History of money 2763667 225970529 2008-07-16T07:15:53Z Carlomorino 2770191 /* Standardized coinage */ typo {{Mergefrom|Social evolution of money|date=May 2007}} {{Numismatics}} The '''history of money''' is a story spanning thousands of years. Related to this, [[Numismatics]] is the scientific study of [[money]] and its [[history]] in all its varied forms. Money itself must be a [[scarcity|scarce]] good and must have a stamp or mark of the authority that coins it. Many items, although have been used "as money" (naturally scarce [[precious metal]]s, [[conch shell]]s or [[cigarette]]s) are not money because they have not the stamp of the person or organisation which coins it. Modern money (and most ancient money too) is essentially a token — in other words, an abstraction. [[Paper currency]] is perhaps the most common type of physical money today. <!-- Question: why 'perhaps'? Why can't this article say whether it is or isn't? Partial Answer: It depends on how it is measured; for example coins are more common by count, bank-transfers more common by value -->However, goods such as [[gold]] or [[silver]] retain many of money's essential properties. ==The emergence of money== [[Image:Nassarius_shellbeads_South_Africa.jpg|thumb|left|250px| Shells of the pea-sized snail Nassarius kraussianus. Blombos Cave, South Africa, 75,000 B.C. Wear marks indicate the shells were strung on a necklace or bracelet.]] [[Proto-money]] is not actually money, beacuse it does not have a stamp of the person or of the organisation which coins it. Proto-money was used before the invention of real money. Real money , a scarce good with a stamp on it declaring who coins it,was invented (according [[Aristotle]]) either by [[Pheidon]] king of [[Argos]], or by [[Demodike]] (or [[Hermodike]]) of Kymi (the wife of [[Midas]]) , or according some fables either by [[Erichthonius]] and [[Lykos]](son of Pandion II and ancestor of the [[Lycians]]) or by the [[Lydians]] or by the [[Naxos_Island|Naxians]]. The use of proto-money, may date back to at least 100,000 years ago. Trading in [[red ochre]] is attested in [[Swaziland]], from about that date, and ochre seems to have functioned as a proto-money in [[Australian Aborigines|Aboriginal Australia]]{{Fact|date=May 2008}}. Shell [[jewellery]] in the form of strung beads also dates back to this period<ref>[http://www.jckonline.com/article/CA6346559.html Shells are believed to be 100,000-year-old jewelry - 6/23/2006 8:12:00 AM - JCK-Jewelers Circular Keystone<!-- Bot generated title -->]</ref> and had the basic attributes needed of early money{{Fact|date=May 2008}}. In cultures where metal working was unknown, shell or ivory jewellery were the most divisible, easily storeable and transportable, scarce, and hard to counterfeit objects that could be made. It is highly unlikely that there were formal markets in 100,000 B.P. (any more than there are in recently observed hunter-gatherer cultures). Nevertheless, proto-money would have been useful in reducing the costs of less frequent transactions that were crucial to hunter-gatherer cultures, especially bride purchase, splitting property upon death, tribute, and inter-tribal trade in hunting ground rights (“starvation insurance”) and implements. In the absence of a medium of exchange, all of these transactions suffer from the basic problem of [[barter]] — they require an improbable [[coincidence of wants]] or events. Overcoming this without money requires some system of in-kind "credit" or "gift exchange", restricting trade to those who know one another. === Commodity Money === {{main|Commodity money}} Bartering has several problems, most notably the [[coincidence of wants]] problem, but even if a farmer growing [[fruit]] and a [[wheat]]-field farmer need what the other [[supply (economics)|produces]] a direct barter [[swap]] is impossible for [[seasonal]] fruit that would spoil before the grain harvest. A solution is to indirectly [[trade]] fruit for wheat through a third, "intermediate", [[commodity]]: the fruit is exchanged for this when it [[ripe]]ns. If this ''intermediate commodity'' doesn't [[perish]] and is reliably in [[demand]] throughout the year (e.g. [[copper]], gold, or [[wine]]) then it can be exchanged for wheat after the [[harvest]]. The function of the intermediate commodity as a store-of-value can be standardized into a widespread [[commodity money]], reducing the coincidence of wants problem. By overcoming the limitations of simple barter, a commodity money makes the [[market]] in all other commodities more [[liquidity|liquid]]. Where trade is common, [[barter|barter systems]] usually lead quite rapidly to several key goods being imbued with monetary properties. In the early British colony of [[New South Wales]], [[rum]] emerged quite soon after settlement as the most monetary of goods. When a nation is without a [[fiat currency]] it commonly adopts a foreign fiat currency. In some prisons where conventional money is prohibited, it is quite common for cigarettes to take on a monetary quality, and throughout history, [[gold]] has taken on this unofficial monetary function. The emergence of monetary goods is not dependent on central authority or government, it is a quite natural market phenomenon. ==Standardized coinage== [[Image:Maximinus denarius.jpg|right|frame|A [[Ancient Rome|Roman]] [[denarius]], a standardized [[silver coin]].]] From early times, metals, where available, have usually been favored for use as proto-money over such commodities as cattle, cowry shells, or salt, because they are at once durable, portable, and easily divisible. The use of gold as proto-money has been traced back to the fourth millennium B.C. when the [[Ancient Egypt|Egyptians]] used gold bars of a set weight as a medium of exchange, as the [[Sumerians]] had done somewhat earlier with silver bars. The first real money (having the mark of the authority that coins it) replaced iron sticks (iron was usefull in war) and was coined by a scarce and useless metal, silver, according to Aristotle, by Pheidon king of Argos around 800 B.C. The first golden coins were introduced about 650 B.C. in [[Lydia]] (now western [[Turkey]]).<ref>http://pubs.usgs.gov/of/2002/of02-303/OFR_02-303.pdf Butterman, W. C. and Amey, Earle B. III, Mineral Commodity Profiles–Gold, Open-File Report 02-303, U.S. Department of the Interior: U.S. Geological Survey</ref> Coinage was then widely adopted across [[Ionia]] and mainland [[Greece]] during the [[6th century B.C.]], eventually leading to the [[Athenian Empire]]'s [[5th century B.C.|5th century]] dominance of the region through their export of [[silver coinage]], mined in southern [[Attica]] at [[Laurium]] and [[Thorikos]]. A major silver vein discovery at [[Laurium]] in [[483 BC]] led to the huge expansion of the Athenian military fleet. Competing coinage standards at the time were maintained by [[Mytilene]] and [[Phokaia]] using coins denominated in [[Electrum]], [[Aegina]] in silver. It was the discovery of the [[touchstone]] which led the way for metal-based commodity money and coinage. Any soft metal can be tested for purity on a touchstone, allowing one to quickly calculate the total content of a particular metal in a lump. Gold is a soft metal, which is also hard to come by, dense, and storable. As a result, monetary gold spread very quickly from [[Asia Minor]], where it first gained wide usage, to the entire world. Using such a system still required several steps and mathematical calculation. The touchstone allows one to estimate the amount of gold in an [[alloy]], which is then multiplied by the weight to find the amount of gold alone in a lump. [[Image:Shapuri.jpg|right|200px|thumb|A [[Persian Empire|Persian]] coin.]] To make this process easier, the concept of standard coinage was introduced. [[Coin]]s were pre-weighed and pre-alloyed, so as long as the manufacturer was aware of the origin of the coin, no use of the touchstone was required. Coins were typically [[mint (coin)|minted]] by governments in a carefully protected process, and then stamped with an emblem that guaranteed the weight and value of the metal. It was, however, extremely common for governments to assert the value of such money lay in its emblem and thus to subsequently debase the currency by lowering the content of valuable metal. Although gold and silver were commonly used to mint coins, other metals could be used. For instance, Ancient [[Sparta]] minted coins from [[iron]] to discourage its citizens from engaging in foreign trade. In the early seventeenth century Sweden lacked more precious metal and so produced "plate money," which were large slabs of copper approximately 50 cm or more in length and width, appropriately stamped with indications of their value. Metal based coins had the advantage of carrying their value within the coins themselves &mdash; on the other hand, they induced manipulations: the clipping of coins in the attempt to get and recycle the precious metal. A greater problem was the simultaneous co-existence of gold, silver and copper coins in Europe. English and Spanish traders valued gold coins more than silver coins, as many of their neighbors did, with the effect that the English gold-based guinea coin began to rise against the English silver based crown in the 1670s and 1680s. Consequently, silver was ultimately pulled out of England for dubious amounts of gold coming into the country at a rate no other European nation would share. The effect was worsened with Asian traders not sharing the European appreciation of gold altogether &mdash; gold left Asia and silver left Europe in quantities European observers like [[Isaac Newton]], Master of the Royal Mint observed with unease.<ref>{{cite web |url=http://www.pierre-marteau.com/editions/1701-25-mint-reports/report-1717-09-25.html |title=Sir Isaac Newton's state of the gold and silver coin (25 September 1717). |publisher=[[Pierre Marteau]]}}</ref> Stability came into the system with national Banks guaranteeing to change money into gold at a promised 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 is these values is [[seigniorage]].<ref>{{cite web |url=http://pubs.usgs.gov/of/2002/of02-303/OFR_02-303.pdf |title=Mineral Profiles |publisher=[[U.S. Geological Survey]]}}</ref> See also: [[Roman currency]], [[coinage metal]], for conversions of the European coins before the introduction of paper money: [http://www.pierre-marteau.com/currency/converter.html The Marteau Early 18th-Century Currency Converter]. ==Representative money== [[Image:5 Silver US Dollars 1896.jpg|thumb|right|300px|An example of representative money, this 1896 note could be exchanged for five [[US Dollar]]s worth of [[silver]].]] The system of [[commodity money]] in many instances evolved into a system of [[representative money]]. This occurred because banks would issue a paper receipt to their depositors, indicating that the receipt was redeemable for whatever precious goods were being stored (usually gold or silver money). It didn't take long before the receipts were traded as money, because everyone knew they were "as good as gold". Representative paper money made possible the practice of [[fractional reserve banking]], in which bankers would print receipts above and beyond the amount of actual precious metal on deposit. So in this system, paper [[currency]] and non-precious coinage had very little intrinsic value, but achieved significant market value by being backed by a promise to redeem it for a given weight of precious metal, such as silver. This is the origin of the term "British Pound" for instance; it was a unit of money backed by a [[Pound (mass)|Tower pound]] of [[sterling silver]], hence the currency [[Pound Sterling]]. For much of the nineteenth and twentieth centuries, many currencies were based on [[representative money]] through use of the [[gold standard]]. ==Fiat money== [[Fiat money]] refers to money that is not backed by reserves of another commodity. The money itself is given value by government ''[[Fiat currency|fiat]]'' ([[Latin]] for "let it be done") or decree, enforcing ''legal tender laws'', previously known as "forced tender", whereby debtors are legally relieved of the debt if they (offer to) pay it off in the government's money. By law the refusal of "[[legal tender]]" money in favor of some other form of payment is illegal, and has at times in history ([[Roman Empire|Rome]] under [[Diocletian]], and [[French revolution|post-revolutionary France]] during the collapse of the [[assignat]]s) invoked the [[death penalty]]. Governments through history have often switched to forms of fiat money in times of need such as war, sometimes by suspending the service they provided of exchanging their money for gold, and other times by simply printing the money that they needed. When governments produce money more rapidly than [[economic growth]], the money supply overtakes economic value. Therefore, the excess money eventually dilutes the market value of all money issued. This is called [[inflation]]. See [[open market operations]]. In [[1971]] the [[United States|US]] finally switched to fiat money indefinitely. At this point in time many of the economically developed countries' currencies were fixed to the [[United States dollar|US dollar]] (see [[Bretton Woods Conference]]), and so this single step meant that much of the western world's currencies became fiat money based. Following the first [[Gulf War]] the president of Iraq, [[Saddam Hussein]], repealed the existing Iraqi fiat currency and replaced it with a new currency. Despite having no backing by a commodity and with no central authority mandating its use or defending its value the old currency continued to circulate within the politically isolated [[Kurd]]ish regions of Iraq. It became known as the [[Iraqi Swiss dinar|"Swiss dinar"]]. This currency remained relatively strong and stable for over a decade. It was formally replaced following the [[2003 invasion of Iraq|second Gulf War]]. ==Credit money== [[Credit money]] often exists in conjunction with other money such as fiat money or commodity money, and from the user's point of view is indistinguishable from it. Most of the western world's money is credit money derived from national fiat money currencies. In a modern economy, a bank will lend to borrowers in excess of the reserve it carries at any time, this is known as [[fractional reserve banking]]. In doing so, it increases the total [[money supply]] above that of the total amount of the fiat money in existence (also known as M0). While a bank will not have access to sufficient cash (fiat money) to meet all the obligations it has to depositors if they wish to withdraw the balance of their cheque accounts (credit money), the majority of transactions will occur using the credit money (cheques and electronic transfers). Strictly speaking a debt is not money, primarily because debt can not act as a unit of account. All debts are denominated in units of something external to the debt. However, credit money certainly acts as a substitute for money when it is used in other functions of money (medium of exchange and store of value). ==Etymology== The English word "money" dates to c.1290, "coinage, metal currency," from [[old French]] ''moneie'', from [[Latin]] ''monēta'' "mint, coinage," from Monēta = "she who warns", a title of the Roman goddess [[Juno]], as money was coined in or near the [[Capitoline]] [[Temple]] of [[Juno]] in [[Rome]]. [http://www.etymonline.com/index.php?term=money] [http://books.google.co.uk/books?id=xA9dxrhfa5kC&pg=PA405&lpg=PA405&dq=money+moneta+minerva&source=web&ots=l-_lPbXmzx&sig=yZ3KRt033zcsJhkjEWOF9u_0YIg&hl=en#PPA405,M1] [http://www.bbc.co.uk/dna/h2g2/A873795] ==Notes== <references/> ==References== * Davies, Glyn, [http://www.exeter.ac.uk/~RDavies/arian/llyfr.html History of Money from Ancient Times to the Present Day] * Jevons, W. S. (1875), Money and the Mechanism of Exchange, London: Macmillan. * Menger, Carl, [http://socserv.mcmaster.ca/econ/ugcm/3ll3/menger/money.txt "On the Origin of Money"] * Szabo, Nick, [http://szabo.best.vwh.net/shell.html Shelling Out -- The Origins of Money] * [http://www.usmint.gov/ United States Mint] * [http://www.royalmint.com/RoyalMint/web/site/Corporate/Home/corporate_homepage.asp Royal Mint] * [http://www.money.org/AM/Template.cfm?Section=Home American Numismatic Association] * [http://www.worldbank.org/index.html World Bank] ==See also== {{portalpar|Numismatics|United States penny, obverse, 2002.jpg}} {{Commons|Money}} * [[History of coins]] * [[History of the United States dollar]] * [[History of the rupee]] * [[Slave beads|Trade beads]] * [[Manillas]] ==External links== * [http://www.pierre-marteau.com/currency/converter.html The Marteau Early 18th-Century Currency Converter] A Platform of Research in Economic History. * [http://www.egwald.ca/ubcstudent/aboriginal/exchanges.php Linguistic and Commodity Exchanges] by Elmer G. Wiens. Examines the structural differences between barter and monetary commodity exchanges and oral and written linguistic exchanges. [[Category:Economic history|Money]] [[Category:Money]] [[Category:Numismatics]] {{Link FA|lv}} [[cs:Dějiny peněz]] [[de:Deutsche Währungsgeschichte]] [[fr:Histoire de la monnaie]] [[lv:Naudas vēsture]] [[nl:Geschiedenis van het geld]]