The Evolution of Currency Explained by Shaykh Hamza Yusuf
Summary
TLDRThis script delves into the evolution of money, starting with bartering and the use of commodities like cowry shells and pepper as early forms of currency. It highlights the significance of gold and silver, referred to as 'species,' and the introduction of paper money in 10th-century China. The narrative continues with the rise of international banking in the 16th century and the establishment of the Federal Reserve in 1913. It contrasts commodity-based money with fiat currency, which is backed by government guarantee and societal productivity, and touches on the controversial nature of money creation by central banks.
Takeaways
- đ The first type of transaction was bartering, which involved direct exchange of goods.
- đ Early forms of money included cowry shells, which were rare and valuable, with some selling for over $50,000 today.
- đ¶ïž Other commodities used as money included spices like pepper, and even tobacco was once legal tender in colonial Virginia.
- đ The term 'salary' originates from the practice of paying Roman soldiers with salt, highlighting the historical connection between money and commodities.
- đș Gold and silver have been considered the most important forms of money, with some traditions claiming Adam was the first to mint these metals.
- đ In the 10th century, China introduced paper money due to the scarcity of precious metals, marking a significant shift in monetary systems.
- đŠ The 16th century saw the rise of international banking, with Jewish money lenders playing a pivotal role in early financial networks.
- đ” Fiat money, unlike commodity-based money, is not backed by physical assets but by the government's guarantee and the economy's productive capacity.
- đïž The establishment of the Federal Reserve in 1913 was a response to financial crises and created a system to act as a lender of last resort for banks.
- đ Central banks, like the Federal Reserve, create money through a process involving the sale of treasury bonds and leverage, which is a form of usury or making money from nothing.
Q & A
What was the first type of transaction that humans engaged in?
-The first type of transaction that humans engaged in was bartering, which is the direct exchange of goods without the use of a medium of exchange.
Why was bartering considered cumbersome?
-Bartering was considered cumbersome because it required a coincidence of wants, meaning both parties had to have something the other wanted, making exchanges difficult and inefficient.
What is the origin of the word 'salary' and how is it related to early forms of money?
-The word 'salary' originates from the practice of soldiers being paid in salt, a commodity that was used as a form of money, particularly in ancient Rome.
Why were cowry shells used as a form of money?
-Cowry shells were used as a form of money because they were relatively rare, had a standardized size, and could be easily carried and counted.
What does the term 'shell out' refer to and how is it related to money?
-The term 'shell out' refers to spending money and is related to the historical use of shells as a form of currency.
How did the concept of paper money emerge in China?
-Paper money emerged in China during the 10th century as a response to the scarcity of precious metals. It was a practical solution to the challenges of carrying and storing large quantities of metal coins.
What is the significance of the rise of international banking in the 16th century?
-The rise of international banking in the 16th century signifies the development of a global financial system where money could be lent and borrowed across borders, reflecting increased trade and economic interdependence.
What is the difference between commodity-based money and fiat money?
-Commodity-based money has intrinsic value and is often backed by a physical commodity like gold or silver. Fiat money, on the other hand, is not backed by a physical commodity and derives its value from the government's declaration and the society's trust in its purchasing power.
Why were central banks like the Federal Reserve created?
-Central banks like the Federal Reserve were created to act as lenders of last resort, providing financial stability by bailing out banks in times of crisis and regulating the money supply.
How do central banks create money?
-Central banks create money primarily through the process of lending to commercial banks, which then lend it to the public. This process is facilitated by the purchase of government bonds and the setting of reserve requirements.
What is the multiplier effect in banking?
-The multiplier effect in banking refers to the ability of banks to create money by lending out deposits, which are then redeposited and lent out again, effectively increasing the money supply.
Outlines
đ° Evolution of Money and Its Forms
The paragraph delves into the historical evolution of money, starting with bartering and the use of goods as a medium of exchange. It highlights the inconvenience of bartering, especially when the goods desired are not directly exchangeable. Early forms of money included cowry shells, which were rare and valuable, with some selling for over $50,000 today. The term 'salary' is derived from 'sal', the Latin word for salt, another commodity used as money. The Arabs used calary shells in East Africa, while spices like pepper and beads were also used as currency. The paragraph also touches on the significance of gold and silver, with a biblical reference to Adam minting these metals. The introduction of paper money in 10th-century China due to the scarcity of precious metals is noted. The rise of international banking in the 16th century is highlighted, with Jewish money lenders playing a significant role. The paragraph concludes with a discussion on the transition from commodity-based money to fiat money, which is not backed by physical commodities but by the government's guarantee and the productive capacity of the society.
đŠ The Federal Reserve System and Money Creation
This paragraph discusses the establishment of the Federal Reserve System in 1913 following a series of financial crises in the United States. It details how a group of bankers, led by Paul Warburg, created the system to act as a lender of last resort, bailing out banks in trouble. The paragraph also touches on the secretive meeting at Jekyll Island where the Federal Reserve was conceptualized. It explains the concept of central banks, noting that recently, only a few countries did not have them, implying a global trend towards centralized banking systems. The process of money creation by banks is described, where deposits are leveraged to create new money through a multiplier effect. The paragraph criticizes this practice as usury, defining it as making money out of nothing. It also describes the role of the Federal Reserve as a hybrid entity, part government and part private, that works with commercial banks to control the money supply.
Mindmap
Keywords
đĄBartering
đĄCowry shells
đĄIntrinsic value
đĄFiat money
đĄGold and silver
đĄPaper money
đĄInternational banking
đĄFederal Reserve
đĄMultiplier effect
đĄUsury
Highlights
Bartering, the first type of transaction, involved direct exchange of goods at the market.
Early forms of money, like shells and spices, were used due to their rarity and value.
The term 'salary' originates from early forms of money, specifically shells.
Gold and silver, known as 'species', became a significant form of money due to their durability and divisibility.
Paper money was first used in China in the 10th century due to the scarcity of precious metals.
The rise of international banking in the 16th century was depicted in Christopher Marlowe's 'The Jew of Malta'.
Fiat money, unlike commodity-based money, is not backed by physical assets but by the government's guarantee and the society's productive capacity.
The Federal Reserve was established in 1913 as a response to financial crises and to act as a lender of last resort.
Central banks, like the Federal Reserve, create money through a process known as the multiplier effect.
The concept of usury is discussed in relation to banks creating money out of nothing.
Thomas Jefferson warned about the dangers of paper money and banking, fearing it could lead to national bankruptcy.
Only a few countries, including Libya, Syria, Iraq, and North Korea, did not have central banks.
The process of money creation by central banks involves selling treasury bonds and then printing money.
The Federal Reserve is a hybrid entity, part government and part private, with 12 branches spread across the United States.
Commercial banks work with central banks to loan money to the public, contributing to the overall money supply.
Transcripts
I just want to look a little bit at
money to try to understand the F the
first type of of transaction that humans
did was was bartering what the Arabs
call M and this is basically where you
bring Goods to the market and other
people have goods and you want their
goods and they want your goods and you
basically uh exchange well that that can
be very cumbersome and then it's
difficult if you have a cow and all you
want is a bushel of wheat uh it's very
difficult to make those type of
exchanges and so early forms of money
which is where we get our word salary
from uh in English uh was used one of
the most common uh forms of money was
actually shells um cowry shells in
particular which are quite they're
they're they're relatively rare and they
and there's specific ones in fact
they've sold for over $50,000 today that
that's how rare some of them are the
Arab traders actually used calary shells
uh in East Africa and then also spice
was used um particularly pepper people
liked pepper but we have that term shell
out you know he he you need to Shell out
some funds um and then wam also was the
beads that were used by the Native
Americans and it's famous that uh
minuette bought New York uh the
Manhattan Island for a pile of beads
Believe It or Not tobacco was once legal
tender in colonial Virginia so these are
all forms of money but but ESS the the
the the most important form of money
that has emerged in our species no pun
intended because it's called species um
the is gold and silver and in fact in
our tradition says that Adam was the
first one that minted gold and silver
and it is mentioned in Genesis that he
was near a river that had gold in it uh
when he was came down to earth um
generally the Muslims always understood
money what's what's called or to be gold
and silver and uh I'll I'll talk a
little bit about that later but in the
10th Century in China uh because
precious metals uh were uh rare uh they
actually started using paper so the F
and this is uh Christian era so the
first paper money is from China now one
of the interesting things around the uh
16th century you actually had the rise
of international banking so here in the
in the Jew of Malta because a lot of the
je Jewish uh uh money lenders uh they
were permitted to loan money according
to the Bible to uh non-jews to strangers
which are traditionally interpreted as
enemies so uh in the in the Jew of Malta
by Christopher Marlo was around 1590 uh
he has the character Barabas who's the
Jewish money lender say in Florence
Venice antp London civil Frankfurt Lubec
Moscow and where not I have debts owing
and in most of these great sums of money
lying in Albano in the bank all of this
I'll give to some religious house he he
was basically forced to convert to
Christianity but the point is is that
Marlo was pointing out that there was
already in the 16th century an
international banking system which is
very interesting now the types of money
uh that uh that we have our fiary money
and and I beg to differ with hosam when
he said that money doesn't have
intrinsic value modern money does not
traditional money was considered to have
intrinsic value um the Judiciary money
is is ba is based on having a an
intrinsic value so it's a
commodity-based money and so for
instance if you look at this note here
it says that this is that this is
redeemable in gold coin $20 worth of
gold and so this was uh in the United
States before the Federal Reserve then
you got what's called Fiat money and
this is basically money that does is not
backed it's it's backed by two things
the productive capacity of the the
actual society that is printing it and
then the guarantee of the government to
protect it so those are the two things
and this is why American uh dollars are
so valuable because they become the
reserve currency after Bretton Woods in
1944 so Fiat is let it
be and it's actually in Genesis in the
in the Vulgate translation Fiat looks
let there be light and so essentially
Fiat money is created EX nio and the
only one that can really create ex
Niello is God so Jefferson because in
the early period of the founding of this
country Jefferson actually warned about
this because they were they had these uh
Continental notes which were paper money
but he said that he considered banking
to be more dangerous than standing
armies and and spending money what they
do is spend money to be paid by
posterity because they create money and
so under the name of funding they're
actually swindling the Futurity on a
large scale he also said that you know
that it will lead to bankruptcy and at
the mercy of those self-created money
lenders and are prostrated by the floods
of nominal money in in other words money
that has no real intrinsic worth with
which their avarest delus us so in 1913
there were several Financial crises in
the United States so you had one in 1819
you had one in 1837
1857 uh 18 uh 73 1904 1906 and then you
had a huge one in 1907 where the nickach
Trust Company in New York went bankrupt
and it created a huge crisis well this
very powerful Banker Paul warberg got
his cronies together and and basically
bailed out the bank
so then you had basically this man
Senator Aldrich who who with the bankers
they went to a place called Jackal
Island and uh and and and it was very
secretive it was very interesting event
and they created this system of the
Federal Reserve to be the be the lender
of Last Resort in other words they they
would basically bail out banks that got
into trouble if they were big enough if
they weren't big enough they let them
fail so this was signed in uh in in 1913
in December and this became uh the the
Bank of America and there's a very
interesting about central banks um
recently there were only about four
countries that didn't have central banks
Libya Syria Iraq and North Korea I
wonder if they have anything in common
um so here's how they create money
basically you know you you deposit $100
,000 from that even this doesn't even
mean anything anymore because they don't
even have to have uh reserves uh until
it gets to a certain amount and it's
between 5 and 10% some of the venture
capital Banks actually were leveraged
much higher than this but this is
basically how it's done and so it just
this is the multiplier effect of banks
they create money out of nothing and
this is actually Usery this is this is
Usery is not what a lot of people
understand Usery is to make money out of
nothing that's what it is and so this is
what they're doing and so you have the
central bank they sell these um they
sell these treasury uh bonds and then
from that they print so the government
actually is using the central bank which
the Federal Reserve is it's it's a
hybrid of a uh a a government entity but
a private entity which has 12 branches
the reason they're all over the country
is because they didn't have the
electronics when they started it so it
was all done by paper so they had to
have these 12 different banks and
they're actually private banks that work
with the commercial Banks they give them
money uh and then the commercial banks
in turn loan it out to the general
public and this is the money
supply
5.0 / 5 (0 votes)