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Happy Birthday Paper Money: 353 Years Of Wanton Destruction

Tyler Durden's picture




 

Submitted by Simon Black of Sovereign Man blog,

If you ever find yourself vacationing in the western Pacific, I highly recommend swinging by Yap Island, home of one of the most bizarre forms of money in history.

Over a thousand years ago, natives would mine enormous chunks of limestone and carve them into gigantic circular discs.

I’m talking REALLY big… a typical disc would be 5 to 10 feet in diameter, over a foot thick, and weigh several tons.

They called them ‘Rai Stones’, and they were actually used as currency. Curiously, an indiviaul rai would be valued not based on its weight or size, but based on its story.

If many people had been killed transporting it, or if the stone had once belonged to a famous warrior, the rai would be worth more. So it was a bit of a collectible as well as a form of money.

Needless to say, the sheer size of these stones meant that they wouldn’t be moved very often. Everyone on the island just sort of knew who owned each rai, like a primative form of Bitcoin’s blockchain.

The polar opposite of this is the paper money system, something that has its origins in the Han Dynasty over 2,000 years ago.

It wasn’t quite paper, but the ancient Chinese experimented with leather-skinned money as early as the second century BC.

The idea died for over a thousand years in favor of (mostly) gold and silver. But it popped up again in the Middle Ages where Chinese merchants used short-term credit notes rather than haul around heavy coins.

When the Mongols basically took over the entire planet, they adopted this idea, much to the astonishment of their European visitors. Marco Polo writes of this in his diary with total incredulity:

“The Great Kaan causeth the bark of trees, made into something like paper, to pass for money all over his country. . . And nobody, however important he may think himself, dares to refuse them on pain of death.”

But it wasn’t until 1661 that the first modern paper money was born.

Johan Wittmacher was a Latvian merchant of Dutch descent who had a burning idea he wanted to try; he just needed a willing country.

Wittmacher moved to Sweden and tried several times to obtain a banking license. Finally, after promising a 50% profit share to King Charles X Gustav, his license for Stockholms Banco was approved in 1657.

On July 16, 1661, his bank became the first in history to issue paper banknotes– Kreditivsedlar.

These Kreditivsedlar solved a huge problem for Wittmacher. All the gold deposits he was holding on behalf of bank customers were primarily short-term. Customers would frequently withdraw coin, so he needed to keep inventory handy.

On the other hand, he wanted to increase profits by loaning out his customers’ gold. Problem was, most of the loans were longer term.

Wittmacher’s dilemma was satisfying his customers’ short-term withdrawals while still making long-term loans. The solution was paper.

When a customer would make a withdrawal, Wittmacher gave them paper notes as claims on the gold he was holding.

The customer could use the notes to pay for goods and services, and Wittmacher got to keep the gold and make more loans.

In time, the notes became a popular medium of exchange, accepted everywhere just like gold. People would pass them around as money, only occasionally showing up to the bank to redeem them for gold.

Naturally it didn’t take long for Wittmacher to start committing fraud. Before long he’d issued more notes than he had gold in his vault. And he was making more loans than the bank could afford.

After only seven years, the bank collapsed. But the idea of paper notes lived on to infect the evolution of money ever since.

Our modern system entitles a central banking elite to conjure trillions of dollars, euros, yen, etc. out of thin air, creating massive financial distortions and enabling politicians to rack up epic debt levels.

Today’s commercial banks take in customer deposits, maintain a laughably small portion in reserve, and use the rest of our money to make idiotic loans for their maximum benefit.

Their brokerage divisions front-run customers, trade against them, lend out customers’ shares without their knowledge, and even ‘borrow’ money from customer accounts to cover their own trading losses.

When they fail, they’re bailed out by taxpayers and do the same thing all over again.

In Wittmacher’s time, this was fraud. Today it’s not only legal, it’s the industry standard.

No one is held accountable save some sacrificial lamb, and we’re told that we should simply trust in the guarantee of a bankrupt, insolvent government.

So… happy birthday paper money. It’s a hell of a system you’ve brought us.

 

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Fri, 07/18/2014 - 15:54 | 4975057 DoChenRollingBearing
DoChenRollingBearing's picture

Well, um, OK, Simon...  But we are far better off than in 1661.  Most of us.  There are more people living longer & better than in 1661.  

Yeah, OK, I see the fundamental fraud of fiat money and fractional reserve banking.  Still, 1661?  Poor benchmark IMO.

Fri, 07/18/2014 - 15:56 | 4975071 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

I take issue with this article. It is not paper money that is the problem. It is fraudulent BANKING PRACTICES that is the problem.

Fri, 07/18/2014 - 16:01 | 4975094 negative rates
negative rates's picture

People invented paper money because it's easier to steal, can't steal something that isn't around.

Fri, 07/18/2014 - 16:06 | 4975124 bunzbunzbunz
bunzbunzbunz's picture

Google listed bitcoin as a currency...get some free now while the price is still in consolidation: http://freebitco.in/?r=25727

Fri, 07/18/2014 - 16:08 | 4975136 Yen Cross
Yen Cross's picture

   Who let you out of "Middle Earth" you little troll/hobbit?

Fri, 07/18/2014 - 16:15 | 4975172 economics9698
economics9698's picture

DoChen technological progress and printing money are about as related as Kenta Kinta and Murray Rothbard.  They are both human and that is about it.

Fri, 07/18/2014 - 16:29 | 4975219 gh0atrider
gh0atrider's picture

Satoshi gonna make sure it doesn't celebrate a 354th birthday!

We need a one-world, unbacked, digital currency run by algos NOW!!

Fri, 07/18/2014 - 16:38 | 4975251 ShorTed
ShorTed's picture

Sry for the down vote, gh0at, but i don't want a one-world ANYTHING...particularly run by algos (can you say SkyNet?).

Fri, 07/18/2014 - 16:37 | 4975258 gh0atrider
gh0atrider's picture

Well too bad, because algorithms are global and transcend languages, cultures, thick lines, thin lines and dotted lines.  BTC is just the first one to be financialized.

Fri, 07/18/2014 - 16:42 | 4975277 max2205
max2205's picture

353= 7

 

I knew it!

Fri, 07/18/2014 - 17:09 | 4975372 CrazyCooter
CrazyCooter's picture

Learn2Wiki ...

The world's first paper money, issued in China between the 7th and 15th centuries, was denominated in wén.

http://en.wikipedia.org/wiki/Chinese_cash_%28currency_unit%29

Regards,

Cooter

Fri, 07/18/2014 - 18:40 | 4975431 Supernova Born
Supernova Born's picture

Baselss fiat debases? Shocking.

Sat, 07/19/2014 - 01:09 | 4976461 Pinto Currency
Pinto Currency's picture

 

 

353 years ago, the Chinese had had so many paper money failures that they were already back on the silver monetary system.

Fri, 07/18/2014 - 19:27 | 4975756 Sean7k
Sean7k's picture

http://www.computersmiths.com/chineseinvention/papermoney.htm

Even better than wiki! Nice to see someone is on the ball...

Fri, 07/18/2014 - 18:24 | 4975584 jarana
jarana's picture

July 16, 1661 :: July=7 , 1+6=7, (1+6)=7(6+1)=7.

Crazy.

Fri, 07/18/2014 - 18:33 | 4975611 jarana
jarana's picture

[...] "After only seven years, the bank collapsed" [...]

ZH querulant?

Fri, 07/18/2014 - 17:38 | 4975441 SILVERGEDDON
SILVERGEDDON's picture

Yo, Ghoat boy.

Even easier to create electrons, and call them value, based on hearsay. 

Fucking retarded idea.

Consolidation of manipulation world wide for banksters.

Tell you what - go buy a 44 magnum, and a box of ammo. Load one, and shoot yourself in the head.

Way cheaper, and more immediate, than the death following a bankster free for all with electronic money.

Even atomic mutually assured destruction would be a less agonizing death for the people of the world.

I will vote you up as the Fed's leather clad yappy lap dog for the trollish idea, though.  

Fri, 07/18/2014 - 17:57 | 4975491 gh0atrider
gh0atrider's picture

gh0atrider is locked and loaded and you can take BTC from my cold, shutdown hands!

Fri, 07/18/2014 - 19:29 | 4975759 Sean7k
Sean7k's picture

and split them into infinitely smaller increments to insure plenty of supply...

Fri, 07/18/2014 - 16:40 | 4975266 Thought Processor
Thought Processor's picture

 

 

Hard currency was always more sound than paper / script.   The paper was always an IOU for something else (though now it is arguably little more that an IOU for nothing).

The original U.S. coinage system was elegant in its design and prevented both counterfeiting and debasement.   

A penny had exactly 1 cent worth of copper in it.

A nickel had 5 cents of Nickel in it.

A dime had 10% had 10 percent the value of a dollar (or 10 cents) of silver.

A quarter had 25% of the silver that made up a dollar.

A half dollar had exactly 50% of the silver that made up a dollar.

(Note that all silver coins had 10 % copper added for increased strength).

And a silver dollar was just that.  Enough silver to make 1 U.S. dollar, the value of which was determined by the price of gold itself.  Gold was held in custody in banks and the banks then gave out paper IOU's in its place (a weak point that was taken advantage of from the beginning and remains to this day obviously).

The currency as such automatically adjusted itself to any inflation in the price of gold (which all banks used for large transactions).  As such it was diffucult to debase (though not impossible as history has since proven).  It also was difficult to counterfeit as the coins could be weighed, cut and checked closely for accuracy (coins are still hard to duplicate, as they require a giant press and very expensive dies to create).

 

Notice the date when everything changed:

 

  1. Prior to 1965 and passage of the Coinage Act of 1965the composition of the dime, quarter, half-dollar and dollar coins was 90% silver and 10% copper. The half-dollar continued to be minted in a 40% silver-clad composition between 1965 and 1970. Dimes and quarters from before 1965 and half-dollars from before 1971 are generally not in circulation due to being removed for theirsilver content.

Food for thought.

 

 

Fri, 07/18/2014 - 16:51 | 4975323 Herd Redirectio...
Herd Redirection Committee's picture

Fiat currency, fractional reserve banking, usury.

Ban THE LOT.  And include the whole episode prominently in kids' education, so they know what to look out for, so it can't just be re-instituted under a different name. 

Fri, 07/18/2014 - 18:23 | 4975582 RaceToTheBottom
RaceToTheBottom's picture

Not enough.  I want some blood as well.

Fri, 07/18/2014 - 18:15 | 4975564 Urban Redneck
Urban Redneck's picture

Bimetallism, in circulation, is inherently unstable as it creates arbitrage opportunities which screw with the money supply. Witness the actual story of the Kreditivsedlar.

What happens every time one of those pre-64 US silver coins is placed in circulation today, or Kyle Bass rediscovers an age old trick?

(the exact same thing that happened 350 yeasr ago)

Fri, 07/18/2014 - 19:41 | 4975785 Sean7k
Sean7k's picture

The value of gold is based on the silver dollar at 371 1/4 grains pure silver. All other coins are to be measured with silver as the STANDARD. Basic Constitution stuff. Any coinage act that violates this principle is null and void.

The attempt to create a bi-metallism standard was a complete clusterfuck. That was in 1847. See "Pieces of Eight". 

Further, Congress has a constitutional responsibility to insure all money values are reconciled on a regular basis. Yet, we have paper dollars, silver dollars, nickel/copper dollars and all are valued alike. Paper dollars are not even legal. 

Still, no one has challenged this very basic aspect of the Constitution. This is why you rig the justice system, it allows you to ignore any law that doesn't fit in with the program...

Fri, 07/18/2014 - 17:39 | 4975451 edifice
edifice's picture

I think a lot of people here got burned by ButtCoin.

Fri, 07/18/2014 - 17:56 | 4975494 gh0atrider
gh0atrider's picture

How?  If you bought at $1100 (like fonestar told you to do) and then pussied out like a little bitch?

Fri, 07/18/2014 - 18:36 | 4975621 edifice
edifice's picture

Just a hunch.

Fri, 07/18/2014 - 16:05 | 4975125 bunzbunzbunz
bunzbunzbunz's picture

double fart

Fri, 07/18/2014 - 16:31 | 4975237 gh0atrider
gh0atrider's picture

Hi bunz, blessed art thou of Satoshi conciousness.  May much cryptose and prosperity route your way.

Fri, 07/18/2014 - 19:50 | 4975833 Marco
Marco's picture

Clipping or filing coins wasn't terribly hard either ...

Fri, 07/18/2014 - 16:00 | 4975095 gcjohns1971
gcjohns1971's picture

Surely you didn't miss the part where FRAUDULENT BANK PRACTICE was the THE PURPOSE of the paper money? 

So that he diliver claim to the same exact gold to at leas 2 people simultaneously?

Will this work for you at a car dealership?  You buy a car.  And when you go to pick it up the dealer tells you he rented it out, but you can have a bicycle to get you to the store, until the renter returns it?

Fri, 07/18/2014 - 16:08 | 4975132 Stoploss
Stoploss's picture

"If you ever find yourself vacationing in the western Pacific"

Basking in plutonium.........

Fri, 07/18/2014 - 15:59 | 4975091 lordylord
lordylord's picture

"Well, um, OK, Simon...  But we are far better off than in 1661."

So?  What is your point? 

Fri, 07/18/2014 - 16:53 | 4975290 Urban Redneck
Urban Redneck's picture

Simon likes to demonstrate his ignorance (or sloppy reading/revisionism of history).

Kreditivsedlar were not the first paper bank notes following the Protestant Reformation.

What made the Kreditivsedlar innovative was standard denominations.

But why let get truth get in the way of a good story...

BTW - it was the devaluation of copper coinage that brought down the bank by sparking redemption requests since the riksdaler was no longer worth the copper it was made out of... the collapse had nothing to do with gold.

Fri, 07/18/2014 - 17:07 | 4975368 Winston Churchill
Winston Churchill's picture

Didn't the Chinese invent paper currency way before that ?

Fri, 07/18/2014 - 18:00 | 4975499 Urban Redneck
Urban Redneck's picture

Yes, but not like Simon's 2000 years. 1500 years ago the Chinese had paper receipt money like the English goldsmiths, and then in the late 11th century the Mammonic ChiComs unleashed .GOV paper money on the world. The Egyptians had papyrus futures receipts that "could" circulate, the Mesopotamians had slightly less flexible receipts, so giving the Chinese credit for "flexible" private receipt money that only circulated in parallel to .GOV specie is stretching it IMHO (but I'm grumpy after seeing Simon needlessly feed the gold trolls).

Fri, 07/18/2014 - 18:10 | 4975546 magnetosphere
magnetosphere's picture

very interesting thx

Fri, 07/18/2014 - 16:13 | 4975160 Frank N. Beans
Frank N. Beans's picture

yes, we are better off today as debt slaves

/sarc

 

Sat, 07/19/2014 - 05:36 | 4976577 Kobe Beef
Kobe Beef's picture

Dear Do Chen,

I believe people are better off than in 1661 because people not in the banking sector pursued several inventions to make life better. Science and innovation were largely left alone to develop and they did.

However, now that Mammon and Leviathan have married and produced Oligarchical Collectivism, not much lies outside the purview of fraud, fixing, and obstruction from on high.

That said, I do not see a brighter future until people can once again be free of the pervasive lies and theft that constitute the everyday maintenance of the fraudulent status quo. Of course, freedom comes with responsibility. 

Cheers,

Beef

Fri, 07/18/2014 - 15:56 | 4975072 gcjohns1971
gcjohns1971's picture

Indeed.

Fri, 07/18/2014 - 15:57 | 4975074 wrs1
wrs1's picture

It doesn't really matter what money is as long as you can't control it and don't have much of it now does it?  That is the situation for 99.9% of the population of the world.  So you really have to ask yourself why 99.9% of the world should give two shits about money.

Fri, 07/18/2014 - 16:07 | 4975116 lordylord
lordylord's picture

"It doesn't really matter what money is as long as you can't control it"

You never have control.  Markets dictate prices of goods/services...an individual doesn't.  I'm perfectly fine with that.  The problem is when you DO give individuals the power to control prices or money supply (e.g. central banks or governments).    

 

Fri, 07/18/2014 - 18:13 | 4975550 wrs1
wrs1's picture

what is a "market"?  not people or a relatively small number of people barking out orders to others?  markets are controlled by a very small number of people, in effect, individuals.

 

99.9% of the people do not have any control or impact on markets and thus it's the same issue, why should 99.9% of them give two shits about markets or money?

Fri, 07/18/2014 - 15:58 | 4975080 lordylord
lordylord's picture

"If many people had been killed transporting it, or if the stone had once belonged to a famous warrior, the rai would be worth more. So it was a bit of a collectible as well as a form of money."

A lot of people have died and continue to die over fiat.

Fri, 07/18/2014 - 16:03 | 4975106 gcjohns1971
gcjohns1971's picture

Pity it isn't the banker.  He's the only one who should die over his bad paper.

Fri, 07/18/2014 - 16:02 | 4975100 LawsofPhysics
LawsofPhysics's picture

The Chinese used paper money much earlier....

 

...oh the irony.

Fri, 07/18/2014 - 16:09 | 4975141 Yen Cross
Yen Cross's picture

  They also invented gun powder LoP.

Fri, 07/18/2014 - 18:01 | 4975518 SilverRhino
SilverRhino's picture

True but it took a destructive white guy (probably named Destro) to make guns and cannons out of it.  ;)

 

Fri, 07/18/2014 - 16:13 | 4975162 pods
pods's picture

Well his brushing over the modern scam makes it look better than it actually is.

Banks do NOT lend deposits, but merely create credit against those deposits.

This was a paper by the BOE which admits it:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/...

"Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created. For this reason, some economists have referred to bank deposits as ‘fountain pen money’, created at the stroke of bankers’ pens when they approve loans."

All in all paper is a scam, but today's is worse since there is nothing to stop a bank from doing what it wants except another bank that holds it's debt.

pods

Fri, 07/18/2014 - 16:15 | 4975173 Kantbelieveit
Kantbelieveit's picture

So the expansion of the money supply should be governed by the availability of newly mined gold? Is that right? As an economy grows, so does its need for currency. Fiat currency allows the money supply to track the needs of the economy. gold cannot do this. That is why no country in the world uses gold as its currency.

Behold Zerohedge, a site that ceaselessly operates to undermine trust in all institutions, mainly to sell web advertising. It's a business after all, and it is perfectly happy to accept payment in fiat currency.

 

Fri, 07/18/2014 - 16:24 | 4975206 dexter_morgan
dexter_morgan's picture

Seriously?

Fri, 07/18/2014 - 16:48 | 4975303 TheRedScourge
TheRedScourge's picture

There's this thing called price, and this other thing called supply and demand, kay? What happens is if the supply does not change at the same rate as the demand, the price changes. There, now gold works.

 

Funny how central banks settle all their transactions with each other using gold - I guess they know they can't trust the value of each others' paper currencies then?

Fri, 07/18/2014 - 16:53 | 4975331 pods
pods's picture

Well, fiat currency could very well function as you state (the tally stick system).

But we do not have a fiat currency. We have a debt backed, fractional reserve currency.

One that is watched over by a regime (FED) whose purpose is to maintain the value of the currency. (By having 2% clipped off of it per year)

This type of currency must expand to keep up with the compound interest associated with it.  The VAST majority of currency out there circulation is DEBT. So no expansion, implosion.  

As for your other bit about nobody uses gold or silver, sure, Greshams law figured that out a while ago.

http://en.wikipedia.org/wiki/Gresham's_law

pods

Fri, 07/18/2014 - 16:21 | 4975196 bullionbaron
bullionbaron's picture

Don't go buying electronic money thinking you are getting the real thing either... 

The Truth About "Gold Backed" Cryptocurrencies http://www.bullionbaron.com/2014/07/the-truth-about-gold-backed.html

Fri, 07/18/2014 - 19:48 | 4975823 DoChenRollingBearing
DoChenRollingBearing's picture

I tried to comment, but I do not like Disqus...

My comment here instead:

+ 1, nice article, there seems to be no REAL difference between Bitcoin (say) and the "gold backed" cryptos, the latter being deceptive.

Fri, 07/18/2014 - 23:10 | 4976357 bullionbaron
bullionbaron's picture

Thanks and agree with your comment. There's a few dealers out there now offering to sell bullion for Bitcoin, so those cryptocurrencies with partially redeemable bullion are pointless.

Fri, 07/18/2014 - 16:22 | 4975203 squid427
squid427's picture

Gold is a unit of measurement, so it doesn't really matter how much there is. Letting the market decide the value of the currency in relation to it is what matters.

Fri, 07/18/2014 - 16:26 | 4975218 Kantbelieveit
Kantbelieveit's picture

A fixed supply of gold means a fixed amount of gold-backed money available to lend. If you can't expand the money supply faster than the supply of gold, you limit the growth of the economy to the growth rate of the gold supply. Why is this hard to understand?

Fri, 07/18/2014 - 16:34 | 4975247 magnetosphere
magnetosphere's picture

you are a retard.  and what happens when our economy contracts for the next 100+ years

Fri, 07/18/2014 - 16:53 | 4975324 TheRedScourge
TheRedScourge's picture

It is hard to understand, because understanding requires denying the existence of the entire price system. If the rate of expansion exceeds the rate of mining gold, the value of the gold expands, and what you get, is deflation - or in other words, people with savings get rewarded whether or not they have their money in the bank, and people who are in debt get punished. Over-indebtedness automatically gets discouraged while investing one's savings automatically gets encouraged, and we get a much more stable growth cycle. Deflation is only a dirty word because governments hate it, as they're always debtors, but every time I go to the computer store, I get a reminder of how as a saver, price deflation is my friend, all while the computer industry is still able to flourish.

Fri, 07/18/2014 - 18:05 | 4975529 Kantbelieveit
Kantbelieveit's picture

So everyone who buys anything on credit gets "punished" automatically as the economy grows faster than the (naturally limited) gold supply. Is this your idea of an efficient system? Is shutting down all consumer lending a breakthrough in economic thought? What, exactly, is "over-indebtedness?" Did you buy your house for cash?

Fri, 07/18/2014 - 18:33 | 4975614 magnetosphere
magnetosphere's picture

there is no such thing as economic thought you clown.  on our current growth trajectory the entire luminous output of the galaxy wouldn't be enough to power your gizmos in mere millenia.  and the nearest galaxies are millions of light years away.  thermal waste heat from power plants will liquefy your flesh in mere centuries.

Fri, 07/18/2014 - 21:31 | 4976129 NickVegas
NickVegas's picture

Funny how prices seem to rise to the level of available loan money, and where do the bankers get this money to loan?

Mon, 07/21/2014 - 14:48 | 4984688 bluskyes
bluskyes's picture

in recent history, that "punishment" was called "interest"

Fri, 07/18/2014 - 16:57 | 4975343 css1971
css1971's picture

You don't know what "growth of the economy" means. I have a sneaking suspicion you have no idea what money is either. Recommend you go read for a bit.

Sat, 07/19/2014 - 02:38 | 4976498 rex-lacrymarum
rex-lacrymarum's picture

Friedrich Hayek showed in 1928 in an article entitled 'The "Paradox" of Thrift' how the economy can expand even when the money supply is entirely fixed. This was written in reply to Mssrs. Foster and Catchings, who took the side of inflationism. Hayek used capital theory to explain it, but generally speaking, since money is merely a medium of exchange, no societal benefit can accrue from increasing its supply. All that happens is that one 1. dilutes the purchasing power of existing money and 2. creates a distortion of relative prices in the economy, which leads to the malinvestment of scarce capital. 

When did the US economy grow at its fastest in real terms per capita? In the 50 years prior to the foundig of the Federal Reserve. The money supply was nearly stable over the entire period, and prices actually declined. According to your theory, this should not have been possible. You really need to read up on a few things. What appears "superficially obvious" in economics is often  actually not true. 

Sat, 07/19/2014 - 02:39 | 4976499 rex-lacrymarum
rex-lacrymarum's picture

Friedrich Hayek showed in 1928 in an article entitled 'The "Paradox" of Thrift' how the economy can expand even when the money supply is entirely fixed. This was written in reply to Mssrs. Foster and Catchings, who took the side of inflationism. Hayek used capital theory to explain it, but generally speaking, since money is merely a medium of exchange, no societal benefit can accrue from increasing its supply. All that happens is that one 1. dilutes the purchasing power of existing money and 2. creates a distortion of relative prices in the economy, which leads to the malinvestment of scarce capital. 

When did the US economy grow at its fastest in real terms per capita? In the 50 years prior to the foundig of the Federal Reserve. The money supply was nearly stable over the entire period, and prices actually declined. According to your theory, this should not have been possible. You really need to read up on a few things. What appears "superficially obvious" in economics is often  actually not true. 

Fri, 07/18/2014 - 16:34 | 4975235 bluskyes
bluskyes's picture

.

Fri, 07/18/2014 - 16:48 | 4975283 falak pema
falak pema's picture

Since the days of the medieval fairs of Champagne going back to 1240... All north south European trade-- from the Hanseatic region around Hamburg to Venice and Palermo-- for trade centered around France's burgeoning activity based on demographic growth,  under the control of the Italian merchants and Bankers (Lombards), there were issued for all transactions year after year,  "I owe yous" at the different trade fairs  to their respective counters of Tuscan, Venetian and Genoese bankers, for wool, silk and other produce; which were then netted off and balanced based on exchange of paper promises. So this paper backed barter was documented and banking began this way, all on backing of promissary notes that were backed up by the Ducat or the Florin (the money of lender of final resort). 

The key here is that these exchanges did not lose their back up of coin nor the trust of inter banking guilds--until a major client (usually a warring king) defaulted, like in the banking collapse of Lyon, when France lost the Italian wars (1559). 

THe system created in France by the Scotsman Law; aka banks based on paper money, of course took it to another level in 1715 and blew up when the Louisana merchant trade collapsed. 

Just another example. "I owe yous"  have now become "you owe me" ! 

Thats called modern banking. 

Fri, 07/18/2014 - 16:46 | 4975296 squid427
squid427's picture

It's all about a market that is not manipulated. You can have monetary expansion is a growing economy. But everything is now manipulated, so no one knows the value of anything anymore.

Fri, 07/18/2014 - 17:15 | 4975378 Rodders75
Rodders75's picture

The Chinese were the first to use paper money in 806 AD.

http://www.computersmiths.com/chineseinvention/papermoney.htm

Fri, 07/18/2014 - 17:25 | 4975411 Fix It Again Timmy
Fix It Again Timmy's picture

In a sane world, Says Law trumps fiat currency - you don't hear much about Says Law because bankers can't make money on it like they can on counterfeiting...  Says Law would benefit the 99%, but not so much the 1%...

Fri, 07/18/2014 - 17:32 | 4975427 Winston Churchill
Winston Churchill's picture

Welcome to our asylum .

Its a mad,mad world.

Fri, 07/18/2014 - 18:11 | 4975553 withglee
withglee's picture

From Wikipedia:

Say's law, or the law of market, is an economic principle of classical economics named after the French businessman and economist Jean-Baptiste Say (1767–1832), who stated that "products are paid for with products"[1] and "a glut can take place only when there are too many means of production applied to one kind of product and not enough to another".[1]:178–9 In Say's view, a rational businessman will never hoard money; he will promptly spend any money he gets "for the value of money is also perishable."

Did they not have services before 1832. Today almost all trades involve services, the most common being the employee's service to his employer.

So, the best money is "perishable"? How about we make grapes money?

Fri, 07/18/2014 - 17:39 | 4975446 edifice
edifice's picture

What do you want, to go back to carrying a sack of gold coins around with you? Paper money is very convenient (today's digital money even moreso). It isn't the money's fault that the banker behind it is corrupt.

Fri, 07/18/2014 - 20:57 | 4976040 actionjacksonbrownie
actionjacksonbrownie's picture

Ask a German citizen how convenient paper money was in the 1930's. You could carry around 1 silver coin, or a wheelbarrow full of notes.

 

Understand yet?

 

I will take the gold... thank you :-)

Sat, 07/19/2014 - 11:07 | 4975530 withglee
withglee's picture

So… happy birthday paper money. It’s a hell of a system you’ve brought us.

Do you have the genius to design a workable replacement? It would be your birthday too. I would really like to see a description of what you propose and why it would work better than this "out of thin air" money we've been using my whole 70 years of life. I know the better way ... but do you?

Fri, 07/18/2014 - 20:06 | 4975774 Fix It Again Timmy
Fix It Again Timmy's picture

Paper money is a wonderful convenience until it becomes worthless...

Then it is a real PAIN in the ass as you see your life-savings go to zero....

http://www.youtube.com/watch?v=szwclmmKwLg

i don't think gold coins were ever casually tossed out a window...

Fri, 07/18/2014 - 23:32 | 4976372 Radical Marijuana
Radical Marijuana's picture

Paper money was due to the process of lies backed by violence becoming more symbolic. Electronic money is even more so the sophistication of backing up lies with violence. All forms of money are based on measurement backed by murder. The only difference is the degree that they get away with deliberately denying that basic fact.

In this particular "birthday" case, note that: "Finally, after promising a 50% profit share to King Charles X Gustav, his license for Stockholms Banco was approved in 1657." The history of warfare made War Kings, which then morphed to become Fraud Kings. It was always the same basic general energy systems, operating through the principles and methods of organized crime.

Meanwhile, of course, people want to believe in their favourite false fundamental dichotomies and related impossible ideals with respect to everything "human." In the case of money, the ways that works is that people propose what money should be, in ways which deliberately ignore what money actually is, and indeed always was.

Many people want to promote the notions regarding some fundamental dichotomies between production and predation, or between voluntary contracts versus frauds, while there are actually continuous processes. Those who promote various kinds of false fundamental dichotomies and related impossible ideals are able to operate through the collective bullshit social stories which everyone else who shares in those ideas approves of. However, the deeper realities are that human beings always operated as robbers in their environment, or as entropic pumps of energy. Human realities were always organized lies, operating robberies. All of the various false fundamental dichotomies and related impossible ideals are bullshit which facilitated the realities of backing up lies with violence.

Zero Hedge articles, and comments, as representative samples of some of the world's opinions, tend to endorse some aspects of the basic false fundamental dichotomies and related impossible ideals, while being critical of others. However, the universal situation is that the best description of how human energy systems operate is as according to the principles and methods of organized crime.

What has happened during human history is that those who were the most successful at operating those deceits, backed by destruction, we able to dominate the language that was made and maintained to discuss what was going on. Therefore, the universal processes were claims backed by coercions, creating private property, which otherwise does not exist outside of some such system of public violence.

Money, as the most abstract from of private property, is based on lies backed by violence. In the case of fiat money authorized by the sovereign power of a state, the power of the state to demand the payment of taxes in that form of money, which the state deems legal tender, is what gives that fiat money its value, namely the value of measurement backed by murder, i.e., the power of the sovereign state to enforced its rule of law, which is simply what happens when the organized gang of criminals is big enough to assert that it has legalized it own uses of deceits, backed by destruction. The same methods and principles of organized crime were what enabled the banksters to go through the systematic processes of the bribery, intimidation, as well as assassination, of politicians directing the sovereign powers of states, in order to legalize frauds, such as the privatized creation of the public money supply out of nothing as debts.

Basically we are lost down the rabbit hole, or have been sucked way up into the tornado, because everyone continues to try to be successful by being the best professional liars and immaculate hypocrites that they can be. That is the way that people are necessarily successful with systems where private property is based on claims backed by coercions, and money is measurement backed by murder. Their degree of social success is based on their ability to get away with deliberately ignoring the full context of the realities within which they actually operated.

It remains to be seen whether there will be any civilization that survives a few more centuries, to celebrate the birthday of globalized systems of electronic fiat money, backed by the threat of the use of weapons of mass destruction. Right now, that looks unlikely. Human civilizations are almost totally based on systems of legalized lies, backed by legalized violence,  which operate through attitude of evil deliberate ignorance towards what they are really doing, as they privatize the profits, while socializing the losses.

The grand paradox of the history of money is the same as the grand paradox of the human experiment. Social success through systems of lies, operating robberies, has resulted in almost everyone lying to themselves about everything, almost all the time. (Despite that everyone is killing to live, notions are promoted that "productive" people are not doing that, only the predator/parasite people do that.) The special way that people who criticize the established money systems tend to do that is that they outline the real social facts, which are that our monetary system is based on enforced frauds, and then they propose idealized notions about what money "should be." They do that through continuing to promote the same old false fundamental dichotomies, which support those impossible ideals regarding what money "should be."

The realities are that human beings operate as entropic pumps of energy, and the ways that the general principles of energy systems operate through human beings are practically the same as how the principles of organized crime operate. However, since the most successful organized criminals were the best at bullshitting about that, they have created their language about governments and banks, whose primary purpose is to be able to continue to operate governments as the biggest form of organized crime, controlled by the best organized gangs of criminals, the biggest gangsters, which are now the banksters.

Almost all of the criticism found on Zero Hedge of those realities somewhat reveals those facts, but then returns to the same old-fashioned false fundamental dichotomies and related impossible ideals when proposing solutions for what money should be. It is wrong to blame "paper money" for being the problem, as it is to blame any other form of money, since they all must necessarily be based on measurements backed by murder, which paradoxically become more socially successful the more that they are able to deny and deliberately ignore those facts.

The "hell of a system" that we are operating within is not merely the problem of paper money, nor any other kind of money. The "HELL OF A SYSTEM" is the basic realities of how entropic pumps necessarily operate, which are chronic problems inherent in the nature of life. There is nothing fundamentally different from human animals operating as hunter/gathers, and what exist now, other than more science and technology added to enable greater systems of organized lies, backed by greater systems of violence, to enable robberies.

The deeper problems with our "hell of system" are not merely the runaway triumph of the enforced frauds, of banksters' fiat money, as counterfeiting which was legalized by governments. The truly deeper problems are the growing Grand Canyon Gap, and paradoxical ways that we are living inside of a Bizarro Mirror World, because we have better and better understood all kinds of other sorts of general energy systems, which have enabled science and technology to drive us through the industrial revolutions, such as how the physical steam engines and the social debt engines were being developed at about the same time in history, BUT, nothing like that has happened with respect to understanding human energy systems.

The results of better understanding human systems, as manifestations of general energy systems, are what I have outlined above. However, almost nobody wants to go through those paradigm shifts in perception. Instead, as is common on Zero Hedge, as well as everywhere else, more realistic descriptions of the problems that the established monetary systems are basically enforced frauds, are then followed by impossible bullshit ideals about what money should be instead.

Now that we have pumped up the paper money systems, of banksters backed by governments, as enforced frauds that everyone else must accept, to become globalized electronic fiat money frauds, backed by the threat of the force of atomic bombs, we ought to go through some profound paradigm shifts to be able to understand that better. However, instead, we usually get more nonsense of promoting false fundamental dichotomies, and their related impossible ideals, as being the "solutions." Money backed by commodities, such as gold or silver, changes nothing, except money is then the measurement of those commodities backed by murder. Cryptocurrencies also change nothing, but rather merely become a parasite on top of a parasite, because they are even more able to be unaccountable and not responsible for the murder systems that back up the rule of law, in order to make their imaginary world of voluntary free contracts possible to pretend that it could exist.

The symbolic birthday of the Western Civilizations' development of the enforced frauds of fiat money, that have almost totally captured control over Western World, and thereafter pretty well the whole world, were always simply the result of privatization, based on lies backed by violence, or claims backed by coercions, becoming more and more socially triumphant, as they were able to take advantage of opportunities to engage in greater and greater systems of organized robberies. Since we fundamentally do not understand that, but rather, almost everyone does not want to understand that, while instead are more socially successful the more that they deliberately ignore and deny that, the current human systems have become increasingly insane and unstable. There is no way to develop any better balanced human, industrial and natural ecologies as long as the ways that we think about human energy systems continues to be almost totally dominated by the biggest bullies' bullshit social stories, which includes all of those reactionary revolutionaries, who tend to present some of the correct facts about how the actual enforced frauds operate, but then propose bullshit "solutions" based upon what money should be, inside the context of assertions about what the economic system should be.

In fact, the ways that the real systems necessarily work is as organized lies operating robberies. The only possibly better resolutions to those problems would be better dynamic equilibria between those different systems. However, the way that the world works now is that the dominate organized crime gangs get to assert that they have legalized their enforced frauds, and therefore, those then are no longer enforced frauds, while the controlled opposition proposes impossible "solutions" about how the monetary system should be reformed, in ways which require deliberately ignoring and denying the basic laws of nature.

At the present time it is not at all clear that human beings will ever be able to resolve their problems of having been way too successful, for way too long, in operating their entropic energy pumping in ways which were described in the maximized language of deceits and frauds. The paradoxical ways that success in warfare was based on deceits, and then financial success was based on frauds, can not be better resolved by ignoring how and why that happened, in order to then propose idealized "solutions" about what money should be, inside of what the economy should be.

We are permanently stuck with the basic realities that money is measurement backed by murder, which had one of its phases of development be paper money, backed by governments. Anybody who proposes any idealized "solutions" that ignore those basic facts is merely spouting more bullshit, which paradoxically may well be relatively more successful, in the sense of being approved by some audiences, but otherwise is just more of the same old bullshit which made the real problems become runaway in the first place.

Sat, 07/19/2014 - 10:50 | 4976583 withglee
withglee's picture

Radical. Did you really expect anyone to read all that? Please next time precede it with the outline you used to produce it so we can better consume it. And by the way, now that we know how evil is money and everything about it, what alternative do you propose?

Sat, 07/19/2014 - 18:10 | 4978046 Radical Marijuana
Radical Marijuana's picture

The BASIC OUTLINE is theoretically simple:

Lies backed by violence WORKS, all too well in the short-term, but worse and worse in the longer term. There are NO alternatives which are practically possible. Since the world IS controlled by lies backed by violence, and there are NO realistic ways to change that, the FACT that money is measurement backed by murder is going to get worse, faster.

In theory, IF, IF, IF enough people were to change the way that they thought, then MAYBE, some alternatives would become possible. However, NONE of those can actually change the entrenched habits of having controlled civilization with lies backed by violence for thousands and years, which have been entrenched systems of legalized lies backed by legalized violence.

The ONLY realistic things to do are to attempt to understand what is going on, as we wait and watch the systems of lies backed by violence becoming increasingly mad, and destroying themselves. There are NO genuine alternatives that I am aware of to the decline and fall of civilization. The main theme of my comments is that the prolonged success of controlling society with lies backed by violence has resulted in an almost inconceivably crazy and corrupt civilization, which has primarily applied the power of science and technology to be more dishonest and be able to back that up with the threat of much more violence.

Meanwhile, I am doing the only thing which I can, which is attempt to understand the world better. However, my final conclusions are constantly becoming more and more dismal. Indeed, since about 2008 I no longer have the slightest shred left of optimistic idealism towards the more probable future.

It is easy to come up with theoretical alternatives, however, there are NONE which actually deal with the realities that the world IS controlled by lies backed by violence, actively promoted by about 10% of the population, while the other 90% are easily manipulated irrational political idiots. Indeed, 90% of that 10% that made and maintains the systems of legalized lies, backed by legalized violence, which benefit them in the short-term, are practically political idiots too. Meanwhile, the tiny fraction of 1% that are the real ruling classes have become criminally insane, and therefore, all of their short-term success at controlling society through their enforced frauds has no good longer term future either. The theoretical alternatives are to understand things better, so that we stop deliberately ignoring those realities. However, the full analysis of the situation leads to the unavoidable conclusion that that is NOT going to happen. Runaway debt insanities provoking death insanities is what WILL happen!

THERE ARE NO WAYS TO ACTUALLY CHANGE THOSE SOCIAL FACTS, THAT THE WORLD IS CONTROLLED BY LIES, BACKED BY VIOLENCE, WHICH DROVE EVERYONE TO OPERATE WITH ATTITUDES OF EVIL DELIBERATE IGNORANCE TOWARDS THE LONGER TERM CONSEQUENCES OF DOING THAT, WHICH CONSEQUENCES ARE PROBABLY WORSE THAN WE CAN NOW FULLY IMAGINE!

Sat, 07/19/2014 - 19:26 | 4978320 withglee
withglee's picture

Maybe that's why so many people trust in a life after this one. I, for one, only get this life. Wish some of those already gone could write back and tell me how much better it is for them now.

Sat, 07/19/2014 - 18:14 | 4978055 Radical Marijuana
Radical Marijuana's picture

P.S.

It will make no difference whether some infinitesimal group of people might read what I have written. Even if millions of people did, that would still make no significant difference, since it is practically guaranteed that billions of other people never would. The real world would continue to cruise on its autopilot controls of legalized lies backed by legalized violence. THE MONETARY SYSTEM IS GOING TO CONTINUE TO BE BASED ON ENFORCED FRAUDS UNTIL IT DESTROYS CIVILIZATION.

I am merely recording my efforts to understand how and why that happened. However, I have already come to the conclusion that nothing I say or do is going to make any significant difference to that happening, unless there was some prodigious series of political miracles, which, by definition, are extremely improbable.

Sat, 07/19/2014 - 19:23 | 4978310 withglee
withglee's picture

If it will make no difference, how do you justify the time to write it?

Fri, 07/18/2014 - 23:40 | 4976378 Radical Marijuana
Radical Marijuana's picture

Anybody else noticing that the Zero Hedge Web site seems to be going off-line quite a lot lately?

Sat, 07/19/2014 - 11:08 | 4976890 withglee
withglee's picture

Yes.

Sat, 07/19/2014 - 18:18 | 4978106 Shigure
Shigure's picture

Will work for free:

http://www.youtube.com/watch?v=0SuGRgdJA_c  (2 hours)

Do NOT follow this link or you will be banned from the site!