![]() They issued paper money without any more backing than a simple guarantee of its value and maybe the chance to trade it for gold when things calmed down. So, during times of great turmoil, such as war, governments tended to conveniently dispense with the gold standard. There’s only so much gold and silver in the world and economies were unable to grow without inputs of precious metals. In some cases, they had no gold at all!īut the gold standard’s biggest downside was its inflexibility. Second, those issuing money couldn’t all be trusted to have enough gold to back it. First, the value of precious metals forever fluctuates, so paper money was frequently revalued. When national governments issued money based on the amount of gold they had in their vaults, they were said to be on the gold standard. Every paper dollar was supposed to represent a dollar’s worth of precious metal locked in a vault someplace. Until the 20th century, all paper money functioned much like the Ming notes did. It was also the first step in history’s slow reduction of money’s physical characteristics-from a piece of gold to a mere line in a ledger. Instead of lugging around sacks of copper coins when you wanted to make a big purchase, why not park the coins in a vault someplace and use an official piece of paper to represent them? The coins would stay put, and the paper note would circulate from buyer to seller and so on-all without the aid of a mule or a visit to the chiropractor. Counterfeiting is as old as money and so are the ways of to avoid it.īack in the 14th century, somebody at the head office of China’s Ming Dynasty got a brilliant idea. To be successful money, however, that token would also need to be special and unusual-in case some scoundrel decided to copy it. Now, if you had a token that all the villagers could agree equalled the value of a bunch of carrots, a handful of nails, a dozen eggs or a loaf of bread, you’d be eating your breakfast in ten minutes instead of trudging around the village most of the morning. But he tells you he could use a loaf of bread and that the baker’s shed fell down and needs to be rebuilt …and so on. But it’s not your lucky day: the farmer has no interest in the nails either. And though you don’t want the nails he has to offer, perhaps the chicken farmer does. So, you visit the blacksmith-he likes carrots. With a bunch of carrots tucked under your arm, you stroll over to the chicken farmer next door looking for eggs. Let’s imagine it is the dim past and you are a farmer in with an abundance of carrots and a hankering for an omelette.
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