Monetary inflation became a thing for the first time since Roman days — a much easier trick with printed paper banknotes than with silver coins — but the effect was the same: the evaporation of “wealth” (which is what money supposedly represents).

Money is a wonderful thing. It started out in human history as hard currency, generally gold or silver. These are commodities that are deemed to have intrinsic value but also act as a means of abstractly representing wealth accumulated out of other real commodities. Relatively little hard currency ever circulated freely in the preindustrial world. In that world, most wealth was actual, existing in the form of land, palaces, fleets of boats, bolts of cloth, barrels of grain, standing timber, herds of cattle, and so forth. These were generally things that could be traded, and exchanges of these items were often facilitated through the medium of gold or silver, hence the term "medium of exchange." [The] hard currency could also be acquired by theft or plunder, though that did not necessarily affect its value. Note that the value of [the] hard currency is transcultural. Gold and silver had high value to the Europeans, the Chinese of the Sung dynasty, the Inca, the Aztecs, the ancient Egyptians, and the California Forty-niners.
The industrial experiment took the idea of currency (money) to the next level of abstraction—as hard currency can represent actual goods, so paper currency can represent hard currency and actual goods. As trade increased and took place over ever-greater distances, paper promises to pay hard currency began to steadily take the place of the hard stuff itself, which was cumbersome, hard to lug around in large quantities, and subject to theft in transit. So, to streamline these trades, all kinds of certificates were used as equivalents to hard currency: individual IOUs, bills of lading, letters of credit from rich people, [and] promissory notes issued by guilds. In time, the use of paper certificates became… more normative and conventionalized. Protocols of exchange were established. Institutions were created to process them. This process of managing monetary affairs—of wealth abstracted in [a] paper—was called finance.

"Banks used to issue their own currencies. You can see these old banknotes in the Smithsonian. ‘First National Bank of South Bumfuck will remit ten pork bellies to the bearer,’ or whatever. That had to stop because commerce became nonlocal — you needed to be able to take your money with you when you went out West, or whatever."

"But if we’re online, the whole world is local," Randy says.

This bank-note world.

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.

Like any other medium, it is a staple, a natural resource. As an outward and visible form of the urge to change and to exchange, it is a corporate image, depending on society for its institutional status. Apart from communal participation, money is meaningless, as Robinson Crusoe discovered when he found the coins in the wrecked ship: I smiled to myself at the sight of this money. “O drug!” said I aloud, “What are thou good for? Thou art not worth to me — no, not the taking off the ground: one of those knives is worth all this heap: I have no manner of use for thee; e’en remain where thou art and, go to the bottom, as a creature whose life is not worth saving.” However, upon second thoughts, I took it away; and wrapping it all in a piece of canvas, I began to think of making another raft … Primitive commodity money, like the magical words of nonliterate society, can be a storehouse of power, and has often become the occasion of feverish economic activity. The natives of the South Seas, when they are so engaged, seek no economic advantage. Furious application to production may be followed by deliberate destruction of the products in order to achieve moral prestige. Even in these “potlatch” cultures, however, the effect of the currencies was to expedite and to accelerate human energies in a way that had become universal in the ancient world with the technology of the phonetic alphabet. Money, like writing, has the power to specialize and to rechannel human energies and to separate functions, just as it translates and reduces one kind of work to another. Even in the electronic age it has lost none of this power.

I like well your idea of issuing treasury notes bearing interest, because I am persuaded they would soon be withdrawn from circulation and locked up in vaults & private hoards. It would put it in the power of every man to lend his 100. or 1000 d. tho’ not able to go forward on the great scale, and be the most advantageous way of obtaining a loan. The other idea of creating a National bank, I do not concur in, because it seems now decided that Congress has not that power, (altho’ I sincerely wish they had it exclusively) and because I think there is already a vast redundancy, rather than a scarcity of paper medium.

The remarkable thing was that everyone accepted the entire process, seemingly as normal as physical laws of nature, despite the fact that it was really as ethereal as a rainbow. The money did not physically exist. Even “real” money was only specially made paper printed with black ink on the front and green on the back. What backed the money was not gold or something of intrinsic value, but rather the collective belief that money had value because it had to have such value.

It might otherwise appear paradoxical that money can be replaced by worthless paper; but that the slightest alloying of its metallic content depreciates it.

In its letter of December 1956, the First National City Bank of New York furnished a table showing the worldwide nature of the depreciation in the purchasing power of money that occurred in the ten years from 1946 to 1956.
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Of course, these figures are only conclusive for this one ten-year period. They do indicate, however, that these conditions are worldwide and therefore not too likely to be reversed by political trends in one country. What is really important concerning the attractiveness of bonds as long-term investments is whether a similar trend can be expected in the period ahead. It seems to me that if this whole inflation mechanism is studied carefully it becomes clear that major inflationary spurts arise out of wholesale expansions of credit, which in turn result from large government deficits greatly enlarging the monetary base of the credit system. The huge deficit incurred in winning World War II laid such a base. The result was that prewar bondholders who have maintained their positions in fixed-income securities have lost over half the real value of their investments.

Money is different from all other commodities: other things being equal, more shoes, or more discoveries of oil or copper benefit society, since they help alleviate natural scarcity. But once a commodity is established as a money on the market, no more money at all is needed. Since the only use of money is for exchange and reckoning, more dollars or pounds or marks in circulation cannot confer a social benefit: they will simply dilute the exchange value of every existing dollar or pound or mark. So it is a great boon that gold or silver are scarce and are costly to increase in supply. But if government manages to establish paper tickets or bank credit as money, as equivalent to gold grams or ounces, then the government, as dominant money-supplier, becomes free to create money costlessly and at will. As a result, this 'inflation' of the money supply destroys the value of the dollar or pound, drives up prices, cripples economic calculation, and hobbles and seriously damages the workings of the market economy.

To unstable money are to be traced nearly all our economic troubles since 1918: the unemployment of the inter-war period; the over-employment and scarcity of labour since the Second World War; the labour unrest incidental to perpetual wage demands; the hardships and dislocation caused by the declining value of small savings, annuities and endowments; the vexation of continual price rises even for those whose incomes on the whole keep pace with them; the collapse of the prices of Government securities through distrust of the unit in which they are valued.

…The value of currency had come down, because Sultãn Sikandar had got idols of gold, silver and copper broken and turned into coins…

The value of a yellow metal, originally chosen as money because it tickled the fancy of savages, is clearly a chancy and irrelevant thing on which to base the value of our money and the stability of our industrial system."