History of money
The history of money is the development over time of systems for the exchange of goods and services. Money is a means of fulfilling these functions indirectly and in general rather than directly, as with barter.
Money may take a physical form as in coins and notes, or may exist as a written or electronic account. It may have intrinsic value, be legally exchangeable for something with intrinsic value, or have only nominal value.
Overview
The invention of money was prehistoric. Consequently, any story of how money first developed is mostly based on conjecture and logical inference.A significant amount of evidence establishes that many things were traded in ancient markets that could be described as a medium of exchange. These included livestock and grain – things directly useful in themselves – but also merely attractive items such as cowrie shells or beads which were exchanged for more useful commodities.
Due to the complexities of ancient history, and because the ancient origins of economic systems precede written history, it has not been possible to trace the true origin of the invention of money. Further, historical evidence supports the idea that money has taken two main forms, divided into the broad categories of money of account and money of exchange.
As "money of account" depends on the ability to record a count, the tally stick was a significant development. The oldest of these dates from the Aurignacian, about 30,000 years ago. The 20,000-year-old Ishango bone – found near one of the sources of the Nile in the Democratic Republic of the Congo – seems to use matched tally marks on the thigh bone of a baboon for correspondence counting. Accounting records – in the monetary system sense of the term accounting – dating back more than 7,000 years have been found in Mesopotamia, and documents from ancient Mesopotamia show lists of expenditures, and goods received and traded and the history of accounting evidences that money of account pre-dates the use of coinage by several thousand years. David Graeber proposes that money as a unit of account was invented when the unquantifiable obligation "I owe you one" transformed into the quantifiable notion of "I owe you one unit of something". In this view, money emerged first as money of account and only later took the form of money of exchange.
Regarding money of exchange, the use of representative money historically pre-dates the invention of coinage as well. In the ancient empires of Egypt, Babylon, India and China, the temples and palaces often had commodity warehouses which made use of clay tokens and other materials which served as evidence of a claim upon a portion of the goods stored in the warehouses. There is no concrete evidence these kinds of tokens were used for trade, however, only for administration and accounting.
| Money Type | Cultures |
| Bars of precious metals | ancient Mesopotamia, central banks |
| Salt | North Africa, China, Mediterranean regions |
| Cattle | Ancient India, Africa |
| Slaves | Rome, Greece |
| Cacao beans, cotton capes | ancient Mexico |
| Cowrie shells | Ancient China, Maldives |
| Beads | African slave trade |
| Feathers | Santa Cruz Archipelago, Solomon Islands |
| Dog Teeth | Papua New Guinea |
| Whale Teeth | Fiji |
| Stone discs | Pacific Islands of Yap |
| Knives or Tools | Africa |
| Iron rings and bracelets | Africa |
| Brass rods | West Africa |
| Woodpecker scalps | Karok people |
| Human skulls | Sumatra |
| Casino chips | Las Vegas |
| Strings of wampum beads | American colonies |
| Tobacco | American colonies |
| Cigarettes | camps, prisons |
Use of metals
While not the oldest form of money of exchange, various metals were also used in both barter systems and monetary systems; and the historical use of metals provides some of the clearest illustration of how barter systems gave way to monetary systems. The Romans' use of bronze, while not among the most ancient examples, is well documented, and it illustrates this transition clearly. First, the aes rude was used. This was a heavy weight of unmeasured bronze used in what was probably a barter system: the suitability of bronze for barter resulted solely from the alloy's usefulness in metalsmithing, and it was bartered with the intent of being turned into tools. The next historical step was bronze in bars that had a 5-pound pre-measured weight, called aes signatum, which is where debate arises as to whether this was still barter, or had become a monetary system. Finally, there is a clear break from the use of bronze in barter into its indisputable use as money, because of lighter measures of bronze not intended to be used as anything other than coinage for transactions. The aes grave is the start of the use of coins in Rome, but not the oldest known example of metal coinage.Likewise, ancient Sparta minted coins from iron to discourage its citizens from engaging in foreign trade. In the early 17th century Sweden lacked precious metals, and so produced "plate money": large slabs of copper 50 cm or more in length and width, stamped with indications of their value.
Gold coins began to be minted again in Europe in the 13th century. Frederick II is credited with having reintroduced gold coins during the Crusades. During the 14th century Europe changed from use of silver in currency to minting of gold. Vienna made this change in 1328.
Metal-based coins had the advantage of carrying their value within the coins themselves. On the other hand, they induced manipulations, such as the clipping of coins to remove some of the precious metal. A greater problem was the co-existence of gold, silver and copper coins in Europe. The exchange rates between the metals varied with supply and demand. For instance the gold guinea coin began to rise against the silver crown in England in the 1670s and 1680s. Consequently, silver was exported from England in exchange for gold imports. The effect was worsened with Asian traders not sharing the European appreciation of gold altogether; gold left Asia and silver left Europe in quantities European observers like Isaac Newton, Master of the Royal Mint, observed with unease.
Stability came when national banks guaranteed to change silver money into gold at a fixed rate; it did, however, not come easily. The Bank of England risked a national financial catastrophe in the 1730s when customers demanded their money be changed into gold in a moment of crisis. Eventually London's merchants saved the bank and the nation with financial guarantees.
Another step in the evolution of money was the change from a coin being a unit of weight to being a unit of value. A distinction could be made between its commodity value and its specie value. The difference in these values is seigniorage.
Theories of money
The earliest ideas included Aristotle's "metallist" and Plato's "chartalist" concepts, which Joseph Schumpeter integrated into his own theory of money as forms of classification. Especially, the Austrian economist attempted to develop a catallactic theory of money out of Claim Theory. Schumpeter's theory had several themes, but the most important of these involved the notions that money can be analyzed from the viewpoint of social accounting and that it is also firmly connected to the theory of value and price.There are at least two theories of what money is, and these can influence the interpretation of historical and archeological evidence of early monetary systems. The commodity theory of money is preferred by those who wish to view money as a natural outgrowth of market activity. Others view the credit theory of money as more plausible and may posit a key role for the state in establishing money. The commodity theory is more widely held and much of this article is written from that point of view. Overall, the different theories of money developed by economists largely focus on functions, use, and management of money.
Other theorists also note that the status of a particular form of money always depends on the status ascribed to it by individuals and by society. For instance, gold may be seen as valuable in one society but not in another or that a bank note is merely a piece of paper until it is agreed that it has monetary value.
Money supply
In modern times economists have sought to classify the different types of money supply. The different measures of the money supply have been classified by various central banks, using the prefix "M". The supply classifications often depend on how narrowly a supply is specified, for example the "M"s may range from M0 to M3.Technologies
Assaying
is analysis of the chemical composition of metals. The discovery of the touchstone for assaying helped the popularisation of metal-based commodity money and coinage. Any soft metal, such as gold, can be tested for purity on a touchstone. As a result, the use of gold for as commodity money spread from Asia Minor, where it first gained wide usage.A touchstone allows the amount of gold in a sample of an alloy to been estimated. In turn this allows the alloy's purity to be estimated. This allows coins with a uniform amount of gold to be created. Coins were typically minted by governments and then stamped with an emblem that guaranteed the weight and value of the metal. However, as well as intrinsic value coins had a face value. Sometimes governments would reduce the amount of precious metal in a coin and assert the same face value, this practice is known as debasement.