Last week, I delivered a speech on the origin of paper money. Here's the complete written copy.
What I'm showing you is money. More precisely, paper money. The paper, which this money is printed on, has no intrinsic value by itself. The 20 dollars value is declared and enforced by the government. Here in my hand is another form of money. This silver maple leaf coin has a declared value of only 5 dollars. But its market value right now is 37 dollars.
Money, as the medium of exchange, has two main functions. One, it is a unit of account for value. Two, it is a store of value. Precious metals, like gold and silver, have been used as money for thousands of years exactly because they fit these two functions very well. How does paper money perform? Not so well. As a unit of value, paper money devalues too much and too fast due to government over printing. Can you imagine the length of a metric meter getting shorter and shorter? If this should not happen to a unit of length, why do we allow it to happen to a unit of value? As a store of value, paper money is worth nothing by itself. Its value is declared by the government. But unlike gold and silver, governments come and go. When a government is in deep trouble, so too will be its paper money.
If paper money is so fraud, why are we using it today? To answer this question, let's go back in history. Let's revisit ancient China where paper money was first invented.