The History Of Money

As human civilization progressed, man made this system of bartering more efficient through the use of money.

At the dawn of civilization, when humans were still living out of caves and experimenting with fire, if a man needed the goods of his neighbor, he would have to barter for them. He would offer a variety of his own supplies to his neighbor hoping to entice him into trade. After a series of grunts and chest slaps, the two might come to an agreement for an equal exchange. Bartering goods in this fashion continues to this day, but is rather rare. The barter system is fraught with difficulty. Who sets the standard for the value of one set of goods versus another? What if one needs a load of firewood to cook but no one is selling? And what if one needs to buy rice to eat but has nothing of value that entices the rice vendors?

As human civilization progressed, man made this system of bartering more efficient through the use of money. Money began as a standard medium of exchange for a trading community. Money could be in any form, which was highly dependent upon the location of the community. For example, shells were common currency in coastal communities. In Arctic societies furs were often used while in parts of Africa elephant tusks represented a form of money. So why would trading with furs be any different from simple bartering? Because the communities involved in the trade had formally agreed that that commodity had value. Three animal hides would be equally valuable to one member as to another. Designating one commodity as the medium of exchange and setting its value for the community greatly eased trading. Man no longer had to hope that his surplus of yams would induce his neighbor to hand over a few logs for a fire.

The most popular form of money was naturally a commodity that could stand the test of time. Foodstuffs and even animal hides have a tendency to rot. Money with such a short life span is less valuable as a means of exchange. Metals became the primary ingredients to create money. The ancient Greek philosopher Herodotus cited the first coins as being invented in Lydia in 687BC. By 360BC, Phillip II, King of Macedonia was printing coins to fund his fight against the Persians. According to Glyn and Roy Davies in their book titled A History of Money from Ancient Times to Present Day, Phillip struck upon the ingenious idea to have a drawing of one of his triumphant chariot races stamped onto the coins. Thus Phillip became one of the first individuals to use money as a propaganda tool.



The use of metal coins developed at different rates around the world. By the 13th century Finland was still trading with squirrel furs while their neighbor Sweden had several mints and a wide coin circulation. Not until Sweden conquered Finland were the Finns introduced to metal based money. A mint was established in Finland in the 15th century. But due to the poor quality of coins produced, Finland continued to operate with Swedish money. Paper money was not introduced until 1807. In the American colonies, the minting of money was not established until after independence. Since Spain and Great Britain were the two countries owning the most colonial land, both Spanish and British currency were accepted throughout the colonies.

Although the introduction of money has made the system of exchange easier and more efficient, it has also made things infinitely more complicated. There are three types of official money: commodity money, credit money and fiat money. Commodity money equals the value of the material of which it is composed. For example, a coin made of one ounce of gold is worth one ounce of gold. Credit money is paper money backed by a promise from the issuer (usually a bank or government) to pay the face value in some sort of monetary metal. For many years world governments operated on what is called the gold standard. For every dollar printed, the government owned the equivalent in gold, and thus in theory could exchange that dollar for gold whenever the owner of the dollar demanded. Fiat money is paper money that is not redeemable for anything. Today most currencies are considered fiat money. Governments issuing the money fix its value. The value is determined through complicated monetary policies of the government in conjunction with its central bank. Fiat money is only valuable if one believes it to be so. Governments that print excessive amounts of money to finance expensive programs in their countries will find the surplus of their money will cause it to lose value.

Nearly every established community uses a form of money in their daily trading activities, but the drive to make trade more efficient through money regulation continues. The European Union is a modern-day example of the evolution of money. Europeans have been trading among themselves for centuries. Each country prints their own individual money and the value of one French Franc to a Frenchman is not equivalent to the value of one Spanish Peso to a Spaniard. Therefore when goods were exchanged across borders, countries determined the value of these different types of money through a complicated rate of exchange. With the advent of industrial and technological revolutions, cross-border trading has increased significantly. Exchanging Francs for Pesos or Liras has become as cumbersome as the caveman's attempts to exchange yams for firewood. To ease the flow of trade, the European Union established a common currency for all its members. The value of the new Euro will be the standard for all inter-European trading.

The path leading to a common currency has been tortuous. The Europeans have been discussing the pros and cons of a monetary union for several decades and today the new Euro is only in partial circulation. Given that the value of money is solely based upon people's perception of its value, governments do not want to rush a process that could cause consumer confidence to plummet. As the technology brings the world closer together and trade between countries increases, money will continue to be the number one medium of exchange. However if one world currency ever evolves remains to be seen.

Sources: www.hut.fi/u/jmickels/en, Glyn and Roy Davies A History of Money from Ancient Times to Present Day at http://www.ex.ac.uk/~RDavies/arian/llyfr.html

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