The History of Paper Money – Origins of Exchange – Extra History – #1

How did humanity come to accept rectangular pieces of pulped trees as something to spend eight to ten hours a day working for? It’s a pretty insane story. This change from hard currency like gold or silver is a really huge deal. Without it, we couldn’t possibly have the massive industrial and post-industrial economies we know today. This change revolutionized how we do business and forever altered how governments were financed. Learning about this massive sea change in how we as a species thought about money can help us reflect on our current historical shift from seeing paper as money, to seeing bits, seeing digital ones and zeros as money. But before we can get the exciting story of people trying to convince other people that paper was worth something, to understand why this is such a huge deal, we have to discuss a bit about how we thought about money before paper. If we go way back to the beginning of society, we find trade. Before early humans even really settled down, there’s evidence that, when we met, we exchanged things we had made or things we’d found. But as soon as humans started to cultivate the earth and form societies, we started to specialize and that meant that we not only loved to trade, we had to. Now, often when we think of trade we think of long distance trade. We think of caravans loaded with exotic goods. But for our story, we have to talk about local trade. Because here’s where we run into the problem of Coincidence of Wants. Or rather, we run into it everywhere. But if we fail to solve this problem at the local level, society breaks down and we can’t have the specialised trades we need to run anything beyond the smallest gathering of people. So what is a Coincidence of Wants? It’s the basis on which trade can exist. Let’s say that I make shirts, and you grow food. Well, if you want a shirt and I want food, awesome, we can trade. But if I don’t want
your stupid food, or if you’re all full up on shirts, well, we can’t trade, can we? And that
starts becoming a real problem for society if i want food but you don’t
want my shirts. Maybe I can find somebody with some third good that you do want.
But that means that a lot of time is consumed by trading. And if I can’t find
some other good you want to trade for, well, there’s gonna be trouble. And this
problem runs even deeper than we sometimes think about when you consider the lack of
refrigeration and transportation. Imagine I’m a fisherman and you’re a farmer, and
let’s say that we want to trade. Well there’s this problem; your harvest
only comes in once a year. I can’t trade you for a harvest you don’t have yet, and
all of those extra fish I caught today are going to be pretty rotten by the
time your harvest comes in. And while this may seem like a very specific
example, trade for food was probably the most prevalent trade of the ancient world.
So we need to find a third good that we both want that we can trade for. But
wouldn’t it be convenient if there was some universal third good which
everybody wanted and would trade for? So we didn’t have to do some long chain of bartering every time we wanted something. Enter, money. All money is is a third good
that doesn’t spoil and that we all agree has value, thus becoming a unit of
exchange; An intermediary good, by which all other goods can be traded. And while we often think of coins made
of precious metals for this purpose, the truth is, so long as it’s durable enough
and hard enough to procure, anything can serve as money. Tangent time: Turns out
we have used a lot of weird stuff as money over our history. For example,
cattle have often served as money. I mean, they’re fairly durable, they last for
years, they’re practical, and they’re reasonably
scarce. When Europeans arrived in the Americas, alcohol often served as
currency. You could literally drink your paycheck. Cigarettes have often become
money of prisons and POW camps. Back in ancient China, money in the shape of tools and then knives became some of the first examples of precious metal money.
And, my personal favorite, on the island of Yap, gigantic limestone donuts serve
as money. They are so huge that once they are brought to the island, no one even moves them. They just remember who owns which ones. In fact, all of these stones had to be quarried off-island,
because there’s no naturally-occurring limestone on Yap. And once when a crew was coming back
from a quarrying expedition, a storm hit and sent their stone to the bottom of the
ocean. But the crew survived and told everybody what had happened, and the
Islanders decided that “Eh, it still counted.” So to this day, somebody owns
that giant piece of stone money at the bottom of the sea. And even though it’s
not really in use today, for hundreds of years that stone was used to buy and
sell things, even though no one had ever seen it, giving Yap, in some ways, one of the most forward-thinking monetary systems before the modern era. But if we
want to talk about the king of them all, the form of money that has been used the
longest and over the widest expanse of the globe, we have to talk about one
thing. No, not gold. Although in fairness, that’s
what I would have guessed too. Nope, it’s the cowry shell. It’s durable, impossible
to counterfeit, and without modern harvesting techniques it’s not so easy
to acquire that inflation will run rampant. Anyway, tangent over, back on
target. We have lots of different possible types
of pre-modern money, including the gold and silver coins that we so often think
of when we think of money of the past. But all of these different types of
money have one thing in common: they are what we call commodity money, because
their value is in the commodity themselves. Even cowries were seen as
rare and beautiful, and can be used for jewelry and the like, and so were thought
of as having intrinsic value. The same way we feel gold has an intrinsic value
for its scarcity and its uses. Now, that makes a lot of sense for a
currency. It feels secure and reasonable. You can trust to the worth of that gold
coin in your hand. I mean, after all, if you’re used to
trading one thing for another, why would you ever trade something
valuable like a horse for something worthless like a pile of paper? But for
gold or for cowries, well that’s another story. But when your economy
grows, this system starts showing some of its limits. For one thing, commodity money is heavy. If you’re doing massive deals, it gets
really hard to transport. And it’s risky to transport across lawless lands.
Commodity money is also often subject to debasing, where somebody. usually the
person who should be responsible for making sure the currency maintains its
value, waters down the whiskey, or takes a gold coin, melts it down, and reforges it
with a bit less gold in it, and passes it off as worth the same amount. But more
than anything, when you get to gigantic economies, the very scarcity that makes
commodity money seem to have value becomes your enemy. Like, let’s take gold
and silver. What happens when your economy grows to the point where you
just can’t get enough of it? We actually saw the effects of this in
our episode on the Opium Wars, where so much English silver was ending up in
China in exchange for tea, it was actually causing inflation, and
hampering basic economic transactions at home. And this really comes into effect
when we get to more modern government finance, and the financing of war. What happens to a nation when it has to
make a sudden drastic uptick in its spending, but can’t get enough specie to
cover its cost? Even from those who are willing to lend? As I am sure we will see
in future Extra History episodes, it plays havoc with an economy, and even the ability to prosecute a war. And the reverse of this is true as well. Currencies based on scarcity are often
subject to changes in the scarcity of the commodity on which they’re based, which can be trouble when somebody finds a lot more of your currency commodity. When
Spain started to important massive amounts of silver and gold from the
Americas, all the precious metal-based currency in Europe started to suffer
from inflation. After all, all those gold coins weren’t worth nearly as much since
somebody had just dumped a huge new pile of gold on European shores. And as a
government, or even a financial sector, when someone digging up a new pile of
minerals means that you can’t control your own fiscal policy, then that’s bad
news. But those disadvantages are only easy to see if you’re a head of state or
working on the largest-scale transactions. If you’re just some average
person in the street, when some well-to-do says that they want to take
your grain in exchange for this nice slip of… is that paper? Well, you would be forgiven for thinking
that you smell a rat. Join us next time as we finally delve into the origins of
paper money, and start to address this problem of people fearing to give up
their outdated gold.

100 comments on “The History of Paper Money – Origins of Exchange – Extra History – #1”

  1. Twisted Code says:

    Yap's monetary system is quite remarkable. Thanks for educating us about it!

  2. 109ejg says:

    Please be advised this video is spreading false information from the first 30 seconds.

  3. Rihards Maybe?? says:

    3:50 at Latvia pepole used sea shells and little rocks today valuable rocks that formed from tree saplings falling into rivers,flowing to the baltic sea and staying at the shore

  4. newsjunkie3000 says:

    All paper money returns to its intrinsic value. Toilet paper.

  5. Mallow Nectar Smoker says:

    red silk cotton tree seeds bombax ceiba seeds nectar honey silky cotton fiber nectar and pollen mean median mode perspectives on data sets sampling mean median mode Millettia+pinnata Paulownia Nicotiana

  6. Scriptminer says:

    Love your videos! The way you explain things is so interesting!!

  7. René Olivo says:

    We didn't barter for things right on the spot. Bartering did happen as IOU precisely because goods are not readily available at the same time for both parties.

  8. Supertrain12 says:

    Nice video.

  9. Janblu Poggio says:

    Oh yeah apparently here in Kenya 10 cows can be worth 1 million shillings, or around 10,000 USD

  10. pegleglester says:

    The last I heard, paper money (especially US money) was based on linen, not paper.

  11. James Martin says:

    0:00 I ask this every morning

  12. Wf Coaker says:

    How did humanity come to accept rectangular pieces of pulled trees as something to spend 8 to 10 hours a day working for? Indeed! And now it’s not even paper, it’s electronic circuits.

  13. ALPHAPLAYZZ says:

    "loaded caravans" shows camel. Not saying this is a bad thing it just confused me

  14. Mason Trinh says:


  15. MrUnite4thechildren says:

    2:25 "All those fish I caught…"
    I thought you made shirts. So, like you had too many shirts and turned some of them into nets or fishtraps or some s**t like that??

  16. Tango Theo says:

    So the conclusion of this video is… you dont need money if you're a fisherman and eat your own fish?

  17. Same Raiza says:

    Economist smiles widely

  18. Serpy the Serpent says:

    I really liked that dragon at the end

  19. Jacks Bob says:

    oh my god that stone on the ocean was so mafia thing they did.

  20. hanle lol says:

    question is… who decided how much value does one thing have? And how was money distributed ?

  21. A Well-Mannered White Family says:

    Are we just going to ignore that one prisoner smoking a cigarette from the wrong end?

  22. lil poo says:

    Its a lie when they use gold and silver there no inflation

  23. Riley T. says:

    The stone circle system sounds like an amazing story and I love it, especially because it puts such a spin on money that makes me go 'wait why is this weird paper stuff our currency again?'
    It's great.

  24. Nerdcoresteve1 says:

    The answer to the question at the beginning of this episode is "because citizens were required to pay taxes with that currency"

    There is no evidence of a barter economy ever having existed. The first written records already show the existence of government issued money.

    Commodity backed currency is historically rare.

  25. Burris Streaming says:

    here's a couple of little tid bits of information on counterfeiting coins. the ridges in the coins edge of u.s coins were put there to prevent shaving off bits when coins were made from precious metals. people use to gold plate v nickles and try to pass them off as a 5 dollar coin. one person actually got away with it because he was def and mute so they couldn't say he said it was a 5 dollar coin or heard the clerk say anything.

  26. Gregory Berndt says:

    Can’t slip gold coins in a strippers thong

  27. the gorgeous doggy lul says:

    {_/} {_/}
    ( •~•) (•~• )
    / >💵 💶<

  28. Dagan Love says:

    Anybody else notice the song at the end is an old Quaker hymn?

  29. Jasnik Parmar says:

    Why read sapiens when I can watch extra credits

  30. Peptuck says:

    I loved the fact that the infographic at 3:13 used teeth as an example of possible money. Makes the Ork fan in me proud.

  31. Sophie Nugre says:

    So did Walpole swindle his way to own the stone doughnut? Or was it blunt?

  32. King Username69 The Magnificent says:

    Isn't cocount more practical than a giant donut.

  33. Bria Pryor says:

    When you already knew about this stuff because your a history nerd, and you accidentally found stuff about money and just kept going.

  34. Penny Cook says:

    3:33 he lit the wrong side

  35. Scout AndroidTab says:

    Take the shot!!

  36. w nimium educatus says:

    Barter theory is nonsense propaganda from vested interests. These guys seem as if they've never heard of tally sticks (at least the first few minutes). I can't recall the last time I've seen >500 dislikes.

  37. Jan Tichy says:

    Finally I have been able to send me more than 1254 through this wonderful site


    This is great to be sure but what if they get rid of credits! If we have known job!

  39. Skeleton Rowdie says:

    Hahahaha i knew they would do that when the limestone sank

  40. Muhammad Fiqri says:

    Lom people in bangka belitung Indonesia my home land….
    They used to trade items with items,, The old fashioned way …

    But when dutch Colonialise us and modernisation occurs
    They become Alienated

    And me a malay who live with lom people, i feel pity for them… They Live in forest, hunt with primitive ways…. But weirdly they never get malaria….

  41. LiamB137 says:


  42. Barry Scott says:

    my ideology is that if someone else wants something you have, it's too valuable to give away.

  43. D1GITΛL CVTS says:

    Money can be exchanged for goods and services.

  44. Darkness Light says:

  45. Darkness Light says:

  46. Darkness Light says:

  47. Darkness Light says:

  48. Darkness Light says:

  49. Opal Gaming says:

    All countries currency should be the same according to this.

  50. Kaiser Wilhelm II says:

    I knew it! Moneys were from TREES!

  51. Slimy Boy says:

    I love how you use RDR to represent a “lawless land”

  52. Jason & Jennifer Brunell says:

    Can I ask a question yes? Ok where are there arms ? I mean we have arms and this is not a rant but where are there arms?

  53. kuldip dhuna says:

    Instead of money there was gold

  54. Happy Cookiezz says:

    Stupid food

  55. Dante Sherman says:

    'Outdated gold,' eh sounds like something a hobbit would say. – Smog

  56. The Nice One says:

    My husband's country in Africa used cowrie shells until the evil people came in and changed things.

  57. D Silva says:

    how about the fact all paper currency has failed 100% of the time cousing the public to loose all their wealth. yeah lets just forget that part. dols and silver is the only real money. fiat currency is only a representation of the value of precious metals. dum ass.

  58. austin chen says:

    but then the control of production and value determination of money becomes an inherent source of power. currently our money systems are determined by governments and financial institutions, which gives them immense power based off of a abstract social practice. so it’s a trade off with bartering vs. currency:

    bartering: more personal autonomy in value determination and social relations at the expense of expediency and increased utility (which is also an issue of practicality)

    currency: more expediency and increase utility at the expense of interpersonal autonomy and self determination in interpersonal relations

  59. PRESIDENTIAL says:

    the invention of money destroyed humanity

  60. Ata5ll. says:

    Ok computervoice, 8-10 hours a day working is so average.

  61. SaraLilli Videos says:

    I actually think that this teaches more than a year of school

  62. Luigi/MR L Gaming says:

    hears simple gifts

    I thought this song wasn’t as popular

  63. Sam Attic says:

    Then came the Rothschild Family amd enslaved humanity forever.

  64. Robin McKee says:

    I love the image of a cow alive with two calves, cause it's funny. If a cow were to carry twins to term it would kill all three of them, so they just abort one in vitro.

  65. Kaleb Maxwell says:

    I used to live a block away from the princess of Yap. Her name i Gloria, and is a very cool person.

  66. Deepak Gurung says:

    Animations on every presentation on this channel is so much to the point that it requires no imagination and it's self explanatory.

  67. 56thCrusader says:

    That time Extra History assassinated a random "stick figure" just to segue back to the main point.

  68. Azrily Rhul says:

    Economics in Spice and Wolf suddenly make a LOT of sense

  69. Corbett Howell says:

    I have heard that the amount of gold that has been mined can only fill 3 swimming pools. Wow.

  70. AmericanIdiot says:

    You can encounter this at school lunch.

  71. Hardesty Hardesty says:

    Dude love this video off to part 2…….

  72. DJ Programer says:

    Don't know why but I watch this whole series atleast once every few months

  73. Mirei Root says:

    Salt was money. The more salt you had, the richer you were, cause salt was really hard to find. The word salary came from salt.

  74. Capitão Explosão says:

    In Soviet Russia we use potato

  75. Bryce McKenzie says:

    I mean, some people drink their paychecks away, but this takes it to a new level

  76. He's your hope and your his hope HE'S J-HOPE says:

    Whoever invented money is on my "I wish you never existed" list.

  77. Andrei Oprisan says:

    Thanks a lot for this video series guys! Really helpfull

  78. SEEKER says:

    Money is for sure Evil ❗️There needs to be a new world a form of happiness NO Religion ♦️NO Countries ♦️NO Higher Ups ♦️ NO Money. As these things create division and bad vibrations and fear. But one comes to mind is the humans race evil ? Created by someone or something to be set into motion we must take a stand on a NEW way of looking at things as technology grows will we be slaves to another so called evil. ❗️wake up people.

  79. UHidsuhchgigysgdyhdudhdhxh Hddhgdgdixhsfeudvdh says:

    Caravans loaded with exotic butters.

  80. Cody C says:

    today’s paper money is actually made of cotton

  81. Creative Destruction Gaming says:

    Why let a few rectangles of paper get in the way of a good crusade?

  82. MrMercSoldier says:

    7:30 monetary policy, not fiscal

  83. The_Magical_Skweb says:

    Actually dollars are made of cotton fibers.

  84. James Endicott says:

    I've never felt a need to question much in this series before but this origin of money as a durable 3rd party good in a barter system is crazy.

    Historians aren't the source of that idea, economists were. They didn't even try to pick a single society or culture to base the idea on but instead imagined what primitive people would do. It's absurd that you'd even call it a "controversial" idea. It's about as valid as intelligent design.

    I'd have preferred you just ascribed currency to ancient alien theory.

  85. Poisonous Paul says:

    "money talks"

  86. Brady Menting says:

    money is just pokemon with more steps

  87. Wi-Fi TV says:

    It's funny how many things can be money. In ancient Celtic societies they used bronze rings that they'd keep on a string or wear

  88. Joesph Stalin says:

    5th time watching this series

  89. Minh Gusta says:

    Better than any economics class

  90. ivana gluvakov says:

    Fish will get spoiled? In reality id doesn;t work that way. Before people knew how to do stuff, they were not as specialized as today. even with the fish example-fishermen can hunt fish all year round and their families can grow food at the same time. People were tricked by some other people.People can always trade services and share with one another, when there is no service needed.

  91. Aden Goldstein says:


  92. mcgames says:

    Tardis spotted

  93. Carlos Caro says:

    This analysis ignores a common good that allowed a lot of local trade to take place with neither barter nor money; reputation. In the majority of human history and pre-history, coincidence of wants existed between my desire to be seen as a valuable member of society and to call in favors from you and your desire for my creations. Leaving your community was incredibly difficult to the point of dangerous. So if I am a fisherman and you're a farmer whose harvest will come in in a few months, I can happily let you have a few fish and be seen as a valuable member of our village, in exchange for which you will be motivated to share with me as well out of 1) gratitude, 2) to not be seen as a moocher. I gain social status and reputation and informal leverage for your largesse later. The odds of you stiffing me is relatively low; you will look like a mooch, you will find all your future dealings with other people in the village suffer, and you aren't likely to get more fish from me later when you need fish again. And, again, leaving the village is a bad option; it's dangerous out there before there were states.

  94. kota o says:

    I love watching these high it's just so interesting

  95. ED-GAMING says:

    History of paper money
    Paper money was invented
    People used papaer money
    Australia invented plastic money,
    Plastic money > Paper money
    hard to forge

  96. CasualGamerNerd 5 says:

    Money is a scam made up by paper companies to sell more paper

  97. Mr Mister says:

    What about salt

  98. Smaug says:

    I absolutely LOVE gold coins though!

  99. Randy Savage says:

    And ….they did. Hahahaha.

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