History of Money

The monetary system is not as complex as it seems to be. Big words are used to confuse the simple
minded of understanding the money “game”. The secrets are out there, some are kept from us and
others are hiding in plain sight. For example, the federal reserve is not governmental, but it is a private
entity. In this course, we will simplify the complexity of the system and to do so, we will need to
understand fundamentals of money, how it is created, when it move, and what makes currencies like
the US Dollar so valuable.

A brief history of money

Why was money created?

Before money (5000 years ago), we lived in a barter system which means the exchange of products as
a transaction. For example, 2 apples were worth 4 oranges. This was not convenient if we wanted to
buy 2 kilos of meat because we would need a lot of apples to make the trade and that was not easy
to carry. So as innovative as we are, we created a new system that is based on exchange of precious
metals such as gold and silver coins for products.

We spoke earlier on how time after time, empire after the other fall and their currency fall with them.
In such times, people go back to something with a limited supply to store the value of their money
such as gold and silver. In recent times, we also have Bitcoin but that is a topic to discuss later.

A look back in history might give us a clearer vision to the future, looking back on the first empire that
used money, the cradle of civilization ”Athens”. It was the very first society to have a free market and
a taxation system. No wonder 2500 years has passed and people are still fascinated by their
accomplishments. So what went wrong? how did it fall?

Just like every other empire, it was a mix of greed and war, their war with the Sparta. The Spartans
took control of their supply of gold & silver which limited their supply. Later on, just like any other
government does, they started printing money to pay the army while the soldiers were spending the
money outside of Athens, which led to a deflation in currency in Athens as the supply decreased.

How did they create money you might wonder. They made coins out of copper and pegged them to
go. Day by day the value of gold and silver increased in comparison to copper, this was the first time
gold or silver ever had a price in comparison to any other currency. It was not long till they lost the 27
years’ war against Sparta and crumbled into the pages of history. Of course, as much as we think
humans are evolving, they are not. We are still driven by the same feelings, greed and fear, and those
feelings lead us to make the same mistakes and get into the same pattern or cycle. Yet, we remain
sure that this time things will be different. I read somewhere that “stupidity is doing the same action
over and over, expecting a different result”. The things we keep repeating are repeated in the 7 stages
of an empire, which are on repeat from the beginning of history till this day.

1. A country starts out with good money which is either gold, silver or is backed by gold or silver.

2. As it develops economically, it starts taking more social burdens of public work.

3. As it grows economically, it also grows politically and increases its military expenditure.

4. It uses the military and starts war.

5. To fund the war, it debases the currency of gold and silver and starts printing money.

6. The high inflation causes the population create fear in the market.
7. A mass movement out of currencies into a store of value.

Throughout these processes, wealth is taken from the poor and the middle class then it is given to the
upper class. The wealth gap between the rich and the poor can tell us how far we are in this cycle. The
bigger the gap, the closer we are to a new monetary system. Another brief look into history will show
us exactly how the USA became the super power. In world war 2 the US didn’t participate in war till
the end of it, they were working as producers for the countries fighting. While every country's factories
were building artillery, the US factories were working to produce products like grain and export them.
This allowed the US to not only create jobs but also obtain more and more of the good money (gold).
By the end of world war 2, the US had 2/3 of the world gold. So, the world economic situation was
about to crash and the US couldn’t do that as it had its dollars all over the world and this is when
leaders of the world met in Bretton Woods 1944 and decided on a new monetary system that pegs all
other currencies to the US dollar, and the US dollar to gold. Then

Then in the 60’s the president of France Charles De Gaulle, gave the great speech of exposing the US
( https://www.youtube.com/watch?v=eYgnGAr3-kM ), so France and other countries started giving
the dollar back in exchange of gold, The US was about to go bankrupt so president Nixon in 1971
decided to move away from the gold standard and separate the dollar from gold. Each 30 – 40 years,
we have been adapting our monetary system to the our growth so we can increase our productivity,
this is one of the main reasons why humans were able to be so advanced technologically in such a
short period of time but just like anything in life, it has pros and cons. The cons in here that we have
been getting ourselves in debt for a very long time. From 1880-1910(WW1), then around 1910 -1944
(WW2), then 1944-1971(Nixon unpegging the dollar from gold). In each of those times, we had an
accumulation of events that led to a change our monetary system. The reason why the last phase
usually takes a longer period is that governments will try to print out their way through printing money
and causing a hyperinflation before finally crashing. The whole point of this video is to help us to
recognize patterns. These patterns are driven by our never-ending human emotions (greed and fear)
and understanding how to dribble between patterns can help us maximize our profits.