Gold as medieval cryptographic paper
October 22, 2016 § 32 Comments
An important feature of cryptography is authentication: the ability to verify that a document comes from who it claims to come from and has the authority it claims to have. Authentication is a feature of the medium in which a message is delivered: it is not the message itself.
There are two kinds of financial securities, for present purposes: bearer securities and securities which must be cleared when they are transferred. The latter sort have to pass through a transfer agent who verifies the identities of the parties and the legitimacy of the transfer of rights. Rights are not technically transferred until the check clears, and if someone is being dishonest we know who they are and can hunt them down.
But bearer securities transfer the rights they represent immediately, with transfer of possession. They don’t leave a paper trail, and it has to be possible within reason to authenticate them as they are.
Folks are always asking me to speculate about why gold or silver was the printing medium of choice for bearer securities (in particular sovereign currency) for much of premodern history. Whatever else may be the case, it seems obvious that premodern sovereigns had limited choices of available counterfeit-resistant print media from which to choose.
As for why masses of people tend to think that the value inheres in the print media rather than the financial security it represents, that obviously involves mass psychology about why lots of people have wrong ideas about something or other. It isn’t as if the mass of humanity has a good track record of being right about politically and religiously charged subjects. Centuries of rampant usury has doubtless contributed to a mass illusion wherein many folks can’t tell the difference between actual bread and a promise of bread, and it is an especially modern error to conflate medium and message. At the end of the day what matters is what is true though, not the results of a popularity contest.
If you find yourself psychologically in need of a reason why gold was a favored medium for bearer securities before the modern age, you need look no further than the development of cheaper counterfeit-resistant print media. And you should probably work on your own demotic resistance to the fact that a whole lot of the time the great mass of human beings muddle through without really understanding what is going on.