It’s true that, in our modern society, money makes the world go round. We all need money just to survive and buy basic goods. Many of us make just enough to get by on, while others acquire more and more, passing it on to their family members.
We can say what we want about the current economic system, but the reality is that money is here to stay.
Even in communist regimes, such as the Soviet Union, which are supposed to eliminate greed and want, money has to be printed and minted. For modern countries, a barter economy isn’t practical; a medium of exchange is needed to buy goods and pay taxes, which is why money came into existence. We talked about how coins became currency earlier in this book, so let’s take a look at the first known example of paper currency.
You probably think that the Romans were the first people to use paper currency. Although that would be a good guess, you’d be off by several hundred years and several thousands of miles. The first examples of paper money were minted in the Song Dynasty (960-1279) of medieval China and, similar to the case in Lydia with coins, it was invented out of necessity.
During the Qin (221-206 BC) and Han (206 BC-AD 220) dynasties of China, one thousand round bronze coins with a square hole were threaded on a string as a full unit, or guan. Though this could prove awkward if you needed to buy something that coast more than a thousand bronze coins, the system worked well until the early Song Dynasty. Besides the fact that carrying around strings of bronze coins could be cumbersome, it didn’t really take into account the growth of the population and the economy.
And the Chinese economy was doing fairly well in the early Song Dynasty.
Under the “Green Sprouts Act” of 1069 (yes, that really is how the name of that law is translated from Chinese into English), the Song government offered farmers two state loans per year at the semiannual interest rate of 20 percent to be paid back with taxes. This deal was far more generous than private loans, which were usually given at 70 percent interest. So, many people took the government up on their offer.
Of course, this was long before checking accounts existed, so the government had to issue strings of coins.
I’m sure you can imagine what happened next. If not, you’re about to get a crash course in macroeconomics and inflation.
By 1080, there were five million strings in circulation and the government was running low on bronze, so it decided to make the same fateful error the Romans had made about seven hundred years earlier—they added lead to the coins. Adding lead allowed the government to produce more coins, but it also devalued an already sinking currency. Prices went up and the Song government was facing a serious crisis. Luckily for the government though, the Song leaders valued learning, philosophy, and new ideas. A combination of advances in printing press technology and a new way of viewing the economy led the Song government to issue paper currency.
The first paper bill the Song issued was known as the jiaozi, but the longest lasting and most successful was the huizi. The huizi was first issued in 1160 with one bill equaling one string. The huizi was later backed by silver in order to prevent inflation, but overspending and printing led to the collapse of Song paper money in 1264.
It’s no coincidence that the dynasty collapsed a short time later.
Although the Song Dynasty and its paper currency collapsed, the idea of paper money was in China to stay. The concept then spread throughout Asia, though it wasn’t adopted in Europe until the late 1600s.
The funny thing is, despite the impact Song paper money had on the Asian world, not one bill has survived.