Bonus – Bill Bonner on Printing Money and the American History

 Bonus – Bill Bonner on Printing Money and the American History
The origins of today’s money system can be found in Venice in the 12th century. There, the Bank of Venice was founded in 1171. Other banks realised they could make a business of holding deposits from rich merchants who were profiting from trade with the East. They took deposits of gold and gave receipts which gradually came to be trusted: “As time went by, some banks developed a reputation for probity and honesty. This led to merchants, who had accounts with these banks, simply transferring receipts of these banks when they had to pay one another. This led to these receipts functioning as 'paper' money. In some time, people running these banks also figured out that their depositors do not all come on the same day asking for their deposits back. So, in the intermittent period, they could loan out the deposited money to others for a fee. They could also simply print fake deposit receipts not backed by gold or silver, but which looked exactly like the original deposit receipt and lend that money out.” In the American colonies, for example, Mr. Easy Money was one of the first immigrants to step off the boats. Then, it must have been an early Bush who came up with the idea in 1690. It was a bad one. But it was not unpopular. The colony would raise an army to invade Quebec, then the capital of New France. What exactly the Yankees had against Quebec was never made clear. But humans entertain the gods, from time to time, with blunders and blockheadishness. In the event, an army was raised. The expedition set out. It was a disaster. Thirty men died fighting. Two hundred died of smallpox. And the loot, which was meant to pay for the adventure, was never captured. What to do? Issue paper money! Called the “Massachusetts Pound,” it was already on the decline when it was made legal tender in 1721. Already, merchants had drawn its measure and refused to take it. So, the government reacted in typical blockhead fashion: it made it a crime not to take the paper money at face value. Other colonies were close behind. Here in Ben Bernanke’s home state, the assembly was wrestling with the bills from its own failed expedition. What could be done? In 1702, it decided. Print money!
One bad idea led, like a sink drain to a sewer line, to an even worse one. Pretty soon, paper money was flowing in all through the colonies. And it stank. Rhode Island was the “biggest money printer of them all,” writes Kaul. Against hard currency, its paper money lost about 95% of its value by 1748. “In Pennsylvania, the most responsible colony when it came to printing money, paper currency had lost 80% of its value.”