A Brief History of Money

In many countries, generally accepted mediums of exchange known as “money” have served to facilitate the greater production of wealth. Bartering, the former and more primitive convention, was profitably abandoned owing its incredibly awkward limitations. For example, if you desire to have one-hundred of the silk pillows I manufacture, and I desire to have one of the horses you breed, we can trade : but, suppose I only want one pillow? It’s conceivable that such above-described dilemmas were actually commonplace at one time. So, subsequent in the developmental progression, as Carl Menger postulated (1), was the shifting of demand from goods which had immediate ”use-value” to those of high ”marketability.” What if some commodity existed that I could offer you in exchange for one of your horses which, although perhaps having no immediate ”use-value” to you, would nonetheless be readily accepted on account of its widespread saleability? So, ere long, the earliest species of money began to emerge in the form of things like furs, salt, and cattle. However, the most widely accepted form of commodity money eventually came to be precious metals which, in addition to being extensively durable, could also be melted into pieces of various sizes and weights and reunited in like manner. The classical economist, Adam Smith, argued that these properties had a determining role in establishing their popularity as currencies (1). Thenceforth, it was with comparative ease that one could simply dole out an amount of monetary units exactly proportional to that required by a seller for the exchange of a particular good or service. This undoubtedly caused the transactions of many parties to become considerably more mutually beneficial and efficient. Nevertheless, as we will soon see, precious metals too had their shortcomings.

One pattern manifest across history is man’s somewhat tragic inability to devise perfect solutions for most large-scale problems and the consequent necessity for him to often reluctantly settle upon courses of action that are only, at most, the best among possible alternatives. Precious metals, although constituting a more durable and inexpensively resizeable medium of exchange than say cattle or decorated belts, nonetheless frequently proved quite onerous to accurately value. Error-free scales and honest assayers were the backbone of this convention. But without these conditions, was there a way to sidestep incurring what seemed to be inevitable consequences of their absence (namely, miscalculation and fraud)? Here, we are answered with the idea of official fiat currencies, produced at mints, and imprinted with identification marks that serve to indicate their denomination and authenticate their value.

Footnotes :

(1). Carl Menger, Principles of economics, pp. 257-280

(2). Adam Smith, The Wealth of Nations, pp. 15