All Commentary
Thursday, December 1, 1977

Marco Polo on Money

Paper money was introduced as a new idea to western civilization by Marco Polo in a chapter of his "Travels".

Mr. Kennedy Is a student of liberty and a freelance writer in Berkeley, California.

Having spent what seems the better part of a lifetime reading and studying the practical and theoretical ideas of the great economists, I recently found myself at a loss when asked what economist best explains what has happened to our money in these recent years of super-inflation. Who wouldn’t? I dodged the question by defining our two greatest current economic problems as inflation and unemployment. I said that Calvin Coolidge once amusingly defined unemployment as a condition: “When more and more people are thrown out of work-unemployment results.” In that same vein, I replied, “When more and more paper money is thrown into the economy by government-inflation results.”

On returning to my library, to my dismay I really couldn’t decide what economist best explains money and how the various governments use and misuse it to any great degree of clarity in less than a million words. The central problem of the economist during the past century, in my opinion, is his inability to explain fundamental economic principles with an economy of words.

If one wishes a clear and very prophetic explanation of what governments do to create money, consult an early writer on the subject who explored the question well before the science of economics became a gleam in Adam Smith’s eye. I refer you to the eminent Venetian explorer and entrepreneur, Marco Polo (1254-1324), who spent a quarter of a century living and traveling throughout the near and far east. He returned to his native Venice in 1295 to tell Europeans about an unknown world.

Marco Polo spent some time in the service of the Emperor of China, Kublai Khan, one of the most powerful and richest monarchs in medieval and modern history. Polo attained some wealth and power himself. When he returned to Venice he found himself embroiled in one of the many wars between the Italian city states of the time. As a prisoner of war in Pisa in the service of Venice, he dictated to a fellow prisoner his experiences in Asia that became his classic: The Travels of Marco Polo.

The Renaissance

The result of the publication of this book was a rapid increase in commerce between the Italian city states and China. This expansion of enterprise soon spread to the rest of Europe as well. The result for Italy was the creation of wealth and leisure that made possible the Renaissance.

For the rest of Europe as well it meant the slow death of the medieval period and the coming of the age of exploration and enterprise. It was, after all, a passage to India and China by sea that Columbus sought in 1492. The Travels of Marco Polo is among the books that helped shape the world we now live in.

The great Chinese civilization of that period, the Yuan dynasty, formed by Kublai Khan in 1271 is credited with sending many of China’s innovations to the Western world via Marco Polo. Its cuisine, silk, spices, gun powder, rockets and other weapons of war are among the most famous.

But perhaps the innovation most constructive and destructive throughout western history, depending on whose hands it was in, was the use of paper money as a substitute for what had been used as real money in other civilizations-gold and silver. Gold and silver are still acknowledged as real money in every civilized nation as well as recognized commodities of real value in primitive societies. Paper money was introduced as a new idea to western civilization by Marco Polo in a chapter of his Travels entitled: “How the Great Khan Causes the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over His Country”. After reading the chapter title like that, Polo’s readers probably thought the Great Khan to be the Great Con.

Marco Polo writes as follows:

“Now that I have told you in detail of the splendor of this city of the emperor’s, I shall proceed to tell you of the mint which he has in the same city, in the which he has his money coined and struck, as I shall relate to you. And in doing so I shall make manifest to you how it is that the great Lord may well be able to accomplish even much more than I have told you, or am going to tell you in this book. For, tell it how I might, you never would be satisfied that I was keeping within truth and reason!

The emperor’s mint then is in this same city of Cambaluc, and the way it is wrought is such that you might say he has the secret of alchemy in perfection, and you would be right. For he makes his money after this fashion. He makes them take of the bark of a certain tree, in fact of the mulberry tree, the leaves of which are the food of the silkworms, these trees being so numerous that the whole districts are full of them. What they take is a certain fine white bast or skin which lies between the wood of the tree and the thick outer bark, and this they make into something resembling sheets of paper, but black. When these sheets have been prepared they are cut up into pieces of different sizes.”

Signed and Sealed

“All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece a variety of officials, whose duty it is, have to write their names, and to put their seals. And when all is prepared duly, the chief officer deputed by the Khan smears the seal entrusted to him with vermilion, and impresses it on the paper, so that the form of the seal remains imprinted upon it in red; the money is then authentic. Anyone forging it would be punished with death. And the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world.

With these pieces of paper, made as I have described, he causes all payments on his own account to be made; and he makes them to pass current universally over all his kingdoms and provinces and territories, and whithersoever his power and sovereignty extends. And nobody, however important he may think himself, dares to refuse them on pain of death. And indeed everybody takes them readily, for wheresoever a person may go throughout the great Khan’s dominions he shall find these pieces of paper current, and shall be able to transact all sales and purchases of goods by means of them just as well as if they were coins of pure gold.

Furthermore all merchants arriving from India or other countries, and bringing with them gold or silver or gems and pearls, are prohibited from selling to any one but the emperor. He has twelve experts chosen for this business, men of shrewdness and experience in such affairs; these appraise the articles, and the emperor then pays a liberal price for them in those pieces of paper. The merchants accept his price readily, for in the first place they would not get so good an one from anybody else, and secondly they are paid without any delay. And with this paper money they can buy what they like anywhere over the empire, while it is also vastly lighter to carry about on their journeys. . . . So he buys such a quantity of those precious things every year that his treasure is endless, while all the time the money he pays away costs him nothing at all. Moreover, several times in the year proclamation is made through the city that any one who may have gold or silver or gems or pearls, by taking them to the mint shall get a handsome price for them. And the owners are glad to do this, because they would find no other purchaser give so large a price. Thus the quantity they bring in is marvelous, though those who do not choose to do so may let it alone. Still, in this way, nearly all the valuables in the country come into the Khan’s possession.

When any of those pieces of paper are spoilt-not that they are so very flimsy neither-the owner carries them to the mint, and by paying three per cent on the value he gets new pieces in exchange. And if any baron, or any one else soever, hath need of gold or silver or gems or pearls, in order to make plate, or girdles, or the like, he goes to the mint and buys as much as he list, paying in this paper money.

Now that you have heard the ways and means whereby the great Khan may have, and in fact has, more treasure than all the kings in the world; and you know all about it and the reason why.”

The Tragedy of Paper

Marco Polo’s account of this unique Chinese method of the minting of money through the use of paper is both amusing and tragic. It is amusing to us in this so-called enlightened, modern and sophisticated age to recall the ease at which the absolute monarch of China controlled the currency of his empire. It is easy to laugh at how mandarins, merchants and ordinary people were “taken” by their government during the years of the Yuan dynasty in China under a thoroughly autocratic regime. After all, it was the 13th century. But look at what the western democratic governments have done to money in this the twentieth century. It is no laughing matter, and it becomes more tragic with each passing day.

In our own country paper money not only loses value every day, it loses value every night as well.