Webley developed a psychological theory of money that shows we value cash, cheques, gift vouchers and bank account balances differently.5 One of the things they discovered was that we are particularly attached to physical forms of money.
A crisp new banknote is very satisfying to have and hold, particularly a rarely seen pink £50 note. To be ‘holding folding’, as the old British expression describes the possession of cash, gives us a visceral pleasure. When a lottery winner finds out they’ve won a few million they often say they can’t really imagine that much money. To make it feel more real, they might be presented with one of those giant cardboard cheques. But just imagine how much more thrilling it would be if the National Lottery handed the money over as stacks of bills in sleek leather brief cases. Far more exciting than an electronic money transfer.
Somewhat in the same way, we all enjoy a pile of coins. When I was little, my grandparents used to save particular pennies and halfpennies and give them to me to stack in satisfying piles. The ones they saved were the bright and shiny coins, which they called ‘new money’. A stack would have been worth less than twenty pence, but given the condition of the coins, we all considered my pennies a little bit special.
Most of us like wads of notes too, of course. But as notes get older and dirtier we actually spend them faster. Research has shown that their ‘dwell time’ – the time a particular note spends in a wallet – is shorter than for newer, cleaner notes.6 Ten pounds is ten pounds is ten pounds. But the fact is we regard different notes differently.
At the moment, the Bank of England is replacing paper £5 and £10 notes with stronger material made from polymer, which will last two-and-a-half times as long. Every day 2 million notes are removed from circulation, with high-speed sorting machines identifying those that are too dirty or torn, or have impaired security features. There are good, practical arguments for making this switch, but if history is anything to go by, the new notes are likely to excite comment and divide opinion.
We take the design, as well as the form of our money, very seriously. So seriously, in fact, that a change in design can spark outrage and even death threats. That’s what happened in Britain in 2013, when the Bank of England announced it was removing the picture of the social campaigner Elizabeth Fry from £5 notes and replacing it with an image of Winston Churchill, meaning there would be no women, other than the Queen, left on Sterling notes. Feminist campaigner Caroline Criado-Perez led calls for another notable woman, Jane Austen, to appear on £10 notes – and for her pains was threatened with rape and murder.
No doubt much of the vile abuse heaped on her through social media was simply down to misogyny. Even in this day and age, some men are unhappy that women speak out publicly. But the hatred directed at Criado-Perez was much worse than the harassment received by many other women who’ve campaigned for women’s achievements to be recognised. Why is that? When I met Caroline Criado-Perez at Cheltenham Science Festival, where she was speaking on a panel I was chairing about feminism and bringing up girls today, she told me she wonders whether the reason is that money is seen to emanate from the establishment, and so to have women demanding recognition on that money represents a particular threat to the ‘natural’ order of things.
Banknotes are both ubiquitous and somehow sacred. They’re a strong projection of nationhood and economic power. A banknote isn’t just a store of value; it is a symbol. One of the most powerful a country has. The choice of person featured on banknotes matters: kings and queens, independence leaders, military heroes, social reformers, writers and composers. Do governments hope that a reminder of power or influence in the form of a portrait on a note might add to our confidence in its currency? The implication is that this note, just a bit of paper (or soon, polymer) and of no intrinsic value, can be trusted because it is issued by the central bank of a country that produces such monumental