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A CHINESE EMPEROR ISSUES FIAT PAPER MONEY CENTURIES AGO PDF Print E-mail
Written by Jim Jordal   
Monday, 25 October 2004

The famous Mongol emperor Kubla Khan issued his own fiat paper money, thereby enriching both his empire and himself.  His efforts have their counterpart today in our Federal Reserve System, which also creates money from nothing, with sometimes favorable and sometimes dire consequences.

This situation was reported by famed traveler Marco Polo in The Book of Ser Marco Polo, translated by Sir Henry Yule, (3rd edition, Charles Scribner’s Sons, 1926).  I have taken the liberty of editing the account for the sake of clarity and brevity.

     “Now that I have told you in detail of the splendor of this city of Kubla Khan’s, I shall proceed to tell you of the Mint which he has in the same city, in which he has his money coined and struck.  The Emperor’s Mint is in the city of Cambaluc, and makes money after this fashion.
     “His workers take the inner white bark of the Mulberry Tree, the leaves of which tree are eaten by silkworms.  Some provinces are covered by these trees, so the Emperor has much raw material.  From this bark they make something resembling sheets of paper, which are then cut into various sizes to represent differing amounts of value.  On every piece of this paper certain officials write their names and place their seals.  Then the chief officer of the Khan smears the seal entrusted to him with vermillion, and impresses it upon the paper.  The money is now authentic, and is issued with great solemnity and authority.  Anyone forging it is punished by death.  And the Khan each year makes great quantities of this money, which costs him nothing.
     “With these pieces of paper the Khan makes all payments for his own account, and he makes them universally accepted under pain of death in all his kingdoms, provinces, and territories.  And indeed, everyone takes them willingly because wherever they may go in the Khan’s dominions, they can easily transact business just as if the money was made of pure gold.  Commerce is greatly facilitated by the portability and universal value of this money.
     “Furthermore all merchants arriving from India or other countries, and bringing with them gold or silver or gems and pearls, are prohibited from selling to anyone but the Emperor.  The Emperor’s experts appraise these valuables, and the Emperor then pays a liberal price for them with these pieces of paper.  The merchants readily accept his price, since they could not get so much from anyone else, and secondly they are paid with no delay.  With this easily transported money they can then do business anyplace in the empire.  Because of this, these people return to the Khan’s empire several times a year bringing great wealth, which the Emperor purchases with his paper money.
     “So the Emperor buys great quantities of these precious things every year, and his treasure is endless.  Moreover, several times a year he advertises that anyone possessing gold, silver, or gems may, by taking them to the Mint, receive a good price for them.  In this way, nearly all valuables in the country come into the Khan’s possession.
      “When any of these pieces of paper money are damaged, they can be turned in to the Mint for new money, minus a charge of three percent.  And if any tradesman or merchant needs gold, silver or gems with which to manufacture desired goods, he has only to visit the Mint, paying for these valuables with the paper money.”

       The power to create money means the ability to control a nation, its people, and its economy.  Nathan Rothschild, one of six brothers of 19th Century European banking fame, is said to have made this statement: “I don’t care who makes the laws.  Give me power to control money and I’ll control the nation.”  This principle underlies the Khan’s great wealth and power, accumulated through his ability to create money and thereby control virtually every economic activity within his empire.
      Notice the beneficial effects of this issuance of fiat (not backed by any valuables such as gold or silver) money for the Khan.  He was thus able to control commerce within the empire, trade with other nations, private property rights, competition for goods and services, and the economic health of his empire.
      And the merchants loved it because it facilitated commerce since money was much more portable than barter goods.  Even the common people prospered through easy access to relatively plentiful paper money rather than scarce gold or silver.
      The Khan’s system worked to facilitate commercial prosperity because a supply of money adequate to transfer goods and services is of great benefit to a society.  The negative side is that power over the creation of this money supply bestows power that often becomes dictatorial and oppressive.
      So as you ponder the wisdom of the Khan’s creation of money, which was worth something only because he said it was, consider what differences, if any, exist between what the Khan did and what our commercial banks and the Federal Reserve System do today.  In essence, they join forces to create money just as did the Khan.  It is no longer backed by treasure, but only by the faith and credit of the United States.  It must be accepted in payment for goods and services and in payment of debt because it is legal tender, even though it is pure fiat money.
       And we go the Khan even one better: U.S. citizens pay interest on these bonds, since they constitute the national debt.  But economists often defend the debt by saying it’s good for the country because it forces a form of financial discipline upon us, and ties the bondholders, mostly banks, insurance companies, and wealthy people, to the nation, since they must defend the government and its policies in order to protect their investment.
       So if you wonder why the rich get richer, and the poor get poorer, you’ve now got one reason.

Last Updated ( Friday, 01 December 2006 )