ANGELYN S.
CASTILLO STEM 11
How did humanity come to accept rectangular pieces of pulped trees as something
to spend eight to ten hours a day working for? This change from hard currency to paper
money is a huge deal. This change revolutionized how we do business and forever altered
how governments were financed.
But before we can get 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 by exchanging things we had made or things we’d found
- cattle, alcohol, cigarettes, tools and knives. Now, these are called as commodity money for
their values is in the commodity themselves.
However, when the economy started growing, this system starts showing some of
its limits.
First, we run into the problem of Coincidence of Wants. 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
need your food but you don’t want my shirts, well, we can’t trade, can we? So maybe I can
find somebody with third good that you want but that will require a lot of time trading.
Second, commodity money is also often subject to debasing so the very scarcity that
makes commodity money seem to have value becomes your enemy.
Lastly, commodity money is heavy.
In Ancient China they invented a coinage system where the coins had holes
punched in them. So if you needed to measure out large denominations you could just run a
string through the center of the coins and a particular length of string would hold a hundred
or a thousand at once. But transactions got bigger and merchants found themselves having
real pain in the neck to transport them so the government developed paper money around
700 A.D, just after they invented woodblock printing. When the infamous Marco Polo visited
China, he brought the idea of paper money back to Europe with him.
But while paper money is revolutionizing the way goods change hands, it’s not until
1816 that the English adopted what’s called the Gold Standard System. What’s that mean?
Every note printed by the government represents a certain amount of gold. So, in other
words, paper cash is backed by gold. However they decided to throw out the system since it
had put a drag on their economy. Instead of being convertible into precious metal, the U.S.
dollar will become flat money, which means it’s not really backed by anything.
And we’re back in the present day. And today, we have credit cards, electronic
transfers, PayPal, Apple Pay and the digital currency Bitcoin. These new developments
mean you don’t really need paper cash anymore for most transactions. We can move
money digitally between people or businesses in an instant. All of this makes life pretty
complicated for economists and government officials. I mean, how is money tracked? How
does it move? What’s it worth? What does the future hold? But for today, that’s all for the
history of Paper Money.
