The History of Paper Money – Origins of Exchange – Extra History – #1


How did humanity come to accept rectangular pieces of pulped trees as something to spend eight to ten hours a day working for? It’s a pretty insane story. This change from hard currency like gold or silver is a really huge deal. Without it, we couldn’t possibly have the massive industrial and post-industrial economies we know today. This change revolutionized how we do business and forever altered how governments were financed. Learning about this massive sea change in how we as a species thought about money can help us reflect on our current historical shift from seeing paper as money, to seeing bits, seeing digital ones and zeros as money. But before we can get the exciting story of people trying to convince other people that paper was worth something, to understand why this is such a huge deal, we have to discuss a bit about how we thought about money before paper. If we go way back to the beginning of society, we find trade. Before early humans even really settled down, there’s evidence that, when we met, we exchanged things we had made or things we’d found. But as soon as humans started to cultivate the earth and form societies, we started to specialize and that meant that we not only loved to trade, we had to. Now, often when we think of trade we think of long distance trade. We think of caravans loaded with exotic goods. But for our story, we have to talk about local trade. Because here’s where we run into the problem of Coincidence of Wants. Or rather, we run into it everywhere. But if we fail to solve this problem at the local level, society breaks down and we can’t have the specialised trades we need to run anything beyond the smallest gathering of people. So what is a Coincidence of Wants? It’s the basis on which trade can exist. Let’s say that I make shirts, and you grow food. Well, if you want a shirt and I want food, awesome, we can trade. But if I don’t want
your stupid food, or if you’re all full up on shirts, well, we can’t trade, can we? And that
starts becoming a real problem for society if i want food but you don’t
want my shirts. Maybe I can find somebody with some third good that you do want.
But that means that a lot of time is consumed by trading. And if I can’t find
some other good you want to trade for, well, there’s gonna be trouble. And this
problem runs even deeper than we sometimes think about when you consider the lack of
refrigeration and transportation. Imagine I’m a fisherman and you’re a farmer, and
let’s say that we want to trade. Well there’s this problem; your harvest
only comes in once a year. I can’t trade you for a harvest you don’t have yet, and
all of those extra fish I caught today are going to be pretty rotten by the
time your harvest comes in. And while this may seem like a very specific
example, trade for food was probably the most prevalent trade of the ancient world.
So we need to find a third good that we both want that we can trade for. But
wouldn’t it be convenient if there was some universal third good which
everybody wanted and would trade for? So we didn’t have to do some long chain of bartering every time we wanted something. Enter, money. All money is is a third good
that doesn’t spoil and that we all agree has value, thus becoming a unit of
exchange; An intermediary good, by which all other goods can be traded. And while we often think of coins made
of precious metals for this purpose, the truth is, so long as it’s durable enough
and hard enough to procure, anything can serve as money. Tangent time: Turns out
we have used a lot of weird stuff as money over our history. For example,
cattle have often served as money. I mean, they’re fairly durable, they last for
years, they’re practical, and they’re reasonably
scarce. When Europeans arrived in the Americas, alcohol often served as
currency. You could literally drink your paycheck. Cigarettes have often become
money of prisons and POW camps. Back in ancient China, money in the shape of tools and then knives became some of the first examples of precious metal money.
And, my personal favorite, on the island of Yap, gigantic limestone donuts serve
as money. They are so huge that once they are brought to the island, no one even moves them. They just remember who owns which ones. In fact, all of these stones had to be quarried off-island,
because there’s no naturally-occurring limestone on Yap. And once when a crew was coming back
from a quarrying expedition, a storm hit and sent their stone to the bottom of the
ocean. But the crew survived and told everybody what had happened, and the
Islanders decided that “Eh, it still counted.” So to this day, somebody owns
that giant piece of stone money at the bottom of the sea. And even though it’s
not really in use today, for hundreds of years that stone was used to buy and
sell things, even though no one had ever seen it, giving Yap, in some ways, one of the most forward-thinking monetary systems before the modern era. But if we
want to talk about the king of them all, the form of money that has been used the
longest and over the widest expanse of the globe, we have to talk about one
thing. No, not gold. Although in fairness, that’s
what I would have guessed too. Nope, it’s the cowry shell. It’s durable, impossible
to counterfeit, and without modern harvesting techniques it’s not so easy
to acquire that inflation will run rampant. Anyway, tangent over, back on
target. We have lots of different possible types
of pre-modern money, including the gold and silver coins that we so often think
of when we think of money of the past. But all of these different types of
money have one thing in common: they are what we call commodity money, because
their value is in the commodity themselves. Even cowries were seen as
rare and beautiful, and can be used for jewelry and the like, and so were thought
of as having intrinsic value. The same way we feel gold has an intrinsic value
for its scarcity and its uses. Now, that makes a lot of sense for a
currency. It feels secure and reasonable. You can trust to the worth of that gold
coin in your hand. I mean, after all, if you’re used to
trading one thing for another, why would you ever trade something
valuable like a horse for something worthless like a pile of paper? But for
gold or for cowries, well that’s another story. But when your economy
grows, this system starts showing some of its limits. For one thing, commodity money is heavy. If you’re doing massive deals, it gets
really hard to transport. And it’s risky to transport across lawless lands.
Commodity money is also often subject to debasing, where somebody. usually the
person who should be responsible for making sure the currency maintains its
value, waters down the whiskey, or takes a gold coin, melts it down, and reforges it
with a bit less gold in it, and passes it off as worth the same amount. But more
than anything, when you get to gigantic economies, the very scarcity that makes
commodity money seem to have value becomes your enemy. Like, let’s take gold
and silver. What happens when your economy grows to the point where you
just can’t get enough of it? We actually saw the effects of this in
our episode on the Opium Wars, where so much English silver was ending up in
China in exchange for tea, it was actually causing inflation, and
hampering basic economic transactions at home. And this really comes into effect
when we get to more modern government finance, and the financing of war. What happens to a nation when it has to
make a sudden drastic uptick in its spending, but can’t get enough specie to
cover its cost? Even from those who are willing to lend? As I am sure we will see
in future Extra History episodes, it plays havoc with an economy, and even the ability to prosecute a war. And the reverse of this is true as well. Currencies based on scarcity are often
subject to changes in the scarcity of the commodity on which they’re based, which can be trouble when somebody finds a lot more of your currency commodity. When
Spain started to important massive amounts of silver and gold from the
Americas, all the precious metal-based currency in Europe started to suffer
from inflation. After all, all those gold coins weren’t worth nearly as much since
somebody had just dumped a huge new pile of gold on European shores. And as a
government, or even a financial sector, when someone digging up a new pile of
minerals means that you can’t control your own fiscal policy, then that’s bad
news. But those disadvantages are only easy to see if you’re a head of state or
working on the largest-scale transactions. If you’re just some average
person in the street, when some well-to-do says that they want to take
your grain in exchange for this nice slip of… is that paper? Well, you would be forgiven for thinking
that you smell a rat. Join us next time as we finally delve into the origins of
paper money, and start to address this problem of people fearing to give up
their outdated gold.

100 thoughts on “The History of Paper Money – Origins of Exchange – Extra History – #1

  1. Barter theory is nonsense propaganda from vested interests. These guys seem as if they've never heard of tally sticks (at least the first few minutes). I can't recall the last time I've seen >500 dislikes.

  2. Lom people in bangka belitung Indonesia my home land….
    They used to trade items with items,, The old fashioned way …

    But when dutch Colonialise us and modernisation occurs
    They become Alienated

    And me a malay who live with lom people, i feel pity for them… They Live in forest, hunt with primitive ways…. But weirdly they never get malaria….

  3. Can I ask a question yes? Ok where are there arms ? I mean we have arms and this is not a rant but where are there arms?

  4. how about the fact all paper currency has failed 100% of the time cousing the public to loose all their wealth. yeah lets just forget that part. dols and silver is the only real money. fiat currency is only a representation of the value of precious metals. dum ass.

  5. but then the control of production and value determination of money becomes an inherent source of power. currently our money systems are determined by governments and financial institutions, which gives them immense power based off of a abstract social practice. so it’s a trade off with bartering vs. currency:

    bartering: more personal autonomy in value determination and social relations at the expense of expediency and increased utility (which is also an issue of practicality)

    currency: more expediency and increase utility at the expense of interpersonal autonomy and self determination in interpersonal relations

  6. I love the image of a cow alive with two calves, cause it's funny. If a cow were to carry twins to term it would kill all three of them, so they just abort one in vitro.

  7. Animations on every presentation on this channel is so much to the point that it requires no imagination and it's self explanatory.

  8. I have heard that the amount of gold that has been mined can only fill 3 swimming pools. Wow.

  9. Salt was money. The more salt you had, the richer you were, cause salt was really hard to find. The word salary came from salt.

  10. Money is for sure Evil ❗️There needs to be a new world a form of happiness NO Religion ♦️NO Countries ♦️NO Higher Ups ♦️ NO Money. As these things create division and bad vibrations and fear. But one comes to mind is the humans race evil ? Created by someone or something to be set into motion we must take a stand on a NEW way of looking at things as technology grows will we be slaves to another so called evil. ❗️wake up people.

  11. I've never felt a need to question much in this series before but this origin of money as a durable 3rd party good in a barter system is crazy.

    Historians aren't the source of that idea, economists were. They didn't even try to pick a single society or culture to base the idea on but instead imagined what primitive people would do. It's absurd that you'd even call it a "controversial" idea. It's about as valid as intelligent design.

    I'd have preferred you just ascribed currency to ancient alien theory.

  12. It's funny how many things can be money. In ancient Celtic societies they used bronze rings that they'd keep on a string or wear

  13. Fish will get spoiled? In reality id doesn;t work that way. Before people knew how to do stuff, they were not as specialized as today. even with the fish example-fishermen can hunt fish all year round and their families can grow food at the same time. People were tricked by some other people.People can always trade services and share with one another, when there is no service needed.

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  15. This analysis ignores a common good that allowed a lot of local trade to take place with neither barter nor money; reputation. In the majority of human history and pre-history, coincidence of wants existed between my desire to be seen as a valuable member of society and to call in favors from you and your desire for my creations. Leaving your community was incredibly difficult to the point of dangerous. So if I am a fisherman and you're a farmer whose harvest will come in in a few months, I can happily let you have a few fish and be seen as a valuable member of our village, in exchange for which you will be motivated to share with me as well out of 1) gratitude, 2) to not be seen as a moocher. I gain social status and reputation and informal leverage for your largesse later. The odds of you stiffing me is relatively low; you will look like a mooch, you will find all your future dealings with other people in the village suffer, and you aren't likely to get more fish from me later when you need fish again. And, again, leaving the village is a bad option; it's dangerous out there before there were states.

  16. History of paper money
    Paper money was invented
    People used papaer money
    Australia invented plastic money,
    Plastic money > Paper money
    hard to forge

  17. Honestly my favorite form of money was what the Aztecs used, alright, chocolate was a huge thing to the Aztecs. So huge, that they used cocoa seeds as currency. When the didn't feel like carrying huge amounts of seeds. They used axes, which were worth about 8,000 cocoa seeds each.

  18. I’ve gotten used to the new narrator, but I still miss this guy.

    EDIT: It’s funny… when I found this channel years ago I was kind of like, “I like the content, but I’m not sure I can handle the way this is narrated.”

    Came to love it and now I don’t like (though I can live with it; absolutely nothing against the new guy) the change. Human nature I guess.

  19. I hope that the person/people who invented money will get the worst form of suffering down in hell with something way worse than humanity has experienced

  20. Okay this is incredibly unrealistic and false. Because

    2:36 Who would give a goat for 20 cabbage? That’s a horrible deal!

    [Joke]

  21. For several months I joined five trading chat rooms, bought 3 different trading courses and read a dozen books on trading. After wading through all the pot of gold promises, lifestyle hot car videos and promises of success in single equities and single time frames, I finally found a community and strategy with real value; Trading with Lukasz Wilhelm.

  22. given a choice infants choose coins… something with an actual value outside of it's numeration… copper nickel and even cuprozinc can be fashioned into something useful.

  23. I want to say thank you! You really helped me with the outline of my uni assignment. I had to use some books too, but your video kick-started my work.
    Great video, keep up the great work!

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