When you pull that dollar bill out of your wallet, do you really ever wonder “where it’s been” in an historical or creative sense? The pros tell us money is defined as three things: a medium of exchange, unit of account and store of value. While those concepts may not be lighting up your brain as you line up for the morning cup of coffee, they are already at work. Of course, they have been for millennia.

More than a curiosity, money in the United States has been evolving since the country became independent in the larger context of European history at that time. England was on the gold standard during the Revolutionary War; Spain was using silver and gold, while the U.S. sank into “hyper‐inflation” until Alexander Hamilton became George Washington’s Secretary of the Treasury and reformed the currency as a bi‐metallic standard of gold and silver. This lasted until the 1830’s or so, when silver was revalued and the U.S. effectively went on the gold standard at $20.67 an ounce until 1933, with the significant exception of the Civil War.

This seeming digression from our world of free‐floating currencies should remind us that the most important currencies were linked through gold in the nineteenth century, into WWI really. Even more interesting, they were not linked to each other in any official way. Britain was the biggest economic power of the time and simply agreed to redeem Bank of England notes, currency, for gold on demand. The U.S. Treasury did essentially the same thing, although silver came and went as money. It is vital for us to realize that a country could take a strong monetary position all by itself.

While gold was chosen for a lot of reasons, including a mistake by Sir Isaac Newton as Master of the Mint in valuing gold, the fact that England was willing to maintain convertibly no matter what, made London the world's financial headquarters in the nineteenth century. The decision to return to the gold standard after the Napoleonic Wars may not have been motivated by commercial and competitive concerns, but it certainly had powerful effects in that area. The lesson for us today has to be how England did that. Conventional wisdom in Washington seems to be that devaluing a currency is good for exports. In that case, Britain should not have been able to dominate international trade for a century the way she did.

London did become the center of finance because international investors felt comfortable that their money would be safe from depreciation there. Supposedly, every time there was a riot in Paris, more money flowed to England. The reason was the customer came first. Sound money and property rights led the development of the core capitalist concept of moving money from people who have it to those who don’t, but who do have a good idea. Property rights may be obvious, but a stable currency is essential to entrepreneurs who make long-term committments to commerical concepts.

In the U.S., British success showed up in the form of imported capital from London where the returns stateside were higher in what was and still may be a developing country. Rates were low in London, because the pound was stable, which made it easier for businesses during the Industrial Revolution to finance capital investment and improve productivity. That led to greater profits and money to invest in the U.S. Of course, the money invested in America created a trade deficit as imports from Britain became cheaper, and the "deficit" was balanced by the capital invested here.

What the British taught us is that we can have a stable currency, imports and exports, and impressive economic growth with the rising living standards it brings by treating investors of all kinds with respect. So, when you contemplate where the coffee you’re about to buy came from, remember that the cultivation, distribution and delivery of those beans was made possible by some fundamental monetary decisions made long ago, history that could teach us something even today.