Barter, Bills and Banknotes: The 5,000 Year History of Money
A long time ago, people did not buy or sell with money. Instead they traded one thing for another to get what they wanted or needed. This exchange of goods or services is called barter. At the beginning this was sufficient, but with the evolution of societies, certain needs made the creation of a more stable and more efficient way of trading imperative. Many cultures around the world eventually developed the use of money whose value was based on the value of the material from which it was made. This type of money is known as “specie money” and its value is guaranteed by the precious metal it contains.
A white slave market (public domain). Slaves could be either bought or traded.
The first coins were originally manufactured from copper and then iron because these were strong materials used to make weapons. The monetary value of currencies was based on the value of the metal from which they were made. Coins were convenient because they could be counted rather than weighed. Coins were a trusted and efficient medium of exchange because they helped to significantly boost trade in the ancient world.
The first type of coin was used around 3000 BC in Mesopotamia and was called siglos or shekel. The shekel was an ancient unit of money and weight used to define both a specific weight of barley and equivalent amounts of materials such as bronze and copper. The great importance of formalizing the role of money in civil society was even mentioned in Hammurabi‘s law code created around 1760 BC. Mesopotamian civilization developed a large-scale economy based on commodity money. The Babylonians and their neighboring city-states later developed the earliest system of economics as we think of it today, in terms of rules on debt, legal contracts, and law codes relating to business practices and private property.
Silver shekel issued by King Darius I of Persia ca. 500–490 BC, obverse: the king of Persia firing his bow. (CC by SA 2.5 / Jastrow)
In 700 BC the Greek king Pheidon of Argos was the first ruler known to have officially set standards of weight and money and to have coins made from a rather useless and decorative metal like silver rather than of iron. King Pheidon coined silver coins in Aegina, in the temple of the goddess of wisdom and war Athena Aphaia, and developed currencies with turtles on them. (Turtles are a symbol of capitalism today.) Turtle currencies were accepted and widely used as an international medium of exchange until the days of the Peloponnesian War, when the Athenian drachma replaced them.
According to Herodotus, the first gold coins of the Grecian age were struck in Lydia, in Asia Minor, around 700 BC, under King Croesus, but it was not until 390 BC when King Philip II of Macedonia issued the first gold currencies. The Lydian coins were made of a weighed amount of precious metal and were stamped with the image of a lion.
Hoard of ancient Greek coins, 6th – 4th century BC (public domain)
Even in ancient times the excessive importance given to money was recorded by Livy, who mentions a temple that was built and consecrated to the worship of Hera Monitas, hence the English “money,” in Rome around 413 BC. The temple contained the mint of Rome for four centuries.
The first paper money or banknotes were first used in China during the Song Dynasty, between 600 and 1455. These banknotes, known as Jiaozi, had been used since the seventh century AD. In Europe the first banknotes were issued by Stockholms Banco in 1661 and used alongside coins. it did not work well, and had to be stopped because the banks kept running out of coins to pay on the notes. But in the 1690s, the Massachusetts Bay Colony printed paper money and here the use became more common.
Ming Dynasty (1368–1644) banknote (public domain)
Using coins as money based on the value of the material from which they are made eventually led to representative money. This happened because gold and silver merchants or banks began to issue receipts to depositors redeemable for cash value, which were tabulated. Ultimately, these receipts were widely accepted as payment and began to be used as money.
The convenience of transactions provided by the issuance of banknotes allowed notes used for exchange to become a widespread and commonly accepted business practice. This monetary system, where the means of exchange is paper that can be converted into preset, fixed quantities of gold, replaced the use of gold coins as money between the seventeenth and nineteenth centuries in Europe.
In the early twentieth century almost all countries adopted this system for which certificates were issued, and there was a predetermined amount of gold for redemption.
After World War II and the Bretton Woods Conference, most countries adopted “Fiat money,” whose value was determined according to the US dollar. In turn, the US dollar was determined by reference to gold. In 1971, the US government ended the convertibility of the dollar into gold, leading many countries to follow its example, and the majority of the money worldwide stopped being backed by gold reserves.
Money, in whatever form it is found, has proved a necessary evil from its creation, and there is no more apt definition of its origin than Aristotle’s: “When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use.”
Top image: Gustav Bauernfeind: ‘Market in Jaffa’, Gemälde von 1877 (public domain)
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Money in Classical Antiquity by Sitta von Reden, Albert-Ludwigs-Universität Freiburg.
History of Money from Ancient Times to the Present Day by Glyn Davies
The History of Money. Nova
The history of money: from barter to bitcoin. By Rebecca Burn-Callander. The Telegraph.