The History of Money

Money is not a natural construct, it is an invention, like fire a tool that we use to live in the modern world, money did not start with big corporations, and although we think of money as these “bills” that we carry around or as a numbers on a bank statement money has come in many different forms through the millennia, from cattle to seashells to coins gilded out of precious metal…. Money had rather humble beginnings. In one way you could look at the development of money as the ultimate in entrepreneurship.

Money

Money

From about 9000 to 6000 BC there wasn’t any money to exchange.  That doesn’t mean that there was not some form of markets where people traded different assets; it’s just that assets looked a lot different back then. People bartered what items they possessed in order to obtain those which they did not. This is actually used today to some extent. Of course, we cannot take a couple of watermelons to the bank and ask them to send a fax for us in exchange; but if I grow watermelons and you grow chickens I can still trade you a couple of watermelons for a couple dozen eggs. (Believe it or not this happens all the time in some parts of the country!)

There are many other ways that we still use bartering. Inside prisons inmates will tell you that their currency is cigarettes. It is not a strange thing for individuals to trade skills. A hairdresser may offer to cut a man’s hair in exchange for an oil change on their vehicle. These types of trades occur all the time; all without money.

Money is the root of finance. But until 1200 BC nothing that even closely resembled money existed. And then it was only cowry shells. These shells became the first type of money or exchange in China. They served as money or currency for many years even up until the 1900s. The closest thing to metal currency occurred in China in about 1000 BC when they made a mock cowry shell. However, since knives, spades and other tools were made out of metal they were also used as money. These were the first models of the coins that we carry in our pockets today. The interesting thing about the Chinese metal coins is that they each had a hole so that they could all be put together to make a sort of chain.

The first silver coins were made in about 500 BC. They looked similar to what we use today and they bore images of their gods and emperors. These imprints let everyone know the value of each coin. Lydia was the first to use these coins but then other countries such as Romania, Persia, Greece and Macedonia all used them and began to improve them. These coins were very different than the Chinese coins in that they were not made from base metals, but of scarce ones like bronze, silver and gold which already had a lot of value.

Paper money also has its roots in China. They began the practice of using leather currency. They were primarily used as bank notes and exchanged for goods. They then moved on to paper money in China in the 9th to 15th centuries. But in 1455 using currency was completely gone from China because they had too much of the currency and it caused serious inflation.

In the 1500s the North American Indians used gifts for currency before switching to clam shells called Wampum. This was a string of beads that was made all from clam shells. They used this as a type of currency.

Finally in 1816 England put a value on gold. This is when currency began to be attributed to certain set amounts of gold. This helped protect the economy from inflation. The depression the in the 1930s started a worldwide effort to end the connection of currency to gold. Now most nations do not have any ties between gold and their currencies. There are other ways to try to avoid or control inflation.

Presently, nations exchange currencies think of the recent changes to the $100 bill and the $20 bill. Even coins have changed recently. The next big step in the world of finance is certainly digital cash, or electronic money. This is a form of money which is already begun to be exchanged via the Internet.

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About Efraim Landa

My name is Efraim Landa I am an entrepreneur and an expert in venture capital. I am the co founder of Effi Enterprises, a venture capital firm as well as the co founder and CEO of Gluco Vista, a company that is in the process of developing a non invasive glucose meter for those with diabetes.

Posted on August 2, 2012, in Business financing, Finance, financial history, Money and tagged , , , , , , . Bookmark the permalink. 2 Comments.

  1. This was a nice article. It has strong detailed examples of bartering at the beginning which make the piece interesting. I also thought the inclusion of the gold standard was a nice touch. I would have interested to know more about the development of currencies in recent years.

    • Lauren,
      Thank you for the nice comment! The development of modern currency is a great idea for a future blog post, I will write that in the next few months, stay tuned!
      -Efraim

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