The Origins of Credit Money

Theorists argue that a bank note is simply the promise to pay something of the same value as an ounce of gold. There's no fundamental difference in this respect between a silver dollar, a susan b anthony dollar coin or a green piece of paper with a picture of george washington on it. Even when gold and silver coins were in use, they almost never circulated at their bullion value. How could credit money come about? Let us return to our imaginary town.