What is money exactly? At first it might seem obvious what money is, but is the definition of money really as simple as saying it's the dollar and quarter sitting in your wallet? I don't think so and this may explain why the term paper money creates a lot of confusion.
In my opinion, money is just an idea. A concept. A store of value that takes the shape of whatever the majority wants it to be. It takes the shape in various forms and likewise each form has different amounts of value and conversion rates into something that is desired in the future. If you think back to the old days of cavemen and hunters and gatherers, what was considered money?
Did they even have money back then? Of course they did, but they didn't call it the dollar, yen, or yuan nor did it always look like a flat piece of paper. Depending on the time period, location, and what was valued by the majority of the people involved in trading, money was either coco beans, seashells, metal coins, or colored pieces of paper, etc. Whatever form it took, it was universally accepted by all those involved in the trade and likely not consumed for personal use. From what I know about history, it seems that as a society advances, the form of money often evolves into the form of something that facilitates an increase in the speed of trade. That usually means something that is durable, easily divisible, highly valued, and difficult to produce. Empires of the past often used gold and silver as a form of money at some point during their existence. The people of these empires and the descendants of these now bygone empires have always had a cultural love affair with these metals. These people make jewelry out of these metals. They decorate their homes with it. They sing songs and write stories about it and they use it in religious ceremonies as well. However, as far as I know, an empire that originally used gold or silver in their coinage will almost always eventually debase their currency in order to expand their credit. How did they debase their currency? By taking gold and silver out of their currency over time which through default devalues the coinage issued by the governing empire and thus the value of any savings held as that coin.
Did they even have money back then? Of course they did, but they didn't call it the dollar, yen, or yuan nor did it always look like a flat piece of paper. Depending on the time period, location, and what was valued by the majority of the people involved in trading, money was either coco beans, seashells, metal coins, or colored pieces of paper, etc. Whatever form it took, it was universally accepted by all those involved in the trade and likely not consumed for personal use. From what I know about history, it seems that as a society advances, the form of money often evolves into the form of something that facilitates an increase in the speed of trade. That usually means something that is durable, easily divisible, highly valued, and difficult to produce. Empires of the past often used gold and silver as a form of money at some point during their existence. The people of these empires and the descendants of these now bygone empires have always had a cultural love affair with these metals. These people make jewelry out of these metals. They decorate their homes with it. They sing songs and write stories about it and they use it in religious ceremonies as well. However, as far as I know, an empire that originally used gold or silver in their coinage will almost always eventually debase their currency in order to expand their credit. How did they debase their currency? By taking gold and silver out of their currency over time which through default devalues the coinage issued by the governing empire and thus the value of any savings held as that coin.
Why would the populace allow the empire to do this and why would a empire want to expand their credit? I think the first part of the question is answered by the second. Empires maintain control by keeping the populace happy. If the populace is not happy, those in power are always in danger of getting kicked out. Sometimes peacefully, sometimes not. Logic says that when a populace becomes unhappy you do your best to appease them and defend yourself against them lest they try to unseat you. Both of those activities require lots of money. If you don't have any money available to fund those activities you can pray that someone is generous to just gift you money with no strings attached or you have to find a loan somewhere which is another way of saying you need credit. One way to do this is you get the money or something of value from someone outside your empire, or you expand your money supply by taking advantage of the fact that the populace has grown so used to using your coinage as currency that they don't even bat an eye when you start removing what made your coinage valuable in the first place and replace it with something less than desirable. So the answer to the first part of the question is, the populace allows such things to happen when they forget that money is simply a concept. A transitory store of value where the form it takes is determined by the majority and can change at will.
Perhaps this is why it's not uncommon to come across old roman and chinese coins either in old antique shops, forgotten in the ground, in wells, etc...and why no one gets very excited when they find such coins.
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