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 to 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 once
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 specialized trades we
need to run anything beyond the smallest
gathering of people so what is a
coincidence of once 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 going to be trouble and
this problem runs even deeper than we
sometimes think about
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 tangents 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 POWs
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
doughnuts 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 yep 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 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 nope not
gold although in fairness that's what I
would have guessed - nope it's the
Cowrie 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
calories were seen as rare and beautiful
and could be used for jewelry and the
like and so we're 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
calories 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 it
takes a gold coin melts it down and re
forges it with a bit less gold in it and
passes it off as worth the same amount
but more than anything when you get two
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 import 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 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
streets when some well-to-do says that
they want to take your grain in exchange
for this nice slip of 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
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