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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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.

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.

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

Yen Cross's picture

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

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.

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!!

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?).

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.

CrazyCooter's picture

Learn2Wiki ...

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




Supernova Born's picture

Baselss fiat debases? Shocking.

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.

jarana's picture

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


jarana's picture

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

ZH querulant?


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.  

gh0atrider's picture

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

Sean7k's picture

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

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.



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. 

RaceToTheBottom's picture

Not enough.  I want some blood as well.

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)

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...

edifice's picture

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

gh0atrider's picture

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

gh0atrider's picture

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

Marco's picture

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

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?

Stoploss's picture

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

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

lordylord's picture

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

So?  What is your point? 

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.

Winston Churchill's picture

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

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).

Frank N. Beans's picture

yes, we are better off today as debt slaves



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. 



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.

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).    


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?

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.

gcjohns1971's picture

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

LawsofPhysics's picture

The Chinese used paper money much earlier....


...oh the irony.

Yen Cross's picture

  They also invented gun powder LoP.

SilverRhino's picture

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


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:


"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.


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.