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Withholding Consent from the Khan

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02/06/2012Peter C. Earle

People all over the world — in the United States, the eurozone, Asia, Africa, the Middle East, and everywhere in between — are now inescapably facing the consequences of a century of unmitigated fiat-currency expansion. In response, a global movement has risen to search for solutions to the central-bank-engineered deterioration of standards of living, purchasing power, employment prospects, and economic health in general.

In the United States, this pursuit is embodied by two superficially different — though both hopelessly naive and economically underinformed — political movements: the numerous Occupy groups and the so-called Tea Party. But both factions ultimately kowtow before the state, worshiping either its welfare or warfare.

Is activism that appeals directly to the political class and central bankers — the individuals who are directly responsible for the current economic morass — a logical course of action? A review of history reveals some alternatives; what follows is one of them.

Beginning in 1206, Mongol invaders swept west and east from central Asia to become the largest contiguous empire in the history of the world. As it expanded, the conquered territories were administratively partitioned into subkingdoms where the Khan's rulings could be enforced in accordance with local political and cultural flavors. One such subkingdom was the Ilkhanate, which covered portions of modern Iran, Iraq, Syria, Turkey, and Afghanistan, and had as its seat of power the city of Tabriz.

In 1291, Rinchindorji Gaikathu, a former governor of Anatolia, took the throne of the Ilkhanate. Like most politicians, Gaikathu was a reckless spendthrift and wasted no time finding numerous causes on which to squander the treasury in his effort to consolidate power. He gave generously to the Nestorian Christian sect, which was struggling against Zoroastrian oppression throughout portions of modern-day Iraq, perhaps investing in hope of their assistance with another project: a planned, but never-undertaken, seizure of Baghdad.[1] But most of all, Gaikathu was known for his colossal expenditures on personal extravagance and debauchery.[2] And so it was that, by 1294, the Ilkhanate's coffers were drained and its treasury on the brink of bankruptcy.

Ordinarily — again, like most politicians — Gaikathu would simply have imposed a crushing raft of taxes, tithing, and fees on the populace in order to extort funds; a coincident "cattle plague," however, thwarted the standard confiscatory tactics of the state.[3] In a panic, he attempted to raise funds by selling bonds in Baghdad and Shiraz. But an ancient and time-honored credit agency — reputation — confounded his efforts, leaving the vast territory entrusted to him even closer to financial ruin.[4]

Thus, Gaikathu sought after schemes to recapitalize the emptied vaults of the Ilkhanate.

Amid what one can only imagine as desperate huddling across his court, a treasury official, Izzuddin Muzaffar, came forward to describe a Chinese experiment embarked on 20 years earlier involving parchment made from the bark of mulberry trees: a method by which a paper currency was created and could allegedly be printed as limitlessly as projects or desires demanded.[5]

Heartened by this account and not wanting to waste a moment, Gaikathu swung into action: he summoned Kublai Khan's ambassador for direct consultation. First, a network of stations were set up and staffed to both house block-printing facilities and serve as metallic-coin-collection points. Gold- and silversmiths were ordered to immediately close down.[6] Then, the new paper currency was designed, displaying both Chinese markings (to confer credibility) and Islamic regalia (a sop to local sensitivities).

Also stamped on the new bills was a promise that with its issuance, "poverty [would] vanish, provisions [would] become cheap, and rich and poor [would] be equal."[7]

Gaikathu's machinations dwarfed those of his Chinese predecessors, though. His plan to alleviate insolvency evolved beyond merely replenishing the treasury into a

scheme … not [only] to aid the existing circulation, but to suppress and supersede altogether the use of gold and silver money … the object being that all the precious metals in the land might be monopolized by the ruling power.[8]

Whereas two decades earlier the Chinese had merely augmented their precious-metal coinage with paper, Gaikathu's goal was to replace the entire outstanding stock of metallic currency in the Ilkhanate with a paper currency dubbed the chao.[9]

Finally, a series of decrees were broadcast by criers throughout the streets of Tabriz. The first prohibited the use of any metal currency whatsoever: consumers, producers, and middlemen were ordered to transact exclusively in the nascent medium thereafter. At the same time, it was now required that all citizens turn in their metallic coins in exchange for the new paper issue. Knowing, of course, that individuals are instinctively (and wisely) unwilling to trade known, proven money for a newly created, untried medium, the penalty for failure to comply was death. (Foreign merchants, too, were required to exchange their coins for the new money at the border of the Ilkhanate.) Greater penalties, however, were reserved for anyone caught defacing or interfering in the issuance of the paper currency. For this there was not only a death sentence but also death for the wrongdoer's entire family, along with complete confiscation of property.[10]

Edward Thomas summarizes:

[Gaikathu's] motives were obviously evil … instead of bringing a benefit, in disguise, it was manifestly fraudulent at its inception, associated with tyranny and oppression in enforcement of its provisions.[11]

All of this was accompanied by a propaganda campaign; signs throughout the kingdom proclaimed,

If in the world this chao gains currency,

Immortal shall the Empire's glory be.[12]

Tabriz was the testing ground for the chao. And, for the first few days after the publication of Gaikathu's commands and dissemination of the new currency, citizens briefly protested and a few riots erupted. The businessmen, artisans, traders, and peasants of the Mongol territory may have been commoners, but they were far from simple; reacting to the missives, they "fell into a sea of thought and astonishment … to write down all the discussions the notes gave origin to would be impossible."[13]

"To oppose what was essentially an archaic version of quantitative easing, the citizens of Tabriz responded with a socially imposed countermeasure fundamentally amounting to qualitative tightening."

And then, everything went silent.

Rather than utilize the suspicious paper chits, Tabrizians either fled the city or remained and subsisted on emergency food stores, sometimes raiding the gardens of neighbors who had left. Merchants refused to transact or trade; tents in bazaars stood empty. In just a few days, the formerly vibrant streets and markets of Tabriz became a commerceless "wilderness."[14] Black markets sprang up: hushed, hurried transactions in the dead of night.[15] The result was precisely the economic collapse that Gaikathu had sought to stave off, quite literally overnight, and the effects were far-reaching as well: Persian polymath Rashīd al-Dīn Tabīb wrote of this episode as having brought about the "ruin of Basra," 850 miles away.[16]

Backpedaling, Gaikathu and his advisers responded by first permitting limited transactions in specie again, and shortly thereafter abandoned the paper-currency initiative altogether. Tabrizians, however, were rendered quite humorless by the whole exercise, and even with the restoration of the metallic standard and the economy on the mend, "[Muzaffar, the treasury official] was torn to pieces by the mob [and Gaikathu] deposed and put to death by a confederacy of his nobles" some months later.[17]

The people's hunch, of course, was uncanny:

The paper money immediately became a depreciated medium of exchange … in some districts … a horse worth 15 dinars was sold for 150. All caravan traffic ceased.[18]

The experience left an indelible imprint on the cultural and institutional memory of Persians for generations to follow; writing of this event during the closing days of World War I, William Frederick Spalding wrote,

The lesson received was a salutary one and, as far as can be ascertained, successive [Persian] Governments have never seriously reconsidered the re-introduction of paper issues under their own auspices.[19]

Rather than agitating for yet another round of inept monetary or fiscal intervention or engaging in overwrought, inane protests, Persians individually — albeit en masse — turned their back on their government's manufactured expedient. To oppose what was essentially an archaic version of quantitative easing, the citizens of Tabriz responded with a socially imposed countermeasure fundamentally amounting to qualitative tightening.

While it is a positive step that, for the first time in nearly a century, people around the world are examining the foundations of central banking and skeptically regarding the long-and-widely-held conflation of currency (a transactional medium) with money (a store of value), any hope for reform must dim when the debate is channeled into the culpable, ineffectual hands of political actors.


Writing in 1550, French judge and writer Etienne de la Boetie advised that those seeking liberty

resolve to serve no more, and … are at once freed. I do not ask that you place hands upon the tyrant to topple him over, but simply that you support him no longer; then you will behold him, like a great Colossus whose pedestal has been pulled away, fall of his own weight and break into pieces.[20]

The Persians of Tabriz, the seat of power in the Ilkhanate, brought sanity and balance back to their lives simply by turning their backs on Gaikathu's perfidious tender. They did so without petitions, elections, bloviating, referenda, histrionic "demonstrations," political assassinations, or a bloody, wasteful revolution. The simple act of abandoning the contrived currency system exposed it — and indeed, the issuing regime itself — for what they were: coercively imposed, larcenous fictions.


[1] Arabic historian Aḥmad ibnʻAlī Maqrīzīindicates that Gaikathu, in addition to plotting a military campaign to seize Baghdad, had additionally engaged in a war of words with Egyptian Mamluk Sultan Al-Ashraf Khalil, threatening to invade and conquer the Levant.

[2] Edward Granville Browne, A History of Persian Literature under Tartar Dominion (London: Cambridge University Press, 1920), p. 37.

[3] David Morgan, The Mongols (Oxford: Blackwell Publishing, 1986), p. 165.

[4] William F. Spalding, Eastern Exchange Currency and Finance (London: Sir Isaac Pitman and Sons, 1917), p. 97.

[5] Henry V. Poor, Resumption and the Silver Question (New York: H.V. and H.W. Poor, 1878), p. 140.

[6] Ibid, p. 145.

[7] Daniel J. Boorstin, The Discoverers (New York: Random House, 1983), p. 503.

[8] Edward Thomas, The Chronicles of the Pathan Kings of Delhi (London: Trubner & Co, 1871), p. 242.

[9] Poor, 145.

[10] Pringle Kennedy, A History of the Great Moghuls; or, A History of the Badshahate of Delhi (Calcutta: Thacker, Spink & Co, 1905), p. 51.

[11] Thomas, p. 240–241.

[12] Browne, 38.

[13] Journal of the Institute of Bankers, Vol. 13 (London: Blades, East & Blades, 1892), p. 25.[14] Journal of the Institute of Bankers.

[15] A most humorous and illuminating passage from Spalding relates that immediately following issuance of the chao and the desertion of Tabriz, footpads took to preying on citizens with real, hard assets; and with a great sense of sarcasm, they didn't leave the victim empty-handed: they "paid" for what was stolen with the new, fiat paper!

[16] Jaquir Iqbal, Islamic Financial Management (Delhi: Global Village Publishing House, 2009), p. 154.

[17] George N. Curzon, Persia and the Persian Question (London: Longmans, Green & Co, 1892), p. 478.

[18] Spalding, 97.

[19] Spalding, 98.

[20] Etienne de la Boetie, The Politics of Obedience: The Discourse of Voluntary Servitude (Auburn: Ludwig Von Mises Institute, 2008), p. 47.


Contact Peter C. Earle

Pete Earle is an economist at the American Institute for Economic Research and a longtime financial markets professional. He has spent nearly two decades trading in and studying global equity, derivative, commodity, and currency markets, and regularly engages in consulting with trading, cryptocurrency, and online/mobile gaming firms. Pete has published numerous articles on economic history, spontaneous order, and liberty, including A Century of Anarchy: Neutral Moresnet through the Revisionist Lens, available on Amazon and Barnes & Noble. He is also editor of Coronavirus and Economic Crisis. He resides in the Greater New York area.