FM ch 1

UNIT 1: MONEY - WHAT IT IS?

A Brief History of Money

Money is the fuel that runs our homes and our economies. It has been in circulation in some form or the other since time immemorial. It will be around perhaps for all times to come.

Evolution of Money

Money is a medium of exchange that allows us to satisfy our needs and wants. The history of money spans thousands of years, with different forms evolving over time.

Earliest Examples of Money

• The shekel used in the ancient kingdom of Babylon.
• Salt, used as currency in early societies in Europe.
• Ox-shaped bars of copper during the Bronze Age in the Eastern Mediterranean.
• Crops like tobacco, rice, wheat, indigo, and maize, which were also used in the barter system as money.

Short History of Money

Limitation of Barter: In a barter system, people exchanged one commodity for another. This system only worked when commodities were available according to needs. The discovery of precious metals helped solve problems in the barter system. Metals were exchanged instead of commodities. Carrying heavy bags of metal coins was difficult, which led to the invention of paper money. Due to business growth, paper money eventually led to intangible money like today’s plastic currency and debit/credit cards.

Early Money

Before money as we know it, barter was used to exchange goods and services. Different items were used as currency in different times and places:

• Aztecs used beans.
• Norwegians used butter.
• Early U.S. colonists used tobacco leaves and animal hides.
• Paraguay used snail shells.
• Roman soldiers were paid a “salarium” (salt).
• Islanders of Nauru used rats as currency.

Symbolic Money

As societies advanced, people began using items with no real value but an agreed-upon symbolic value:

• Cowrie shells were widely used as currency in China, India, Thailand, and West Africa (as late as the 1930s).
• Wampum (beaded polished clamshells) was used as currency by Native Americans.

Fun Fact: A wampum factory in New Jersey remained in business until 1859.

Egyptian Currency

Ancient Egyptians developed a system for payments using precious metal weights, weighed on balance scales with stone weights.

The First Coins (600 B.C.)

First coins were made in Lydia (modern Turkey) in the 7th century B.C. They were stamped with pictures to confirm weight. A seal identified the person who guaranteed the coin’s weight.

The Spread of Coins

Coins spread from Lydia across Africa and Europe. The Greeks, active traders, helped in the widespread use of coins through the Mediterranean.

Chinese Coins (500 B.C.)

Early Chinese coins were made of bronze in the shape of tools and shells.

Chinese Paper Money

The first paper money was invented in China in the 10th century. Initially, one-foot square pieces of deer skin were used as money. In 1455 AD, China discontinued paper money due to inflation.

Paper Money in Europe

Europe adopted paper money much later than Asia and the Arab world. The first paper money in Europe was issued in Spain in 1151 AD. Paper receipts were used for trade before official paper money.

Bank Notes

In the 11th century, European governments took over printing paper receipts as official money. To simplify transactions, receipts were given fixed values. In 1661, Swedish Stockholm Bank became the first to issue printed money.

India’s Context

India has issued coins since around the 6th century BC. The Delhi Sultanate introduced paper money in 1236 AD but discontinued it soon after. The word “rupee” comes from Sanskrit rūpya, meaning “silver.” Rūpaya was the name for coins introduced by Emperor Sher Shah Suri (1540–1545 AD).

Important Terms

• Shekel refers to an ancient unit of weight.
• When deposited in banks, coins and notes become intangible money.
• The word salary comes from salarium, meaning “salt.”
• The phrase “shelling out money” comes from wampum use.
• The process of making coins is called minting.