“When I was young I used to think that money was the most important thing in life and now that I am old, I know it is,” said writer Oscar Wilde. Money is an extremely polarizing subject. Despite various opinions on money’s role in society, one statement holds true: money is integrated into nearly every aspect of modern life. It often serves as a measurement of personal success, as well as worth and skill level. People are motivated by money, both to achieve greatness and commit criminal acts.

The need for a monetary system is caused by the need to exchange products or services for the growth and survival of a community. Researchers believe that money, in one form or another, has been a key component of society since the dawn of civilization.

Steve Kelly

Barking and Bartering

The earliest form of a monetary system was bartering, where an individual exchanged their product or service for somebody else’s product or service. For example, one farmer might exchange a pound of apples for a pound of bananas. Around 9,000 B.C., several civilizations began using livestock as a unit of exchange. This form of exchange lasted until agriculture developed and crops became popular bartering items.

Often, bartering does not involve physical money; therefore, no solid rules or rates were established. Salesmen would set their own values and work with the customer, who needed a product they possessed, to establish a fair trade. Since mutually compatible wants were necessary for both parties, the system could easily become quite complicated. Bartering is still used today, mainly through corporations using media as leverage.

Despite popular belief, many early societies and economies did not rely on bartering, which was mainly used to trade between strangers or enemies. Many of these economies were based upon the principle of gift economics. In this system, services are given without compensation, and, as a result, valuables are circulated through the community. As long as he or she contributed, each member thrived.

Steve Kelly

Nice Commodities

Today, the United States dollar has no intrinsic value besides that set by the United States Treasury. Judged by its weight in paper, the dollar is relatively worthless. Yet, when societies first began using physical money, they used a system known as commodity money, the opposite of the system of fiat money in place today (see “Fiat Currency and the Gold Standard in the United States” on page 27). Under a commodity based system, an object would be used as currency due to its intrinsic value and its monetary properties. Though the currency has a value set by the society, that value is not set in absolute terms and often changes due to supply and demand. Commodities were often items in high demand, including iron nails, pigs, seeds, and, quite commonly, cattle.

Around 1,000 B.C., in some parts of the world, shells developed as the first medium for exchange, especially around China and Africa. Several hundred years later, as humans began to craft precious metals, China began creating metal representations of cowrie shells and metal tools as currency. Before a standardized system of coins, gold and silver were used as commodity money in the form of nuggets, bracelets, rings and metallic dust.

In many European countries at about 500 B.C., spices — mainly salt and pepper — were used as currency due to their high value. Pepper was especially valuable and spawned the French term “as dear as pepper” and the “a peppercorn rent,” an English term referring to rent which could be paid in pounds of pepper.

One unique currency of commodity money came in the form of giant limestone coins from Yap, a Micronesian island located in the Pacific Ocean. The largest of these coins were approximately nine to 12 feet in diameter and weighed several tons. Displaying the coin outside of one’s house was a sign of wealth and power.

While coins eventually became the preferred currency for centuries, paper money appeared as early as 118 B.C. in China. They used one-foot squares of deerskin decorated with bright boarders as commodity money. In the ninth century, China again began using paper currency. European civilizations still used coins, however, and in 1455, production of paper money ceased.

The first usage of a unit of weight relating to currency was established in Mesopotamia around 3,000 B.C. In Babylon around 1760 B.C., the “Code of Hammurabi” was enacted, establishing a collection of laws regarding money in a civilized country that, for the first time, set interest on debt and outlined both punishments and monetary compensations.

Steve Kelly

Coins, Coins, and More Coins

The first pure gold and silver coins were first used and minted in Lydia, current day Turkey, around 650 - 500 B.C. With the invention of the touchstone, a small, finely grained slate most commonly used to evaluate the amount of gold in an alloy, lead to a spike in the use of gold coins. Touchstones required a long and complicated process, and as time progressed, the concept of standardized coinage was formulated to simplify the process. This newer, more efficient process started with pre-weighted and pre-alloyed coins without the use of a touchstone. The coins were then minted by governments, a highly secret process of sculpting the metal. The finished coins were then stamped with an emblem, usually of a god or emperor, for certification.

Throughout the 1600s, serious financial problems arose in Europe due to a surplus of monetary systems. Many merchants demanded gold rather than silver, and this caused the value of the gold coins to surpass that of silver coins. Thus the English government stopped producing silver coins, which created a problem since Asian traders demanded silver over gold. Stability was ultimately reached in the 1730s when national banks decided to exchange money for gold at a consistent rate.

In 1816, England created a benchmark for gold, meaning that the value of currency could be determined based on the number of ounces of gold, helping prevent inflation. The United States adopted a similar system, known as the gold standard, in 1900. It was the global depression in the 1930s that caused many countries (including America in 1933) to abandon the gold standard.

From Depression to Shining Depression

Before 1933, the United States used representative money, a system in which a monetary note represents a certain amount of gold or silver. For example, the British pound was a note which could be exchanged for a pound of sterling silver. Today, most countries use fiat money, which refers to money that is not backed by a reserve of another commodity. In 1971, the United States announced a switch to fiat money indefinitely.

Money has existed possibly as far back as 100,000 B.C. and has continued to evolve ever since, especially with the recent leap to digital purchasing. It defines almost every aspect of life, from available opportunities to personal worth, which is why it is important to understand the history of and be able to predict the future of money and the economy.