How We Got Here

In order to understand how the world works, we have to understand how we got here. That’s also a bit much for one blog post, but the sections below summarize a few things I didn’t know when I started trying to figure it out. See the first and second posts in this series for context. The Creation of Money In the 1660s, London merchants who needed somewhere safe to store their gold and silver began using the vaults of goldsmiths, who already had the locks and the reputation. The goldsmith would issue a paper receipt; merchants quickly discovered that it was easier to pay each other with receipts than to cart metal through the streets. The receipts circulated as currency. The goldsmiths making these transactions noticed that at any given time, only a fraction of depositors came to claim their metal. The rest left it in the vault, trusting the paper. A goldsmith willing to issue more receipts than he actually had gold in the vault could lend out the extras and collect interest, as long as…