The History of Money

 
 
 
 

Vocabulary

 
 
 
 
 
 
 
 
 

Video

 

 
 
 
 

Transcript

I’ve got a $20 bill here, I can buy stuff!

But, wait . . . This is just a piece of paper. Who says anyone will trust that this is worth $20?

Jack Weatherford, Author, The History of Money: Money is only useful if at least two people agree that it can be trusted. A new documentary asks, what makes money trustworthy? It has to be reliable, like a clock, says Steve Forbes.

Steve Forbes, Editor-in-Chief, Forbes Media: “It has to be fixed in value. Sixty minutes in an hour; sixty seconds in a minute. Imagine if that floated each day, that would make life chaotic.”

So throughout history, people needed a way to assign a fixed value to money.
 

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Jack Weatherford, Author, The History of Money: “The best mechanism for this would be some kind of commodity that’s permanent, easily transported, easily understood by everyone. And that medium was, of course, gold.”

Not “of course”: people have pegged money to agricultural crops, or salt, that’s where we got the word “salary.”

But gold was more reliable. And once it was accepted as currency,

Jack Weatherford, Author, The History of Money: “Money begins to create a kind of mobility in people’s lives that they never had before.”

But gold is heavy! It’s hard to carry around. That limited trade.

So people invented banks.

James Grant, Founder, Grant’s Interest Rate Observer: “The Knights Templar developed a system where they said, well, you can just deposit your money here with us . . . and then, when you need some, you can withdraw it from your account. This enabled the peasants to travel Europe without being a danger of being robbed.”

That enabled much more trade.

Steve Forbes, Editor-in-Chief, Forbes Media: “You could sell a bond in London, and build a railroad in India. And, as a result, this seemingly resource poor speck of Europe became the financial center of the world.”

Then, in the US Alexander Hamilton fixed the dollar to gold.

Steve Forbes, Editor-in-Chief, Forbes Media: “The dollar became to be seen as a rock solid currency where you could go anywhere in the world and they would accept that dollar.

And the world boomed.

James Grant, Founder, Grant’s Interest Rate Observer: “Wages soared. It was an incredible period of wealth creation. Don’t get me wrong, there were examples of terrible deprivation and hunger.

But it was a time of great material progress. And the monetary foundation of that progress lay in the Gold Standard.”
 

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But as usual, rulers would debase the currency; the Emperor Nero.

They would call in all the coins, melt them down, reissue them, of course, with his picture on them.

But with less gold.

Jack Weatherford, Author, The History of Money: “Rome’s decline was very closely associated with the decline of its money.”

Steve Forbes, Editor-in-Chief, Forbes Media: “When you change the value of money, you’re stealing property.

That happened to Germany after WWI.

To print money to pay for the conflict, Europe and the U.S. went off gold. And after losing the war, Germany suffered the infamous Weimar hyperinflation.

We said to Germany, “You have to pay back the world.” The nation’s government certainly couldn’t pay that much money. So, Germany began to print and printed too much.

You go to a restaurant and you find that your meal is going to cost eight thousand marks, say, and you order it, you eat it, and by the time the bill comes, that eight thousand Marks becomes sixteen thousand Marks.

In the United States, around that time, politicians created our own crisis. President Herbert Hoover signed into law the Smoot Hawley Tariff. Its sweeping taxes on thousands of foreign products triggered a global trade war.

This set in motion events leading to the Great Depression. With millions unemployed, governments searched for solutions.

They tightened the money and the country literally ran out of money. So, in some towns, there was no money left. The bank closed.

Franklin Delano Roosevelt, US President, 1933 to 1945: “I am going to establish a government market for gold.”

Amity Shlaes, Author The Forgotten Man: “Franklin Roosevelt, in an attempt to revive a struggling US economy, confiscated private holdings of gold and devalued the dollar.”

Judy Shelton, Author Money Meltdown: “So, all kinds of constitutional freedoms and this moral commitment to maintain the value of the money were swept out.”

Amity Shlaes, Author The Forgotten Man: “Roosevelt really didn’t know what to do. So he kind of tried every theory, the way people will do, like a cook in a kitchen, trying different spices.”

Near the end of World War II, Western governments met to try to stabilize currencies. The world returned to gold-based money. And it was enormously successful. Those two decades, from 1950 to 1960, were the most successful economically of any time.

But then, again, a President abandoned the Gold Standard.

Richard M. Nixon, US President, 1969 to 1974: “I directed Secretary Connelly to suspend temporarily the convertibility of the dollar.”

The value of the dollar plunged. Since then the dollar lost more than 80% of its value. That’s one reason that today, some believe the future lies in cryptocurrencies like Bitcoin.

Naomi Brockwell, CEO and Founder, Rainsworth Productions: “Bitcoin is both a currency and a payment system, so it’s like PayPal and U.S. dollars combined into one.”

But so far, crypto-currencies’ price changes make them hard to use as currency.

John Tamny, Editor, Real Clear Markets: “Can we transact with Bitcoin today? Oh, I’ll pay you twenty Bitcoin if you come to work for me. That will be your annual salary. Was it the Bitcoin that was worth 980 at the beginning of 2017? Or, the Bitcoin that was worth 22,000 when 2018 began?”

So what does the future hold? Here’s the documentary’s concluding argument: The only way to restore trust is for the United States to return to the system that worked for most of its history.

Brian Domitrovic, History Department Chair, Sam Houston State University: “Gold has proven to be the preferred monetary standard.”

These days, most economists oppose a gold standard. Milton Friedman opposed it.

But this documentary will give you background to help you decide what YOU think. After all, we do need sound money with a stable value.

George Gilder, Author, Wealth and Poverty: “All this is the struggle for trust. And money, ultimately, does depend on trust.

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Questions

Coin. A twenty dollar bill has always been, is and will always be “worth” twenty dollars. The intrinsic, inherent value of a twenty dollar bill is twenty dollars. True or false?

Bill, Banknote. Has money always stood alone, or has it been pegged to something?

Trade, Exchange. Banks were developed in the 1700s. Is this right or wrong? Were stocks and bonds invented in the 1900s?

Currency. Did the Roman Empire fall solely due to “barbarian” invasions? Was there inflation in Ancient Rome?

Gold, Silver. Has Germany always been a thrifty, frugal nation? Why did the Weimar Republic suffer from hyperinflation?

Gold Standard. Was Donald Trump the first US president to impose tariffs on imported goods coming into the US? Economically, was this a sound (good) act, a bad act, both, neither or in between?

Inflation, Deflation. Franklin D. Roosevelt was a great president. What do you think?

Bank, Financial Institution. What did they say about the gold standard in the US? For the economy and finances, do they think it’s positive, negative, in the middle, both or neither?
 
 
 
Stocks and Bonds. What currency does your nation use? Do people have (much) faith in it?

Debt, Deficit. Has the currency remained largely stable, or have there been inflation?

Stock Market, Wall Street. What are the causes of inflation?

Marketplace, Market, Bazaar. What is the history of money in your country?

Merchant, Trader, Seller. What might happen in the future?

Consumer, Customer, Buyer. How can inflation and financial calamities be solved or prevented? What could or should people, governments and businesses do?