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A Very Brief History of Money

Money n. pl. monˇeys or monˇies - A medium that can be exchanged for goods and services and is used as a measure of their values on the market, including among its forms a commodity such as gold, an officially issued coin or note.

Money dates back thousands of years and is derived directly from primitive societies and early systems of bartering. Man traded one thing for an entirely different thing they saw as having equal value. A man could trade something (a certain number of livestock as an example) for goods or services he might need but is unable to find or produce himself. The two parties had to agree to the equal value. Surely standards and rules of valuation for bartering arose as human civilization became increasingly complicated.

This tendency for men to barter and trade allowed people to specialize and develop skills that would make possible technological advancement. Early civilizations continued to trade goods and services for other goods and services they may needed. Anything that is of value to the people can be, and has been, used as a system of valuation. Salt, tobacco, livestock, fur, shells, beads and even other human beings are just a few examples of the different valuable resources commonly used as a medium of exchange and valuation. Money and trade was a valuable and indispensable tool in the development and advancement of civilization.

As civilization grew, the system became more complex and standardized. Human civilization grew and towns turned into thriving cities that sought to exchange goods driving people to seek out a more convenient way to trade. They looked for a standard medium they could use to represent value. Anything a person might want or need must be able to be valued in this medium. Instead of directly trading goods and services, people could use something that represented value. Peices of gold and silver, metals that had already been highly valued as a symbol of wealth and power since the days of ancient egypt, seemed the logical choice as they had little practical value outside their decorative use. The use of coins made of precious metals, possibly first introduced around 2,700 years ago in the area of Lydia in western Asia Minor, would spread and evolve unto a common form of monetary system. In such a system coins could be used by anyone to purchase what they needed and the value of that money was set by the state or by the market.

An economy based on a commonly accepted standard of valuation had extremely beneficial effects on early society. It allowed people to concentrate on highly specialized tasks which they would perform in exchange for this medium of exchange. No longer must a person farm or gather their own food, they can buy from farmers. They do not need to milk their own cows, butcher their own meat, make their own bread, or sew their own clothes.

You pay others who specialize in such things and others pay you for the goods you produce or the services you offer. As generation after generation specializes in one discipline, they improve their methods and make advancements. Such a system can only succeed with the acceptance and cooperation of the majority. It will only work if all who are compensated in this way can trade what they are given for all that they need to live.

Many things have been used as money in this way but the use of metal (especially specific precious metals such as gold) eventually became a universal standard. Ironicly gold, which is seen by so many today as having inherent value, as a representation of wealth, was probably used because, practically speaking, gold has few uses but was admired for its brilliance and special properties.The rise of metallurgy and mining, an increasingly complex society, a system of government, and the simple touchstone (a method testing the purity of soft metals) paved the way for a monetary system based on gold and other precious and semi-precious metals. A system that emerged from Asia Minor thousands of years ago and was eventually embraced by almost every society on earth.

In this system, gold and other precious metals act as a standard to calculate worth. Thus all goods are given a value as they relate to a standardized value of gold. Other metals such as silver, bronze, copper, and even iron have been used. These metals were deemed less precious so coins made of these metals were worth less. The smaller the coin, the less it is worth relative to the metal content. Such a system lasted in most nations until the early twentieth century and the growth of large scale business, industry, and populations, products of the industrial revolution, when it became harder and harder to maintain a monetary system based in Precious metals.

It can be tedious paying for everything you need in large amounts of heavy coinage thus governments and businesses began creating promissory notes. The advent of printing made it simple to move from hefty sacks of coins to relatively light stacks of paper. Of course both gold and paper served the same purpose, both were merely mediums of exchange that reprented value, but gold, silver and copper had greater value, and greater flunctuation in value as it was also a commodity. Gold can be horded and melted down to sell as a commodity when prices were favorable, not so with paper. Eventually the gold standard was dropped and most of the world moved to a system of fiat money.

Fiat money is NOT backed by a commodity reserve but on decree and general agreement of value. Fiat in Latin means "Let it be done" however such a characterization is deceptive as a nations currency is rather evaluated by that nations true wealth. Gold has never been the wealth, it has only ever represented wealth. In fact a nations wealth is its GDP, its natural resources, and its stability. Money is no longer made of precious metal nor does it represent reserves of precious metals but rather such reserves would be one of many factors that determine a nations wealth and the power of its money. Modern money consists of slips of paper and cheaper metals issued on the command of an authority, usually a government, and whose value is dictated by governing bodies. The paper and coins they issue have value, in essence, because they back it. A dollar, pound, franc or lire is worth what any given society, governing bodies, or international financial committees say it is worth in relation to the currency of other nations and goods it can purchase.

At one time fiat money was used by societies that were in crisis and could not back the notes and coins it produced but this is no longer the case. The United States switched to fiat money in 1971. Most international currency was fixed to the dollar thus this event meant that most other nations would also switch to this standard.

Many governments will still issue coins made of gold or silver but because of the precious metals it is made of, a gold or silver dollar is worth far more than a dollar issued for circulation. Very little silver, and no gold, is used in day to day business transactions today. Most money is either printed on paper, electronic transfers or coins minted using alloys of lesser metals like copper and nickel. Any silver coins in circulation today are older coins that have yet to be found by a collector.

Coins are collected by people for many reasons. The precious metal content, the artwork, interest in the country, kingdom or empire that issued it, the person who created it, the politics behind it, and the history. Through time, old coins are retired and new coins are released. They become historical objects and their value will often, over time, become far more than the value stated on the coin.

The history of money and trade is indeed a history of human civilization.