The fourth of July approaches – meaning most Americans will spend the better part of the next several days buying grillable meats, stocking up on suntan lotion and preparing their canine companions for the soon to be arriving trauma when mass fireworks detonate.
But here in Boston, where PYMNTS world headquarters makes its home, we have a problem. It’s the same problem we have in the Commonwealth of Massachusetts every single year, this same time of the year.
The Commonwealth of Virginia.
We, here in Boston – in specific- and Massachusetts, in general, would really like to be able to call ourselves the birthplace of America. And we have a very, very good claim to that moniker. We have the Pilgrims, Plymouth Rock, the second president of the United States, Sam Adams and the Song of Liberty, The Boston Tea Party, Paul Revere’s wild ride and the opening two battles of the American Revolution.
The list goes on.
Clearly we win – or we should in any reasonable world – but Virginia insists that it has an equally good, if not slightly better, claim.
Virginia housed the first successful settlement of colonists in the U.S. (Jamestown, beat Plymouth to the punch by 13 years) – it also gets to boast about Thomas Jefferson and the Declaration of Independence, James Madison and U.S. Constitution, George Washington who was both the first president and won the Revolutionary War.
Also – while Massachusetts can boast it started said war at Lexington and Concord- Virginia can reasonably respond that they ended it at the battle of Yorktown.
Usually the discussion rolls down hill from there – with Bostonians at that point abandoning all pretense of reasonable debate on the subject and moving instead to muttering sarcastic remarks where phrase “Capitol of the Confederacy” starts up showing up frequently.
But, as we did a little digging, we found that things need not to get so ugly – as it turns out we in Massachusetts can safely share credit with our Virginian fellows because we are of a generous spirit, and because we invented something almost as good as America.
All by ourselves.
Paper money.
Well sort of
The History Of Paper Money (Pt I)
Okay, well people of the Massachusetts Bay Colony didn’t actually invent paper money. In a world historical sense; the Chinese invented paper money.
They original currency was measured in copper coins – which had distinctive hold punched through the center and were strung on string. The problem – it was eventually noted, was that the coin ropes became heavy as one got richer – and thus a system of substituting paper slips for coin strings started up during the 9th century. Presto, chango, by the early 10th century and the beginning of the Song Dynasty the Chinese have invented paper money.
However the innovation stayed in China.
In the Western World, the early progenitors of paper paper money didn’t get under development for approximately another 300-400 years; and mostly came in response to a similar problems wiht bulky cumbersome metal coins. Moving one’s funds – if one happened to be 13th century Florentine merchant-prince – when one’s funds were made up of large, heavy piles of gold was a problem. Promissory notes were the solution. And a popular one – by the 14th century promissory notes and their more complex cousins bills of exchange were common all over Europe.
But then 300 year passed – and not much progress on the paper currency situation in the Western World kind of stalled. Europeans knew that paper currency existed in the Far East (Marco Polo wrote about it) – but until the 17th century it was considered highly suspect in the West.
Changing attitudes about currency and what it was in the late 16 century – popularized by economist Nicholas Barbon who believed money “was an imaginary value made by a law for the convenience of exchange.”
The History Of Paper Money (Part II)
As the world came around to the idea that money in and of itself didn’t need to be valuable – it just needed to be a legally established way to facilitate the exchange of goods – paper money as we know it today began to take shape – but had a hard time getting it to ignite, and fore reasons that are going to sound oddly familiar.
Consumers didn’t want it, because merchants wouldn’t trust it to take it. Merchants wouldn’t take it, because not enough consumers used it to make them believe it was really a thing they could trust.
But while proto-paper pilots went down in flames in Europe – the innovators in the Massachusetts Bay Colony were ready to try something new.
Out of necessity, they were about to fight a way – and being a colony on the edge of nowhere, piles of gold specie were not lying around, and not actually easy to get there.
Which is where Massachusetts Bay Governor Sir William Phips becomes imiportant to the story. Phips was facing a war with France – specifically the nine years war – and needed to raise funds. Phips was unusual among early colonial leaders in that he was born into poverty as a shepherd – and he was known for being unusually practical. He was, for example, the Governor who stopped the Salem witch trials when he returned from England at its height – and promptly pardoned many people and officially ordered their end.
So in 1690 when he was governor on the eve of war breaking out, he allowed the colony to issue temporary banknotes as an experiment to fund the Nine Years War.
And experiment that worked out so well, that by 1694 the Bank of England jumped on the bandwagon – also to raise funds for a war against France (the same war actually, European theater) and started offering permanent bank notes. This ended up being so popular that even when the war was over – the paper money ignition was underway and by the end of the 18th century it was dominant on the commitment.
Ironically – the U.S – where they go the idea, didn’t have paper money of its own until 1862.
Now, of course, we are told often that paper money is dead, or dying, soon to be replaced by an entirely digital currency world.
And though we officially do not recommend holding your breath waiting for cash to die out – it is probably safe to say that it is past it’s heydey.
But it is a necessary part of our world and certainly a big step forward for payments and capitalism.
So, we can share being the inventors of America with Virginia here in Massachusetts – and comfortable our knowledge that we made the modern payments economy possible as our sideline business while we were helping invent modern democracy.
Happy Fourth of July.