Rebecca Spang, an economic history professor at Indiana University, and Jacob Goldstein, a former host and author, dive into the origins of money. They explore the unique stone currency of Yap and how collective belief shapes value. Their discussion then shifts to John Law, a Scottish gambler who revolutionized France's monetary system with paper money, only to face a dramatic collapse. Listeners are invited to reflect on how these historical events inform modern economic practices.
The podcast explores the historical evolution of money and its essential functions as a store of value, unit of account, and medium of exchange.
John Law's innovative banking concept in France in the 1700s led to economic growth but collapsed due to unsustainable stock prices, emphasizing the significance of trust in financial systems.
Deep dives
John Law's Introduction of Modern Financial System
John Law, a gambler from London, escaped to continental Europe and presented a revolutionary idea to France in the early 1700s. Law proposed the creation of a bank that issued paper money backed by gold and silver, a novel concept in France at the time. This bank was the first of its kind in the country and changed the way people interacted with money, leading to economic growth and prosperity.
The Rise and Fall of the Mississippi Company
Law expanded his financial endeavors by launching the Mississippi Company, which controlled trade in France's North American territories. He allowed people to exchange government bonds for shares in the company, which gained popularity quickly. However, the grand success turned into a disaster as the extravagant stock prices couldn't be sustained. The public rushed to exchange paper money for gold and silver, causing a financial collapse and ultimately leading to Law's downfall.
Key Principles of Money and Banking
The podcast emphasizes the three essential criteria for something to be considered money: it should serve as a store of value, act as a unit of account to measure worth, and function as a medium of exchange for transactions. Additionally, the concept of prestige goods is introduced, referring to items that have value beyond monetary exchange and play a role in societal recognition and status.
Money's Inherent Value Lies in Acceptance
The discussion underlines that the value of money is not solely derived from its origin or backing but rather from its acceptance in transactions. As long as people are willing to accept a form of currency, it holds value. The episode stresses that monetary crises occur when trust in transactions diminishes, highlighting the importance of ongoing acceptance for the stability of financial systems.
Planet Money Summer School is back for eight weeks. Join as we travel back in time to find the origins of our economic way of life. Today we ask surprisingly hard question: What is money? And where did it come from? We travel to a remote island in the Pacific Ocean for the answer. Then we'll visit France in the year 1714, where a man on the lam tries to revolutionize the country's entire monetary system, and comes impressively close to the modern economy we have today, before it all falls apart. Check out our Summer School video cheat sheet on the origins of money at the Planet Money TikTok.
The series is hosted by Robert Smith and produced by Audrey Dilling. Our project manager is Devin Mellor. This episode was edited by Planet Money Executive Producer Alex Goldmark and fact-checked by Sofia Shchukina.