Money has meant different things to different people over the centuries and millennium. We began yesterday discussing the problems facing our money today and will begin looking at how these problems have occurred historically so you can see the need to protect yourself from a recurring phenomenon.
In the late 1600’s England established money backed by gold and silver. This concept revolutionized money because one did not have to carry around bulky silver to make payments. People could trade these strips of paper called “currency” knowing that any time they wanted to, they could go and exchange the currency for real gold or silver on request. This worked great! For about 3 years. The government soon realized that they could print as many pieces of paper currency as they wanted to. It didn’t take long for the people of England to realize that the government really didn’t have enough gold and silver to back the paper as they said they did. People rushed to exchange their “currency” for real money and the economy was in a tailspin and panic was in the air!
The King called Sir Isaac Newton in to save the day because he was the smartest man in the land. He studied the problem and came up with a simple solution. All England had to do was to never print more “currency” than they had real money (gold and silver) in the vault. As long as they did this, the currency could be exchanged for money at any time. People would feel secure knowing that their currency represented real money and would feel good about using them in trade. This is why British money has the name that it does. A British Pound Sterling note could be exchanged for a pound of sterling silver!
The rest of the western world had to copy this system because a Frenchmen would not want to hold French money if it were not “real money” the way an English Pound was! This was the world that the United States was born into.
Tomorrow we’ll look at money in America and the crazy turns it has taken in just the last 100 years. If your understanding of our money only goes back 3 or 4 decades, you are in for a rude awakening!
This is Part 2 of the series Hyperinflation and the Dollar. To use this as a growth tool to better understand your own calling, please read Pt 1.
Photo credit: TheDauphine