Lessons >>> Lesson 17
The use of money is as old as the human civilization. Money is basically a method of exchange, and coins and notes are just items of exchange. But money was not always the same form as the money today, and is still developing.
The basis of all early commerce was barter, in other words the direct exchange of one product for another, with the relative values a matter for negotiation. 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. The earliest evidence of banking is found in Mesopotamia between 3000 and 2000 B.C. when temples were used to store grain and other valuables used in trade.
People in early societies developed forms of proto-money -- the use of commodities that everyone agreed to accept in trade. Various items have been used by different societies at different times. Aztecs used cacao beans. Norwegians once used butter. The early U.S. colonists used tobacco leaves and animal hides (settlers traded deer hides -- the origin of our modern word for money: "bucks"). The people of Paraguay used snails. Roman soldiers were paid a "salarium" of salt. On the island of Nauru, the islanders used rats. Human slaves have also been used as currency around the world. In the 16th century, the average exchange value of a slave was 8000 pounds of sugar.
Gradually, however, people began exchanging items that had no intrinsic value, but which had only agreed-upon or symbolic value. An example is the cowrie shell. The first use of cowries, the shell of a mollusc that was widely available in the shallow waters of the Pacific and Indian Oceans, was in China in 1,200 BC. Historically, many societies have used cowries as money, and even as recently as the middle of the 20th century, cowries have been used in some parts of Africa. The cowrie is the most widely and longest used currency in history.
Another symbolic currency -- used widely in the Americas -- was wampum. Wampum are oblong clamshells sawed into beads, polished, and then strung together. The earliest known use of wampum was by North American Indians in 1535. Most likely, this monetary medium existed well before this date. The Indian word "wampum" means white, which was the color of the beads. Wampum was used as legal tender in several early American colonies and states. A wampum factory in New Jersey remained in business until 1859. From the widespread use of wampum as symbolic currency we get the current phrase "shelling out".
Metal tool money, such as knife and spade monies, was also first used in China. These early metal monies developed into primitive versions of round coins at the end of the Stone Age. Chinese coins were made out of copper, often containing holes so they could be put together like a chain.
Outside of China, the first coins developed out of lumps of silver. They soon took the familiar round form of today, and were stamped with various gods and emperors to mark their authenticity. These early coins first appeared in the Kingdom of Lydia (now in Turkey) in the 7th Century B.C., but the techniques were quickly copied and further refined by the Greek, Persian, Macedonian, and later the Roman empires. Unlike Chinese coins, which depended on base metals, these new coins were made from precious metals such as silver, bronze, and gold, which had more inherent value.
As in so many other things, the Chinese were the innovators for the next step. The Chinese invented printing, and not too much later, they also invented paper money during the T'ang Dynasty. This technology came in handy when China had to solve a problem with their money because copper was scarce and not enough coins could be minted.
During Ming Dynasty the Chinese placed the emperor's seal and signature of the treasures on a crude paper made from mulberry bark. In all, China experienced over 500 years of early paper money, spanning from the ninth through the fifteenth century. Then beginning in 1455, the use of paper money in China disappeared for 700 years. People in Mongolia were the second who began to use paper money in eleventh century.
Paper money was adopted in Europe much later than in Asia and the Arab world -- primarily because Europe didn't have paper. The first paper mill in Europe was established by the Moors in 1151 A. D. in what is now Spain, but paper was not widely accepted because of religious prejudice. Official Christian officials discouraged paper because it was introduced by the heathen Moors. In 1221, the Holy Roman Emperor Frederick II announced that official documents written on paper were invalid -- only parchment or vellum was acceptable. Nevertheless, the use of paper spread because of its obvious convenience.
The Bank of Sweden issued the first paper money in Europe in 1661, though this was also a temporary measure. In 1694 the Bank of England was founded and began to issue promisory notes, originally handwritten but later printed. To make travelling with gold less dangerous, goldsmiths, or people who made jewelry and other items out of gold, came up with an idea. The goldsmiths started writing out notes on pieces of paper that said the person who had the note could trade the note in for gold. These promissory notes were the beginning of paper money in Europe. If you look at a British bank note today, you'll see it still says: I promise to pay the bearer on demand the sum of twenty pounds.
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