“Paper is poverty. It is only the ghost of money and not money itself.”

This is a direct quote from a letter that was sent from Thomas Jefferson to Edward Carrington in 1788 in reference to the creation of banknotes. Paper money seems to work for a number of economies around the world so what was Thomas talking about? In order to understand why paper money is poverty, we need to first take a look at what real money or “hard money” actually is and why paper money will ultimately make you poor.

What Is Money?

What Is Money? Is it just a piece of paper with the face of a historical figure and some local flora and fauna printed on it? …or is it something more? US dollars look relatively similar to Euros, Pounds, Pesos, Yen, Zimbabwe dollars and most other currencies around the world. They are the same basic size, shape and have lots of visual similarities so why is my $1 USD piece of paper worth about 20,000,000,000,000x more than $1 Zimbabwe dollars from back in 2009? Well, it all comes down to scarcity and paper is definitely not scarce. We have discussed this in some other posts but we’d like to go into some detail on the history of money and how paper money isn’t actually money at all.

The Evolution of Money

Over the course of history, we have seen world powers come and go. One commonality between all of these fallen empires is the debasing of their money supply. In order for a society to flourish, it needs a sound monetary unit for the people to conduct trade with. If the money supply can be printed on a whim, it is only a matter of time before it loses all scarcity and the value of that money will collapse.

Let’s briefly walk through a basic history of money.

When societies first began, they produced primitive goods that they needed to survive. From building simple homes to creating tools to hunt and fish, these early communities were mostly hunter-gatherer tribes that usually consumed food as soon they had it since it was perishable. Certain things lasted longer and could, therefore, be traded more extensively than food. As time past, certain goods become more sought after since they possessed certain characteristics that others didn’t and so the evolution of trade began to take shape.

Trade began with bartering, then came commodity money, then hard money (the best of them all), then representative money, and then the worst of them all…fiat money.

Let’s begin with bartering and the birth of trade.

Bartering Economies

Before a standard form of money was ever created, communities used basic barter as a means of exchange. The biggest problem with these barter systems was that it was incredibly inefficient since everyone needed to have something that everyone else needed or wanted. This dilemma is called “The Coincidence of Needs and Wants” and it means that if any two people wanted to trade with each other, they both needed to have something that the other person needs or wants. It didn’t take long for these bartering economies to create a system of IOUs (I Owe You: You give me something that I need or want today and I will give you something that you need or want in the future) and thus a system of debt was born.

In order to create a solution to this debt-based IOU economy, societies agreed on a commodity that they would all use to store value, exchange value, and account for value.

This was the birth of commodity money.

Commodity Money

As soon as a tribe or clan of people grew to a certain number, a common good or commodity was sought after by everyone more than other goods. Depending on where these societies were established, money took the form of animal furs, beads, seashells, stones, whales teeth, and even spices such as salt since it was widely desired to season food and preserve meat.

It was these commonly desired goods that became the first form of money because they were not traded for their utility and were used primarily to store and exchange value with others. Commodities that became more desirable than others were those that could not easily be produced and were desired by larger numbers of people thus would hold their value over longer periods of time and could be exchanged more widely. The harder it was to produce and the more people that wanted it, the better the money.

That brings us to hard money.

Hard Money

This is where civilization really started to flourish. Since many of the commodity-based monies became increasingly large in quantity due to advancements in technology, items that could not easily be produced (scarce) and that were desired by the largest number of people became the item that societies chose to use as their money. Amongst these hard monies were metals such as copper, silver, and gold due to their limited supply and because they could not easily be produced in large quantities no matter what technology was available. Even today it requires immense amounts of resources to get even a small amount of gold from the ground. This can be seen on TV shows where prospectors all race to find gold in Alaska whether it is by digging with large earthmovers or looking for gold particles on the ocean floor.

Gold became the most dominant form of money for a long period of time. But why gold? You can’t eat or drink it? You can’t keep warm with it? What made it work as money? Gold’s most important feature was probably that it was scarce and no matter how hard people have tried, it is still incredibly difficult to produce more gold. In short, gold was the most difficult to produce and was desired by the largest number of people between communities. Gold wasn’t without its own set of problems though.

As economies continued to grow, the amount of trade that took place increased substantially and the need to buy goods in quantities both large and large and small made it increasingly difficult to conduct trade with metal coins that were all the same size/weight. The solution to this problem was to make something smaller that could represent the gold but in different amounts.

This was the birth of representative money.

Representative Money

Representative money was the most efficient solution to further divide gold into smaller amounts so that people could trade with it more easily. The idea was to store the precious metals somewhere safe (like in a bank vault) and issue pieces of paper that represented the gold. These pieces of paper were much more transportable and could easily be printed in different denominations to enable trade for transactions both large and small.

As this new paper money made it easier to trade, it became widely circulated. It didn’t take long before people began to trust these pieces of paper just as much as the gold since everyone knew that they could redeem the piece of paper for the gold in a vault. They all trusted that the paper was as “good as gold”.

Representative money is when hard money began to die and it started to become evident that paper is only the ghost of money and not money itself.

Printing More Paper Than Gold

Paper money was usually issued by the wealthy class such as governments because they had the means to keep money secure in a royal treasury. These early governments became amongst the first bankers since they essentially had a monopoly on keeping money safe and controlled much of a society’s wealth. These governments that issued paper money quickly learned that they could print more paper money than there was gold in the vault and essentially make themselves rich without having to do any work. This, in essence, makes each piece of paper less valuable over time. As long as the holders of these pieces of paper didn’t all go to the bank and redeem their paper for the gold at the same time, then the banks could get away with this scam.

Paper money gave banks and governments a unique form of control over the people since they could effectively steal purchasing power from the people without having to steal their actual money.

It’s one of the greatest scams in history and is why “Paper is poverty. It is just the ghost of money and not money itself.”

But wait, it gets even worse.

Imagine a system of money where there is no hard money in a vault at all and there is only paper money that can be printed whenever a bank or government decides to. That what we have today and that system is called fiat money.

Fiat Money

The birth of fiat money was the death of real money (at least until the invention of Bitcoin). Now, most of the world’s money isn’t backed by much of anything more than government promises. The supply is monopolized by central banks and the demand is often manipulated by banks through debt (future earnings) and governments with laws that require you to use it. We all basically just trust that the government won’t devalue our money by printing too much of it. As history has shown, this is not the case with the vast majority of fiat currencies. Some of the most recent examples of this are Zimbabwe back in 2009 and Venezuela in 2018/2019 which have seen immense amounts of wealth wiped out by printing too much money. This disaster is known as hyperinflation.

So, how does Bitcoin fit into all of this?

Well, Bitcoin is hard money that was made for the information age.

Bitcoin Is Money, Not The Ghost of Money

What made hard money like gold such a great form of money? It possessed all of the characteristics of good money. It was scarce, portable, uniform, divisible, durable and widely accepted in large regions of the world and thus it became the greatest money that the world had ever seen.

We no longer live in the metal ages though. We live in the information age and in order for free trade to flourish, we need an information-based hard money system that can’t be debased or controlled by any single entity. Bitcoin is such an electronic system.

Bitcoin is not bartering because it eliminates the coincidence of needs and wants.
Bitcoin is not a physical commodity because its production cannot be increased to meet increasing demand.
Bitcoin is not representative money because it does not represent money sitting in a vault.
Bitcoin is not fiat money because it cannot be printed by any central authority.

Bitcoin is HARD money because it is scarce and the supply cannot be tampered with by any single entity.

When you HODL Bitcoin, it doesn’t represent money sitting in a vault at a bank. Bitcoin IS the money that is sitting in your own personal bank vault. It gives you the power to be your own bank or government. It gives you the power to control your own wealth.

As long as you have proof of keys, your Bitcoin is yours. You and only you are the one who controls where it goes. When you understand this core characteristic of Bitcoin as hard money, you will truly begin to realize its potential to create wealth immense amounts of wealth for anyone who chooses to use it.

Use Bitcoin

To wrap things up, I would like to emphasize why Thomas Jefferson said that paper is poverty. If your money is not controlled by you, then it is likely to end up being printed into oblivion by whoever controls the supply. Every piece of paper money in your pocket is just a promise from a bank or government that your money has some sort of value and if that bank doesn’t make good on that promise (like they have countless times in the past), then your money will slowly be devalued until it meets the same fate as most fiat currencies and becomes completely worthless. That is why every piece of paper money is poverty and you should trade as much as you can for some Bitcoin while it’s still as cheap as it is.