Nowadays, money has become a vital part of our lives. Evolution of money began long ago in the prehistoric times and continues even now. From barter to virtual currencies, humanity devised many ways and mediums to trade effectively. The article follows the long journey of the development of methods of trade and payment. Sounds interesting? Read on!
Stages of evolution of money
Money came a long way to take the form it has nowadays. The development of new methods of trade and payment emerged logically from the necessity of a particular era. Let’s follow the brief history of money from the Stone Age to modernity. Check out the main stages of evolution of money:
- Commodity money
- Metallic money (coinage)
- Representative money
- Credit money
- Virtual money
Origin of money – from barter to commodity money
Interestingly enough, most of its history humanity lived without any notion of what we call money today. In the times long gone, when people lived in caves and hunted mammoths, the necessity of trading some goods for others rose. Thus, prehistoric people exchanged arrowheads, if they had them aplenty, for, let’s say, fish, which their neighbor had in abundance. This process of exchanging goods for goods is called barter.
Barter was a convenient way of getting the desired commodities for the people of the Stone Age. However, an obvious problem rose frequently: if your neighbor fisherman did not need any arrowheads that you produced, there was no exchange and you were left hungry.
So, the necessity to find a thing that was appreciated by both sides of the trade arose. Thus emerged a revolutionary medium of trade – commodity money, and this changed everything! Evolution of money began.
Historical development of money
Let's take a close look at the historical development of money. How did it become what we know today?
History of money begins with the invention of commodity money. This type of money was decided to be valued by all members of a community. Usually, such products as salt, leather, seashells, pearls, or cloth represented commodity money. However, sometimes, such goods were inconvenient to handle. Therefore, the evolution of money continued until coinage was invented.
The essence of the first coins was similar to commodity money. These coins were, basically, uniform chunks of metal, which value was decided by a community. Later on, people began to use precious metals to make such coins. Amazingly, coins made of gold remained a common medium of trade until around the early 1900s. Moreover, gold was the cornerstone of the international monetary systems, then.
The next, and the most crucial, step in the evolution of money was the development of representative money. Government supports such money. The value of representative money is determined by how much precious metal (gold or silver) you can buy with it. Nowadays, we use exactly this type of money along with some others.
Another modern, and the most widespread, type of money is credit money. Credit money is a bit more complex notion to understand if compared to the previous types of money. Basically, it means that several people may use one entity of money that is stored in a bank, even though the original owner of this money is just one. This situation creates an illusion of extra money.
With rapid development of the world’s economy, a new type of money has emerged – virtual currency. The most famous virtual currencies is Bitcoin. This type of money is not represented by anything in the physical world and is not backed up by any government or bank. Therefore, the state of virtual currencies is quite challenging to predict.
Journey of money
You might already be able to tell that money has had quite a history, but what do you know of its journey? Read on to find out more.
Spreading of coins
The Chinese civilization was the first one to make a move away from commodity money and toward coinage. Around 1,000 BC, they began producing small metal replicas of the tools they used as commodity money. However, the actual coins appeared in several parts of the world separately and simultaneously.
China, India, and Aegean coastal cities were the first to invent coins. Later on, the kingdom of Lydia began to produce its own coins. Particularly these early Lydian coins were the predecessors of the modern coinage industry. Lydian coins penetrated Europe through Greece, and then, spread throughout the world.
Spread of paper money
China was the first country to augment coins with paper money. This event took place around 600 BC. However, a lot of time passed before other cultured decided to follow the Chinese example.
Only around the 1600s, European banking institutions began issuing special notes, which could be kept or used by investors instead of coins. Also, these bank notes could be exchanged back for coins at any moment in a bank. The main difference between bank notes of the 1600s and modern paper money lies in the fact that bank notes of the past were not provided by the government, but by private banking institutions.
The first government-issued paper currency appeared in the colonies of North America. It was not convenient for European countries to ship large amounts of coins to their colonies. Therefore, they decided to substitute coins with a prototype of today’s paper money. Later, this new paper money was adopted throughout the world.
The evolution of money in economics was a complex process that took several steps to take the modern form. It began in the prehistoric times with barter and through the development of commodity money, coinage, paper money, credit money, and virtual currencies lasts even now. The evolution of money will never stop as market’s and people’s demands always change. Thus, it is not impossible that soon we will have a new type of money in our pockets or in our bank accounts.
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