The Evolution Of Money And Its Corruption
From Bartering to Quantitive Easing
A lasting friendship requires trust; that’s why currencies never last.
Before fiat, we had money in the shape of valuable goods, and we had a bartering economy.
What is bartering?
One entity wants something another has, so they must agree on the exchange rate. This is simple, but a bartering system becomes unworkable when the number of goods increases. This is because the system would end up with millions of exchange rates.
Furthermore, if one person doesn’t have anything that the other person wants? The exchange won’t happen…
These are the problems that currency solves. When all goods are priced in money, there is one price per item, and anything can be paid with fungible funds.
Prehistoric Money
Before coins and paper bills, there was ancient money. It had unique properties and was non-fungible as its value fluctuated depending on where and when it was used.
Shells
Beautiful shells would make sound currency far away from the coast as they weren’t available inland. Of course, this made them scarce and valuable, but it wasn’t a great solution close to the beach where everyone could gather them.
Fur
It is easy to see that fur would hold value.
Fur required a lot of work, like hunting, killing, and skinning, and it secured survival in cold climates where the fur trade became a big part of society.
Salt
Before it was easily acquirable, it was a highly sought-after commodity that seasoned and preserved food. People were paid in salt, and battles were fought over salt mines.
Monetary Metals
When trading spread over large geographical areas, a new form of money emerged. A form of money worth the same in any location. It was divisible, easy to transport, and could withstand the wear of time.
Copper, silver, gold, and nickel became currencies. Kings, banks, and institutions controlled the minting and distribution.
But there were problems. Holders of these currencies could not know if what they received as payment was real unless it was weighed or molten to test its’ purity.
Paper Banknotes
Europe saw its first paper money printed in 1661.
Let’s look at this older version of a ten-dollar bill.
Looking at the bottom, you can see that the bill can be exchanged for gold upon request.
Today’s dollar bills do not promise this because the gold standard was abolished by Richard Nixon in 1971.
Modern Banking
Banking as we know it emerged in London during the 17th century. A goldsmith banker had access to secure vaults where gold could be stored in return for a fee. Receipts were issued to the owner, which only they could redeem. This also leads to the development of cheques.
The bank offered depositors a passive income stream by allowing the goldsmiths to lend out their gold in return for interest.
The problem was (and still is) that the “banks” started issuing loans worth more than the gold in their vaults.
This is how fractional reserve banking and bank runs were born. Bank runs happen when a majority loses trust in the institution and wants its gold back. So they all try to withdraw it at the same time. Obviously, this creates a problem as there needs to be more gold to process all the withdrawals.
Fiat Money
The word fiat has its origin in Latin. It means let it be done or crappy car. Fiat money is not backed by any physical asset and is valuable solely because the issuing authority says so.
It holds no value besides the people’s belief in it, which is upheld by the threat of violence.
Governments have set up tax systems that they will enforce by violence, and only fiat will make this threat disappear.
The threat of not feeding the kids or living on the street is very real, especially in countries that have faced hyperinflation.
Inflation is Corruption
The great debasement is an example of early inflation and the destruction of currency by the elite.
To finance foreign wars and a luxurious lifestyle Henry, the 8th of England, debased the British currency in 1544. By decreasing the percentage of precious metal present in coins, the king could mint more of them.
The amount of silver in sterling coins dropped from 92.5 % purity to 25%. This resulted in devastating inflation, which lasted until the debased coins were taken off the market in 1560.
This earned Henry the nickname “Old Coppernose.” The thin silver layer tended to wear off the nose of his image on the coins, exposing the copper underneath.
Quantitative Easing (Currency creation)
This is a fancy and confusing way to describe money printing. It first started during the 2009 financial crisis when the Fed bailed out banks with money created out of thin air.
Whether it’s called quantitative easing, bail-outs, or stimulus. It is all money printing and ends up in inflation.
Conclusion
- We have currency because bartering has become too complicated and unfeasible.
- Currency is worthless paper money that represents value. It does not hold any actual value.
- Money is an actual store of value and must retain its purchasing power like gold, silver, and now also bitcoin.
- No fiat currency has ever survived because inflation always renders them worthless.
- Governments are scared of gold and bitcoin because they cannot print more. This fact limits their spending power and ability to steal from and control the people.
- Currency is always printed on demand and inflated, which is why prices go up.
- It is not the items for sale that change and go up in value. A house is a house, a car is a car, and a lollypop is still a lollipop regardless of what it costs.
A lasting friendship requires trust; that’s why currencies never last.
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Also read: This is how banks hold your money hostage and what to do about it.
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