Money has evolved over time from bartering to the use of coins, paper, and digital transactions. Early forms of it included livestock, which then gave way to the use of precious metals like gold and silver. Paper currency was first introduced in China in the 7th century and then banks emerged. Today, some people start to use digital currencies like Bitcoin. But what is money and how did it come about?
the full story
Poor people need it, rich people keep it, and only few can resist it. It can make us happy, but not always. Intrinsically it has zero value, but then it’s maybe the only thing in this world we all agree to trust. To see how money came about, it helps to understand its history.
barter system
First, there was barter, a system in which people simply exchanged what they wanted with what they had. This simple trade of goods led to an immense increase in specialization, economic growth and wealth.
To find each other and exchange what they had for what they needed, people formed markets. To ensure that their produce can be trusted, they later invented brands. But there was a problem.
Barter is based on a “double coincidence of wants”, which means that people who wanted each other’s stuff, also had to find another. In a world without forms of telecommunications this wasn’t easy. And as a result they often had to go an extra mile to find their luck.
Around 3,500 years ago someone came up with the idea to weigh products in the form of rare metals and gold and silver became a medium of exchange.
first form of money
This was possible because there was a shared belief that gold was as beautiful as it was scarce. Gold allowed us to replace barter, and make and sell things, and then save the income of our earning. The ability to store value was born.
This meant we were able to take the earnings of our work into the future, which led to an immense increase in innovation and specialization. Trade exploded and as a result, a lot of wealth was created.
trust
Around 1,000 years ago, some smart businessmen realized that trust itself was as good as gold. In exchange for goods, they simply promised the seller to give them the gold later and handed them a letter of credit instead..
Paper notes had the advantage that they were lighter than gold, and easier to count, store and protect. Rulers and politicians then soon realized that they can issue these notes themselves and started prohibiting others to do so. To win the trust of their people, they promised to pay back every note with an equivalent amount of gold.
fiat money
Around 100 years ago rulers began craving for more money than they had, and so they stopped backing it with gold, and just began printing as many notes as they needed — the so-called fiat money was born.
The newly printed money was often given to business owners in the form of cheap loans. This allowed them to invest, hire, and increase economic activity. Employees who earned and saved that money realized that while prices of everyday goods went up over time, the buying power of their savings went down. As a result they often spend their savings fast— further increasing economic activity.
inflation
But soon some began to understand that while their incomes remained relatively flat, housing and company stocks kept rising and rising.
Inflation of asset prices happened because while there was more and more money, there was still just the same limited amount of land to buy.
Some started to argue that whenever governments print new money, they effectively reduce the savings of the poor and increase the prices of homes, usually owned by the rich. This is one reason people began searching for a new form of money.
cryptocurrencies
Crypto-currencies, like Bitcoin, are the latest form of money. They work just like the others because people can place trust in them. Unlike fiat money, bitcoins are created by a decentralized network of mathematical code. That means that they can be transferred directly from person to person without the involvement of middlemen and no-one can increase the fixed amount of 21 million bitcoins there are – which is the main reason people trust and save them.
what do you think?
What do you think? Will history end here and bitcoin become and remain the last form of money? And if bitcoins disappear again, which form of money can we all agree to trust going forward?
Before you make your argument, you may want to know that so-called honest or good money usually has five characteristics:
- Scarcity
- Durability
- Portability
- Divisibility
- Verifiability
Sources
- Barter – Wikipedia.org
- Money – Wikipedia.org
- Fiat Money – Wikipedia.org
- Cryptocurrency – Wikipedia.org
Dig deeper!
- Learn more about barter
- Watch this video about the first 5000 years of debt
- Learn more about Bitcoin and about mining bitcoin
- Learn about the Gold Standard
- Learn about the difference between money and wealth
Classroom activity
In the following activity students will learn about the history of money.
- Ask the students how they think people exchanged goods before money (alternatively you can ask them about cryptocurrencies: Do they know any? Did they ever think about buying any or already did? Do they know their purpose?)
- Ask them a list of pros and cons of barter (or crypto) and then another for money.
- Show the class Sprouts’ video on A short history of money.
- Keeping in mind the 5 characteristics good money should have – Scarcity, Durability, Portability, Divisibility, Verifiability – ask the class if they think cryptocurrencies and our current money system checks them all.
- By keeping this in mind and the list of pros and cons they made at the beginning, ask the class if they think cryptocurrencies are the last form of money we will see, or if they think a new one will emerge. If yes, which one? And with which characteristics?
Collaborator
- Script: Jonas Koblin and Karl Von Luckwald
- Artist: Pascal Gaggelli
- Voice: Mithril
- Coloring: Nalin
- Editing: Peera Lertsukittipongsa
- Production: Selina Bador
- Sound Design: Miguel Ojeda
- Fact Checking: Ludovico Saint Amour di Chanaz
