History of Money

An old fable tells of a miser who buried his gold in the forest.

Each day, he crept into the woods, dug up the trove, counted his coins, and buried them again. But one day, another man spied him counting his gold, and returned that night to steal it. The next morning, the miser discovered that he had lost everything.

A friend tried to comfort him. “Take a pile of stones and bury them in the hole,” he suggested, “and make believe the gold is still there, for when it was, you did not make the slightest use of it.”

The fable cleverly points up the real nature of money, coins and bills, at least as we use them today, are almost worthless in themselves. The long history of money has actually been a steady movement away from the immediately useful toward the symbolically valuable. That movement is continuing.

One writer has termed money “the poor man’s credit card,” for the well-to-do have the luxury of receiving their income by check, depositing it, purchasing items and services with credit cards, and then paying their credit card bills by check, perhaps without ever laying eyes on a dime of cold cash! The movement of wealth, which once dealt solely in the transfer of land, animals, or metal, has become largely a simple movement of paper.

Until the seventh or eighth century B.C., money per se did not exist. Early man’s commerce was built on the barter system, involving a simple exchange of goods. A craftsman, for instance, might trade a tanned hide or a carved icon for a supply of grain or milk. But the barter system presented a number of problems. First of all, a successful barter deal depended upon a double coincidence: the man who needed the hide had to have a supply of grain to spare, and the man who tanned the hide had to need and want the grain. Many bartered goods were not partitionable; for example, a man making a coat in the hope of receiving two bushels of wheat could not trade half a coat for one bushel.

In a limited way, the barter system has continued right into the present day. A servant or laborer will often accept food and lodging in partial payment for his services, and sharecropping farmers trade a portion of their crop for the use of the land they till. But standards and mediums of exchange began to appear well before recorded history.

Among early hunters, tanned hides were useful as a medium of exchange, for everyone could put the hides to use for clothing, and bides, unlike grain or meat, would keep almost indefinitely. Leather money was used in Russia right up until the seventeenth century, as was tea money in China. Hundreds of other items have served for a time as legal tender, including slaves, tobacco, gunpowder, pig jawbones, and glass beads. Manhattan Island, you recall, was bartered for twenty-four dollars worth of glass trinkets. Salt once passed for dough in Ethiopia, and skulls were hard cash in Borneo.

In Western cultures, cattle became a favored standard of exchange at a very early date, since cattle to a great extent already formed the basis of wealth. Cattle were generally owned by rich and poor alike; land, only by the aristocracy. Our words capital and chattel come from “cattle,” or rather from “head of cattle,” based on the Latin caput, “head.”

You might conjure up the image of a shopper walking to the store four head of cattle shuffling behind him as his “pocketbook.” But cattle were used more as a standard of exchange than as a medium of exchange. The value of bartered goods was determined by relating their worth to cattle; most often the cattle themselves did not serve as money. In our modern monetary system, coins and bills are the mediums of exchange, and gold, at least until recently, the standard of exchange.

But even as a standard of exchange, cattle presented problems, for one steer might be well fed and another scrawny. As actual items of exchange, cattle required upkeep, although they had the happy advantage of occasionally multiplying. The use of metals, then, certainly offered a number of obvious advantages. First of all, metal required neither upkeep nor extensive storage space, and precious metals were valuable in themselves for decorative use.

Iron money was used for a time in ancient Sparta. According to some accounts, Spartan monarchs cleverly minted coins so large they could barely be carried, to prevent its citizens from leaving the country.

At first, metals had to be weighed and assayed at each transaction, but later, pieces of uniform size were stamped to indicate their weight and purity. And that is exactly what a coin is: a piece of metal whose worth has been guaranteed. The first metal coins were minted in the kingdom of Lydia, in Asia Minor, around the year 650 B.C., although there is evidence of silver money in Iran as early as 760 B.C.

By the time of the Roman Empire, land and cattle speculation were already common, thus, these items were valued not for their immediate usefulness, but for their value in metal currency. The Romans adopted a form of gold standard, and stored their reserves in the Temple of Juno Moneta. Moneta became the mint, and Juno was regarded as the goddess of money. Such was the origin of this almighty word. Copper coins, melted into the floor during a fire, could be seen for a time among the temple ruins.

During the early Middle Ages, the coinage of the Eastern Empire at Byzantium, and later, the coinage of the Arabs, became the most important species in the eastern Mediterranean. In Western Europe, in the late eighth century, Charlemagne sanctioned the abandonment of the gold standard and established a monetary system based on silver. A silver penny, or denarius, was the basic unit, with 240 pennies to a pound of silver. The words livre, lira, and pound as used in British currency, date from this era. The Pound Sterling was originally 240 sterlings, or silver pennies, and literally weighed one pound.

Gold came back into use during the 13th and 14th centuries, with the florin, from Florence, among the more important coins. But the older silver system remained in use, so that through the Renaissance two basic monetary systems were current in most of Europe. Financial calculation was indeed a laborious job.

In the fifteenth century, the Venetian gold ducat, a word which comes from “duchy”, became the most valued coin in much of Europe. Although bills of exchange had been in use since 13th century Italy, the first bank notes were not placed in service until 1661, in Sweden. Paper money is a Chinese invention, dating from the seventh century although some Chinese historians claim that paper money was actually first printed there in 119 B.c.

Why are gold and silver so appropriate as mediums of exchange? First of all, the metals were always highly prized for their sheen and utility in personal adornment and religious statuary. Gold and silver will neither deteriorate nor rust. And the supply of these metals, while large enough to fill the bill as a medium of exchange, is not so large that the metals become worthless.

But through the ages metal money has presented its own problems. European monarchs frequently debased their currency, reduced the gold or silver content of the coins, to pay for expensive wars, and many avaricious individuals were wont to clip their coins to steal a few grains of precious metal. The wide variety of money standards in use in medieval and Renaissance Europe often made business transactions difficult, and made the moneychanger an absolute necessity. Gradually, the moneychanger came to fulfill many of the functions now performed by banks. And with the rise of money lending and capital accumulation, paper money, otherwise worthless, became reliable as a medium of exchange.

Paper money is, of course, the hardest cash throughout the world today. But many of the terms we still use when discussing matters monetary reflect earlier standards and mediums of exchange. As we mentioned, pound, livre, lira, and also ruble, refer to weight. The Greek drachma originally meant “handful.”

“Pecuniary” comes from the Latin pecus, which means “cattle”. “Coin,” comes from the Latin cuneus, which indicates “stamp” or “die”; and “fee,” derives from the Anglo-Saxon “feoh”, or “cattle.” “Finance” is related to final, since a money transaction was regarded as the “final act” of a deal.

The English guinea comes from the African area where gold for the coin was originally mined. Franc is an abbreviated Francorum Rex, “King of the Franks.” And the word money itself is the legacy of the Roman goddess Juno Moneta.

During the sixteenth century, when heavy silver coins were widely used throughout Europe, Bohemian coins minted in St. Joachimsthal were considered the purest. They therefore formed the standard of excellence. From Joachimsthaler comes the older words thaler and daler, and, of course, the almighty dollar.

In the early days of our nation, English, French, and Spanish monies all circulated through the American colonies, with a concomitant confusion of trade. In 1785, the dollar was adopted by Congress as the unit of exchange, and the decimal system as the method of reckoning. The U.S. monetary system was established in 1792: the first mint began operation in Philadelphia the following year.

Many coin and bill denominations have come and gone since then. Among the coins no longer in use are the half-cent, the two-cent, the three-cent, the twenty-cent, and the silver half-dime. The nickel was not introduced until 1886. Today, gold coins are no longer minted, and you may be surprised to learn, no bills larger than $100 are now placed in circulation.

The money we use in America was originally based on the gold standard. A bill was, in effect, a promise to pay the bearer on demand the dollar amount of gold stated on the note. But our money no longer has a gold or other commodity backing, and you cannot turn in your bills for gold. A person is willing to accept otherwise valueless paper money because he knows that others will accept these bills from him. Coins, too, are symbolic in value: a dime, for example, does not contain ten-cents’ worth of metal.

As long as monetary systems were tied to a gold or silver standard, there were self-imposed restraints on the system: the amount of gold or metal in a nation’s reserves limited the amount of money that could be minted. But without a commodity backing to its currency, a government can overprint paper money, and problems such as runaway inflation often arise.

The worst inflation in history occurred in Hungary in 1946, when a single gold pengo was valued at 130 trillion paper pengos! A simple purchase might require so many bills that a wheelbarrow was needed for a trip to the store, and notes were issued in denominations as high as 100 trillion pengos!

The inflation rate in Chile, between 1950 and 1973, was an outlandish 423,100 percent, meaning, in American currency, that what could once be bought for one dollar eventually cost $4,2321

Speaking of high denominations, the highest valued paper currency ever printed were U.S. gold certificates issued in 1934, worth $100,000. In case you’ve never seen one, the bill bore the head of President Woodrow Wilson. The highest denomination notes still in circulation are U.S. Federal Reserve Bank notes worth $100,000, but none has been printed since 1944; and according to present plans, no further bills over $100 will ever be issued.

The least valuable bill in existence today is the one-cent Hong Kong note, worth just one-fifth of a U.S. penny.

In terms of sheer size-which matters not a whit in legal tender-the largest and smallest bills in history are, respectively, the one-kwan note of fourteenth-century China, which measured nine by thirteen inches, and the 1917 ten-bani note of Rumania, barely more than an inch-and-a-half square.

As for coins, the smallest in size was the Nepalese silver quarter-dam of 1740, you’d need some 14,000 to equal an ounce.

At the other end of the scale, the Swedish copper ten-daler coin of 1644 weighed up to 43.4 pounds. And natives of the Yap Islands in the South Pacific at one time used stone coins some twelve feet wide, weighing up to 185 pounds!

The lowest denomination coin in existence today is the five-aurar piece of Iceland, which when issued in 1971, had a face value of only .1311 of a U.S. penny, you’d need 762 aurars to equal a dollar.

And the highest denomination coin was the 1654 gold 200-mohur coin of India, worth the equivalent of $1,400.

At recent gold prices, this baby is worth a cool $2,660, the greatest intrinsic value of any coin ever struck. But the 200-mohur is not the most valuable coin in history, that honor goes to an Athenian silver drachma, sold to a coin collector in 1974 for $314,000!

How much money is there in the world today? It’s almost impossible to estimate, since the value of various currencies changes from day to day. But there’s an estimated $49.7 billion in gold bullion in the central banks of the world, with the largest single chunk in the Federal Reserve Bank in New York City: $17 billion.

The United States is the nation with the largest gold reserves, but we’re not the world’s largest gold-producing country. American mines produce some $47 million in gold each year (based on a selling price of thirty-eight dollars per ounce), an amount equal to the entire production of Asia or Latin America and three times the total European figure. Yet the United States ranks third in gold production, behind Canada, about $60 million per year. South Africa is far and away the leader with over a billion dollars worth of gold.

With all of this money floating around, you may wonder why more of it hasn’t found its way into your pocket. Don’t be ashamed if you feel an uncontrollable hankering for more of the green stuff. After all, money is not the root of all evil. The Bible actually says that “the love of money is the root of all evil.” And that’s quite a difference.

More information at http://en.wikipedia.org/wiki/Money