Why and how did Government Money supplant Gold and Silver?
Laziness and deceit. The first bankers were the goldsmiths. Miners would bring the gold to the goldsmiths for minting. The goldsmith would give the miner a receipt that he could redeem when the minting was completed. The miner soon found that he could immediately trade his receipt (his claim on the gold) for tools and supplies and return to the mines without having to wait for his gold. Over time, the goldsmith found that the receipts he issued stayed in circulation and were being used as medium of exchange. Only a small percentage of the people ever came in to redeem the receipts. To increase his purchasing power he simply began to issue his own fraudulent receipts (that had no gold backing) and used them to acquire goods and services. This increase in the number of outstanding receipts created inflation and lessened the value of all of the other outstanding receipts. In later days, central banks did the same thing. They issue more receipts (paper currency) than they had the gold and
