Just finished teaching a class of 8 years old about the evolution of money
We started with a simple question, what is money?
The answers I get from these kids are pretty cool.
"It's something you use to buy things with"
"It's a medium of exchange"
"It's used in trades"
"It's made of paper and paper is made from trees."
"It's made if a special kind of paper that only the government can use."
Moving on, we did a lot of tole playing through the ages.
Starting off with bartering, childrens were asked to keep track of all the different exchange rates for each items from each seller/buyer.
Then we changed to seashells, childrens were using bags of seashells to buy stuff they want. But it's a bit cumbersome.
So we move on to gold nuggers, the the verification and measurement process takes a lot of time.
To help speed up trades childrens have the option to turn their gold nuggets into gold (chocolate) coins at the mint.
But then commerce grew and now the whole country is trading and transporting gold coins can be too risky.
So the mint, now a bank, offers paper money in exchange for gold coins. Only kids holding paper money can travel from their table to buy stuff from other tables. (I imposed a bit if a travel rule here)
But then I stepped in and offer to buy the goods at a higher price, but I don't have any money so I borrowed gold coins from the bank and exchanged my coins for paper money.
I was able to buy up all the cool toys, the seller became rich and I resell them at higher prices.
Kids who wants to compete are forced to also take out loans, leading to the bank printing more money.
The room is swimming in money.
Then I pose the question.
"Why do these paper money have value?"
"Do you think the bank have enough gold to cover all these paper money?"
To my surprise, this sparked a bank run. And only a few kids were able to redeem their chocolate gold coins.
The rich scalpers were left holding a bunch of worthless paper money.
And thus concludes the lesson.
That there is a difference between money and credit, and when shit hits the fan, it's always better to hold the harder and more liquid asset. And that banks and government should not be trusted just for convenience.
