The Half Has Never Been Told: Slavery and the Making of American Capitalism

by Edward E. Baptist

But more importantly, bank-created money has to be paper (or mere numbers on paper) because only then can money be created out of nothing. And thus only paper money can lead to real economic growth. Imagine an economy that uses only gold and silver, also known as “specie.” A bank in such an economy could lend no more than it received in deposits, and that bank would simply be a glorified mattress. It would actually reduce the amount of money in circulation. If the money supply depended on the total amount of gold and silver dug out of the ground, the money supply would not increase as rapidly as the amount of goods and services being produced. The price of goods would drop, and the price of loans would rise, disincentivizing investment in new production.