A Short History of Money
Whether you call it bread, dough, luca, spondulux, a grand, a monkey, or even a sick sheep (an Australian $2 bill), you are still talking about the thing we spend most of our lives trying to accumulate – money. So how did the concept of coins and paper come to represent values that can be exchanged for items around the world?
The earliest known coins
In his book The Ascent of Money, Niall Ferguson explains that the first coins, made of a gold-silver alloy known as electrum, were discovered by archaeologists in the Temple of Artemis at Ephesus (near Izmir) in Turkey. From Ancient Greece, the use of coins made of precious metals spread to Rome, and throughout the vast Roman Empire, and in 221 BC the ‘first Emperor’ of China, Qin Shihuangdi, introduced a bronze coin to China.
Interestingly, economies in Europe during the Middle Ages experienced some of the cash constraints that we still see today, when coins of smaller denominations were in short supply because of a shortage of various precious metals. The discovery of the New World, and particularly South America, which was rich in reserves of gold and silver, helped to alleviate this shortage. Today, governments tend to solve the problem by printing more money, or devaluing their currencies, and so both coins and notes of lesser value go out of circulation.
Paper money and the rise of banks
In the 7th century, the Chinese were the first to introduce paper money. By the time of the Renaissance in the 15th and 16th centuries, money had become much more sophisticated through the rise of the banking system, which started in Italy and soon spread throughout Europe, Asia and to the New World. The rise of the great banking families across the centuries from the Medicis to the Rothschilds led to the accumulation of vast fortunes in the hands of a very small percentage of the population, a trend which persists to the present day.
Banks made it possible for people to save and grow their money by earning interest. People were also able to negotiate loans – and thus acquire debts. Ironically, without debt, which we may see as a bad thing, there cannot be economic growth. The trick is to be able to balance debt against assets, for both individuals and national economies.
Banks were initially seen as the safest repositories for money, hence the expression as safe as the Bank of England, but the vulnerability of the banking system was made very real by the financial crash in 1929, and again in 2008, with repercussions throughout the globe.
The value of money
If you have ever tried to sell a property, you will have realised that the value of something in cash terms is not fixed. In fact, the value of an item is simply what a buyer is prepared to pay for it. The same applies to stocks and shares, where values change from minute to minute according to a range of influences affecting global markets and exchange rates. Stock market crashes and political events, for example, can knock millions off a financial portfolio in minutes, leaving us all vulnerable to the fluctuating value of money. We may even wish that we could return to the days when we could trade a hen for a sack of grain.
The future of money
In sophisticated economies, coins and banknotes have largely been replaced by credit cards and transactions made from cellphones or computers over the Internet. Share certificates exist in digital form, and share trading has become an on-line activity. Large sums are transferred at the touch of a button, without physical money ever changing hands. The downside of this trend is that is has become easier to spend money than ever before, and the pit of credit card debt, for example, has swallowed up many a careless spender.
The newest development is the creation of bitcoins and cryptocurrencies, a virtual currency that can be traded on the Internet without the involvement of a bank or financial institution. In the space of fewer than 10 years the value of bitcoins has rocketed, with many early investors selling their bitcoins for substantial sums.
Some speculate that the bitcoin is the precursor to a world without money, but we will have to wait and see!
SOURCES:
The Ascent of Money, Niall Ferguson, Penguin Books 2009.