- Personal Finance»
- Understanding Finance
The History of Money
What is Money
The history of credit and banking goes back much further than the history of coins. Nevertheless, the story of the origins of money goes back even further still. What is money? A normal everyday man or women would probably be of the same opinion that coins and bank notes were money. However, would the same men and women acknowledge that they would accept coins or notes from them from any country in the world? Would you accept coins or notes from say China? How about checks?
You would probably be less willing to accept them than your home country's coins and notes. Believe it or not bank account money in reality accounts for by a long way the greatest proportion by value of the total supply of money. Now what about IOU’s, credit cards and gold? Are these things money?
Even though the gold standard has past into history, today many well-off people in many parts of the world would prefer to keep some of their riches in the form of gold than in inflation-prone currencies. Its attractiveness, its aesthetic value, and its non-corrosive nature are two of the properties which led to its use for monetary transactions for many thousands of years. In complete contrast, a form of money with absolutely no tangible properties at all, electronic money, seems to have gained rapidly in popularity.
A mixture of things have been used as money at different times in different places. The list below which has been taken from page 27 of a History of Money by Glyn Davies includes but a small percentage of the huge variety of primitive moneys, and none of the modern types such as oil, wheat and the so called synthetic monies.
Amber, beads, drums, eggs, feathers, gongs, ivory, jade, leather, mats, nails, oxen, pigs, rice, salt, vodka, and yarns.
History of Money
The Functions of Money
It is not possible to define money in terms of its physical form or properties since these are so different. Therefore any definition must be based on its functions such as:
Specific functions (mostly micro-economic)
- Unit of account (abstract)
- Common measure of value (abstract)
- Medium of exchange (concrete)
- Means of payment (concrete)
- Standard for deferred payments (abstract)
- Store of value (concrete)
General functions (mostly macro-economic and abstract)
- Liquid asset
- Framework of the market allocative system (prices)
- A causative factor in the economy
- Controller of the economy
Not everything used as money has all the functions listed. Also the functions of any particular form of money could and will probably change over time. What is now the main function in a particular community or country may not have been the prime function in the past and indeed may not be the main function in the future. Furthermore, what may well have been a secondary function in one place may in some other region be the prime function which gave rise to a related secondary function. Therefore the list of functions in the table has no definite order of priority or importance. The list being static only reflects a particular time and place. Glyn Davies in his book ‘The History of Money’ page 28 concludes that the best definition of money is: ‘Money is anything that is widely used for making payments and accounting for debts and credits.’
Modern money, and most ancient money, is fundamentally a token, with an intrinsic value dependent on supply and demand.