to the dentist. There were other differences too.
How much money does a person need to qualify as rich? The death group named a higher sum than the dental torture group.
A small sum of money now, or a slightly larger sum in the future? The death group were more inclined to take the money straight away.
Now there is some debate surrounding studies of this kind, which employ a technique called ‘priming’, and I’ll come back to that in Chapter 11. Having said that, this last finding in particular does make some sense. If you are contemplating your own death – which as we all know can come at any time – it is best to cash in now. But an important point in Zaleskiewicz’s studies is that people dwelling on death seem to be comforted by having money, not spending it. In the ‘small sum now or a larger sum later’ question, it wasn’t that people were considering one final blow out. And in a further study by Zaleskiewicz and his team, when people were asked to fill in the death anxiety questionnaire and then imagine how they would deal with a surprise windfall, they allocated more to saving than spending.24
These studies all involved real banknotes, and there is nothing we like better. Numbers on a screen or figures on a bank statement don’t compare. And it is to the curious power of physical money that I turn next.
2
HOLDING FOLDING
Why we’re so attached to familiar forms of money, why we think coins are bigger than they are, why it’s good to be grumpy if you don’t want to get ripped off and why paying with cash might be better than credit.
AT ONE TIME, money was really worth something. That is to say, its physical form – coinage – was valuable in and of itself. Yet we’ve long known that isn’t really the point. The point is that money represents a store of value. Its worth lies in the fact that we can exchange it for something valuable. But even though we know that, we’re still strongly attached to the forms money takes, and we’re sensitive, and sometimes even distressed, when those forms change.
Anthropologists such as David Graeber have shown that money existed in early human societies living 5,000 years ago.1 And what’s really interesting is that its existence as a virtual concept – in the forms of debt and credit – long predated its appearance in physical form as coinage. In other words, money was in our minds long before we could hold it in our hands. Contrary to popular belief, earlier societies did not use to rely entirely on bartering – that is to say, the direct and immediate exchange of goods or services: ‘I’ll mend your wall if you give me right now something we agree is equivalent – say, ten eggs.’ Instead, people have always recognised that a form of abstract exchange is necessary: ‘For mending that wall, I’m willing to accept something that can be redeemed at some stage in the future for goods and services we agree are equivalent to the mending of the wall.’
Immediately we can see that this is a complex mental concept, requiring imagination, the ability to inhabit a mind other than our own, the capacity to conceive of a number of futures and – crucially – notions of trust, honour and confidence. We think that contactless payments, chip and pin, and all the rest are signs of twenty-first-century sophistication, but in a sense they are simply a return to money as it started out. Before it became a coin, for example, the Mesopotamian shekel was a unit of weight representing the amount of barley a worker received for his labour in the fields. A shekel was therefore a promise, an IOU. It was only over time that it became a stamped coin.
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
