jump to navigation

The Origin of Money October 6, 2015

Posted by anagasto in history, law.
trackback

.

In the distant past a coin was made of gold or silver. You could check its weight to calculate its value, but it was difficult to check its purity and there was often fraud.

Long before that, a piece of paper represented corn or wheat stored at a central deposit.

And even earlier on, you would have to walk around to try and exchange your corn or your wheat for a chicken, a knife,  a millstone.

…………………………………………………………………………………………………………….

Later, there were bills and coins representing a given amount of gold that was (supposedly !) stored by the banks or the government.

The two world wars and the war in Vietnam did away with that. It was necessary to use the stored gold to pay for the wars. —

……………………………………………………………………………………………………………..

shekel 1

.

dc-roman-coin

At present currencies are no longer backed by gold, but by an order of the government that obliges you to accept its bills and coins, and these are  called Fiat money.

“FIAT” is Latin and means “let there be”. Fiat money is money that is NOT backed by metal, but by a government decree. All modern countries work on Fiat money. The gold backing had to be given up because of the two world wars.  Gold is also too slow to handle now that all trade communications have become instantaneous. —

The United States dollar ceased to be convertible into gold in 1934 by passage of the Gold Reserve Act of that year, and President Richard Nixon terminated its nominal gold valuation when Charles de Gaulle’s France insisted on exchanging France’s dollars.

http://www.williampfaff.com/modules/news/article.php?storyid=531
…………………………………………………………………………………………………………….

dollar

Currencies now depend on supply and demand and on political decisions. So their real value is now more difficult to gauge than before.

Until recently the dollar was the international referent and all countries kept large dollar deposits both to pay each other and to back up their own currencies.

……………………………………………………………………………………………………………………………………………………………………

Famous examples:

Remember John Steinbeck’s great story about Cannery Row where  the official currency collapsed and men tried to use frogs instead.

At the grocer’s the cashier had to run to keep the frogs from jumping off the counter.

Postscript January 2013
I have since re-read Cannery Row, and the idea of a frog currency is simply not there, but I cannot have invented it. I’ll have to look for it elsewhere.

————————————————————————————

By the end of WW1, the Germans had printed so much money to pay for their war, that bills of  100 billion mark became common currency needed to buy bread or milk.

Most people lost all their savings.

————————————————————————————-


The thumbnail shows Dr Faust at home  receiving advice from the devil.
It is from the shadow theater at http://www.vagantei-erhardt.de/index.html.

In Goethe’s play, the devil and Dr Faust visit a bankrupt Emperor.

The devil tells the Emperor that he could produce tons of cash overnight. —

He prints tons of paper money.  Each bill says it represents part of the gold and silver to be mined in future times in all the Emperor’s lands.

……………………………………………………………………………………………………………………………………………………………………..

Added April 10, 2009:

Bernanke about printing money to save the Banks:

( PELLEY) Is that tax money that the Fed is spending?

( BERNANKE ) It’s not tax money.  The banks have– accounts with the Fed, [……………….] so it’s much more akin to printing money than it is to borrowing.

( PELLEY ) You’ve been printing money?

( BERNANKE ) Well, effectively. And we need to do that, because our economy is very weak and inflation is very low. When the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery [….].

Complete text at http://www.realclearpolitics.com/articles/2009/03/bernanke_60_minutes.html

The crisis started in 2007 with the mortgage meltdown. In 2008, in the second week of October,  the Fed had to print money to save the banks.

………………………………………………………………………………………………………….

.

However, DO KEEP in mind that even gold coins have to be printed.  Problems are mostly due to people handling the system, not to the system itself.

………………………………………………………………………………………………………….

.

The ancient coins have become collectors’ items:

man-faced bull 400 bC

It is a bull with a man’s face. The coin is from Greece and about 2500 years old.

sicily deer

A deer from Sicily

Sacrifice cup

A sacrifice cup with a pearl ring from Israel.

These pictures are from http://tinyurl.com/nj8fcf where you can see entire collections.

………………………………………………………………………………………………………….

.

From the NYT:

Ten billion dollars in 100-dollar notes would weigh about 110 tons and take up about 100 large storage pallets.

Sultan Said bin Taimur of Oman encountered yet another problem.

He piled up hard currency  in his palace in Muscat, but rats began to gnaw at it.

See  http://www.nytimes.com/2011/03/13/weekinreview/13cash.html?ref=global-home
.

.

Comments»

1. cantueso - February 4, 2011

.
RE: Steinbeck’s “Cannery Row”:

I have recently read the book again and guess what?
It is not at all what I remember.
There is no “official currency” that collapses.
There is simply, living among the poor, a researcher who needs frogs for his experiments and pays a fixed amount of money per frog received.
The poor try to get whisky and food at the local shop by paying in frogs.

That the frogs would run away on the counter, and how the shop owner would have to run after them — that is what I had often imagined, but it is not in the book.

Now I have not had the heart to correct my description. Take it as an example to show how history is written.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s