A Brief History of Money

Tokens of Trust

Money is one of the earliest and most significant inventions of civilization. Humans have been using money for at least 5,000 years in various forms. Before that, people likely relied on bartering as a means of trade. For instance, a farmer might swap a bushel of rice with a shoemaker for a pair of shoes.

Over the centuries, money evolved gradually into easily tradable items like cattle, animal skins, salt, and weapons. These goods became the means of exchange, even though their value was often open to negotiation. Various types of shells, like mother-of-pearl shells in the Americas and cowry shells in Africa, Europe, Asia, and Australia, were widely circulated as forms of currency.

Chinese cowry shell money, 16-8th century B.C.

Chinese cowry shell money, 16-8th century B.C.

By the third millennium B.C., the earliest forms of money emerged in Egypt and Mesopotamia. These early currencies consisted of gold bars, which had to be weighed each time they were traded to determine their value.

In ancient civilizations, gold was often stored in temples for safekeeping, but it remained idle while others in the trading community or government desperately needed it. In Babylon during Hammurabi’s reign in the 18th century B.C., there are records of loans provided by temple priests, marking the early arrival of the concept of banking.

Around 650 B.C., the city of Ephesus in Ionia (western Turkey) introduced the earliest known coins. These coins were made of electrum, a natural blend of gold and silver. They had a distinct bean shape and were imprinted with a unique mark, like the image of a lion. The purpose behind this was to establish a stable value for this variable medium of exchange, which had previously relied solely on weight.

Electrum coin from Ephesus, 620–600 BC.

Electrum coin from Ephesus, 620–600 BC.

A hundred years later, King Croesus of Lydia became the first ruler to mint coins made of pure gold and silver. Similar to the earlier coins, his coins also featured an image displaying the facing heads of a lion and a bull.

Gold Croeseid, minted by King Croesus, c. 561–546 B.C.

Gold Croeseid, minted by King Croesus, c. 561–546 B.C.

Both Greek cities to the west of Lydia and the vast Persian empire to the east swiftly embraced this practical new method of using metal currency. By the end of the 6th century, coinage had become widespread throughout the region.

The success of coinage can be attributed to its portability, durability, transportability, and inherent value. Unlike other forms of money, like cows, coins were easy to carry and were not affected by ecological disasters. Additionally, political leaders had the power to oversee the entire process of coin production, including mining, smelting, and minting, as well as regulating their circulation and usage.

During the Five Dynasties period in China, around 910 A.D., paper money was introduced. It was crafted from mulberry tree bark. Interestingly, the Chinese inscription on these early bills, in the spot where modern American currency reads “In God We Trust,” issued a stern warning: “Those who are counterfeiting will be beheaded.”

Song dynasty Jiaozi, the world’s earliest paper money.

Song dynasty Jiaozi, the world’s earliest paper money.

Three hundred years later, when Marco Polo visited China, he was astounded by this innovation. He marveled at how the emperor of China produced an immense number of paper notes each year, capable of purchasing the entire world’s treasure, all at no cost. However, by the early 15th century, inflation had become a severe problem, leading to the elimination of paper currency in the Ming Empire.

In the 17th century, paper money arrived in Europe. In 1656, Johan Palmstruch established the Stockholm Banco. Just five years later, he introduced credit notes that could be exchanged for a specific number of silver coins at his bank.

The first paper money in Europe, issued by the Stockholms Banco in 1666.

The first paper money in Europe, issued by the Stockholms Banco in 1666.

Palmstruch’s notes were visually impressive, printed on paper, and adorned with eight handwritten signatures. As long as people trusted them, these notes held genuine value and could be utilized for purchasing goods in the marketplace. The key was maintaining confidence that the notes could indeed be exchanged for traditional coins at the bank.

Unfortunately, Palmstruch ended up issuing more notes than his bank could afford to redeem with silver. By 1667, he found himself disgraced and facing the death penalty for his involvement in fraudulent activities.

In the 18th century, there were numerous ongoing experiments with bank notes as a response to the growing need for an expanded currency supply beyond precious metals. Over time, public trust in these paper notes grew, especially when they were issued by national banks and backed by government reserves.

As we step into the 21st century, money has witnessed dramatic changes. Digital technologies have revolutionized financial transactions, with cryptocurrencies like Bitcoin offering decentralized alternatives. Mobile payment systems and digital wallets have made transactions more convenient and accessible. The future of money holds exciting prospects as digital currencies become increasingly integrated into our lives.

Words of wisdom

“A wise person should have money in their head, but not in their heart.” —Jonathan Swift

“An investment in knowledge pays the best interest.” —Benjamin Franklin

“It is not the man who has too little, but the man who craves more, that is poor.” —Seneca

“The hardest thing in the world to understand is the income tax.” —Albert Einstein

Bibliography

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