A brief history of money and why the history matters to you
The evolution of money has been a long and often
difficult process as societies searched for ways to
develop reliable and lasting systems of commerce and
finance.
Over the course of history, money has changed its
physical appearance as people refined its shapes and
sizes into convenient and practical forms.
At the same
time, money's nature has changed. From the days of the
Roman gold aureus to the original U. S. silver dollar,
money's intrinsic worth -- meaning its precious metal
content -- was a paramount measure of its value. Today,
money's value is measured not by its material worth but
by what it can buy -- its purchasing power.
The long and colorful history of money began when
people in ancient civilizations learned they could trade
for things they needed, rather than produce them.
However, trade was often complicated, with people not
able to compare the value of different goods. And,
finding an appropriate trading partner was difficult --
for example, a fisherman couldn't get wheat from a farmer
who didn't want fish, and a candle maker couldn't get
bread from a baker who didn't need candles.
People learned to use prized ornaments or
agricultural products as standards by which the values of
different things could be compared. From time to time,
beads, shells, rocks, fish, hooks, grain and cattle were
used as money.
Most types of early money were made from metal
because it was durable and easy to carry. About 2,500
B.C. the Egyptians produced one of the first types of
metal money in the form of rings. The Chinese used gold
cubes about 400 years later.
The first metal coins were struck in Lydia (now
western Turkey) in about 700 B.C. Made from an alloy of
gold and silver called electrum, the coins -- known as
"staters" -- were actually bean-shaped pellets stamped by
the government with their weight and purity.
Because
these coins were made of precious metal, they had
"intrinsic" value, meaning that they had value in and of
themselves, apart from their official designation as
money.
The ancient Greeks also minted coins, which replaced
the handfuls of iron spits that they had been using. In
fact, the word "drachma" -- which is the base unit of
currency in Greece today -- is a derivative of the Greek
word for handful. A number of numismatic innovations are
credited to the Greeks, among them the first coin with
designs on both sides; the first series of coins issued
in different denominations; the first coin with a human
representation -- the goddess Athena -- and the first
commemorative coin, celebrating a military victory.
Greek coins were also the first "international" currency,
being widely used in trade throughout the Mediterranean.
Another major development was in about 300 B.C. when
the Romans issued their first coin -- the "as," which was
made of bronze.
Traditionally, 100 of these were equal
to one cow. In later years, Julius Caesar authorized the
minting of the gold "aureus," which became one of the
most widely used coins in the ancient world for more than
300 years. Smaller denominations of Roman coins that did
not contain gold or silver were struck with "sc," the
seal of the Roman Senate, to bolster their acceptability.
While these smaller denomination coins had no value
in and of themselves, they were widely accepted because
of the prestige of the gold aureus. This was one of the
first successful examples of the circulation of "fiat"
currency -- currency that is valuable because of its
purchasing power rather than because of its precious
metal content.
This early attempt at using fiat currency failed in
the fourth century when the Romans began issuing ever-
increasing amounts of fiat coins to compensate for
insufficient quantities of gold needed to mint the
aureus, which was in demand throughout the empire. Huge
budget deficits in the Roman government and a loss of
confidence in coins caused catastrophic inflation that
eventually destroyed the Roman monetary system.
Ironically, it was during the post-Roman era that
the Roman "solidus" became the most enduring coin in
history, circulating throughout Europe and the Near East
for more than 700 years. The solidus owes its incredible
longevity to its largely unchanged appearance and gold
content over time, which helped to maintain public
confidence in the coin.
While coins remained the primary medium of exchange
for centuries, during the Crusades people sought
alternatives as travel become more common. The precursor
to European paper money was born in the form of "letters
of credit" -- promissory notes between two parties that
generally could not be cashed by anyone else.
The use of
these letters was aimed at thwarting highway bandits who
wanted coins, not paper, which was impossible for them to
cash.
The Europeans were not the first people to discover
the advantages of using paper money. Its ancient
ancestor can be traced back to about 2,500 B.C. to the
clay tablets on which the Babylonians wrote bills and
receipts. The Tang Dynasty in China issued the first
known paper money in 650, and the earliest piece of
currency that exists today -- a Chinese 10-kuan note --
dates back to this time.
Centuries later, in 1273, Marco Polo reported that
the Mongol Emperor Kublai Khan issued mulberry bark paper
notes in China bearing his seal and the signature of his
treasurers. Marco Polo described the monetary system:
"All these pieces of paper are issued with as much
solemnity and authority as if they were pure gold and
silver...and the Khan causes every year to be made such
a vast quantity of this money, which costs him nothing,
that it must be equal in amount to all the treasure in
the world." With an overabundance of fiat currency in
circulation, it is not surprising to learn that the
Mongol-imposed monetary system suffered terrible
inflation; eventually the Mongols left China.
