The Origins of Credit Cards, Checks, Coins and Bills

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With the financial world in a state of flux, we thought now was a good time to explore the early history of credit cards, checks, coins and paper money.

Credit Cards

In the 1800s, you could pick your poison if you needed money: pawnbroker, realtor, friend, family member, illegal small loan lender, or mortgage lender. By 1858, consumer debt measured as high as $1.5 billion in the U.S., and it rose to $11 trillion just 32 years later.

At first, credit cards were really just substitute markers for payment. Rather than deal with looking up account numbers for each transaction, stores started issuing credit cards or tokens instead. After getting the bill, the customer simply had to pay or would likely lose credit with the store. John Biggins of the Flatbush National Bank of Brooklyn, New York, invented the first actual bank credit cards in 1946. Through his "Charge-It" program, merchants could deposit their sales slips in the bank, and the bank would bill the customer.

Another key moment in the development of credit cards started with Frank McNamara, a New York businessman who faced embarrassment when he realized he'd forgotten his cash while entertaining a client at Major's Cabin Grill. His wife covered the bill, but McNamara didn't forget the event. A few weeks later, he discussed an idea for a diner's club with his lawyer, Frank Schneider. Using the Diner's Club card, people could eat in a variety of restaurants and pay their tabs at the end of the month.

The card became so popular that other financial organizations mimicked the idea. Franklin National Bank issued the first revolving charge card in 1951, allowing customers to borrow and repay money without approval as long as they stayed under their credit limit—and didn't mind accruing interest charges. Bank of America (which became VISA) and MasterCard took the idea one huge step further in 1967, creating Interchange, a system that allowed banks to settle credit transactions throughout the U.S., rather than just locally.

Checks

office-oversized-check-science.jpgUnlike bills (which represent actual money that banks hope you'll never ask for), the check started as the Persian Sakks—a written promise to pay when the goods were delivered. The idea was to avoid money being transported, so starting in the first century CE, banks issued letters of credit through a bill of exchange, meaning that money would be paid to the person whose name was on the bill. Plus, a check written in, say, Baghdad, could be cashed in China.

The check didn't come into widespread use, however, until Holland in the 1500s. Around that time, Amsterdam was a major international hub of shipping and trading, and people began to deposit their cash with Dutch cashiers for a fee, rather than keeping the money at home. Those cashiers would pay their depositors' debts directly upon written notice (almost as good as online bill-paying), but there was a small problem: the little pieces of paper could easily be forged or copied.

A British banker named Lawrence Childs developed the first printed checks, which led to today's elaborate system of routing and account numbers, watermarks, and other identifiers. Indeed, the modern word check originated simply from the need to examine, or check, the bill of exchange, and the name stuck.

Coins

Nowadays, a pocketful of jangling silver and copper wouldn't impress most folk, but the original coins marked the wealth of the nearly forgotten empire of Lydia. In the western part of Asia Minor, Lydia became celebrated for its deposits of gold and silver and entered its golden age under the rule of King Croesus in the sixth century BCE. The Lydians were the first in history to mint gold, silver, and electrum (a mixture of gold and silver). The early coin designers were also gem carvers who used a furnace to melt the metal until it was pliable, a balance to weigh coins, and a mint—made of an anvil and a die press. Even though the first coins weren't always perfectly uniform, they're awfully close to what we still use today.

Once the Lydians were assimilated by the Greeks, the coin-making tradition truly took hold. The first coin patterns were coats of arms, which were soon followed by symbols of ruling leaders. By the fourth century BCE, the possession of the mint (and all of its wealth) was considered sacred, often protected within a temple. Athens claimed authority over all coin minting, including standardized weights and measures, but rival areas were quick to form their own systems.

Even coin denominations appeared during the early development of coins. A gold stater coin could be issued in halves, thirds, or sixths, for example, while some coins were worth exactly twice another. Looking for the origin of the copper penny? The first bronze coins were developed in the fifth century BCE, but they weren't widely used for another 100 years. Copper has always been considered the least precious of the coin metals—even then, a bronze coin was worth a fraction of a silver one.

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Bills

There were three big advancements in banknotes that helped put Andrew Jackson's face in your pocket. The first documented banknotes were one-foot square pieces of white deerskin with colorful borders, used in China in 118 BCE. You can also thank China that you're not carrying around Bambi today—in the ninth century CE, the Chinese invented paper banknotes as well. Over the course of 500 years, China experimented with paper money and soon realized that printing too much money caused inflation (still true). Probably for this reason, the Chinese ditched paper money in 1455, and it didn't reappear for another 250 years, this time in Europe.

1000-bill-front.jpgIn 1705, John Law of Scotland published "Money and Trade Considered: With a Proposal for Supplying the Nation with Money." He considered metal money to be unreliable and believed that the more money in circulation, the richer the country. Whiel most governments weren't buying the get-rich-quick scheme, Louis XV of France decided to give Law a chance because the country was strapped for cash. In 1716, Law created the Banque Generale, which carried only one quarter of its money in actual cash. The rest was in billets d'etat—a fancy way of saying government debt.

Law's process of issuing interest-paying bank notes (payable in silver on demand) was extremely popular, but the system was volatile. All it took was a few wealthy investors pulling their funds to create a panic. Though Law eventually fled to Holland in 1720 to avoid the collapse, his idea of paper money stuck around, and future governments figured out how to manage the system better.

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This article was written by Liz Hunt and excerpted from the mental_floss book In the Beginning: The Origins of Everything. You can pick up a copy in our store.

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September 22, 2008 - 8:21am
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