In order to understand what money is, and why we use it. It's necessary to start from the beginning... I mean the VERY beginning. If you don't understand the fundamentals of why we HAVE money as a society, and its purpose, it will be extremely difficult for you to develop your own understanding of political and economic issues.
What's important to understand is WHY money exists. It's use is because it serves as a "Medium of Exchange". It's usefulness lies in it's ability to store value and use it with a third party.
For example, if you do a service, like say, wash a car, you need to be compensated for your work. Well, if money did not exist, you would be compensated for your work with something that's valuable to you. You would receive maybe food or a pair of shoes, or something that holds value. But, the reason money is valuable to us as a society is because it allows you to have a mobile representation of value. Maybe the neighbor, whose care you washed, does not have what you really want, like a new music CD. So, they give you "MONEY" so that you can exchange it for something that has value that you desire in the future, the new CD. You then take the stored value to the store and they accept it as a universal store of value. Now, you have your music CD in exchange for your services.
Money, at its core, is a medium of exchange. This is very important to remember, and do not lose sight of this concept. The official definition of a Medium of Exchange is anything that is generally accepted as a standard of value and a measure of wealth in a particular country or region.
Bartering (9,000 B.C. to 6,000 B.C.)
Bartering originated out of necessity and is old as human beings themselves. You have something I want, I have something you want, so we trade something of value for another thing of value.
Subsequently both livestock, particularly cattle, and plant products such as grain, come to be used as money in many different societies at different periods. Cattle are probably the oldest of all forms of money, as domestication of animals tended to precede the cultivation of crops, and were still used for that purpose in parts of Africa in the middle of the 20th century.
Shells (1200 B.C.)
Shells now began being used to represent trade and money. Or, a "medium of exchange".
First Metal Money
China, in 1,000 B.C., produced mock cowry shells at the end of the Stone Age. They can be thought of as the original development of metal currency. In addition, tools made of metal, like knives and spades, were also used in China as money. From these models, we developed today's round coins that we use daily. The Chinese coins were usually made out of base metals which had holes in them so that you could put the coins together to make a chain.
First "Silver" Money
At about 500 B.C., pieces of silver were the earliest coins. Eventually in time they took the appearance of today and were imprinted with numerous gods and emperors to mark their value. These coins were first shown in Lydia, or Turkey, during this time, but the methods were used over and over again, and further improved upon by the Greek, Persian, Macedonian, and Roman empires. Not like Chinese coins, which relied on base metals, these new coins were composed from scarce metals such as bronze, gold, and silver, which had a lot of intrinsic value.
In 118 B.C., banknotes in the form of leather money were used in China. One-foot square pieces of white deerskin edged in vivid colors were exchanged for goods. This is believed to be the beginning of a kind of paper money.
First "Paper" Money
From the ninth century to the fifteenth century A.D., in China, the first actual paper currency was used as money. Through this period the amount of currency skyrocketed causing severe inflation. Unfortunately, in 1455 the use of the currency vanished from China. European civilization still would not have paper currency for many years.
For reasons I won't discuss here, the "paper" currency established here ultimately failed after a short time. You'll learn more about why this happens in later posts.
The "Gold Standard" is Introduced
In 1816, England made gold a benchmark of value. This meant that the value of currency was pegged to a certain number of ounces of gold. This would help to prevent inflation of currency. The U.S. went on the gold standard in 1900.
Later we'll discuss why gold is the "historic currency". But, for now, gold was chosen as the main "medium of exchange" because it was something stable, something that could not easily be faked or reproduced. The gold itself does not have a useful value (it can't feed you or cloth you) but it serves as something that can't be forged or faked.
One thing that's absolutely necessary to understand, and one thing Generation Y (the 20 somethings) does not understand, is that under the gold standard, you could literally walk into a bank, pull out U.S. Paper Currency, like a $10 bill, and the bank wold convert it for you into gold reserves help by the United States gold reserves.
In 1972, Nixon completely ended the gold standard. Up until 1972, there was some basis for our currency on gold. Between 1900 and 1972, the United States policy towards the gold standard slowly dwindled as minor changes were made, until 1972, when Nixon, through the Bretton Woods Act, totally removed the United States from the Gold Standard, meaning the United States could now freely print money whenever it liked in the form of paper money.
Today
Today, most of our "money" or currency floats around in the form of digital currency. It's value is not based on anything concrete or specific.
That's it for today's history lesson.
B.
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