The History of Money Part II

Part I left off discussing the innovation of paper money, by merchants in Sichuan in tenth-century China, but that story is incomplete without a discussion of the Mongols and their role in the money supply. In 1215, Genghis Khan and his merry band of Mongol warriors rode into Beijing (then called Yanjing) and took over northern China, much to the consternation of the Chinese who built a very big wall to prevent this exact situation. The Mongols expanded their empire over the next 80 years, until eventually it held 9 million square miles, from the Pacific Ocean to the Persian Gulf, and as far into Europe as Hungary, the largest contiguous land empire in history. They solidified and expanded an extensive trade route known as the Silk Road which had been in place for a millennia, and soon artisans in China were making good expressly for the European market, or the Arabian market, confident that their goods could reach those markets safely and speedily.

The Mongols, warriors from the Central Asian steppe, were nomadic by nature and relied on speed for their military success. Almost all their warriors were cavalry, able to strike crippling blows with lightning speed, and then able to move on to the next battlefront in hours. When they had to lay siege on a city, they would employ the local craftsman to build their siege towers and weaponry. For the Mongols, paper money was brilliant! They didn’t have to lug around chests full of gold or silver, just bags full of lightweight money. Even more importantly, for the Silk Road to become the dominant trading route of the world, a unified currency would help trade immensely.

In the 33 years after Genghis’s death, there were seven rulers of the Mongol dynasty with none of them capable of holding onto the throne for more than a few years, but in 1260 Kublai Khan, a grandson of Genghis, seized power and held firm. He greatly expanded the empire, founded the Yuan dynasty, and to facilitate trade made a decree that the only currency that could be used in his entire empire was a new paper money he introduced called “inaugural treasure exchange voucher”, it wasn’t just paper, it was something you could exchange for treasure, i.e. gold or silver because the money was backed by treasure reserves. All government workers and soldiers were paid in this currency, if a merchant refused to take the paper money they would be put to death, and anyone using anything else would be put to death as well. When all businesses in the largest empire in the world can’t use coins, gold lumps, bronze discs, or anything other than paper money, it gives immense value to that money. Soon, Chinese Imperial bills were being used from Europe to China and everywhere in between, and trade flourished.

Then Kublai Kahn did something dangerous, he untethered the money from the treasure. He wanted to attack Japan, which was not far, but was an island and he mostly had cavalry. That required a lot of ship building, as well as hiring, provisioning, and training 70,000 troops, all things that cost lots of treasure. The fact that he failed on his first invasion and had to repeat the whole endeavor did not help. If he was successful on his second attempt, he probably would have captured enough treasure to pay for the whole war, but he wasn’t and he didn’t.

Out of treasure, Kublai started a new currency, which was no longer a “treasure exchange voucher.” It still had pictures of coins on it, but it couldn’t be traded in at government offices for gold or silver anymore. At first, there was some panic and some inflation, but remarkably prices stabilized, and no great economic disaster happened. People had been so accustomed to using paper as money, that they kept doing it despite the fact that the paper no longer represented treasure. Also, if didn’t use it, they would be beheaded. For the very first time in the history of mankind, a currency that didn’t even claim to be backed by anything was accepted for transactions, people gave coats and cloth, chickens and cheese to people who gave them this paper. This shows the power of money; money is money because people trust it.

Interestingly, the demise of Chinese paper money didn’t happen because people lost faith in it, but because of Hongwu. Hongwu was a Chinese boy who watched both of his parents die of starvation, and only escaped the same fate by joining a Buddhist monastery. He eventually joined an anti-Mongol rebel group, and rose through the ranks to become their leader. When they pushed the Mongols north of the Great Wall, he started the Hongwu or Ming dynasty. He believed that society would be best served by everyone living in small villages and growing their own food so that they wouldn’t die of hunger. They banned international trade, they stopped taxing people in money, but rather demanded that people give them grain or cloth, and slowly all the economic ingenuity and success that China had disappeared, paper money along with it. China crawled back into technological darkness and didn’t come out for many centuries.

The Europeans learned of paper money through Marco Polo’s book, which described the Chinese paper money system in Chapter 24, which if you forgot from Part I was called: How the Great Kaan Causeth the Bark of Trees, Made into Something Like Paper, to Pass for Money All Over His Country. Not far from where Marco Polo was imprisoned was the city of Florence, which was practically ruled by an extraordinarily powerful family of bankers knows as the Medici. They decided to get in on the paper money system, and began allowing people to store their gold with the Medici bankers, for which they would write promissory notes. Because the Medici name was so respected, you could give people Medici promissory notes and they would give you goods for it, everyone knew the Medici notes were as good as gold. This trust propelled the Medici Bank to wild heights; the family was so powerful and rich that four popes and two queens of France were Medicis.

The first official banknotes (paper money- not promissory notes) in Europe were printed in 1661 by the Bank of Stockholm, and with the very first European paper money, the world learned of its downfall. The ability to print money and have people give you stuff for that money is an intoxicating power, and most people, organizations, banks and governments make the fatal flaw of printing too much. Eventually, they lose the trust of the people, and we’ve already learned that money is money because people trust it. If you print too much, people stop trusting it, they don’t want to transact in it anymore, or charge an enormous premium for anyone using that currency, and then inflation sets in. In just three years, the Bank of Stockholm printed a wild amount of money, had no reserves to back it up, and went bankrupt.

For the next three hundred and fifty years, there was a never-ending series of currency and market failures, all caused by one fundamental problem, printing too much and not having enough to back it up. For reference, you can read This Time is Different: Eight Centuries of Financial Folly, an excellent book by Carmen Reinhart and Kenneth Rogoff, and while it’s quite technical, it does show how human being keep making the same mistakes over and over again, the book covers 66 different financial crises in 66 countries where  overprinting has caused financial panic, destruction, debilitating inflation,  and government defaults. You can see an exhaustive list of these crises here. Each time, there were scholars and experts who had detailed explanations to show how “This time it is different,” and each time it wasn’t.

Paper money is great, it facilitates a lot of trade and innovation. But by definition, paper money is not valuable, it’s only the trust we put in it that makes it valuable and when that trust is gone, paper money isn’t great.

Fascinatingly, to a certain degree, G-d works with the world like a currency. G-d is all powerful, and if He so desired, He could give us all bars of gold every day at our doorstep, the same way He gave our ancestors miraculous food called Manna at the entrance to their tent every morning for forty years. The Chovos Halevavos explains that because G-d created the world, He so to speak feels a responsibility to sustain it, the way you would feel responsible to feed a guest you invite into your home. So G-d feeds us and takes care of us all the time. But that support from G-d, and the degree to which He will intervene with the world on our behalf is dependent on how much trust we place in Him.

If we show that we have trust in Him, then He takes care of us, and our world is filled with blessing. But when we don’t trust in Him, when we think that we control our finances and well-being, G-d in his measure for measure style, says, “Ok, you don’t have trust in me? You don’t believe that I have the ability to control the economy? You want it to be all you? Fine, I’ll back out of the picture…” But that’s never good. G-d hopes that we rely on him, he tells us in Psalms (55:23), “Cast your burden on the Lord, and He will bear you; He shall never allow a righteous man to falter.” He wants us to trust in Him, so that he can provide us with all that we need, but the value of G-d’s currency is based on how much we trust in it. G-dly good, “G-d’s money” is infinitely valuable, but it’s the trust we put in it that makes it valuable, and when that trust is there, G-d’s money is the greatest!

Parsha Dvar Torah

In this week’s parsha Yosef reveals his true identity to his brothers. He then asks that they bring down their father Ya’akov and the entire family so that he can provide for them for the rest of the years of famine. The Torah tells us that when Pharaoh heard about Yosef’s family arrival he was very happy. “The news was heard in Pharaoh’s house that Yosef’s brothers had come. This was good [news] in the eyes of Pharaoh and in the eyes of his servants.” (Gen. 45:16) What element of this news made Pharaoh happy? Why would he care wether or nt his viceroy had family?

The Ohr Hachaim (1696-1743, Talmudist and Kabbalist, born in Moroco and moved to Jerusalem in 1733) explains as follows: as long as Yosef’s family was unknown, the only identity Yosef had in people’s minds was as a former slave. It’s shameful for a king’s right hand man and viceroy to be a former slave. However, now that Yosef’s family was revealed and they were actually Jewish royalty, it gave honor to Pharaoh that his viceroy was from royal blood.

We can take this a step farther. All Jews are related. When we disparage another Jew, we are actually bringing shame to ourselves as well through association. However, when we build a fellow Jew up, and praise him, we not only bring honor to him, but to ourselves and the whole Jewish people as well Everyone who is still reading at this point is a wonderful, kind, warm, considerate, spiritual Jew. See, I just gave myself a lot of compliments, and no one is going to look at me funny. What a tool!


Parsha Summary

This week’s parsha, Vayigash, starts off at the charged moment where we left off last week. Yosef’s special silver goblet had been “found” in Binyamin’s sack, and he was hauled back to the palace to become a slave. The ten other brothers are not willing to see their brother taken. They follow him down, and stand to plea before Yosef. Notably, it is Yehuda who speaks with Yosef because he was the one who guaranteed Binyamin’s return. Yehuda launches into a long explanation as to why it is imperative that Binyamin be allowed to go back to his father. He explains that if Binyamin doesn’t return, their father is liable to die from the anguish.

At this point, Yosef decides that it is the right time to reveal himself to his brothers so he orders all the Egyptians out of the room (so that they not witness the brothers’ humiliation upon realizing the enormity of what they had done). Then he says, “I am Yosef, is my father still alive?” The implication is – why were you not concerned with our father’s health when you sold me and let him think I was killed by a wild animal? The brothers were so disconcerted that they couldn’t speak. But Yosef was not one to rub salt in old wounds. As soon as he saw that his brothers were contrite, he consoled them, telling them that selling him was all part of a divine plan so that he would be able to support the family throughout the remaining years of the famine.

Yosef asks that his family come down to Egypt where he would provide them with fertile land and food. Pharaoh seconds the motion. Yosef sends the brothers back with bountiful supplies and special wagons which were symbolic of the last Torah lesson Ya’akov gave Yosef. These wagons were meant to show Ya’akov that Yosef was still on the straight and narrow.

Ya’akov hears about Yosef’s situation, and he sees the wagons indicating his son’s spiritual position, and his spirit is revived. On the way down to Egypt, G-d comes to Ya’akov at night and tells him that He will be with him, and will make sure that his descendants come out of the land of Egypt.

The Torah then recounts the lineage of Ya’akov’s progeny. It also mentions that Ya’akov sent Yehuda ahead of him to Goshen (possibly the first Jewish ghetto ever), the place the Jews inhabited in Egypt to set up a Yeshiva. He did this because he recognized that the only way the Jewish people would be able to maintain their Jewish identity in Egypt is if they have significant Jewish education, a realization that rings very true today.

Ya’akov and Yosef have a tearful reunion after a 22 year separation. At this momentous occasion, Ya’akov recites Shema, indicating that every joyous occasion should be experienced with G-d. When the family goes to meet Pharaoh, Yosef instructs his brothers to tell Pharaoh they are shepherds, as this way he will leave them alone (whereas had they told him they were warriors he would try to draft them). Pharaoh and Ya’akov share pleasantries and bless each other.

The parsha concludes by telling us how Yosef managed Egypt during the famine. He was the only person who had any grain, so everyone sold him their land. He told everyone they could have land as long as they moved (this way his family wouldn’t feel out of place when they settled in a new place), and that they had to give one fifth of their crops to the Pharaoh as tax. Back then they didn’t charge a Social Security tax, and today they shouldn’t either because there is very little likelihood that I’ll get the benefits by the time I retire, what with the S.S. crisis. But that’s a discussion for a different time. That’s all folks!

Quote of the Week: We all want to be in the city of happiness, but the city of happiness can only be found in the state of mind! ~ Yabag Licnep II

Random Fact of the Week: The trunk of the African baobab tree can grow as large as 100 feet in circumference.

Funny Line of the Week: The face of a child can say it all, especially the mouth part of the face!

Have a Nifty Shabbos,

R’ Leiby Burnham

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