Paper Money

B11　—　Cross-cutting theme

Why can paper with nothing behind it hold value?

Supervised by: Mitsuru Hayama　／　Reading time (main text): course text ~8 min + textbook ~31 min = ~39 min　／　Beyond the text: 11 exercises · 5 coins · 11 readings · 2 references

What this course teaches you to do

• You can explain the difference between convertible and inconvertible notes by what happens at the window.
• You can state, in stages, the order by which paper money gains trust.
• You can explain what is happening at the moment paper money loses trust.
• You can say why having many kinds of notes becomes a problem.
• Can explain the birth of the banknote, from the goldsmith's deposit receipt to the "discovery of fractional-reserve lending."
• Can contrast the death of a paper currency (the Confederacy) and its rebirth (the Rentenmark) as a matter of credit design.

TEXTBOOK

Lessons (8)

1. What comes back at the window decides itConvertible or not turns on whether metal comes back at the window. Inconvertible is not weaker; it builds trust differently.
2. When paper money appears, war finance is usually nearPaper systems are built after the disorder. The system does not create trust first.
3. Having many kinds is itself the problemThe very labour of checking lowers value. Unification works less by fighting forgery than by sparing the check.
4. Paper is also a physical thingA note is made of two layers, trust and matter. Burnt, it is nothing — so survivals do not show circulation.
5. The Goldsmith's Receipt — Another Origin of the BanknotePaper passing from hand to hand in place of gold coins. And the discovery that 'not everything would be withdrawn at once'.
6. The paper that swallowed a nation — John Law's experiment"Money does not have to be metal." A correct insight, lacking discipline, burst along with the entire nation.
7. Green Paper, Vanished Paper — Two Banknotes of the Civil WarTwo papers from the same war. The paper of the victor became an ancestor, while the paper of the vanquished lost its promisor.
8. Redesigning from Scrap Paper — The Curious Revival of the RentenmarkBacked by a mortgage on land. One trillion marks exchanged for one. The moment that proved confidence can be engineered.

Case studies — applied in the materials (11)

• The Satsuma Rebellion and inflation　Japan　1885　the darkness of the storehouse
  §1 and §4. Both the convertibility window and the konnyaku-powder story are here.
• The Satsuma Rebellion and inflation　Japan　1882–1899　Tokyo, the Bank of Japan
  §2. Check in the original why they waited three years for the gap in value to close.
• The national banking system　United States　the 1860s　A merchant's counting-table, once more
  §3. The account of a purse holding notes of several thousand kinds.
• The autumn of 1923　Germany　November 1923　Berlin, the exchange counter
  The figures at the point where paper money had wholly lost trust. Look at the order of magnitude: four point two trillion.
• The birth of finance　Overview: 2,700 years of the world　the 17th century　The London Goldsmiths
  Section 5. The moment a deposit receipt begins to circulate, and the discovery of re-lending.
• John Law's bubble　France　1720–1789　France under Louis XV
  Section 6. The after-effects of the collapse. Including Talleyrand's warning.
• The Civil War　United States　1865　The defeated South
  Section 7. "Only the promisor disappeared."
• Germany　Overview: 2,700 years of the world　November 1923　The Miracle of the Rentenmark
  Section 8. Credit can be designed—a miraculous blueprint.
• The republic and the escudo (2)　Portugal　1925　An inspection table in Lisbon
  This is a case where one could say the paper itself was neither genuine nor fake. The notes were printed with genuine plates, on genuine paper, using the official process, but they simply lacked the authorization for issuance.
• Banknotes, in half　Greece　1922　The exchange window
  The banknotes in circulation were cut in half down the middle. The left half became currency at half its face value, while the right half became a 20-year interest-bearing bond. The text even describes the mechanism by which only those who lived on cash were directly impacted.
• Notes that promise no exchange　China　1375　The printing works of the Ming baochao
  This paper was designed to be inconvertible to either silver or copper coin. Please follow the logic of how this design—making no promise of convertibility in the first place to avoid a bank run—made the third issue of banknotes weaker than the second.

Assessment

11 exercises in this course (7 check, 1 compare, 3 written). Progress is recorded by self-assessment.

References

• Early banknotes — Bank of England Museum　Banknotes issued by the Bank of England since its founding in 1694. Initially handwritten, later printed. The collection holds 40,000 items, including all denominations ever issued.
• Our earliest Bank of England note — Bank of England Museum　The history of how English banknotes developed from goldsmiths' receipts, and early examples.

Only works and primary sources whose existence has been verified are listed.