The Evolution of Currency Explained by Shaykh Hamza Yusuf

Summary

This 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

• 📚 The first type of transaction was bartering, which involved direct exchange of goods.
• 🐚 Early forms of money included cowry shells, which were rare and valuable, with some selling for over $50,000 today.
• 🌶️ Other commodities used as money included spices like pepper, and even tobacco was once legal tender in colonial Virginia.
• 📜 The term 'salary' originates from the practice of paying Roman soldiers with salt, highlighting the historical connection between money and commodities.
• 🏺 Gold and silver have been considered the most important forms of money, with some traditions claiming Adam was the first to mint these metals.
• 📈 In the 10th century, China introduced paper money due to the scarcity of precious metals, marking a significant shift in monetary systems.
• 🏦 The 16th century saw the rise of international banking, with Jewish money lenders playing a pivotal role in early financial networks.
• 💵 Fiat money, unlike commodity-based money, is not backed by physical assets but by the government's guarantee and the economy's productive capacity.
• 🏛️ 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.
• 🌐 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

00:00

💰 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.

05:00

🏦 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.

Keywords

💡Bartering

Bartering is a trade system where goods or services are directly exchanged without using a medium of exchange like money. In the video, bartering is mentioned as the first type of transaction that humans engaged in, which was cumbersome and inefficient, especially when the goods desired were not directly exchangeable.

💡Cowry shells

Cowry shells were used as a form of currency in various cultures due to their rarity and durability. The video highlights that these shells were one of the earliest forms of money, with some being so rare that they've sold for over $50,000 today, illustrating the transition from bartering to using physical objects as a medium of exchange.

💡Intrinsic value

Intrinsic value refers to the inherent worth of an item based on its properties, independent of what someone is willing to pay for it. The video discusses how traditional money forms, like cowry shells and precious metals, were considered to have intrinsic value, contrasting with modern fiat money which is not backed by a physical commodity.

💡Fiat money

Fiat money is currency that is not backed by a physical commodity, such as gold or silver, but rather by the trust in the government that issues it and the overall productivity of the economy. The video explains that fiat money's value is derived from the government's guarantee and the economy's productive capacity, as opposed to commodity-based money.

💡Gold and silver

Gold and silver have historically been used as a store of value and a medium of exchange due to their rarity, divisibility, and durability. The video points out that these precious metals were considered the most important forms of money, with a tradition suggesting that Adam was the first to mint gold and silver.

💡Paper money

Paper money is a form of currency consisting of banknotes that are issued by a country's government and are not backed by a physical commodity like metal. The video notes that China was the first to use paper money in the 10th century due to the scarcity of precious metals, marking a significant shift in monetary systems.

💡International banking

International banking refers to the operation of banking services on a global scale, involving transactions and relationships across different countries. The video discusses the rise of international banking in the 16th century, highlighting the global reach of Jewish money lenders and the early formation of a financial network.

💡Federal Reserve

The Federal Reserve is the central banking system of the United States, responsible for implementing monetary policy, supervising banks, and maintaining the stability of the financial system. The video recounts the creation of the Federal Reserve in 1913 as a response to financial crises, aiming to act as a lender of last resort for banks in trouble.

💡Multiplier effect

The multiplier effect in banking refers to how banks can create money by lending out more than the amount of cash they hold in reserves. The video explains this concept by describing how banks lend out money, which then circulates and can be deposited and lent out again, effectively multiplying the money supply.

💡Usury

Usury is the practice of lending money at unreasonably high rates of interest. The video equates the banking practice of creating money out of nothing through loans as a form of usury, suggesting that it is exploitative because it involves making money from nothing.

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