Money (Part I) - History and Evolution

Money

We use it every day, we cannot spend a day without it, we touch it, we feel it, we spend it, and we earn it. Yes, it’s money. It has become almost impossible to live without money. Don’t agree? Well, continue reading.

We wake up in the morning, from our bed, let’s assume $150. Turn off the alarm in the clock, which is, say $20. We go to the bathroom, wash ourselves up, we may not notice at the instance but the water bill is getting accumulated everytime you turn on the tap, shower etc. Then you get dressed up, $20 shirt and $20 trousers, pair of shoes $30 and all other what-not’s. Then you leave the house, get into a bus, pay $2 or something and get to your work. Before going in you decide buy a burgher from a stand, $2. I could go on and on like this. The point to be taken is that, money is so close to us, it’s so engraved into our lifestyle, it’s so significant and delicate.

So let us now take a little tour into the world of Money. Starting from the history and expanding to the future of money and most importantly, how to have enough of money forever. Take a deep breath and read on.  

What is Money?

First up, before heading into the history it’s better have a general idea what money is. If I ask you what money is, you’d probably say $1 note, $100 note, penny coins etc. Well, that’s only a part of the story. Because by definition money is “anything that can be used as a medium of exchange”. Wait, what? In simple it says, money can be anything, it does not necessarily be notes and coins that we use today. It can be anything as long as it is accepted as a medium of exchange. “Medium of exchange” means something that can be exchanged with another. Hence the medium should be accepted by all the parties involved in the transaction.

Let’s say for an example that I need to buy a new TV which costs $1000 and let’s assume that I have only $600 in cash with me. If the TV vendor agrees I can pay the balance $400 with something else, say some piece of jewelry I have. So in this case, the jewelry too is accepted as money since it aided in completing a transaction.

Likewise money isn’t only the notes and coins we use today. This will be further illustrated in discussing the history and evolution of money in the coming paragraphs.

History and Evolution of Money

The history of money dates so far into the history to the times when ancestors used little pebbles to buy things from others. Yes! That happened. But exchange of goods and services started even prior to that in an era named ‘The Barter System’.

The Barter System

The Barter System means a system where commodities were exchanged for commodities. In simple goods were exchanged for goods. There was no ‘money’ involved here. People exchanged their excess production with someone else’s excess. The system had many failures such as;

•    No double coincidence of wants - this means that not always did everyone’s wants match. Someone would have excess rice and want some eggs. But the one who has eggs may not want rice. So the coincidence of wants between parties was not always there and this hindered transactions largely.
•       No specific unit of value - it was hard to define a value to each product.
•      No specific measure of value – there was no way of determining what the exchange rate should be. i.e. how much rice should be exchanged for a bag of rice.
•       Difficulties in transporting goods – goods had to be carried around the villages and even to other villages to be exchanged.
•        Perishable good like food items could not be stored for long.

Due to such drawbacks people soon realized that exchanging goods for goods wasn’t a very effective system.

Then came the use of medium of exchanges for transactions. As I’ve mentioned above, this could be anything.

Commodity Money

This is the second era of the evolution of money, when people shifted from the Barter system to the use of a medium of exchange instead of goods.

In this stage people started using small stones, pebbles from the seashore, rare feathers, tobacco etc for transactions. These are the earliest stages of money. These items had assigned values, but often were not very decisive on their values. At first these items were rare to be found but later on people found more and more pebbles at the seashores, more feathers from birds, they started growing tobacco, and so the value of these commodities as money ceased. They needed something more consistent and limited in supply.

Paper Money

This is the third stage of evolution of money and the earliest stage of the money known to us today.

In early societies goldsmiths were the wealthiest people in the village. When people wanted to buy something, they would take something of value to the goldsmith (not necessarily, someone of wealth would also be sufficient) and keep the goods with the goldsmith and take a note from him signed to the value that he has kept with the goldsmith. Then this paper was valid to do any transaction up to its value mentioned. With time this system too came to pass.

Notes and Coins

The first notes and coins that we use today were printed In England by Stockholms Banco in 1661. Since then these notes and coins have evolved in different material, shapes, sizes and values.

Modern coins are minted in silver, copper, nickel etc. And money notes are made out of special paper that withstands heavy use, wear and tear.

E-Money / E-Cash

This is the modern plus future of money. Money in the electronic form. Even today with or without our knowledge we use E-money for online purchases, online payments, credit settlements etc.

Paypal, Alertpay, Moneybookers are a few examples of the institutions that facilitate online payments. Besides these specialized institutions, almost all commercial banks provide online payment facilities nowadays.

These are the four eras of development of money to the present stage. This is a very brief introduction to the four stages. But I hope you gained some knowledge. This is merely the beginning og the journey with the money. Await the next part to know about, where does money come from? Who supplies and controls money? and many more.

Thank You for reading.

Good Luck - NJKStockMarket Guide