The Birth of Paper Money: 1400 years of Trade, War, Power, and Control

I have a confession to make, I love paper money, but not for the reasons you might think. It is a beautiful piece of art. I have a collection of various foreign currencies, and I am not alone in my appreciation of them. There is just something about the different textures and even smells. Some highlight national heroes like George Washington on the dollar, Nelson Mandela on the South African Rand, Gandhi on the Indian rupee. Often the reverse has either an important symbol, a historical building, or a national treasure. Many also include symbols of industrialization and economy. In today's modern era, for many nations, it represents independence. But it wasn't always like that, and you'd be surprised to find that it was once not even real money.

Unsurprisingly, paper money first came about in the land to first create paper. In 7th-century Tang Dynasty China, they weren't considered money. To put it simply, it was a promise to deliver a large amount of goods at a set exchange rate in copper coins. Wait, hold on, why not exchange the copper coins? Well, because of the sheer number of coins involved, it becomes a minor inconvenience. The Chinese had earlier developed coins that they could carry on strings.

With paper, large transactions could take place without large strings of coins. At the time, it was basically a contract or IOU. Sometimes being issued by rulers but often people who were safe keepers of the coins. They had fixed values and often restricted regions and durations. Although that began to change as coins became fewer and paper increased, These paper "moneys" also began to develop early counterfeit measures and the paper became money.

As the Chinese developed their system of deposit-slip money, it caught the eye of traders the world over. Not long after, cloth-based IOUs that could be exchanged for silver began to appear. The Knights Templars would begin accepting deposits for pilgrims to the Holy Lands which would be exchanged for equal value upon arrival. The practice then began expanding throughout Europe. Developing into deposit houses, as merchants didn't like carrying large amounts of paper. This would be the start of modern banks. There was even a system for international exchanges. Merchants arriving in a region could exchange notes. These exchange houses had virtual accounts with those of the origin. They would debit and credit between regions via merchants. Developing the first international credit system.

It is unsurprising that the goldsmiths would be some of the first involved in the storage of coins. They began to issue notes that whoever held them could exchange rather than the account of a single debtor. This would lead to the goldsmiths issuing more paper than they held in reserve as they did not get redeemed at once. Evolving from safe keepers into credit providers and leverage businesses. Expanding the money supply. This would progress further into smaller fixed-value notes now known as "banknotes" which were not redeemed but showed someone was good for the money.

As paper became the primary means of exchanging sums of gold and silver coins. Money was increasingly seen as paper. The second half of the 16th century brought a further diminishing of commodity based money. With the arrival of a new cache of gold and silver and other goods from the "New World," the idea of money changed. With more gold on the continent, there was a rapid expansion of prices decreasing the purchasing power of many. The balance of payments between the Spanish and other European nations would shift. There were new goods, and Europe had to have them. You could call it the birth of national consumerism. Nations would soon resort to piracy to pay for their debt. And ultimate lead to the establishment of colonies, seeking the riches that the Spanish empire had seen. This gave rise to the mercantile system, a new economic system that favored maintaining a balance of exports and imports. A wealthy nation meant less imports, as less gold would leave its borders.

Money would further take on another mental shift. With the governor of the Province of Massachusetts issued paper money to raise gold to fight the French. Paper money becomes a tool for nations to win wars. This practice would be picked up by the Bank of England and French. When nations don’t have the money to continue war they simply raised it from the citizens through paper bills. This style of bill was the main form of money in the colonies. At the time, these notes were like war bonds, only handwritten with the amount provided. They later became printed forms that had specific amounts. The notes were later made legal tender. This form of money would sow the seeds of the French Revolution because of the debt incurred. Shifting the power over the colonies to England. And with tension remaining on the borders, the British Empire began to impose taxes on the colonies to pay for their security, giving rise to the American Revolution, which again led to the creation of paper notes.

Following the Revolutionary War, The United States would created a national bank. With the goal of paying off the debts and establishing a common currency. Though this would prove unsuccessful. Around the same time, the Bank of England was restricted from giving gold in exchange for notes. Effectively putting an end to the convertibility of paper money.

Many of the founding fathers of the United States were against the establishment of a national bank and seen it as a clear violation of the constitution. They also felt money should be a private venture. The bank was formed as a separate entity from the government with the government holding a controlling interest. Later, shares would be liquidated to fund the government becoming fully privatized. A second bank was established by James Madison. James Madison was once an opponent to the first bank. Was pressured by a growing disarray of unregulated currencies and a lack of fiscal order. And sought to transform the country into an industrialized and interdependent nation. Soon after, constitutional arguments against a national bank and by extension a national currency would return. Notable "Old" Republicans arguing that it could threaten the institution of slavery, leading to greater numbers of private money and private banks within states. The second bank would reach liquidation. Leading to a free banking era where the power to print money was with the banks. Due to decentralized nature banking and the power being fully held with states many paper bills had outright fraud. And support for an integrated financial system with unified money grew.

With limited power over taxation, the federal government had little means. With the start of the Civil War, it began to be an urgent need. Congress passed a law creating a national currency, the greenback.

As the Bank of England had done. Only they relied on the promise of the government to make good. These were later expanded on two separate occasions. Being backed only by the government's reserves. They were often sold at discounted exchange rates. Private notes remained subject to regulations requiring a stamp and assurance from banks. The power to regulate banks was seized from the states. And the power to create bills was eliminated. It was at this point that a standardized bill was introduced, and with this, the creation of the Federal Reserve Bank. Under the new regime, the federal government could control the supply of money. By extension, they control debt. It was with this backdrop that paper money became a government power and instrument of war.

With ever-standardizing currencies and regulations to banking, The paper of money ceases to be a means of property ownership. It becomes the permission of the state. As a result, the paper must represent something more. The paper becomes beautiful art rather than a commitment to the safekeeping of your gold. It fitted with the symbols a nation holds dear. A nation without a unified and sovereign currency becomes no nation at all. It becomes beholden to those who keep its gold. Giving rise to more conflict and oppression. By extension, the individual becomes beholden to the government, as it bears the gold it is owed. An individual cannot and will not overrule those who hold his wealth.

Today individuals are seeking sovereignty through the ownership of assets other than gold and money. Through the pursuit of its own interest government will “pay” its debts by printing more money. Why would someone simply hold their cash if they know government needs to spend its reserves. When money is cheap consumption increases. In pursuit of consumption many resort to gambling and thievery. The economy becomes the consumption instead of productive goods and governments entire purpose becomes war, influence, and control. Wealth becomes debt and assets are speculative. Only through self sovereign money can man become truly free again.