How to Turn Paper Into Gold
Before money existed people bartered. They traded the things they had for the things they wanted.
People would negotiate how many of each item they wanted for what the other person was willing to accept in exchange.
It could have been anything from animals to metals, weapons, clothes, spices, perfumes or alcohol.
But this wasn’t the most efficient way to do business. Often times people couldn’t agree on how much things were worth. Like how many bags of flour was equal to a bar of metal. And what if the person with the metal didn’t want any flour?
Would that mean the person with the flour had to go trade for something the person with the metal was willing to accept? What if nobody wanted their flour? What if someone like the person with the flour only had food to trade, but risked spoiling if it sat for too long? These items didn’t last very long unless consumed right away.
So naturally, this was a significant obstacle. The people needed something that could be universally accepted as payment. No more trading flour for metal. This had to be something that everyone wanted, something that everyone believed was valuable. It had to be rare but abundant enough that almost everyone could use it. It had to be portable and something that could be easily divided into smaller pieces. And most importantly, something that wouldn’t go bad.
Then eventually gold started to make its way filling the hole in the marketplace.
Why was gold the answer?
Everyone seemed to agree gold was valuable. It was beautiful, shiny, rare, precious and could be moulded and used for many applications like jewelry, statues etc.
But most importantly, it had all of the characteristics we needed as an ideal form of exchange.
Gold seemed to solve all the issues that faced bartering at the time.
- Everyone desired gold because it was shiny, beautiful and rare.
- It was rare but not that rare meaning everyone could own some.
- Gold was durable, people didn’t worry about squashing it, or facing ruin of any kind. It didn’t tarnish, rust or decay. It didn’t spoil like food did so it was ideal for long term storage and use.
- It was easily divisible. You could melt it and reshape it into smaller sizes without losing its value.
- This made it much more portable and easier to move than it was to carry wheat or herd goats with you. A few gold coins could buy enough.
- Gold was very distinct. Everyone knew what gold was, how it felt, its weight and shine. People trusted gold and it could be easily tested for authenticity.
Gold fit perfectly, and now prices were set in gold.
Gold was now accepted universally by everyone to trade for their goods. The people didn’t have to barter anymore for the things they wanted or needed. This made trading easy!
The first concept of money was born.
However, it wasn’t just valuable by everyday people trading in the marketplace.
Now gold was universally accepted as valuable – it was portable, and didn’t spoil but that also made it easy to be stolen.
Thieves became more active. They could steal some gold and run for it much easier than possible with bags of flour or livestock.
This became a very big problem. Now people began to worry about how to protect themselves from thieves.
Until one day, someone had the brilliant idea to store everyone’s gold in a secure location.
The first bank was born.
So now this “banker” promised to store everyone’s gold safely in his guarded vault for a small fee. He took the gold and issued out an “IOU” (I owe you) to each person who let him guard their gold. This was proof of their gold in his vault. Whenever someone needed their gold they could go back to the bank and exchange their IOU for gold.
Everyone knew that they were worth ‘X’ amount of gold in the bank, which made them as good as gold. They were much lighter and easier to exchange or carry around than the gold was.
The first physical paper money was born.
But what about the gold? The gold had the real value, not the paper money. The paper just represented the possession of gold.
Nobody had any reason to withdraw back their gold from the bank. So nobody actually knew how much gold was really in that bank.
This meant the banker could do whatever he wanted with the gold if nobody ever checked.
So he got another brilliant idea. If nobody ever checked his vault, he could print more IOU’s and hand them out as “real gold” even though no new gold was deposited. This would work as long as people didn’t all decide one day to take back their gold at the same time.
He took these newly printed IOU’s and began to loan them out to people who needed more money, but he charged them interest. These people who borrowed from the banker had to repay him the money they borrowed plus a fee for interest.
He knew that if he was loaning people “gold” that didn’t exist they would have to continue paying him more and more in interest.
Monetary credit and debt was born.
It was during this time that the banker had one of the most evil-genius ideas to exist in history – the creation of monetary credit.
Now millions of people would forever be in his debt, struggling to pay it all back at once – while the interest payments accumulated keeping him rich forever.
This marked the day when people learned how to turn cheap paper into gold. They figured out how to steal real money through debt without breaking a sweat.
And thousands of years later we’re still in this debt.
Keep in mind debt can be helpful when you’re in a pinch and it may save you from starving but, there’s always a price to pay. Sometimes that price is too much to bear.
Stay away from debt if you can help it.
Your friend,
Jamie.
