1.3.

1 The Evolution of Money

People originally traded surplus commodities with each other in a process known as
bartering. The value of each good traded could be debated, however, and money
evolved as a practical solution to the complexities of bartering hundreds of different
things. Over the centuries, money has appeared in many forms, but, whatever shape it
takes, whether as a coin, a note, or stored on a digital server, money always provides a
fixed value against which item can be compared.
Barter (10,000-3000BCE)
In early forms of trading, specific items were exchanged for others agreed by the
negotiating parties to be of similar value.
Barter – the direct exchange of goods – formed the basis of trade for thousands of
years. Adam Smith, 18th century author of The Wealth of Nations, was one of the first to
identify it as a precursor to money.
Barter in practice
              Essentially, barter involves the exchange of an item (such as a cow) for one
or more of perceived equal “value” (for example a load of wheat). For the most part of
the two parties bring the goods with them and hand them over at the time of transaction.
Sometimes, one of the parties will accept and “I owe you”, or IOU, or even a token, that
it is agreed can be exchanged for the same goods or something else at a later date.
 
Advantages and Disadvantages of Barter
Advantages

 Trading relationship – Fosters strong links between partners.

 Physical goods are exchanged – Barter does not rely on trust that money will
retain its value.

Disadvantages

 Market needed – Both parties must want what the other offers.
 Hard to establish a set value on items – Two goats may have a certain value
to one party one day, but less a week later.
 Goods may not be easily divisible – For example, a living animal cannot
divided.
 Large-scale transactions can be difficult – Transporting one goat is easy,
moving 1,000 is not.
 
Evidence of trade records (7000BCE)
Pictures of items were used to record trade exchanges, becoming more complex as
values were established and documented.
Coinage (600BCE-1100CE)
Defined weights of precious metals used by some merchants were later formalized as
coins that were usually issued by states.
Bank notes (1100-2000)
States began to use bank notes, issuing paper IOUs that were traded as currency, and
could be exchanged for coins at any time.
Digital money (2000 onward)
Money can now exist “virtually”, on computers, and large transactions can take place
without any physical cash changing hands.
 
ARTIFACTS OF MONEY
Since the early attempts ate setting values for bartered goods, “money” has come in
many forms, from IOUs to tokens. Cows, shells and precious metals have all been
used.
Barter (5,000BCE)
Early trade involved directly exchanged items – often perishable ones such as a cow.
Sumerian cuneiform tablets (4,000BCE)
Scribes recorded transactions on clay tablets, which could also act as receipts.
Cowrie shells (1,000BCE)
Used as currency across India and the South Pacific, they appeared in many colors and
sizes.
Lydian gold coins (600BCE)
In Lydia, a mixture of gold and silver was formed into disks, or coins, stamped with
inscriptions.
Athenian drachma (600BCE)
The Athenians used silver from Laurion to mint a currency used right across the Greek
world.
Han dynasty coin (200BCE)
Often made of bronze or copper, early Chinese coins had holes punched in their center.
Roman coin (27BCE)
Bearing the head of the emperor, these coins circulated throughout the Roman Empire.
Byzantine coin (700CE)
Early Byzantine coins were pure gold; later ones also contained metals such as copper.
Anglo-Saxon coin (900CE)
This 10th century silver penny has an inscription starting that Offa is King (“rex”) of
Mercia.
Arabic dirham (900CE)
Many silver from the Islamic empire were carried to Scandinavia by Vikings.