When was paper money invented

Such an idea, orthodox and even tedious for the past fifty years, was thought in the seventeenth century to be diabolical. That is conservative by modern banking standards.

The new paper money had an attractive feature: it was guaranteed to trade for a specific weight of silver, and, unlike coins, could not be melted down or devalued. Before long, the banknotes were trading at more than their value in silver, and Law was made Controller General of Finances, in charge of the entire French economy.

He also persuaded the government to grant him a monopoly of trade with the French settlements in North America, in the form of the Mississippi Company.

He funded the company the same way he had funded the bank, with deposits from the public swapped for shares. He then used the value of those shares, which rocketed from five hundred livres to ten thousand livres, to buy up the debts of the French King. At its peak, the company was priced at twice the entire productive capacity of France.

As Buchan points out, that is the highest valuation any company has ever achieved anywhere in the world. It ended in disaster.

Gold and silver were reinstated as money, the company was dissolved, and Law was fired, after a hundred and forty-five days in office. In , he fled the country, ruined. He moved from Brussels to Copenhagen to Venice to London and back to Venice, where he died, broke, in The ships that went abroad on behalf of his great company began to turn a profit.

Every state in the developed world has a central bank that issues paper money, manipulates the supply of credit in the interest of commerce, uses fractional-reserve banking, and features joint-stock companies that pay dividends. All of these were brought to France, pretty much simultaneously, by John Law. His great and probably unavoidable mistake was to underestimate the volatility that his inventions introduced, especially the risks created by runaway credit.

His period of brilliant success in France left only two monuments. One was created by the Duke of Bourbon, who cashed out his shares in the company and used the windfall to build the Great Stables at Chantilly. How did these once wild ideas become part of the very fabric of modern finance and government? Trial and error. It was not the case that smart people figured everything out at once and implemented it simultaneously, as Law tried to do.

The modern economic system evolved, and evolution involves innovations, repetitions, failures, and dead ends. After going to university and trying his hand at being a lawyer, he turned to journalism and to banking, the latter career paying for the former. He married the daughter of James Wilson, who had founded The Economist , in —Bagehot became its third editor—and lived a life that was, from the outside, fairly uneventful.

These books are still readable today, but they were of interest mainly to wonks until Ben Bernanke name-checked Bagehot as a crucial influence on the thinking behind the bank bailouts. General Court Promissory note, February 3, issue, 20s. Such notes were later properly redeemed and destroyed, so that survivors today are usually only false notes or ones that happened to have been altered by criminals, and hence could not be converted to specie.

Pennsylvania Colony. Provincial Promissory note, May 1, issue, 50s. ANS Ingenious Benjamin Franklin, an accomplished printer, introduced plate blocks molded from actual leaves in the effort to combat early counterfeiters. With his partner David Hall, he prospered providing currency for his own province as well as for colonial New Jersey and Delaware.

Counterfeiting was very widespread during the colonial era. Revolutionary War: Continental Congress. Wartime experience left Americans bitter toward the use of paper money, largely regarded as fraudulent due to extreme depreciation and lack of redemption. To stabilize government expenditures, Alexander Hamilton, as first Secretary of the Treasury, was instrumental in founding the Bank of the United States in establishing a system of badly-needed credit for the government.

This bank, and other pioneering financial institutions chartered by the states, began issuing private currencies to facilitate borrowing and lending. With the adoption of the Constitution, monetary production was redefined and restricted as a national prerogative. Coinage, though, was wholly inadequate for financing growth. With ever-growing needs for a medium of exchange, numerous banks and other businesses issued quantities of their own paper currency.

Demands for money in the Civil War rapidly exceeded the availability of specie gold and silver and the capacities of the private banking system. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights.

Measure content performance. Develop and improve products. List of Partners vendors. Share Flipboard Email. Kallie Szczepanski. History Expert. Kallie Szczepanski is a history teacher specializing in Asian history and culture.

She has taught at the high school and university levels in the U. Updated October 17, Featured Video. Cite this Article Format. Each note was about the size of a sheet of A4 paper US letter , and consisted of a copper-plate-printed pastoral scene with pictures of coins and a warning to counterfeiters underneath.

Printed notes were embellished with a hand-written denomination and red ink stamps of authenticity. No examples of the notes survive, although archaeologists have uncovered one example of a printing plate used in their production, dating from around First paper money.