The History of Paper Money - Working out the Kinks - Extra History - Part 5 

The phrase "The year was XXXX and Britain was massively in debt" pops up a lot in these series.

What I've learned is that a large portion of history is driven by "XYZ Country was in debt in the year ____"

3 banks, for the Russian kings, in lands far and wide. 7, for the Roman lords, in their hall of golds. 9, for the Swedes, doomed to die. 1 bank, for the dark lord, in the land of England, where the money lie. One bank to rule them all One bank to buy them One bank to bring them all And in the money bind them. In the lands of England, where the money lie.

I'm curious how widely-accepted those non-government bank notes in Scotland and Ireland are.

I loved the banks huddled around a camp fire and the gold being abandoned on the church steps, its these simple images playing with the words that really get me

I am Scottish and 30 years old, and this is the first time I've heard that how we print money is just THAT uncommon. Thanks for the info, +ExtraCredits.

Ask jesus for more bread and fish

Wow. I did not expect this series to become so terrifying.

You know, Dan should keep this look. He looks dapper.

Oh! So, this is why we call paper money "(bank)notes".

So when do we review how the US switched to a bottlecap currency?

Watching this series after just having read Making Money by Terry Pratchett was eye opening. He must have done just as much, if not more, research than you did to write that book. Everything in his novel is covered here, from runs on the bank to what happens when people stop trusting them. Astounding...

The first question of paper money is not how much you can print, nor even what its value is - but who prints the money?

this video was released 2 minutes ago yet there are comments over a day old. loomynary confirmed

"1921 - less than a 100 years ago...." made me bluescreen for a minute....

It's a pain having to exchange your Irish/Scottish notes in for English ones just so you can travel to England/Wales. They're still usable, it's just that the majority of shops in england rarely come across notes that aren't from the bank of england, so they think it's just monopoly money. Was wondering why here in N.Ireland we have 3 separate banks printing their own money

As an economics major, this is my second favorite series on extra history. I love it!

I feel privileged watching this channel, people who admit they are wrong and use it for educational purposes. It's not even wrong, but admitting it and fixing things and sharing learning in a fun way. If history was this cool in school, I'd be a massive history buff. Ill sit semi baked and learn, this is brilliant and I'm in my mid 30's. And James that goatee is a killer! When I am not so broke I will have EC coffee mug.

I love that at 3:20 "organic-fair trade" is written in current italian, english and chinese for euros, dollars and yuans respectively

I've just learned so much about our economy in less than 10 minutes, it's amazing!

(the deadly kind) Rather than the pretty kind that you can trade for food in Maldives :)

The description of fractional reserve banking given at 6:20 is *wrong*. Depositing 100 dollars worth of gold with a 10% reserve ratio *does not* mean the bank can lend out 1000 dollars worth of bank notes. It means the bank can lend out *90* dollars worth of bank notes. This is still increasing the money supply, since all things considered $190 would exist in the economy after the loans were given out, but the key difference, and why 100->1000 is nonsensical, is that 100->90 enforces a concept known as the "money multiplier", or the *maximum* amount a single deposit can increase the money supply by; whereas 100->1000 would lead to unrestrained exponential growth of the money supply. (It would also imply every commercial bank can 'create new dollars', which they can't; that's a function reserved solely for the central bank. In other words, there's nothing a commercial bank does that it couldn't do with purely physical dollar bills and a ledger.) Run the process a few times in each scenario to see this in action and why 100->1000 doesn't work. In how it actually works, the $100 deposit becomes $90 in loans. That $90 ends up deposited in another bank, which enables an additional $81 in loans. That $81 ends up deposited in another bank, which enables an additional $72.90 in loans. Each step in this process reduces the amount the money supply can be expanded by 10%, and eventually that growth reaches zero through the geometric series of each deposit resulting in 10% less in loans given out on the other end so the growth doesn't continue unabated. The "money multiplier" is the reciprocal of the reserve ratio. That's why, if you look on Wikipedia for "money multiplier", the graphs level out to horizontal after a number of deposits. Each deposit cycle skims another 10% off the top and eventually you get to the point where you can't shave a penny in half to satisfy the reserve requirement while still loaning out the remainder. Now look at the incorrect 100->1000 assertion from the video. $100 in deposit supposedly becomes $1000 in loans. That $1000 ends up back in deposit at some other bank, which would then become $10000 in loans. That $10000 ends up in deposit elsewhere and becomes $100000 in loans. This process of exponential growth could continue *without limit*, and that would mean the complete devaluation of currency and the collapse of the economy because, taken to its natural conclusion, the result would be *infinite money* in circulation.

As someone living in London, I can not tell you how many times I have seen someone from Scotland show a Scottish Pound note and have a disgruntled face by the barman looking at it xD

"I prefer to think of it as a mattress a third of a mile high." -Hubert Turvey, Making Money

This could very well be the best episode of Extra History, yet. So engaging.

Please tell me there will be a full version of "Simple Gifts" made available at this series' conclusion! The Kiner's never fail to make amazing music for Extra History. There isn't a track they've made that I don't love.

Does Gold or Silver have any real value anyway, unless you're a Pokemon fan or Electrician

Thanks for another great episode in this series! I also really like the theme song. It's a nice irony to have a 19th century Shaker dance hymn about appreciating the simple things in life be used in a series about money. But it's also a double entendre- living simply could be about the small things in life but it could also be about making things easier for people, as in creating paper money because it is makes it more simple for the average person to buy the things he or she needs. It´s overall a really thoughtful theme song idea. Very clever.

Sir I got to know that there was a person named John Blunt who sharpened swords and John Law who illegally gambled and both ruined economy of UK and France respectively

Wow I love this series so much. Politics and economics can occasionally be way more interesting than war I guess

Truly amazing content! The visual and audible presentation of complex topics covering historical time periods being broken down to easy understand simplified terms is the sign of a true educator!

3:09 “...leaving you probably a bit less than jazzed about this whole “paper money” thing.” I don’t know what you think, but that visual pun has to be one of the funniest things in Extra History. Also I love the “Shells (the deadly kind)” sign at 4:18.

They should have chosen option B. XD You guys have great humor where it counts!

Now... Lets talk about Jekyll Island. I'm Calling you out Extra Credits!

I think the drawings describing that humans are slow to embrace new ideas in the start is so on point

Fascinating. Learning about this makes me think about all the problems and solutions that come with digital money.

4:26 FOOLS, THEY COULD JUST ASK FOR MORE FISH AND BREAD, IT WOULD SOLVE THE SUPPLY PROBLEM

You know if you want to talk about fractional reserve banking and bank runs it'd be nice if you talked about a few of history's casualties of that idea. Namely the Knights Templar in the middle ages and the Merchant banks of the Renaissance period both of whom were destroyed by bank runs because they were engaging in fractional reserve banking. Also no mention of The Mongols & their use of paper money in the Yuan Dynasty.

Great visualization art in these series! IMHO The art really follows and reinforces the reasoning....well done!

Thank you Extra Credits. Stuff like this gets me interested in topics I would never even consider exploring.

Walpole walpole walpole now he has to show up

4:23 B) Ask Jesus for more bread and fish, obviously

So fascinating - thanks guys! I had no idea how all this stuff came to be before- now I do!

I assume that someone in the comments on one of these videos has pointed to Neal Stephenson's Baroque Cycle trilogy that gives an (often thinly) fictionalized account of much of this. A ripping yarn (albeit long) about the beginning of the virtualization of value. It has a very odd mix of truth and fiction (and for history buffs it is fun to tease out what parts are true an which are not). He also wrote Cryptonomicon which covers the end of that process where bits overtake atoms as the center of value.

"Shells (The deadly kind)" So… the blue ones with wings and spikes then?

but when you charge interest on using money, problems starts to pop out

This has been a very interesting series. Thank you for making it.

Love this series!! Really interesting, and brilliant explanations!!

You guys should mention social credit theory.

So that's why the English won't take my LEGAL SCOTTISH TENDER

These videos are great and incredibly informative. Keep up the great work

The visual puns on this one were simply brilliant

9:00 Wait when did the woman cut her hair?

Recommended reading: Making Money by Terry Pratchett.

Oh, wow - you really are the future of my education, because you also make me laugh. You really cracked me up when the new "wheel" put out the fire, resulting in a dark fram full of sound effect text. :D Thanks! Now, on to the rest of this episode. :)

I got my Econ Degree in the 70's and this little series covers Econ 101 pretty well!

can somebody tell me the name/tell me about those scottish banks etc that are allowed to print their own notes?

7:21 Welcome to the Great Depression

Simple gifts. Such a nice version.

You need to make that "I believe!" frame into a shirt... Do It!!!! I want that shirt!!!

Just one problem with said Central Bank that can't fail... What happens when said bank decides it DOES care more about profit than keeping the country economy stable? When it goes "Hey, I'm too big to fail, so what's stopping me from taking wild insane risks? If we screw up, then the government will just bail us out with loans from other countries or wherever"? ESPECIALLY if said bank is able to apply pressure on politicians so that they don't get penalized for what they just pulled. I mean, TECHNICALLY that has not happened yet, but allowing any bank to be "too big to fail" encourages a certain kind of people to then abuse it in order to get rich with no penalty. >_> Seriously, why do economies somehow continually bloom to the point where there's not enough currency in the country to make things run? It's insane.

A world where things work because we believe in them? That's it, time for Waaaarrrrggghhhh!!!!

How have I managed to watch every single episode of extra history in less then a week? My favorite is by far the south seas company series

I remember going to Singapore in 1990 and I thought it was weird as anything that sometimes you'd get different notes issued by different banks.

5:24 Me watching this in 2021

abandoning the gold standard means that we have adopted the "fiat money system", historically this system has only ever ended in one thing: rampant unmanageable inflation. added to the fact that in america and indeed in most other countries the centralised bank isn't owned or operated by the government and suddenly you have a situation where it's not the government in control of the economy but the central bank, on the surface that's not a bad idea because the central bank can in theory react more quickly but it presents a terrible switch of power because, as it turns out, the government runs on money. this can and has been used in america for the owner of the central bank to impress his will on politicians across the board.

Regarding the United States... In the early 1960’s Kennedy ordered the Mint to print “United States Notes”; I even had a $2 one which had a red seal. These were not bank notes, rather debt-free currency. Sadly, this was discontinued for reasons now debated.

the outro is so beautifull **-** I love this series on paper money

Well this is just interesting. I always thought fractional reserve banking was stupid, dangerous, and greedy -- but I see it serves or at least once served a purpose: preventing a country from running out of exchange medium for the value its citizens produce. Perhaps it only gets troublesome when combined with compound interest and speculative stock markets.

The next episode is one of the saddest stories of history. Most will never understand why or how. Thanks for the great episode.

I really like your videos, keep it up!

This is one of EC's most interesting series.

Whoa, I'm really early! Um... I don't have a joke, so just ignore me.

If we've invented money then why can't we afford to spend more money on science research?

Sneaky Book of Mormon reference? Love it!

Keep up the good work!

Ask Jesus for more bread and Fish 😂👍🏼

Don't forget the exciting future where the economy crashes because banks demanding negative interest. (Which are current suggestions in the EU from the banks .... negative interest I mean) Means when you have money on the bank you not only loosing money because of inflation and not only have to pay fees for handling the money ... you also have to pay interest ... instead the bank has to pay interst to you .... Which would lead from all people I know (and probably from the rest as well) to pull their money instantly out of the bank and store it in their mattress. And don't get me wrong if you get a loan you have to pay interest as well .... that is if after that stunt the bank is still able to

this is a really cool series.

that last frame drawing is pretty neat

All countries had unified currency that they all believed in. The "Central bank" solving all the problems of paper currency has never and will never happen. Literally every single problem that plagued the first paper currencies STILL continue to this day. I do love that even you admit that they have to "hoard real money" for their companies to be solvent. Banks don't keep the economy strong nor stable. That is the people themselves. Their financial decisions, their individual solvency. Furthermore the people of the United States have the right to create a paper currency. It's called supplemental currency. The states can only create currency in gold or silver and are specifically barred from creating paper money. Also whatever is created Cannot Compete with the United States Dollar.

"The dollar standard" worst thing to happen

i love this show

I can't wait to see where Walpole comes into all this!

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered.... I believe that banking institutions are more dangerous to our liberties than standing armies.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." Thomas Jefferson

fiat currency. Making our economy function by the sheer collective belief in a concept that's physically ungrounded from reality. The next step is to realize that it can be abandoned and replaced with the desire to better the strength of ones community.

This series reminds me a lot of Planet Money's story on Greece.

An interesting point I noticed on holiday to the UK a few years back (2009?). The Scottish accepted the English money just about anywhere in Scotland while the Scottish money was accepted in northern England but was less accepted the further south you went (to the point where no-one would trade in the far south) despite it still being legal currency of equal value.

i love your videos and this series but this was the least informative one yet

My mom loves these.

I think we need a video on the modern international currency exchange, it'd be very informational

The most enjoyable part of this video is probably the rendition of Simple Gifts

Thank you so much for the video. In my country, materials about the history of money (not just money but a lot of other stuff too) are so few that the whole picture of money (and other stuff) cant be understood. In addition, despite the internet, i also have no idea what books to look for the information. Thanks to you guys, now i know "the travels of marco polo", " the wealth of nation ", "sir robert peel's act of 1844, regulating the issue of bank notes" as helpful references .

8:53 precisely how faith works.

Please tell me you're going to talk about the "Tinkerbell Effect" in the next video in the series. BTW yet another fascinating video. Definitely enjoying all of these extra histories.

MY GOD do I have to REALLY!! have to pay attention to get through this one

i just love the music this time

Great new video!

"One great inovation, the central bank." I'm twitching from hearing such stupidity.

Cool ending music :)