I'm wondering what preventive measures people have used through the ages to make it hard to make counterfeit money. Nowadays, we have all kinds of things ranging from watermarks to a mixture of cloth & paper...
How did they prevent people (jewelers, smiths) from recreating their currency?
A side question: Are there any records of people actually making money whenever they needed it & using it to supply their demands, or even of people living large because they made themselves a load of money?
Well right now you have fiduciary money. That is, the fact that you accept that this piece of paper's value is X, even though its materials and the finished product wouldn't actually be worth that much. Think about bills and checks for instance, what value do they really hold?
Before the advent of fiduciary money though, money often had an intrinsic value: coins were made out of various metals like bronze, copper, silver, gold. All of these metals had a value by themselves, and coins had an equilibrium value of about the metal they held: if they were worth less than the metal they would be melted and used, and more, then counterfeited. So as, you can see counterfeit money did exist, it just wasn't as dangerous and potent as today since the difference of value between a false bill and real is far bigger than between a coin and another.
Also coins did have watermarks of course. They often had the sovereign's head on them, and various insigna tied to the state they were issued in. It wasn't that easy to reproduce.
Although you might note something interesting: Polish-Lithuanian's economy was wrecked by the Prussian Frederick II, who flooded the state with fake currency.
hi! check out this recent post for some info & lots more links about anti-counterfeiting measures