The History of Money

One of the important attributes of any society is economic relations and their component, money. At the dawn of the development of human race, people were satisfied with producing resources for personal consumption. However, it was impossible to avoid interaction between the small groups and tribes, and soon they started exchanging products for labor and natural resources. Such trading played a major role in the history of the human race as it produced money, which soon evolved into different varieties. All the further progress of the world’s societies is closely related to this universal measure of value. Besides, such invention has certain advantages and disadvantages. Nevertheless, the history of money is a long and interesting story that began long ago.

Since the ancient times, people have been trading with each other and exchanging goods. However, before money was invented, there used to exist a barter system that allowed a person to give an X amount of product A to another person and get a Y amount of product B. However, such way of trading was not efficient as each good had a different value and sometimes it was not wise or beneficial for either party to split the goods into parts. At some point in history, somebody suggested using a good that could be used as a universal way of measuring the value of every single product. That was when money was invented, although at that time, people used various commodities such as skins or stones for such purposes. According to Burn-Callander, the first familiar-looking money was created almost 3000 years ago, in Turkey in 600 BC. Since that time, money has been evolving, until the first bank note appeared around 1661 AD (Burn-Callander).

In fact, the evolution of money is a rather long historical process. There have been some major changes in the emergence of money and the principles of operating it, and each of such transformations had a global impact and made trading and living easier. The initial form of barter money was not efficient as it was sometimes hard to possess the specific kind of good that another person wanted to get in exchange of what he or she offered for sale. Therefore, people started using a unified payment method, coins. They were minted by the authorities, and simplified the process of trading. Soon, people invented paper money, bank notes, which did not depend on the natural resources (gold or silver), yet they had the purchasing power and facilitated the economic growth. In fact, the dollar was first officially used in 1775. The 20th century was the time when various discoveries were made and innovations implemented, and in 1946 the first credit card was invented by John Biggins (Woolsey and Gerson). During the next several decades, money transformed even more as there were developed and implemented such methods as mobile banking, contactless payment, and cryptocurrencies.

All the kinds of money can be classified into two groups, fiat and commodity. This classification is based on the fact that the value of this means of payment may depend on either the material that bank notes or coins are made of or on the governmental order than makes citizens use the specific kind of money for economic purposes.

Therefore, fiat money is the currency that is established by a country’s governmental bodies. Its physical shape does not have any price or value, although it is issued by the central bank and is widely accepted as a payment method. On the other hand, commodity money has a value itself as it is made of valuable materials. However, it is also endowed with additional purchasing power determined by the governmental bodies and central bank. According to Gobry, all the modern currencies take the form of fiat money as there is nothing that backs them up, and dollar is not an exception.

As any other discovery, money has its advantages and disadvantages. The first and the main advantage is that this payment method replaced diverse barter money, simplified the exchange of goods, and speeded up the economic progress and overall development of the world’s society. Besides, the currency carries out four important macroeconomic functions which also serve as a basis for the global economic relationships. These functions include operating as a measure of value,  as a medium for exchange operations, as a means for storing value, and as a universal means for conducting trading deals all over the world.

Another advantage of money is its highly positive social impact as it has simplified and united the separated groups and tribes. Money also started carrying out the motivational function due to its ability to store value, so that people received an incentive to apply their natural skills to make a profit, store it, expand, and become rich.

Money did not only bring good to the world’s society, but also a number of negative things. First of all, physical kinds of currencies may get damaged by external factors and the owner will then lose a portion of his or her wealth. Secondly, from the macroeconomic point of view, there is a danger that the central bank will issue an excessive amount of money, and then supply will exceed demand, which will result in inflation. Consequently, the prices will go up, and some social classes may not afford purchasing the most essential goods. Thirdly, money has facilitated social inequality. Since currency has a function of storing value, some individuals turned out to be more productive and successful than others, which caused the emergence of social classes with different levels of income. Finally, money has led to political instability and posed a threat to the states. As money might be unstable, it may cause income inequality and the financial situation in a country may become so hard that people will get dissatisfied with the governmental policies and require a change of authorities.

Another drawback of money has always been the fact that it may be counterfeited. Since money plays an important social role and may sometimes determine the fate of people, the governmental bodies always took measures to protect the currencies from such crimes. At some point, there appeared a word “touchstone.” It means a physical or imaginary measure to test the authenticity of the currency. In fact, all the safety details placed on banknotes and coins may be considered physical touchstones.

At some point of its development, money was made of valuable metals, which cost a lot. However, some of the coins actually cost less than the material used to produce them, and some people were not using such items for their initial purpose. Instead, they melted them down and sold the metal to make profit. Soon, the governments started producing metal money that contained a smaller amount of valuable components. Therefore, it is considered that when the newly-made coins made of less valuable metal, bad money, are assigned the same financial value as those made of gold or silver, good money, the number of the latter in circulation decreases. Due to this fact, there exists an expression “bad money drives out good.” This is yet another example of money’s social impact.

Since the time of its appearance and implementation, money has not only become one of the most significant developments in the history of human race, but also became a subject for numerous researches and studies. People started a whole branch of science, economics that has a sole purpose of investigating the nature of money and its role in the world. There have been discovered many economic laws that describe how currencies affect people, and how individuals behave in the society from the point of view of economics and why they do so.

The research on money also inspired people sharing common points of view to unite, and that is how economic schools appeared. The representatives of such unities expanded their findings, assumptions, and rules to governmental bodies, and some of such doctrines remain actual even today. Also, the states take advantage of the research results and incorporate the discoveries into the instruments for governing and money controlling. Therefore, characteristics of money may be altered and operated, and consequently, people’s behavior regarding money may also be predicted and changed.

The history of money also includes the development of the most influential modern currency, the dollar. This global currency traces its history back to the times of the first colonies on the territory of the modern USA. However, the first dollars were issued by the Continental Congress in as early as 1775, although since the currency was not backed up by any solid background, it quickly lost its value.

The name of the currency, “dollar,” has a curious origin. It has been researched that the word is a changed version of the Czech 16th century money, taler, which penetrated other cultures and was often called “daler.” The Dutch Republic also had their colony on the North American continent, and their currency was used in all the thirteen settlements, being referred to as “dollar.” Therefore, the name of the American money originates from Europe, although it has gone a long way from the colonial currency to the one used by most countries of the world.

It is common knowledge that the dollar is sometimes referred to as “buck”. The reason for this can be traced back to the times when money was not widespread and people used skins for financial operations. The skin of a deer was the most popular exchange good, and this is when the dollar started to grow in popularity. Although the new currency replaced the former one, the name “buck” stuck to the money and is often used to refer to the dollar.

Money has a long and interesting history. Although the first currencies appeared just about three thousand years ago, it is considered there had been some equivalent to fit long before. Money may be considered one of the most useful creations of the human race, which facilitated its development and growth. Throughout its history, money was a subject to a number of transformations and innovations and it was only several centuries ago that money started to have a modern look. Also, all kinds of money are generally classified into two groups: fiat and commodity.

Evidently, money has advantages and disadvantages. Due to the integration of money into every aspect of people’s lives, the impact of its characteristics is extremely considerable. However, since the impact of money’s emergence was so great, it is considered that the benefits far outweigh the drawbacks. The creation of money has always played a significant role in the world’s societies, and people needed to make sure that money would not be counterfeited, and the term “touchstone” appeared. It is also worth mentioning that the dollar, the most influential currency in the world also has an interesting history of development.

In conclusion, the creation of money was an inevitable step in the progress of the human race. Otherwise, people would not have been able to speed up the economic relations and evolve to the modern look. Undoubtedly, money is a positive and one of the most important creations of human race.