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money.

      Money has become a psychological construct. So why can’t we find psychological ways of getting more of it? Maybe we can put aside the narrow world of chancellors, bank managers and balance sheets, and work out ways to tap into this infinity of wealth for ourselves – as our prehistoric ancestors did when they wandered along beaches picking up shells to use as currency. Maybe we can take Monopoly money and somehow make it real: like the economics editor of The Independent Diane Coyle, who in her book The Weightless World describes using ‘pretend money’ from an old board game to pay her neighbours in her local baby-sitting circle.

      Is DIY money possible? It is an idyllic dream by any stretch of the imagination, but it’s what this book is all about. It is a journey to discover people who claim to have founds ways of conjuring money out of nothing, the so-called ‘new alchemists’ who can take the modern equivalent of base metal and turn it into gold – and with it turn all our ideas about money upside-down.

      II

      Why America? Partly because of Zabau Shepard.

      Zabau Shepard was a dog from Virginia, who in 1990 suddenly started receiving free credit cards through the post. Her two-pronged name, in a nation where many people choose the most peculiar names, probably confused the computers. She was used as a symbol of the American financial malaise in a fascinating book by the financial journalist James Allen called Money of the Mind. If credit is endlessly available, he said, then there is nothing real about money. It means that anyone can buy almost anything.

      Sometimes they do; sometimes they nearly do. The Cincinnati investment advisor Paul Herrlinger claimed to be bidding for the Minneapolis store chain Dayton-Hudson for $6.8 billion in 1987 – about $6.7 billion more than the assets of his company. In those heady days, when anyone could borrow anything, he was widely believed on Wall Street and Dayton-Hudson shares climbed $10. After his lawyer tried to head off disaster by explaining that his client was ill, Herrlinger was asked by TV interviewers on his lawn whether the bid was a hoax. ‘I don’t know,’ he said. ‘It’s no more a hoax than anything else.’

      But then the American attitude to money is more relaxed than ours. You only have to live in the United States for a few months before you get a direct mail cheque for $5,000 made out to you, sent by an obliging credit-card company touting for business. All you have to do is pay it into your account and the card and statements start arriving, with interest at anything up to 26 per cent. The credit-card companies have calculated that they gain more in extra custom than they lose in bad debts. ‘It’s like giving lettuce to hungry rabbits,’ according to one observer. Perhaps that is why, leaving mortgages aside, the average American household is now $8,570 in personal debt, with three or four credit cards and five or six affinity cards. The figure in the UK is not as high, but since 1990 even British households have been spending more servicing their personal debt than they do on food.

      All this is the culmination of a 3,000-year history of money, the origin of which is lost in the mists of time. Some experts explain the word in terms of the Latin for ‘memory’ and ‘warning’; others say it comes from the Roman goddess Juno Moneta, Jupiter’s matronly wife, who had the mint next-door to her temple in ancient Rome. Perhaps memory and warning are appropriate ways of describing the money system, because the invention of compound interest – which has solved the problem of penniless old age and driven away the workhouses – has also plunged the world into debt. Some prophets of doom will tell you that a penny invested at average interest rates at the time of Christ would now be worth in gold more than the entire mass of the earth. What they don’t tell you is that the same would be true the other way round if you had borrowed the penny.

      Before money, in the Iliad, values were measured in terms of cattle: the Latin word pecunia (money) comes from pecus (cattle). Money probably emerged, not to make shopping easier, but to mark celebrations or marriages, alliances or sacrifices to the gods – to build social relationships. The human race was able to do without money for trade until the Lydians – living in what is now western Turkey – first started stamping their metal tokens with official marks, thus inventing the first coins in the West. ‘They were the first retailers,’ said the ancient historian Hero-dotus, describing a society which sounds obsessed with its new invention. ‘The customs of the Lydians differ little from those of the Grecians, except that they prostitute their females.’ It is strange to think that the inventors of money as we know it now were also the first pimps.

      Before money, people who wanted to pop down to the shops had to rely on bartering – but even then they would have to be able to agree on the value of the goods they were exchanging. That was why money evolved as locally agreed counters, some of them predictable, some of them most peculiar: like bronze tools (China), gold rings (Egypt), tobacco (Virginia) or twelve-foot stones (the Caroline Islands in the Pacific). The stones must have been pretty useless, but at least they were difficult to pinch out of handbags.

      These developments moved slowly at first, possibly because money innovators were not as numerous as they are these days. Some came to sticky ends, like Johan Palmstruch of Stockholm, condemned to death for causing inflation by printing too many official banknotes. Others changed money in order to achieve something completely different – like William III, who began the National Debt in 1693 to fund another war with France.

      The Dutch led the way for a while, then the French. But the innovators who have succeeded since then tend to be either Scots or American. Maybe it was a national fascination for money which meant that the Scots brought the world the pioneer economist Adam Smith, and John Law, whose paper currency and limitless credit became so unpopular in France that, in 1720, he had to escape with his life from Paris.

      But it is not surprising that the Americans have produced so many money innovators. From next to nothing except their threadbare clothes and a couple of chickens, the passengers on the Mayflower and their descendants had to conjure up the enormous wealth to develop a whole continent. They had to trade their way into wealth, until their children and grandchildren could set up banks which made money widely available, and by doing so they built the place we see now, with its gleaming skyscrapers, penitentiaries and McDonald’s. The cost, every generation or so, has been a tradition of regular bank crashes. The opposite of money innovation is money disaster. But without money innovators, the Wild West would never have been won, and the enormous investments they eventually attracted from Victorian England would never have been available.

      Nor would the American Revolution have been paid for. It was financed by the new idea of printing more money which, as we now know, causes inflation: it loses its value. ‘The Currency as we manage it is a wonderful machine,’ said Benjamin Franklin, who printed many of the notes himself. ‘It performs in office when we issue it; it pays and clothes Troops, and provides Victuals and Ammunition; and when we are obliged to issue a Quantity excessive, it pays itself off by Depreciation.’

      While we Europeans agonize about launching a single currency, suddenly everybody in the United States is issuing money. There are phone units, subway tokens, affinity cards, cyber-currencies, time dollars, hours, Valley Dollars, Frequent Flyer Miles. Americans don’t wait for the government to do it: they just get on and conjure the money for themselves. We have similar ideas on this side of the Atlantic, of course, but we also have a traditional disapproval of the elasticity and sheer availability of American money: Victorian moralists thought it led to the debauchment of youth. Our own venerable currency seemed sturdier and imperturbable somehow. ‘When I listen to the anti-European rhetoric of some politicians,’ wrote the psychologist Dorothy Rowe, ‘I get the impression that they believe that, back in the mists of time when this most noble race first set foot on this sceptred isle, God gave the British the pound for their own special use.’

      Britain is not a nation of great financial innovators. We invented the Bank of England, and sat back contented for a couple of centuries, assuming that our new race of bank managers were taking over the world – only to find that they hadn’t, and the international markets were increasingly outside our control. British politicians hate this failure: they occasionally lash out, like Harold Wilson, at the ‘Gnomes of Zurich’, but usually they prefer not to think about it. No wonder the

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