The song from the musical Cabaret says “money makes the world go round”. We can look at the history of global money longitudinally (over time) or horizontally — what happened simultaneously in different parts of the world. The first type of global history tends to be written from a national perspective, typically by the winner, since the losers prefer to forget events where they were defeated, conquered or colonised. As national histories improve, we can now piece together a systemic picture of global money, seeing how different parts of the world interacted with each other through trade, money and knowledge/technology.
Most of us are still living in the physical hardware age. But digital technology has changed our understanding of how even physical goods are, in essence, virtual or physically-embedded information. After all, fossil oil is energy embedded into oil or gas that can be burnt to release energy.
Today’s trade is mostly exchange of physically-embodied information (such as buying technology-embedded hardware). Furthermore, cyber-currencies and blockchain technology reveal that finance is digitised value transferred across distributed ledgers. Seen this way, human history has been an exchange of information and knowledge, with each society learning and growing through copying, adapting, innovating and competing as well as cooperating with each other.
This is why a euro-centric view of the world tends to underplay how Asia played such a dominant role before the 17th century. But in tracing the story of modern money, we need to connect the dots and see how money evolved from cowrie shells (tokens) to metal, and then fiat currencies in the form of paper and, today, digital means of payment, units of account and store of value.
It is now clear that globalisation occurred through the spread of human beings or genes. But they brought with them trade in physical goods, arbitraging different tastes, preferences and needs. The discovery of coins or tokens as means of exchange and store of value accelerated trade. With trade came knowledge, new resources and then power. And with power came war and conquests, including conflict, not only on land but also at sea, and in the 20th century, at air, space and cyberspace levels.
Re-reading Paul Kennedy’s Rise and Fall of Great Powers (1987), Fernand Braudel’s History of Civilizations (1993), and Andre Gunder Frank’s ReOrient: Global Economy in the Asian Age (1998) made me realise that history has always been a human story of struggle against nature (climate change and natural disaster), human invasion and internal social corruption and decay.
According to Angus Maddison’s authoritative historical data on the global economy (OECD 2003), in 1500AD, Asia accounted for 64.7% of the global population; Europe (including former USSR), 20.1%; Latin America, 4%; Africa, 10.6%; and North America, 0.6%. In terms of share of GDP, Asia accounted for 65%; Europe, 21.2%; Latin America, 2.9%; Africa, 7.8%; and North America, 0.5%. In short, just before the discovery of America, global economic power was roughly the same as the population ratio, meaning that Asia accounted for roughly two thirds of world economic and people power.
Although East-West trade was known even in the Roman era, globalisation was accelerated by the rise of the Mongol Empire in the 12th to 14th centuries, which opened up the land and maritime Silk Roads. Yuan Dynasty founding emperor Kublai Khan (1260-1294) conquered China and encouraged trade with Southeast Asia and Middle East and Central Asia, the latter regions ruled by his fellow Mongols.
At its height, Pax Mongolica was the largest land-based empire with 9.3 million square miles of territory. With the introduction of the Mongolian Yassa code on social and military discipline, rules-enforced trade was encouraged to finance military conquests. This was in line with political scientist Mancur Olson’s view that a roving bandit tends to rob and steal, whereas the stationary bandit is incentivised to enforce peace and economic development, since he expects to benefit from such prosperity.
Thus, the fall of Constantinople (Istanbul) in 1453 to the Ottoman Empire disrupted the lucrative Silk Road trade between Europe and the West. Competition between the European maritime states then led the Portuguese to reach Asia via the African Cape of Good Hope, and the Spanish-backed Christopher Columbus to discover America in 1492.
Following this, the large discovery of gold and silver in the Americas generated new wealth in Europe that stimulated intense rivalry between the maritime powers of Spain, Portugal, Holland and England to improve their naval skills for the conquest of new lands. Furthermore, because the price of gold/silver exchange was favourable in Asia, especially China and India, European traders could bring silver to China by sea to exchange for gold, ceramics, silk and other goods, bypassing the risk-fraught Middle East land routes. Arab dhows participated in the maritime trade, and silver and gold coins became more widely used in both China and India in the 15th and centuries. With increased supply to meet the demand for currency, silver became the first widely used global currency standard.
In hindsight, it is amazing how quickly the West overtook Asia to become dominant in geopolitical terms. By 1700, the share of European population had not changed that much at 21% of world total, but her share of world GDP had crept up to 26.6%, whereas Asia’s population rose to 66.4.%, but her share of GDP fell to 61.8%. Under brutal colonialisation and imported disease, the Latin American population halved to only 2% of world total, and GDP share also fell by half to 1.7%.
The turning point has now been identified by historian Geoffrey Parker (Global Crisis, 2013) as the mini-Ice Age in the first half of the 17th century, with the coldest weather recorded in a millennium. In China, the Ming Dynasty was weakened by droughts and internal rebellion, falling to the Manchu invaders from the North in 1644. The Ottoman and Mughal empires were striven with internal rebellions, weakening them to later European intrusion.
Within Europe, two major struggles broke out in the Thirty Years War (1618-1648), essentially between the Catholics and the Protestant states mostly on continental Europe, culminating in the historic Treaty of Westphalia in 1648.
But the real struggle was between Holland, Spain and England for maritime power, resulting in the carving of the colonial world. Spain was left to rule most of Latin America, whereas the English and Dutch fought four wars for hegemony — three in the 17th century and the last between 1780-1784, essentially since the Dutch supported the Americans during the Independence war.
In reality, the British gained the edge over the Dutch when Prince William of Orange succeeded the British throne in 1688 (the Bloodless Revolution), because he brought with him not only Dutch shipbuilding and naval skills, but also financial talent that strengthened the City of London in managing maritime trade and bills and bond funding.
It was no coincidence that the first central banks in Sweden (1668) and England (1694) were founded at this time to essentially fund their national wars. Thus, Britain won the Napoleonic wars against France not just on military grounds, but also because London could fund British war efforts continuously at cheaper rates than the French. Few doubted the British ability to repay their debt because the Royal navy safeguarded her global trade. Similarly, the US dollar today is founded on American military superiority.
Geopolitically, by 1820, much of India, Africa and Southeast Asia had already been colonised and the only Asian power still standing was Manchu China with a share of world GDP of 32.9%. By this time, European share of GDP had risen to 32%. But within the next 50 years, by 1870, with North America seeing massive population growth through migration and indus-
trialisation following the American civil war (1861-65), the West (Europe, America, Australasia and Canada) had advanced to 55% of world GDP, while China slipped to 17.1% and India to 12.1%. With the rise of the US in the next 80 years, Asia, including Japan, accounted for 54.7% of world population, but only 18.4% of world GDP by 1950. The West emerged triumphant with the US at the fore by the end of the Second World War.
In sum, as early as the 17th century, money, trade, climate change, technology and geopolitical rivalry, including war, were highly intertwined. Money was always part of the complex framework of geopolitical rivalry. This is why finance, technology and cyberspace battles will be fought in the next 50 years to determine global hegemony. Singa-
porean academician and diplomat Kishore Mahbuni puts it dramatically as apes fighting while the forest is burning. How the rest of us survive will be the story of the coming decades.
Tan Sri Andew Sheng writes on global issues from an Asian perspective