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The Invention of Money
The John Law Economic System
The financial system in use today is a version of John Law’s system:
Each country in the developed world has a central bank that issues paper money, manages the supply of credit in the interest of commerce, uses fractional-reserve banking, and has joint-stock companies that pay dividends.
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Key Ideas
Paper Money
The instruments of trade and finance, like paper money, are groundbreaking inventions, put to use by collective acceptance using authority and seals of trust.
Money's Worth
The financial crisis of 2008 showed that the system can buckle anytime and money may not always be worth the same.
As we get hyper-connected, the state-backed authority of currency, and what Money is really worth, is being rethought. Society has historically tried to invent new forms of currency, most recent being Bitcoin, a cryptocurrency.
The Idea of Libra Currency
The idea of Facebook's Libra, an attempt to create a new currency made from the architecture that powers Bitcoin, is that the value of new money is not derived from state authority, but a combination of mathematics, global connectivity, and trust that resides in people using Facebook.
The Invention of Paper Money
The King Williams Administration used to borrow large sums of money used for wars and then levied taxes on ship cargo and spirits to pay back the interest. This gave rise to Banks like the Bank of England, and finally Bank Notes, the currency still used today.
John Law
“Money is not the value for which goods are exchanged, but the value by which they are exchanged.”
The Rise of Paper Money
Paper Money was pushed as a 'fiat' currency due to an attractive quality: it was guaranteed to trade by the state authority for a specific weight of gold or silver, and couldn't be melted down or devalued.
The John Law Economic System
The financial system in use today is a version of John Law’s system:
Each country in the developed world has a central bank that issues paper money, manages the supply of credit in the interest of commerce, uses fractional-reserve banking, and has joint-stock companies that pay dividends.
Gold
- Real money is only gold, and all the other forms of currency in the system are merely different kinds of credit.
- Credit is an indispensable part of a functioning economy, so it continues to thrive even with historical setbacks.
- Gold is the only real 'legal tender'.
SIMILAR ARTICLES & IDEAS:
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Key Ideas
The illusion of control
Stress testing is a standard technique used to test how someone will perform in the "worst-case" scenario. The problem is that the "worst-case" scenario is subjective, causing an illusion of contro...
Success and crisis
Success in “normal” circumstances does not mean that you will succeed in a crisis since, in a crisis, the rules change. However, it can make you feel confident and make you highly vulnerable to the next crisis.
Drawing up your own tests
Your own incentives may support an illusion of control. If you draw up your own worst-case scenarios, you will always pass, but as a result, you will develop blind spots.
Encourage innovation in risk models to increase diversification and decrease risk.
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Key Ideas
Napoleon Hill...
Born into poverty in rural Virginia at the end of the 19th century, Hill went on to write one of the most successful self-...
Hill was a charlatan
Napoleon Hill was said to be an advisor to two presidents: Woodrow Wilson and Franklin Delano Roosevelt.
In fact, there’s no evidence whatsoever outside of Hill’s own writings that Hill met President Wilson or President Roosevelt, let alone acted as a trusted advisor to both.
Hill and Carnegie
Napoleon Hill’s most infamous claim was that he met and interviewed at length the industrialist Andrew Carnegie in 1908.
Andrew Carnegie's biographer David Nasaw found no evidence of any sort that Carnegie and Hill ever met.
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Key Ideas
The Earliest Banking Systems
- The earliest banking systems date back to 8000 BCE when trade was recorded in a log, keeping a written note of the transactions.
- Mesopotamia was the home o...
Banking Systems In The Medieval Period
Brokerage and loans started in an advanced form with merchant banks, though crop loan was still used for lending and credit activities.
Italy was the home of the earliest banks (which evolved into the modern banks), and even the word ‘bankrupt’ comes from the Italian word ‘Banca Rotta’.
Banks Between The 17th And The 19th Century
- London was where the biggest action was in the banking world, with the Goldsmiths of London being the first proper bank. Services like vaults, bank debts, deposits (made inside the bank) and loans became popular.
- Banknotes were first offered by the Bank Of England and were called promissory notes. Soon other services like cheques and overdrafts followed.
- The Rothschilds started their financing business in the 19th century, eventually becoming the richest family in history.
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