Table of Contents

History of Money

Origin of life

No one is sure, how and why life simple organic compounds assembled into more complex coalitions that were conscious billions of years ago.

The single-celled organism reproduced to produce far more offsprings that evolved to fit in various diverse environments they found themselves to be in.

Around 7 million years ago human lineage broke away from Chimpanzees.

Humans were the only species that started exploring and developing tools from the available natural resources.

Barter system

Different humans specialized in using different tools and developed different interests, some became farmers, hunters, blacksmiths, painters etc.

Humans carved for variety of goods being produced by others, however it was not possible for him to produce all variety of goods himself.

Eventually, he met other humans who were interested in goods produced by him and would happily exchange their produce for his goods. This system is also known as the Barter system.

However, barter system had several limitations:

  • Trade will not take place if one party is not interested in the product being offered by the second party. Hence a lot of time was wasted in finding parties to conduct barter trade.
  • Trade was not always feasible. For example, if value of 1 sheep is equal to 10 apples. I cannot cut my sheep in half for 5 apples.

Gold standard

Eventually, human species stumbled upon something that everyone found valuable – Gold:

  • It was rare, not easy to find.
  • It is not toxic
  • It does not decay, erode
  • It is shiny and attractive
  • It is malleable – we can make designer jewelry from gold

Trade flourished as gold was able to overcome limitations of trade under Barter system. Now humans could save for the future and trade with far-off places.

However gold standard also had several problems:

  • It was not easily divisible.
  • People started to counterfeit. Hence everyone needed to be an expert in differentiating counterfeit and actual gold.
  • Thieves could steal it.

Humans started storing their gold with goldsmiths to avoid the headache of theft. The goldsmiths would give receipts in return that could be redeemed for gold whenever needed.

Eventually, people started trading their gold receipts in open market in exchange for goods and services, as anyone with the gold receipt could go to the goldsmith and redeem it for underlying gold.

Birth of currencies

Goldsmiths accumulated huge stockpiles of gold as more people trusted them with their gold. This also grew their power and influence.

Eventually, Goldsmith became banks and the gold receipts became currency notes as we know them today. That is the reason most currencies are actually measurements of weight – Pound, Sterling etc!

Banks and governments started abusing their power and printed more paper currencies than the gold held in their treasuries.

This was possible because everyone would not go to the banks to redeem their gold at the same time.

Fiat standard

Government printed a lot more currency notes than their reserves. As a result, they started finding it difficult to return gold to everyone who came with the currency notes.

Subsequently, the governments came off the gold standard on one pretext or another.

US President Nixon’s announced that US will no longer be on gold standard ie currency notes are no longer redeemable in gold.

See how he complicates such simple stuff to confuse the public that what they are doing is in the public intrest.

Off the gold standard, there was nothing stopping the governments to print as much money as they desired.

What are the effects of printing money ?


A country can produce only a limited amount of goods and services depending on its human labor and raw materials.

Governments printing money does not have any effect on production of these goods as they are the result of human ingenuity and hard work.

The goods supply being fixed and number of paper notes increasing results in the same goods getting expensive in relative terms.

This means if an apple costs 1 currency note before the government started printing money, will now cost 2 currency notes as more money is being printed.

Moreover, depreciation of purchasing power is not equal for everyone. Those who are close to money printer(Hint: Government’s friends) enjoy from printing of money whereas middle class which has a fixed income but has to buy ever more expensive everyday goods suffer the most.

In short money printer is a way to redistribute wealth from the poor to the corrupt.

Capital misallocation

Ability to print money gives governments power to fund worthless projects, which would not have been possible if it had to convince citizens to pay even more taxes.

Birth of Bitcoin

An anonymous person/group by the name of  Satoshi Nakamoto published Bitcoin whitepaper in an online cryptography forum in 2008.

Bitcoin was the first peer to peer digital currency which:

  • Has fix maximum supply of 21 million Bitcoin – Governments cannot print more, unlike fiat currencies.
  • Did not require any intermediaries for two-person to transfer Bitcoin to each other – Cannot be regulated by government.
  • Cannot be seized – Governments could seize assets like property and gold, however it is not possible to seize Bitcoin no matter the amount of violence.